<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 8, 1997
REGISTRATION NO. 333-7137
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
AMENDMENT NO. 5
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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<S> <C> <C>
DELAWARE 7372 94-3246202
(State or Other Jurisdiction of (Primary Standard Industrial (I.R.S. Employer
Incorporation or Organization) Classification Code) Identification Number)
</TABLE>
6920 KOLL CENTER PARKWAY #214, 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
6920 KOLL CENTER PARKWAY #214, 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:
WILLIAM L. HUDSON, ESQ. SUSAN B. KALMAN, ESQ.
RANDALL M. LAKE, ESQ. FRESHMAN, MARANTZ, ORLANSKI,
BROBECK, PHLEGER & HARRISON LLP COOPER & KLEIN
ONE MARKET PLAZA 8TH FLOOR EAST
SPEAR STREET TOWER 9100 WILSHIRE BLVD.
SAN FRANCISCO, CALIFORNIA 94105 BEVERLY HILLS, CALIFORNIA 90212
TELEPHONE (415) 442-0900 TELEPHONE (310) 273-1870
FACSIMILE (415) 442-1400 FACSIMILE (310) 273-8357
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. [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, as amended, please check
the following box and list the Securities Act registration statement number
of the earlier effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, as amended, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434
under the Securities Act of 1933, as amended, please check the following box.
[ ]
CALCULATION OF REGISTRATION FEE
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PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO OFFERING PRICE AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED BE REGISTERED PER SECURITY(1) OFFERING PRICE REGISTRATION FEE
- ----------------------------------- ---------------- ---------------- ---------------- ----------------
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Common Stock, no par value(2) ...... 1,840,000 shares $5.00 $9,200,000.00 --
- ----------------------------------- ---------------- ---------------- ---------------- ----------------
Underwriter's Warrant(3)............ 1 warrant $5.00 $5.00 --
- ----------------------------------- ---------------- ---------------- ---------------- ----------------
Common Stock issuable upon exercise
of Underwriter's Warrant(4)........ 160,000 shares $6.00 $960,000.00 --
- ----------------------------------- ---------------- ---------------- ---------------- ----------------
Totals.............................. -- -- $10,160,005.00 $3,078.79(5)
- ----------------------------------- ---------------- ---------------- ---------------- ----------------
</TABLE>
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(1) Estimated solely for the purpose of computing the amount of the
registration fee pursuant to Rule 457(a).
(2) Includes 240,000 shares which the Underwriter has the option to
purchase to cover over-allotments, if any.
(3) In connection with the Company's sale of Common Stock, the Company is
granting to the Underwriter (the "Underwriter") a warrant to purchase
up to 160,000 shares of Common Stock (the "Underwriter's Warrant"). The
price to be paid by the Underwriter for the Underwriter's Warrant is
$5.00.
(4) The exercise price of the Underwriter's Warrant is expected to be $6.00
per share of Common Stock. Such shares are being registered for resale
by the Underwriter and its assigns and transferees on a delayed or
continuous basis pursuant to Rule 415 under the Securities Act of 1933.
(5) A filing fee of $13,562 was previously paid on June 28, 1996.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE
REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION,
ACTING PURSUANT TO SUCH SECTION 8(A), MAY DETERMINE.
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO THE REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH
STATE.
SUBJECT TO COMPLETION, DATED APRIL 8, 1997
PROSPECTUS
[VOTAN LOGO]
VOTAN CORPORATION
1,600,000 SHARES
COMMON STOCK
The 1,600,000 shares of Common Stock offered hereby are being sold by
Votan Corporation ("Votan" or the "Company"). Upon completion of this
offering MOSCOM Corporation ("MOSCOM"), the current owner of all of the
Company's Common Stock, will own approximately 50% of the outstanding shares
of Common Stock (45% if the Underwriter's over-allotment option is exercised
in full). Prior to this offering, there has been no public market for the
Common Stock of the Company. The initial public offering price will be $5.00
per share. The offering price of the Common Stock has been determined by
negotiation between the Company and H.J. Meyers & Co., Inc., the Underwriter
(the "Underwriter"), and is not necessarily related to the Company's asset
value or any other established criterion of value. For the method of
determining the initial offering price of the Common Stock, see "Risk
Factors" and "Underwriting." The Company has applied for quotation of the
Common Stock on the Nasdaq SmallCap Market under the symbol"VOTN."
THE SHARES OF STOCK OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK AND
IMMEDIATE AND SUBSTANTIAL DILUTION AND SHOULD BE CONSIDERED ONLY BY PERSONS
WHO CAN AFFORD THE LOSS OF THEIR ENTIRE INVESTMENT. SEE "RISK FACTORS"
BEGINNING ON PAGE 7.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
- -----------------------------------------------------------------------------
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UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS(1) COMPANY(2)
<S> <C> <C> <C>
Per Share .. $ 5.00 $ .50 $ 4.50
- ----------- ------------ --------------- -------------
Total(3) .. $8,000,000 $800,000 $7,200,000
</TABLE>
- -----------------------------------------------------------------------------
(1) Does not include additional compensation to be received by the
Underwriter in the form of (i) a non-accountable expense allowance of
$240,000 (or $276,000 if the Underwriter's over-allotment option
described in footnote (3) is exercised in full), and (ii) a warrant to
purchase up to 160,000 shares of Common Stock at $6.00 per share,
exercisable over a period of four years, commencing one year from the
date of this Prospectus (the "Underwriter's Warrant"). In addition,
each of the Company and MOSCOM has agreed to indemnify the Underwriter
against certain civil liabilities under the Securities Act of 1933.
See "Underwriting."
(2) Before deducting expenses of the offering payable by the Company,
estimated at $1,180,000, including the Underwriter's non-accountable
expense allowance, of which $400,000 of such expenses were paid by
MOSCOM in connection with the Company's postponed 1996 offering and
will not be reimbursed by the Company.
(3) Each of the Company and MOSCOM has granted the Underwriter an option
(together the "Underwriter's over-allotment option"), exercisable
within 30 business days of the date of this Prospectus, to purchase up
to 120,000 additional shares of Common Stock, respectively, on the same
terms and conditions set forth above to cover over-allotments, if any.
If all such additional shares of Common Stock are purchased, the total
Price to Public, Underwriting Discounts and Commissions and Proceeds to
Company will be increased to $9,200,000, $920,000 and $7,740,000,
respectively, and the proceeds to MOSCOM will be $540,000. See
"Underwriting" and "Principal Stockholders."
The shares of Common Stock offered hereby will be offered on a "firm
commitment" basis by the Underwriter when, as and if delivered to and
accepted by the Underwriter and subject to prior sale, withdrawal or
cancellation of the offer without notice. It is expected that delivery of the
certificates representing the shares of Common Stock will be made at the
office of H.J. Meyers & Co., Inc., 1895 Mt. Hope Avenue, Rochester, New York
14620 on or about .
H.J. MEYERS & CO., INC.
THE DATE OF THIS PROSPECTUS IS , 1997
<PAGE>
#############################################################################
GRAPHIC OMITTED
PICKUP: "P1"
=============================================================================
IMAGE: "VOTANIFCB"
=============================================================================
#############################################################################
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK.
SPECIFICALLY, THE UNDERWRITER MAY OVERALLOT IN CONNECTION WITH THE OFFERING
AND MAY BID FOR AND PURCHASE SHARES OF THE COMMON STOCK IN THE OPEN MARKET.
FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."
----------
The Company intends to furnish to its stockholders annual reports
containing financial statements audited by an independent accounting firm and
quarterly reports for the first three quarters of each fiscal year containing
unaudited financial information.
----------
Votan(Registered Trademark) is a registered trademark of the Company and
VoiceLock, TeleVoice and VoiceBuilder for Windows are trademarks of the
Company. This Prospectus also includes references to trademarks and trade
names of companies other than the Company.
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial statements of the Company, including the notes
thereto, contained elsewhere in this Prospectus. This Prospectus contains
certain statements of a forward-looking nature relating to future events or
the future financial performance of the Company. Prospective investors are
cautioned that such statements are only predictions and that actual events or
results may differ materially. In evaluating such statements, prospective
investors should specifically consider the various factors identified in this
Prospectus, including the matters set forth under the caption "Risk Factors,"
which could cause actual results to differ materially from those indicated by
such forward-looking statements.
THE COMPANY
Votan Corporation is a 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 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.
The Company intends to actively market its voice verification technologies
and products for computer network, electronic commerce, Internet, cellular
phone and physical access 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. The Company recently worked with The Chase
Manhattan Bank, N.A. ("Chase") 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'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. 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."
3
<PAGE>
The key elements of the Company's strategy are to: (i) exploit its
technological leadership in the voice verification market; (ii) actively
market its proprietary technologies and products directly and through
original equipment manufacturers ("OEMs"), value-added resellers ("VARs") and
systems integrators for use with computer networks, electronic commerce,
cellular phones, the Internet and physical access applications; (iii) focus
on direct sales of its proprietary technologies and products to banks and
other financial institutions; (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; and (v) accelerate the development of the auditory model and
a line of software-only products.
Votan's business and operations were acquired by MOSCOM in September 1991
for $332,730 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 50% of the outstanding shares of Common Stock of the Company
(45% 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 6920 Koll Center Parkway #214, Pleasanton, California
94566, and its telephone number is (510) 426-5600.
NOTICE TO CALIFORNIA AND OREGON INVESTORS
Each purchaser of shares of Common Stock in California and Oregon must
meet one of the following suitability standards: (i) a liquid net worth
(excluding home, furnishings and automobiles) of $250,000 or more and gross
annual income during 1995, and estimated during 1996, of $65,000 or more from
all sources; or (ii) a liquid net worth (excluding home, furnishings and
automobiles) of $500,000 or more. Each California and Oregon resident
purchasing shares of Common Stock offered hereby will be required to execute
a representation that it comes within one of the aforementioned categories.
4
<PAGE>
SUMMARY FINANCIAL DATA
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."
(IN THOUSANDS, EXCEPT PER SHARE DATA)
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<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------
1993 1994 1995 1996
-------- ---------- -------- ----------
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Sales..................................... $ 517 $ 593 $ 572 $ 246
Gross profit ............................. 210 288 243 18
Engineering and software development,
net...................................... 342 579 424 521
Net loss.................................. $(846) $(1,003) $(891) $(1,875)
Net loss per share (1).................... $ (1.17)
Weighted average shares outstanding (2) .. 1,600
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1996
------------------------
AS
ACTUAL ADJUSTED (3)
---------- ------------
(UNAUDITED)
<S> <C> <C>
BALANCE SHEET DATA:
Working capital (deficit) .... $(1,426) $4,978
Total assets.................. 363 5,396
Total liabilities............. 1,459 92
Due to MOSCOM
Corporation(4)............... 1,367 --
Total stockholder's equity ... (1,096) 5,304
</TABLE>
- ------------
(1) Pursuant to Securities and Exchange Commission (the "Commission")
requirements, net loss per share of the Company is presented on a pro
forma basis for the most recent year presented. See Note 3 of the Notes
to Financial Statements.
(2) Gives retroactive effect to the capitalization of the Company and
reflects an effective 1,600-to-1 stock split of the Common Stock. See
Notes 11 and 12 of the Notes to Financial Statements.
(3) Adjusted to give effect to the sale of 1,600,000 shares of Common Stock
offered by the Company at an assumed initial public offering price of
$5.00 per share (after deducting the estimated underwriting discounts
and estimated offering expenses) and the application of the estimated
net proceeds therefrom. See "Use of Proceeds."
(4) Pursuant to an agreement between MOSCOM and the Company (the
"Inter-company Loan"), the Company has agreed to reimburse MOSCOM up to
$1.6 million for amounts loaned to the Company to fund operations since
the Formation and MOSCOM has agreed to forgive any amounts owed by the
Company to MOSCOM in excess of $1.6 million. Such amounts, if any, in
excess of $1.6 million will be used to increase the equity of the
Company on a dollar-for-dollar basis. See "Use of Proceeds" and
"Certain Transactions -- MOSCOM Relationship."
5
<PAGE>
THE OFFERING
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<S> <C>
Common Stock offered by the Company................... 1,600,000 shares
Common Stock to be outstanding after this offering ... 3,200,000 shares
Use of Proceeds ...................................... For expansion of sales and
marketing activities; research
and development; repayment of the
Inter-company Loan; reimbursement
of MOSCOM for certain expenses;
and working capital and general
corporate purposes. See "Use of
Proceeds."
Proposed Nasdaq SmallCap Market symbol................ VOTN
</TABLE>
----------
RISK FACTORS
The shares of Common Stock offered hereby involve a high degree of risk
and should be considered only by persons who can afford the loss of their
entire investment. See "Risk Factors."
----------
Except as otherwise specified, all information in this Prospectus assumes
(i) no exercise of the Underwriter's over-allotment option, the Underwriter's
Warrant, or stock options outstanding or reserved for issuance under the
Company's stock plan, (ii) the 5,499-for-1 stock dividend of the Common Stock
effected on September 20, 1996, and (iii) the 3.4375-to-1 reverse stock split
of the Common Stock which the Company effected on March 7, 1997. The stock
dividend and reverse stock split result in an effective 1,600-to-1 stock
split. See "Management -- 1996 Stock Option Plan," "Description of Capital
Stock" and "Underwriting."
6
<PAGE>
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. This Prospectus contains forward-looking statements that
involve risks and uncertainties. The Company's actual results could differ
materially from those anticipated in these forward-looking statements as a
result of certain factors, including but not limited to those set forth in
the following risk factors and elsewhere in this Prospectus.
GOING CONCERN ASSUMPTIONS OF THE COMPANY'S INDEPENDENT AUDITORS; PAST AND
ANTICIPATED OPERATING LOSSES; UNCERTAINTY OF FUTURE RESULTS
The financial statements of the Company and the notes thereto included in
this Prospectus have been prepared assuming that the Company will continue as
a going concern. As discussed in Note 2 to such financial statements and
throughout these risk factors, the Company has suffered recurring losses from
operations and has a net capital deficiency that raises substantial doubt
about its ability to continue as a going concern. The financial statements do
not include any adjustments that might result from the outcome of this
uncertainty. While the Company believes that the net proceeds of this
offering plus revenues, if any, from operations, will be adequate to fund the
Company's operations for at least the next 12 months, no assurance can be
given that the Company would not consume an unexpected and significant amount
of its available resources. See "Management's Discussion and Analysis of
Financial Conditions and Results of Operations" and Note 2 of the Notes to
Financial Statements.
Since its acquisition by MOSCOM through December 31, 1996, the Company had
accumulated net losses from operations in an amount equal to approximately
$5.4 million and had incurred negative cash flows. The Company has a net
working capital deficiency of approximately $1,426,000 as of December 31,
1996. Sales decreased from $572,000 for the year ended December 31, 1995 to
$246,000 for the year ended December 31, 1996. The decrease was primarily due
to the absence of international sales for the year ended December 31, 1996.
The Company expects to generate additional losses at least through late 1998,
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."
RECENT ORGANIZATION AS AN INDEPENDENT BUSINESS; ABSENCE OF OPERATING HISTORY
AS AN INDEPENDENT BUSINESS; LIMITED RELEVANCE OF HISTORICAL FINANCIAL
INFORMATION
In June 1996, MOSCOM established the Company as a wholly owned subsidiary
into which it transferred substantially all of the voice verification and
speech recognition business, operations (including research and development),
assets and associated liabilities of its Votan division. Accordingly, the
Company has limited 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 limited 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 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. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
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. In the past, the Company's working capital
needs have been met by MOSCOM. However, MOSCOM will
7
<PAGE>
no longer be providing funds to finance the Company's operations after
consummation of this offering. While the Company believes that the net
proceeds of this offering plus revenues, if any, from operations, will be
adequate to fund the Company's operations for at least the next 12 months, no
assurance can be given that the Company would not consume an unexpected and
significant amount of its available resources. 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 and timing of
customer orders, the timing of deliveries and the payment terms offered to
customers. The Company's future capital requirements will also depend on
numerous factors, including the successful commercialization of its voice
verification and speech recognition technologies, progress in its product
development efforts, the level of product development efforts, the
development of effective sales and marketing activities, the cost of filing,
prosecuting, defending and enforcing patent claims and other intellectual
property rights. To the extent that funds generated from the Company's
operations, together with 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
stockholders 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."
EARLY STAGE OF MARKET DEVELOPMENT; UNCERTAINTY OF MARKET ACCEPTANCE
The markets for voice verification and speech recognition products is
relatively new and at an early stage of development. The development of the
voice verification and speech recognition markets 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 markets 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.
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. The Company
is involved in development efforts with regard to a number of potential
products including, in particular, the development of an auditory model and a
line of software-only 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.
8
<PAGE>
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 the products are 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.
To date, the Company's voice verification and speech recognition
technologies have only been incorporated in commercially available products
on a limited basis, primarily in applications relating to telecommunications.
Acceptance of these technologies on a commercial basis (other than
telecommunications applications) will be dependent upon the development of
the voice verification and speech recognition markets, the performance and
price of the Company's and its customers' products and customer reaction to
these products.
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.
POTENTIAL FLUCTUATIONS IN QUARTERLY RESULTS
The Company's future revenues and operating results are uncertain and will
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.
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, 1994, 1995 and 1996, the Company
made significant sales to only four, six and three customers, representing
38%, 84% and 84% of the Company's sales, respectively. See "Business -- Sales
and Marketing." In some 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.
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 50% of the outstanding
shares of Common Stock (45% if the
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Underwriter's over-allotment option is exercised in full). As a result,
MOSCOM will retain the voting power required to effectively control the
election of 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 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."
NEW MANAGEMENT TEAM; RISKS ASSOCIATED WITH MANAGING GROWTH
The Company has recently hired a Chief Executive Officer, a Director of
Marketing, two Regional Sales Managers and a Director of OEM/VAR Sales. 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. The Company intends to hire a Chief Financial
Officer and a Chief Technical Officer following the effective date of this
offering. 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, but intends to enter into an employment
agreement with Richard C. Vail, an Executive Vice President of the Company,
after the effective date of this offering.
The Company's anticipated level of growth, should it occur, will challenge
the Company's management and its sales and marketing, customer support,
research and development and finance and administrative operations. The
Company's future performance will depend in part on its ability to manage any
such growth, should it occur, and to adapt its operational and financial
control systems, if necessary, to respond to changes resulting from any such
growth. The failure of the Company's management to respond to and manage
growth effectively will have a material adverse effect on the Company's
business, financial condition and results of operations.
DEVELOPMENT OF MARKETING AND SALES ORGANIZATION; DEPENDENCE ON SALES BY THIRD
PARTIES
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. While the Company intends to increase
substantially its direct sales and marketing force, there can be no assurance
that the Company will be successful in doing so or that such an organization
will be able to generate increased sales or compete effectively against the
more extensive and well-funded sales and marketing organizations of the
Company's current or potential competitors. If the Company is unable to
successfully expand its sales and marketing organization, the Company's
business, operating results and financial condition would be materially
adversely affected.
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
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<PAGE>
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."
UNCERTAINTY OF PRODUCT RELIABILITY
Most customer applications incorporating the Company's technologies are
being developed or have only been introduced to the market over the past
three years. As a result of the limited period of use and the controlled
environment in which many of the Company's technologies have been tested and
used to date, there can be no assurance that they will meet their performance
specifications under all conditions or for all applications. If any of the
Company's technologies fails to meet such expectations, the Company may be
required to enhance or improve that technology, and there can be no assurance
that the Company would be able to do so on a timely basis, if at all.
Introduction by the Company of products with reliability, quality or
compatibility problems could result in reduced orders, uncollectible accounts
receivable, delays in collecting accounts receivable and additional costs.
There can be no assurance that, despite testing by the Company or by its
customers, errors will not be found in the Company's products after
commencement of commercial deployment, resulting in product redevelopment
costs and loss of, or delay in, market acceptance. In addition, there can be
no assurance that the Company will not experience in the future significant
product returns or that the Company will not be required to upgrade customer
equipment in order to accommodate the Company's products. Any product defects
could subject the Company to warranty or product liability claims. Any such
event could have a material adverse effect on the Company's business,
financial condition or results of operations.
RELIANCE ON SALES OF VOICE VERIFICATION PRODUCTS
To date, the Company's revenues from voice verification products have been
limited. Sales of the Company's voice verification products are expected to
account for a substantial portion of the Company's revenues for the
foreseeable future. The balance of the revenues is likely to be derived from
license fees earned as a result of the sale by MOSCOM of speech recognition
products into the telecommunications marketplace. Accordingly, the Company's
business and results of operations are dependent on sales of voice
verification products, and the failure to generate or any decrease in sales
of voice verification products would have a material adverse effect on the
Company. The Company's future performance will depend in significant part on
the successful development, introduction, marketing and customer acceptance
of voice verification products. See "Business -- The Votan Solution."
COMPETITION; ALTERNATIVE TECHNOLOGIES
The voice verification and speech recognition industry is subject to
intense competition. The Company's competitors and potential competitors in
the United States and abroad are numerous and include, among others, Apple
Computer, Inc., AT&T Corp. ("AT&T"), Berkley Speech Technologies Inc., Dragon
Systems, Inc., the DSP Group, International Business Machines Corporation
("IBM"), ITT Aerospace Communications ("ITT"), Lernout & Hauspie Speech
Products N.V., Lucent Technologies, Inc., Microsoft Corporation, NEC Corp.,
Nuance Communications, Siemens AG, Speech Systems, Inc., Texas Instruments
Corporation ("Texas Instruments"), T-Netix, Inc. ("T-Netix"), Veritel
Corporation ("Veritel") and Voice Control Systems, Inc. ("Voice Control
Systems"). While all of the foregoing competitors participate in the speech
recognition market, currently only ITT, Texas Instruments, T-Netix, Veritel
and Voice Control Systems 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
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<PAGE>
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," "--Technology and Research and
Development" and "--Products."
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 components. The Company contracts
with MOSCOM, who, in turn, contracts with third-party suppliers to
manufacture its products and will continue to depend upon such an arrangement
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
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<PAGE>
"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.
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
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<PAGE>
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. The Company had no international sales for the year
ended December 31, 1996; the absence of international sales was the result of a
shift in the Company's strategy from providing boards as stand-alone products
to supplying fully intergrated systems solutions and the completion of the
Company's contract with its only significant international customer in late
1995. 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."
BENEFITS OF THE OFFERING TO MOSCOM
MOSCOM, the sole stockholder of the Company prior to the offering, will
benefit from the offering as a result of the repayment, by the Company, with
a portion of the net proceeds from the offering, of up to approximately $1.6
million of outstanding indebtedness pursuant to the Inter-company Loan, and,
in the event of the exercise by the Underwriter of its over-allotment option,
from the sale by MOSCOM of 120,000 shares of its Common Stock.
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 and the Underwriter and is not necessarily indicative of
the market price at which the Common Stock of the Company will trade after
this offering. See "Underwriting." The market price of the shares of Common
Stock, like that of the common stock of many of the Company's competitors, is
likely to be highly volatile. Factors such as announcements of technological
innovations or new products by the Company or its competitors, developments
or disputes concerning patent or other proprietary rights of the Company or
its competitors, litigation, fluctuations in the Company's operating results,
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
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<PAGE>
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 (other than the 120,000 shares
that may be sold by MOSCOM pursuant to the Underwriter's over-allotment
option) have agreed for a period of 13 months after the date of this
Prospectus not to, without the prior written consent of H.J. Meyers & Co.,
Inc., on behalf of the Underwriter, 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 Underwriter may release all or any portion of the shares subject
to the Lockup. Additionally, the Underwriter's Warrant may be exercised at
any time during the four year period beginning 12 months after the closing of
this offering in which case up to an additional 160,000 shares of Common
Stock would be eligible for sale in the public markets. Of the 3,200,000
shares of Common Stock that will be outstanding after this offering, the
1,600,000 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.
In addition, the Company has granted MOSCOM a demand registration right to
register all of its shares currently owned at such time, if any, as the
Company may become eligible to use Form S-3, provided that the maximum number
of shares which MOSCOM may sell at any time may not exceed the volume amount
allowed pursuant to 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 550,000
shares of Common Stock for issuance under the Company's Stock Option Plan.
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 significant 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."
POSSIBLE ILLIQUIDITY OF TRADING MARKET
The shares of Common Stock are expected to be eligible for initial
quotation on the Nasdaq SmallCap Market upon completion of this offering
which is a significantly less liquid market than the Nasdaq National Market.
If the Company should continue to experience losses from operations, it may
be unable to maintain the standards for continued quotation on the Nasdaq
SmallCap Market and the shares of Common Stock could be subject to removal
from the Nasdaq SmallCap Market. Trading, if any, in the Common Stock would
therefore be conducted in the over-the-counter market on an electronic
bulletin board established for securities that do not meet the Nasdaq
SmallCap Market Listing requirements, or in what are commonly referred to as
the "pink sheets." As a result, an investor would find it more difficult to
dispose of, or to obtain accurate quotations as to the price of, the
Company's Common Stock. In addition, if the Company's Common Stock were
removed from the Nasdaq SmallCap Market, the Common Stock would be subject to
so-called "penny stock" rules that impose additional sales practice and
market making requirements on broker-dealers who sell and/or make a market in
such securities. Consequently, removal from the Nasdaq SmallCap Market, if it
were to occur, could affect the ability or willingness of broker-dealers to
sell and/or make a market in the Company's Common Stock and
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<PAGE>
the ability of purchasers of the Company's Common Stock to sell their
securities in the secondary market. In addition, if the market price of the
Company's Common Stock is less than $5.00 per share, the Company may become
subject to certain penny stock rules even if still quoted on the Nasdaq
SmallCap Market. While such penny stock rules should not affect the quotation
of the Company's Common Stock on the Nasdaq SmallCap Market, such rules may
further limit the market liquidity of the Common Stock and the ability of
purchasers in this offering to sell such Common Stock in the secondary
market.
MANAGEMENT'S DISCRETION AS TO USE OF PROCEEDS
Although the Company has indicated specific uses for the net proceeds from
this offering, the Company's management will retain broad discretion as to
the allocation of a substantial portion of these amounts. See "Use of
Proceeds."
IMMEDIATE AND SUBSTANTIAL DILUTION; DISPARITY OF SHARE CONSIDERATION
Purchasers of shares of Common Stock in this offering will incur immediate
and substantial dilution in the pro forma net tangible book value of $3.41
per share or 68.2%, 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. Also, there will be a
substantial disparity between the total consideration and the average price per
share contributed by MOSCOM, the Company's existing stockholder ($217,000 and
$0.14, respectively), and that paid by new investors in this offering
($8,000,000 and $5.00, respectively). 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."
LIMITATIONS ON LIABILITY AND INDEMNIFICATION MATTERS
As permitted by Delaware General Corporation Law, the Company has included
in its Amended and Restated Certificate of Incorporation a provision to
eliminate the personal liability of its directors for monetary damages for
breach or alleged breach of their fiduciary duties as directors, subject to
certain exceptions. In addition, the Second Amended and Restated Bylaws of
the Company provide that the Company is required to indemnify its officers
and directors under certain circumstances, including those circumstances in
which indemnification would otherwise be discretionary, and the Company is
required to advance expenses to its officers and directors as incurred in
connection with proceeding against them for which they may be indemnified.
See "Management -- Limitations on Liability and Indemnification Matters."
ISSUANCE OF PREFERRED STOCK MAY ADVERSELY AFFECT HOLDERS OF COMMON STOCK
The Board of Directors has the authority to issue up to 1,000,000 shares
of undesignated Preferred Stock and to determine the rights, preferences,
privileges and restrictions of such shares without any further vote or action
by the stockholders. Although at present the Company has no plans to issue
any of the Preferred Stock, the Preferred Stock could be issued with voting,
liquidation, dividend and other rights superior to the rights of the Common
Stock. The voting power of the officers and directors or the issuance of
Preferred Stock under certain circumstances could have the effect of delaying
or preventing a change in control of the Company. See "Description of Capital
Stock."
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USE OF PROCEEDS
The net proceeds to the Company from the sale of the 1,600,000 shares of
Common Stock offered by the Company are estimated to be approximately $6.4
million based upon an assumed initial public offering price of $5.00 per
share of Common Stock and after deducting the estimated underwriting discount
and estimated offering expenses payable by the Company. The Company intends
to use the net proceeds as follows.
<TABLE>
<CAPTION>
AMOUNT PERCENT
------------ ---------
<S> <C> <C>
Sales and marketing (See "Business--Sales and Marketing") .. $1,900,000 30%
Research and development (See "Business--Research and
Development") .............................................. 1,900,000 30
Repayment of the Inter-company Loan to MOSCOM (See "Certain
Transactions--MOSCOM Relationship")(1)...................... 1,600,000 25
Working capital and general corporate purposes .............. 1,000,000 15
------------ ---------
TOTAL ................................................... $6,400,000 100%
============ =========
</TABLE>
- ------------
(1) The Inter-company Loan is not interest bearing and is due on demand.
The proceeds of the Inter-company Loan were used to fund operations of
the Company since the Formation. See "Certain Transactions -- MOSCOM
Relationship."
Management of the Company will have broad discretion over the application
of such net proceeds. The Company may use a portion of the proceeds to
acquire complementary businesses or technologies, although 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 believes that the
net proceeds from this offering plus revenues, if any, from operations will
be adequate to fund the Company's operations for at least the next 12 months.
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.
17
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
December 31, 1996 as adjusted to give effect to the sale of the Common Stock
offered hereby at an assumed initial public offering price of $5.00 per
share, and the application of the estimated net proceeds therefrom.
<TABLE>
<CAPTION>
DECEMBER 31, 1996
-----------------------
AS
ACTUAL ADJUSTED
---------- -----------
<S> <C> <C>
Stockholder's 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,
1,600,000 shares issued and outstanding, and 3,200,000
shares issued and outstanding, as adjusted (1)............... 16,000 32,000
Additional paid-in capital ................................... 201,000 6,585,000
---------- -----------
Total......................................................... $217,000 $6,617,000
========== ===========
</TABLE>
- ------------
(1) Pursuant to the Inter-company Loan, any amounts owed to MOSCOM in
excess of $1.6 million will be forgiven and will be used to increase
the equity of the Company on a dollar-for-dollar basis. See "Use of
Proceeds" and "Certain Transactions -- MOSCOM Relationship."
18
<PAGE>
DILUTION
The net tangible book value of the Company as of December 31, 1996 was
approximately $(1.3) million or approximately $(0.81) per share. After giving
effect to the sale by the Company of the 1,600,000 shares of Common Stock
offered hereby (assuming an initial public offering price of $5.00 per share)
and the application of the estimated net proceeds therefrom, as set forth in
"Use of Proceeds," the as adjusted net tangible book value of the Company as
of December 31, 1996 would have been approximately $5.1 million, or
approximately $1.59 per share. This represents an immediate increase in net
tangible book value of $2.41 per share to existing stockholders and an
immediate dilution of $3.41 per share, or 68.2%, to new investors purchasing
shares in this offering. See "Risk Factors -- Immediate and Substantial
Dilution." The following table illustrates the dilution on a per share basis:
<TABLE>
<CAPTION>
<S> <C> <C>
Assumed initial public offering price per share (1)...................... $5.00
Net tangible book value before this offering (2)........................ (0.81)
Increase attributable to the sale of shares to new investors (3) ...... 2.41
--------
Pro forma net tangible book value after this offering (3)................ 1.59
-------
Dilution in net tangible book value of Common Stock to new investors (3) $3.41
=======
</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 December 31, 1996, and (iii) the total consideration
and the average price per share paid by new investors.
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE PRICE
---------------------- ------------------------ PER SHARE
NUMBER PERCENT AMOUNT PERCENT -------------
----------- --------- ------------- ---------
<S> <C> <C> <C> <C> <C>
Existing stockholder 1,600,000 50% $ 217,000(1) 2.6% $0.14
New investors ........ 1,600,000 50 8,000,000 97.4 $5.00
----------- --------- ------------- ---------
Total ............ 3,200,000 100% $8,217,000 100.0%
=========== ========= ============= =========
</TABLE>
- ------------
(1) 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. Pursuant to the Inter-company Loan, any amounts owed to Moscom
in excess of $1.6 million will be forgiven and will be used to increase
the equity of the Company on a dollar-for-dollar basis. See "Use of
Proceeds" and "Certain Transactions--Moscom Relationship."
19
<PAGE>
SELECTED FINANCIAL DATA
The selected financial data presented below for each of the four years
ended December 31, 1996 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 reports therein. The selected
financial data for the year ended December 31, 1992 has been derived from
unaudited financial statements of the Company not included in this
Prospectus. 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
DECEMBER 31, DECEMBER 31,
-------------- ------------------------------------------
1992 1993 1994 1995 1996
-------------- -------- ---------- -------- ----------
(UNAUDITED) (AUDITED)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Sales.................................. $ 483 $ 517 $ 593 $ 572 $ 246
Cost of sales ......................... 204 307 305 329 228
-------------- -------- ---------- -------- ----------
Gross profit........................... 279 210 288 243 18
Operating expenses:
Engineering and software development,
net ................................. 265 342 579 424 521
Selling and marketing................. 239 223 293 323 407
General and administrative ........... 510 490 418 386 964
-------------- -------- ---------- -------- ----------
Total operating expenses............... 1,014 1,055 1,290 1,133 1,892
-------------- -------- ---------- -------- ----------
Loss from operations................... (735) (845) (1,002) (890) (1,874)
Provision for taxes.................... -- 1 1 1 1
-------------- -------- ---------- -------- ----------
Net loss............................... $ (735) $ (846) $(1,003) $ (891) $(1,875)
============== ======== ========== ======== ==========
Net loss per share (1)................. $ (1.17)
==========
Weighted average shares outstanding ... 1,600
==========
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
------------------ --------------------------
1992 1993 1994 1995 1996
-------- -------- -------- ------- --------
(UNAUDITED) (AUDITED)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital (deficit) .... $(133) $(114) $(94) $(214) $(1,426)
Total assets.................. 458 704 613 342 363
Total liabilities............. 196 209 205 224 1,459
Due to MOSCOM Corporation
(2)......................... -- -- -- -- 1,367
Total stockholder's equity ... 262 495 408 118 (1,096)
</TABLE>
- ------------
(1) Pursuant to the Commission requirements, net loss per share of the
Company is presented on a pro forma basis for the most recent year
presented.
(2) Pursuant to the Inter-company Loan, the Company has agreed to reimburse
MOSCOM up to $1.6 million for amounts loaned to the Company to fund
operations since the Formation and MOSCOM has agreed to forgive any
amounts owed by the Company to MOSCOM in excess of $1.6 million. Such
amounts, if any, in excess of $1.6 million will be used to increase the
equity of the Company on a dollar-for-dollar basis. See "Use of
Proceeds" and "Certain Transactions--MOSCOM Relationship."
20
<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 for
$323,730 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 "Risk Factors -- Recent
Organization as an Independent Business; Absence of Operating History as an
Independent Business; Limited Relevance of Historical Financial Information,"
and "Certain Transactions -- MOSCOM Relationship."
Since its acquisition by MOSCOM through December 31, 1996, the Company had
accumulated net losses from operations in an amount equal to approximately
$5.4 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 1998, 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 "Risk
Factors -- Going Concern Assumptions of the Company's Independent Auditors;
Past and Anticipated Operating Losses; Uncertainty of Future Results."
The Company's future revenues and operating results are uncertain and may
fluctuate from quarter to quarter and from year to year due to a combination
of factors, including the timing of capital expenditures, demand for the
Company's products, the volume and timing of orders and the ability to
fulfill orders, the level of product and price competition, promotional
discounts, the expansion of the Company's sales and marketing organization,
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. See "Risk Factors -- Potential
Fluctuations in Quarterly Results."
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 "Risk Factors -- Uncertainties Regarding Future
Capital Requirements; Absence of MOSCOM Funding," and "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 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.
21
<PAGE>
Historically, the Company's products have been sold to a limited number of
customers. In the years ended December 31, 1994, 1995 and 1996, the Company
made significant sales to only four, six and three customers, accounting for
38%, 84% and 84% 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. See
"Risk Factors -- Dependence on Limited Number of Customers; Change of Product
Strategy."
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. See "Risk Factors -- Dependence on Limited Number of Customers;
Change of Product Strategy."
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. See "Risk Factors --
Development of Marketing and Sales Organization; Dependence on Sales by Third
Parties."
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
YEARS ENDED DECEMBER 31, 1996 AND 1995
Sales decreased from $572,000 for the year ended December 31, 1995 to
$246,000 for the year ended December 31, 1996. The decrease was primarily due
to the absence of international sales for the year ended December 31, 1996.
The absence of international sales was the result of a shift in the Company's
strategy from providing boards as stand-alone products to supplying fully
integrated systems solutions and the completion of the Company's contract
with its only significant international customer in late 1995. International
sales for the year ended December 31, 1995 were $397,000. The year ended
December 31, 1996 included $49,000 attributable to the pilot program with
Chase.
22
<PAGE>
Gross profit decreased from $243,000 for the year ended December 31, 1995
to $18,000 for the year ended December 31, 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 December 31, 1995.
Engineering and software development expenses, net, increased from
$424,000 for the year ended December 31, 1995 to $521,000 for the year ended
December 31, 1996, net of amount capitalized of $84,000 for the year ended
December 31, 1996, primarily due to staff additions. The capitalized amount
for the year ended December 31, 1996 related to enhancements to the Company's
new generation four port board.
Selling and marketing expenses increased from $323,000 for the year ended
December 31, 1995 to $407,000 for the year ended December 31, 1996 primarily
due to staff additions to both the sales and marketing groups made during the
second half of 1996. These increased costs were partially offset by lower
sales commissions resulting from the absence of international sales.
General and administrative expenses increased from $386,000 for the year
ended December 31, 1995 to $964,000 for the year ended December 31, 1996.
This increase was attributable to a number of factors including the
recruitment and hiring of the Company's Chief Executive Officer, as well as
higher facilities and travel costs.
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.
23
<PAGE>
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.
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 $916,000,
$601,000 and $661,000 for the years ended December 31, 1994, 1995 and 1996,
respectively.
Votan believes that the net proceeds from this offering plus revenues, if
any, from operations will be adequate to fund the Company's operations for at
least the next 12 months. 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, if at all.
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.
Effective January 1, 1996, the Company adopted SFAS No. 123, "Accounting
for Stock-Based Compensation." This standard establishes a fair value method
for accounting for or disclosing stock-based compensation plans. As permitted
under the statement, the Company will continue to measure compensation under
APB Opinion No. 25 and will disclose the pro forma net income and earnings
per share in accordance with SFAS No. 123. The adoption of this standard did
not affect the Company's results of operations, financial position or cash
flows.
24
<PAGE>
BUSINESS
OVERVIEW
Votan Corporation is a 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.
The Company intends to actively market its voice verification technologies
and products for computer network, electronic commerce, Internet, cellular
phone and physical access 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. The Company recently worked with Chase 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's voice verification and speech recognition technologies have
to date been incorporated into various products sold by MOSCOM. MOSCOM, the
sole stockholder of the Company, provides telecommunications management
systems, telephone company billing systems and voice recognition products to
numerous leading telecommunications systems providers, including Siemens AG,
Lucent Technologies, Inc. and Alcatel SEL AG. The Company's 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.
25
<PAGE>
While every voice verification and speech recognition system uses sample
voiceprints derived from spectral input, there are major differences in how
this information is processed. Some systems match "phonemes," which are
fundamental sound elements that characterize speech. Spoken words may be
represented by a sequence of phonemes, much as a written word is represented
by a sequence of letters of the alphabet. The advantage of using phonemes is
that large vocabularies may be constructed with a small number of phonemes.
However, the disadvantage of using phonemes is that the recognition system
for each language must also address the co-articulation effects or blending
of the language's phonemes as they occur. An alternative to the use of
phonemes is to pre-store "templates," which are voiceprint patterns for an
entire word or phrase, on the recognition and verification system. The
advantage of using word templates is that recognition accuracy is greatly
improved and there is no language dependency. The entire word is learned as a
single template, which automatically includes all internal co-articulation
effects that modify the sound of phonemes.
Speech recognition applications are generally divided into two major
categories: speaker-dependent applications and speaker-independent
applications. Speaker-dependent applications are designed to function with
known speakers who have "trained" the device to recognize a particular set of
commands by having recorded a voiceprint, or spectrogram, for the system.
Speaker-dependent technologies or devices can accommodate a larger
pre-recorded vocabulary with a greater degree of exactitude with respect to
both the nature of the command and the identity of the speaker.
Speaker-independent technologies recognize speech from any source since the
technology is designed to recognize an utterance that "matches" the
voiceprint template derived from a large and diverse sample of voiceprints
(as opposed to speaker-dependent applications that utilize a particular
individual's voiceprint). While speaker-independent technologies may be
utilized in a wider variety of applications, they are typically limited to a
small and fixed recognizable vocabulary and, more importantly, are not well
suited for voice verification applications designed to authenticate a
speaker's identity.
Although both voice verification and speech recognition technologies use
voiceprints to, respectively, recognize and identify spoken commands, the
technical demands of each technology are fundamentally different. Generally,
speaker-independent recognition systems are designed to accept and
differentiate among a pre-defined set of spoken commands without regard to
the identity of the speaker. On the other hand, speaker-dependent recognition
and voice verification systems are designed to compare an oral utterance to a
specific pre-recorded and stored utterance in order to authenticate the
speaker's identity. Speaker-independent technologies are poorly suited for
voice verification applications because they are based on algorithms which
blend the spectral differences within a large pool of speakers in order to
understand words spoken by a universal population. Consequently,
speaker-dependent technologies are better suited for voice verification
applications because the algorithms utilized in voice verification
technologies are designed to focus on the unique characteristics of the
speaker's voiceprint and to establish a match in order to verify the
speaker's identity.
MARKET NEED FOR SPEECH RECOGNITION APPLICATIONS
The Company believes that 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
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technological advances is becoming increasingly important in today's
competitive marketplace. Unfortunately, the Company believes that 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, the
Company believes that 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
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between each utterance, nor must the speaker use any specific speed during
his or her speech, in order for the Company's technologies to accurately
recognize and verify the speech by comparing it to previously stored
templates. As a result, the Company's CSDR technology requires significantly
fewer training trials per word than competing speaker-independent
technologies and, therefore, facilitates the quicker, easier and less costly
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
offer competitive advantage due to 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 one of the most advanced voice verification
technologies for use in noisy, real-world environments. The Company's primary
strategy is to utilize its technological position 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.
MARKET PRODUCTS AND TECHNOLOGIES FOR COMPUTER NETWORKS, ELECTRONIC
COMMERCE, CELLULAR PHONES, 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, cellular phone
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.
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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.
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 THE AUDITORY MODEL AND A LINE OF SOFTWARE-ONLY
PRODUCTS. Currently, voice verification and speech recognition technologies
are based on spectral data analysis. The Company is in the process of
developing auditory-based technologies, which are based on mathematical
modeling of the human auditory system, and which the company believes 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. In addition, the
Company is expanding efforts to develop a software-only line of products
which will incorporate the auditory model. 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 Chase 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 Chase. 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 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. The Company believes that 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 Company believes that 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
by industry consultants 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
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remote and network access to confidential databases without compromising the
system's integrity. The Company has developed a VoiceLock product which
limits unauthorized access to a telephone system or computer network
utilizing voice verification technologies. VoiceLock was developed for the
Company's single port voice verification board. Additional software
development will be required to enable VoiceLock to run on the Company's new
generation four port boards.
PHYSICAL ACCESS. Voice verification technologies can also be used to
authorize access to secured areas. One of the Company's VARs has installed
various systems in a number of commercial and industrial locations and
government facilities which are designed to secure access to physical spaces.
PRODUCTS
Votan's proprietary boards serve as a platform for the Company's voice
verification and speech recognition products and applications. These boards
may also be sold as stand-alone products to VARs, OEMs and systems
integrators. The Company designs and markets the following boards:
SPEECH RECOGNITION BOARDS. Votan's Speech Recognition Boards contain voice
recognition, record and playback capabilities and input/output signal
interfaces and are installed in a single slot of an IBM-compatible personal
computer. They utilize a commercially available digital signal processing
integrated circuit plus a proprietary pattern matching integrated circuit
that contains patented Votan voice technology methods. 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 199 units of the new generation four port board in each of
the years ended December 31, 1994, 1995 and 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."
Currently, the Company employs four 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 a
variety of
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applications. The Company's primary focus will be on markets for voice
verification products. This focus should 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, 1994, 1995 and 1996, sales to
two, three and three customers, respectively, accounted for 30% of sales
(Voiceprint Security Systems, Inc. (21%)), 74% of sales (Quelle Department
Stores A.G. (56%) and JBM Electronics (12%)), and 84% of sales (DHI Computing
(44%), Max-M Systems (20%) and Chase (20%)).
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 $683,000, $475,000 and $605,000 on research and
development, consisting of engineering and software development expenses and
capitalized software expenditures during each of the years ended December 31,
1994, 1995 and 1996, respectively.
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 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 six
months. After completion of the development of the first two elements, the
Company expects to engage an industry partner in connection with the
development of the final element of its auditory model, i.e., the pattern
matching element. No assurance can be given that the Company will find an
appropriate industry partner or that the Company will successfully complete
the auditory model or develop commercially feasible products based upon the
auditory model.
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The Company intends to add software-only versions to its current product
line. The Company believes that the timely development and enhancement of its
technologies will enable it to reduce costs, improve margins, and reach high
volume markets. 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, 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
34
<PAGE>
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 "Risk Factors --
Uncertainty Regarding Patents and 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. See "Risk Factors -- Competition; Alternative
Technologies."
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."
35
<PAGE>
EMPLOYEES
Currently, the Company employs 13 persons, including six in engineering
and software development, four 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
10,680-square-foot facility pursuant to leases which will terminate on
November 30, 2001. The current monthly rent under the leases is approximately
$12,500 per month. The Company anticipates that the 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.
36
<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>
John A. White (1) ............ 58 President, Chief Executive Officer and Director
Albert J. Montevecchio(1)(2) 60 Director
Richard C. Vail .............. 65 Executive Vice President
William E. O'Connor (3)....... 57 Chief Financial Officer and Secretary--
designee
Donald G. Heitt (4)........... 61 Director--designee
</TABLE>
- ------------
(1) Member of the Compensation Committee
(2) Member of the Audit Committee
(3) Mr. O'Connor has agreed to become the Company's Chief Financial Officer
and Secretary upon consummation of this offering.
(4) Mr. Heitt has agreed to join the Board of Directors and the Audit and
Compensation Committees upon the consummation of the offering.
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.
Albert J. Montevecchio was elected as Director in June 1996. Mr.
Montevecchio has been the 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. He was
President of MOSCOM from its incorporation until February, 1997.
Richard C. Vail has served as Executive Vice President of the Company
since June 1996. Mr. Vail served as a director of the Company from June 1996
to March 1997. 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 served as Chief Financial Officer, Treasurer and
Secretary of the Company from July 1996 until October 1996. Since October
1996 he has been a consultant to the Company. After the completion of the
offering the Company intends to re-hire Mr. O'Connor as Chief Financial
Officer and Secretary. 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.
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 and is
currently on the Board of Larscom Inc. From April 1990 to January 1996, Mr.
Heitt served as President and Chief Executive 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
37
<PAGE>
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.
BOARD OF DIRECTORS
The Company currently is authorized to elect five directors and two
director positions are currently vacant. Each director holds office until the
next annual meeting of shareholders or until his successor is duly elected
and qualified.
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<PAGE>
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.
Pursuant to the Underwriting Agreement, for a period of thirty-six (36)
months from the closing of the offering, the Underwriter has the right to
designate two (2) members to the Board of Directors, provided that the
designees are acceptable to the Company and not more than one will be an
affiliate of the Underwriter. Such members shall be entitled to the same
compensation, reimbursements and indemnification as other members of the
Company's Board of Directors. The Company anticipates that such independent
directors will serve on the Audit Committee and the Compensation Committee.
Mr. Heitt has agreed to serve as an independent member of the Board of
Directors upon consummation of the offering. In addition, Mr. Heitt has
agreed to serve on the Audit Committee and the Compensation Committee until
such time as the board members to be named by the Underwriter have joined the
Company's Board of Directors.
BOARD COMMITTEES
The Audit Committee of the Board of Directors was established in March
1997 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
March 1997 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.
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 and Chief
Executive Officer of MOSCOM. MOSCOM is a party to various transactions with
the Company. See "Certain Transactions -- MOSCOM Relationship."
39
<PAGE>
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 1996 exceeded $100,000 (collectively, the
"Named Executive Officers"):
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG-TERM
-------------------------------------- COMPENSATION
OTHER SECURITIES
ANNUAL UNDERLYING
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($) COMPENSATION($)(1) OPTIONS(2)
- --------------------------- ------ --------- -------- ------------------ ----------
<S> <C> <C> <C> <C> <C>
John A. White (3)
President and Chief Executive
Officer.............................. 1996 96,462 25,000 -- 34,909
Richard C. Vail
Executive Vice President, formerly
Vice President, General Manager of
the Votan Division of MOSCOM......... 1996 112,000 5,000 -- 18,909
</TABLE>
- ------------
(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 and (iii)
medical expenses reimbursed by MOSCOM.
(2) All of the outstanding options granted under the Company's 1996 Stock
Option Plan were cancelled on March 7, 1997. On that date new options
were granted at an exercise price of $4.25 to Mr. White and Mr. Vail,
in the amounts of 51,200 and 27,200 respectively.
(3) 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."
1996 STOCK OPTION PLAN
The Company's 1996 Stock Option Plan was adopted by the Board of
Directors, approved by the Company's stockholders in June 1996, and amended
in connection with this offering on March 7, 1997 (the "1996 Plan"). Up to
550,000 shares of Common Stock have been authorized for issuance under the
1996 Plan. The Company has agreed that prior to May 1, 1998 it will not issue
options for more than an aggregate of 300,000 shares without the unanimous
approval of the Company's outside directors. The 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 150,000 shares in the
aggregate.
The 1996 Plan is divided into two separate components: (i) the
Discretionary Option Grant Program under which employees and consultants may,
at the discretion of the Plan Administrator (as defined in the 1996 plan), be
granted options to purchase shares of Common Stock at an exercise price not
less than 85% of their fair market value on the grant date and (ii) the
Automatic Option Grant Program under which option grants will automatically
be made at periodic intervals to eligible non-employee Board of Directors'
members to purchase shares of Common Stock at an exercise price equal to 100%
of their fair market value on the grant date.
The Discretionary Option Grant Program will be administered by the
Compensation Committee. The Compensation Committee, as Plan Administrator,
will have complete discretion to determine which eligible individuals are to
receive option grants, the time or times when such option grants are to be
made, the number of shares subject to each such grant, the status of any
granted option as either an incentive stock option or a non-statutory stock
option under the Federal tax laws, the vesting schedule to be in effect for
the option grant and the maximum term for which any granted option is to
remain outstanding.
40
<PAGE>
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 5,000 shares of Common Stock. Each individual who first becomes a
non-employee Board of Directors' member thereafter will receive a 5,000-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 2,000 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
5,000 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 5,000-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 2,000-share grant will vest upon the
optionee's completion of one year of Board of Directors' service measured
from the grant date. However, each outstanding option will immediately vest
upon (i) certain changes in the ownership or control of the Company or (ii)
the death or disability of the optionee while serving as a Board of
Directors' member.
The Board of Directors may amend or modify the 1996 Plan at any time. The
1996 Plan will terminate in June 2006, unless sooner terminated by the Board
of Directors.
On March 7, 1997 the Company authorized the cancellation of all of the
outstanding options granted under the 1996 Plan and the regrant of options to
purchase 172,480 shares of the Company's Common Stock. The following table
sets forth the outstanding options held by the Named Executive Officers as of
March 7, 1997.
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
----------------------------------------------------
NUMBER OF POTENTIAL REALIZABLE VALUE AT
SHARES PERCENTAGE ASSUMED ANNUAL RATES
UNDERLYING OF OPTIONS EXERCISE OF STOCK PRICE APPRECIATION
OPTIONS GRANTED TO PRICE EXPIRATION FOR OPTION TERM (3)
NAME GRANTED(1) EMPLOYEES ($/SH) DATE(2) --------------------------------
----------------------------------------------------- 0%($) 5%($) 10%($)
<S> <C> <C> <C> <C> <C> <C> <C>
JOHN A. WHITE(4) .. 51,200 30% $4.25(5) 3/6/07 38,400 199,397 446,398
RICHARD C. VAIL(6) 27,200 16% $4.25(5) 3/6/07 20,400 105,930 237,149
</TABLE>
- ------------
(1) Such stock options vest 25% per year over a period of four years
after the date of grant.
41
<PAGE>
(2) Such stock options expire ten years from the date of grant.
(3) Potential realizable value is based on an assumption that the stock
price of the Common Stock appreciates at the annual rate shown
(compounded annually) from the date of grant until the end of the
10-year option term. These numbers are calculated based on the
requirements promulgated by the Commission and do not reflect the
Company's estimate of future stock price growth.
(4) This option grant was made upon the cancellation of an option grant
of 17,454.5 shares at an exercise price of $17.53 and an option grant
of 17,454.5 shares at an exercise price of $20.63.
(5) The exercise price for this option equaled 85% of the fair market
value as such shares at the date of grant as determined by the Board
of Directors.
(6) This option grant was made upon the cancellation of an option grant
of 18,909 shares at an exercise price of $20.63.
EMPLOYMENT AGREEMENTS
On June 19, 1996, the Company entered into an employment agreement with
John A. White, the Company's President and Chief Executive Officer, for a
two-year term. Pursuant to his agreement, Mr. White will be entitled to
receive a minimum base salary of $180,000 per year, plus 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 34,909 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. Effective March 7, 1997, the option grant made
under the employment agreement was cancelled and Mr. White was regranted an
option to purchase 51,200 shares at an exercise price of $4.25. These options
become exercisable in increments of 25% per year. 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-PERSON LIFE INSURANCE
The Company intends to obtain and intends to 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
42
<PAGE>
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 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
Votan's business and operations were acquired by MOSCOM in September 1991
for $323,730 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.
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 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 an effective 1,600-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
43
<PAGE>
discharge all debts, obligations, contracts and liabilities of MOSCOM related
to these assets. The Company has also agreed to assume obligations relating
to certain pension benefits afforded to Mr. Vail and to reimburse MOSCOM for
certain expenses incurred by MOSCOM related to this offering.
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, 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. MOSCOM
may terminate the license upon 30 days prior written notice to the Company.
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. As of the effective date of this offering, no amounts have
been paid to MOSCOM under the License Agreement.
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 a Director 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.
As of the effective date of this offering, no amounts have been paid to
MOSCOM under the Service and Supply Agreement.
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. As of the effective date of this offering, no amounts
have been paid to MOSCOM under the VAR Agreement.
44
<PAGE>
Pursuant to the Inter-company Loan, the Company has agreed to reimburse
MOSCOM up to $1.6 million for amounts loaned to the Company to fund
operations since the Formation and MOSCOM has agreed to forgive any amounts
owed by the Company to MOSCOM in excess of $1.6 million. Such amounts, if
any, in excess of $1.6 million will be used to increase the equity of the
Company on a dollar-for-dollar basis. See "Use of Proceeds."
The Company has granted MOSCOM a demand registration right to register all
of its shares currently owned at such time, if any, as the Company may become
eligible to use Form S-3, provided that the maximum number of shares which
MOSCOM may sell at any time may not exceed the volume amount allowed pursuant
to Rule 144.
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.
VAIL ARRANGEMENTS
The Company intends to enter into an employment agreement with Richard C.
Vail pursuant to which the Company intends to agree to assume pension
benefits currently accrued to the benefit of Mr. Vail during his employment
at MOSCOM. Such benefits are estimated to be $28,000 per year for the longer
of ten years or the remainder of his life and the payment thereof will be
guaranteed by MOSCOM to the extent the Company is unable to satisfy such
benefits.
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. Upon
completion of this offering the Note will be assigned to the Company.
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."
45
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information with respect to the
beneficial ownership of the Company's Common Stock as of April 8, 1997, as
adjusted to reflect 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 and (d) 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 ... 1,600,000 100% -- 1,600,000 50%(2)
John A. White (3) ........................ -- -- -- -- --
Albert J. Montevecchio (4)
3750 Monroe Ave., Pittsford, NY 14534 ... -- -- -- -- --
Richard C. Vail (3) ...................... -- -- -- -- --
Donald G. Heitt (5)
48634 Milmont Drive, Fremont,
California 94538......................... -- -- -- -- --
All executive officers and directors
as a group (4 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) MOSCOM, a publically traded company quoted on the Nasdaq National Market
under the symbol MSCM, has granted the Underwriter a 30 business day
option to purchase up to 120,000 additional shares to cover
over-allotments, if any. If the Underwriter's over-allotment option is
exercised in full, MOSCOM will own 45% of the outstanding shares of
Common Stock of the Company. Albert J. Montevecchio is Chairman of the
Board and Chief Executive Officer and a controlling stockholder of
MOSCOM (beneficially owning 16.7% of MOSCOM as of Apirl 8, 1997) 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) The individual may be reached at the Company's address.
(4) Does not include shares owned by MOSCOM.
(5) Mr. Heitt has agreed to join the Board of Directors upon the
consummation of the offering.
46
<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 160,000 shares of Common Stock issuable upon the
exercise of the Underwriter's 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 50% of the outstanding shares of Common Stock
(45% if the Underwriter's 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.
WARRANTS
At the closing of this offering, the Company will issue to the Underwriter
the Underwriter's Warrant to purchase for investment a maximum of 160,000
shares of Common Stock. The Underwriter's Warrant will be exercisable for a
four-year period commencing one year from the date of this Prospectus. The
exercise price of the Underwriter's Warrant will be $6.00 per share. The
Underwriter's Warrant will not be transferable prior to its exercise date
except to officers of the Underwriter and members of the selling group and
officers and partners thereof. The Underwriter's Warrant will contain
anti-dilution provisions providing adjustment in the event of any
recapitalization, stock dividend, stock split or similar transaction. The
Underwriter's Warrant does not entitle the Underwriter to any rights as a
stockholder of the Company until such Warrant is exercised and shares are
purchased thereunder. The Underwriter's Warrant and the shares of Common
Stock thereunder may not be offered for sale except in compliance
47
<PAGE>
with the applicable provisions of the Securities Act. The Company has agreed
that, if it shall cause to be filed with the Securities and Exchange
Commission either an amendment to the Registration Statement of which this
Prospectus is a part or a separate registration statement, the Underwriter
shall have the right during the five-year period commencing on the date of
this Prospectus to include in such amendment or Registration Statement the
Underwriter's Warrant and the shares of Common Stock issuable upon its
exercise at no expense to the Representative. Additionally, the Company has
agreed that, upon written request by a holder or holders of 50% or more of
the Underwriter's Warrant which is made during the exercise period of the
Underwriter's Warrant, the Company will, on two separate occasions, register
the Underwriter's Warrant and the shares of Common Stock issuable upon
exercise thereof. The initial such registration will be at the Company's
expense and the second such registration will be at the expense of the
holder(s) of the Underwriter's Warrant.
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 bylaws 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 bylaws
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.
48
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has been no public market for the Common
Stock of the Company. Sales of substantial amounts of Common Stock of the
Company in the public market or the perception that such sales could occur
could materially adversely affect the prevailing market price and the ability
of the Company to raise equity capital in the future.
Upon completion of this offering, the Company will have 3,200,000 shares
of Common Stock outstanding (or 3,320,000 if the Underwriter's over-allotment
option is exercised in full). Of these shares, the 1,600,000 shares sold in
this offering (or 1,840,000 if the Underwriter's over-allotment option is
exercised in full) 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, may generally only be sold in compliance with the
limitations of Rule 144 described below. The remaining 1,600,000 shares (or
1,480,000 if the Underwriter's over-allotment option is exercised in full) 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.
SALES OF RESTRICTED SHARES
Beginning thirteen months after the date of this Prospectus, 1,600,000
shares of Common Stock held by MOSCOM (excluding 120,000 shares that may be
sold by MOSCOM pursuant to the Underwriter's over-allotment option) and
subject to a lockup ("Lockup") agreement between the Underwriter and MOSCOM
will become eligible for sale in the public market if registered or pursuant
to an exemption, from registration such as Rule 144. Pursuant to the Lockup,
MOSCOM has agreed not to, directly or indirectly, offer, pledge, sell,
contract to sell, transfer or otherwise dispose of any shares of Common Stock
or any securities convertible into, or exchangeable or exercisable for,
shares of Common Stock for a period of one year after the date of this
Prospectus without the prior written consent of the Underwriter. In addition,
the Company has granted MOSCOM a demand registration right to register all of
its shares currently owned at such time, if any, as the Company may become
eligible to use Form S-3, provided that the maximum number of shares which
MOSCOM may sell at any time may not exceed the volume amount allowed pursuant
to Rule 144.
In general, Restricted Shares may be sold in the public market only if
registered or if qualified for an exemption from registration under Rule 144
or 701 promulgated under the Securities Act, which are summarized below, or
other exemptions. Sales of the Restricted Shares in the public market, or the
availability of such shares for sale, could materially adversely affect the
market price of the Common Stock. In general, under Rule 144 as currently in
effect, beginning 90 days after the date of this Prospectus, a person (or
persons whose shares are aggregated) who has beneficially owned Restricted
Shares for at least one year (including the holding period of any prior owner
other than an affiliate of the Company) would be entitled to sell within any
three month period a number of shares that does not exceed the greater of (i)
one percent of the number of shares of Common Stock then outstanding or (ii)
the average weekly trading volume of the Common Stock during the four
calendar weeks preceding the filing of notice of such sale. Sales under Rule
144 are also subject to certain manner of sale provisions and notice
requirements and to the availability of current public information about the
Company. Under Rule 144(k), a person who is not deemed to have been an
affiliate of the Company at any time during the three months preceding a
sale, and who has beneficially owned the shares proposed to be sold for at
least two years (including the holding period of any prior owner except an
affiliate of the Company), is entitled to sell such shares without complying
with the manner of sale, public information, volume limitation or notice
provisions of Rule 144. Unless otherwise restricted, such shares of Common
Stock may therefore be sold immediately upon the completion of this Offering.
Any employee, officer or director of or consultant to the Company who
purchased his or her shares pursuant to a written compensatory plan or
contract may be entitled to rely on the resale provisions of Rule 701. Rule
701 permits affiliates of the Company to sell their Rule 701 shares under
Rule 144 without complying with the holding period requirements of Rule 144.
Rule 701 further provides that nonaffiliates
49
<PAGE>
may sell such shares in reliance on Rule 144 without having to comply with
the public information, volume limitation or notice provisions of Rule 144.
In both cases, a holder of Rule 701 shares is required to wait until 90 days
after the date of this Prospectus before selling such shares.
Taking into account the lock-up agreements and the restrictions of Rules
144 and 701 described above, approximately no Restricted Shares will be
eligible for sale immediately after this Offering and approximately all
Restricted Shares will be eligible for sale beginning thirteen months after
the date of this Prospectus, subject, in some cases, to the volume
restrictions of Rule 144.
The Company has agreed not to offer, issue, sell, contract to sell, grant
any option for the sale of, or otherwise dispose of, directly or indirectly,
any shares of Common Stock or any securities convertible into or exercisable
or exchangeable for Common Stock or any rights to acquire Common Stock for a
period of 12 months from the date of this Prospectus without the prior
written consent of the Underwriter, subject to certain exceptions.
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 450,000
shares of Common Stock for issuance pursuant to the 1996 Stock Option Plan.
As of March 31, 1997, options to purchase 172,480 shares of Common Stock were
outstanding under the 1996 Stock Option Plan. The Company intends to file one
or more registration statements on Form S-8 under the Securities Act
approximately 90 days after the date of this Prospectus to register the
550,000 shares available for issuance under the 1996 Stock Option Plan. Such
registration statements are expected to become effective upon filing. After
the effective date of the applicable registration statement, shares of Common
Stock issued under the 1996 Stock Option Plan will be immediately eligible
for sale in the public market, subject to vesting limitations and
restrictions on affiliate sales. See "Management--Stock Option Plan."
Warrants. The Company has 160,000 shares reserved for issuance upon
exercise of the Underwriter's Warrants. See "Underwriting."
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<PAGE>
UNDERWRITING
The Underwriter has agreed, subject to the terms and conditions of the
Underwriting Agreement between the Company and the Underwriter, to purchase
from the Company 1,600,000 shares of Common Stock. The underwriting discount
set forth on the cover page of this Prospectus will be allowed to the
Underwriter at the time of delivery to the Underwriter of the shares so
purchased.
<TABLE>
<CAPTION>
NUMBER
OF
NAME OF UNDERWRITER SHARES
- ------------------------ ----------
<S> <C>
H.J. Meyers & Co., Inc.
----------
Total.................. 1,600,000
==========
</TABLE>
The Underwriter has advised the Company that they propose to offer the
shares to the public at an offering price of $5.00 per share and that the
Underwriter may allow certain dealers who are members of the National
Association of Securities Dealers ("NASD") a concession of not in excess of $
per share. After commencement of the offering, the public offering price
and concession may be changed.
Each of the Company and MOSCOM has granted to the Underwriter an option,
exercisable during the 30 business-day period from the date of this
Prospectus, to purchase up to a maximum of 120,000 additional shares,
respectively, on the same terms set forth above. The Underwriter may exercise
such rights only to satisfy over-allotment in the sale of the shares.
The Company has agreed to pay to Underwriter a non-accountable expense
equal to 3% of the total proceeds of the offering, or $240,000 ($258,000
and $18,000 payable by the Company and MOSCOM, respectively, if the
Underwriter exercises the over-allotment option in full). In addition to
the Underwriter's commission and the Underwriter's non-accountable expense
allowance, the Company is required to pay the costs of qualifying the shares
of Common Stock, under federal and state securities laws, together with legal
and accounting fees, printing and other costs in connection with this
offering, estimated to total approximately .
At the closing of this offering, the Company will issue to the Underwriter
the Underwriter's Warrant to purchase for investment a maximum of 160,000
shares of Common Stock. The Underwriter's Warrant will be exercisable for a
four-year period commencing one year from the date of this Prospectus. The
exercise price of the Underwriter's Warrant will be $6.00 per share (assuming
an initial public offering price of $5.00 per share). The Underwriter's
Warrant will not be transferable prior to its exercise date except to
officers of the Underwriter and members of the selling group and officers and
partners thereof. The Underwriter's Warrant will contain anti-dilution
provisions. The Underwriter's Warrant does not entitle the Underwriter to any
rights as a shareholder of the Company until such Warrant is exercised and
the shares of Common Stock are purchased thereunder. The Underwriter's
Warrant and the shares of Common Stock thereunder may not be offered for sale
except in compliance with the applicable provisions of the Securities Act.
The Company has agreed that, if it shall cause to be filed with the
Commission either an amendment to the Registration Statement of which this
Prospectus is a part of a separate registration statement, the Underwriter
shall have the right during the five-year period commencing on the date of
this Prospectus to include in such amendment or Registration Statement the
Underwriter's Warrant and the Company has agreed that, upon written request
by a holder or holders of 50% or more of the Underwriter's Warrant which is
made during the exercise period of the Underwriter's Warrant, the Company
will, on two separate occasions, register the Underwriter's Warrant and the
shares of Common Stock issuable upon exercise thereof. The initial such
registration will be at the Company's expense and the second which
registration will be at the expense of the holder(s) of the Underwriter's
Warrant.
For the period during which the Underwriter's Warrant is exercisable, the
holder or holders will have the opportunity to profit from a rise in the
market value of the Company's Common Stock, with a
51
<PAGE>
resulting dilution in the interests of the other shareholders of the Company.
The holder or holders of the Underwriter's Warrant can be expected to
exercise it at a time when the Company would, in all likelihood, be able to
obtain any needed capital from an offering of its unissued Common Stock on
terms more favorable to the Company than those provided for in the
Underwriter's Warrant. Such facts may materially adversely affect the terms
on which the Company can obtain additional financing. To the extent that the
Underwriter realizes any gain from the resale of the Underwriter's Warrant or
the securities issuable thereunder, such gain may be deemed additional
underwriting compensation under the Securities Act.
The Company has agreed to enter into a consulting agreement with the
Underwriter under the terms of which the Underwriter has agreed to perform
consulting services related to corporate finance and will be paid a
non-refundable fee of $6,000 per month for 12 months. The Company has agreed
to pay the Underwriter the entire one year fee upon closing.
On February 6, 1996, MOSCOM executed an agreement to retain
Grady & Hatch, Inc. ("Grady & Hatch") to assist MOSCOM in selling a portion
of its Votan division through an initial public offering. On September 4, 1996,
MOSCOM and Grady & Hatch executed an amendment to the agreement memorializing
Grady & Hatch's role to select and introduce MOSCOM management to suitable
investment banking firms to act as lead underwriter for an initial public
offering of Votan, to assist MOSCOM in evaluating an negotiating with
underwriters and otherwise assisting MOSCOM as reasonably requested to
facilitate the completion of the Company's initial public offering.
Grady & Hatch was not engaged to assist in distributing or selling securities
on behalf of MOSCOM or Votan. In consideration for the aforementioned services,
Grady & Hatch was to be paid the following compensation by the Company
guaranteed by MOSCOM (i) reimbursement for expenses incurred by Grady & Hatch
after February 6, 1996 in performance of the services outlined above ($4,340
was paid by MOSCOM) and (ii) the lesser of one percent (1%) of the gross dollar
proceeds of the Company's initial public offering or $250,000. Of that amount,
$100,000 was non-contingent and was paid by MOSCOM on September 4, 1996. The
balance was contingent and payable upon the settlement date of the Company's
initial public offering through an underwriter introduced to MOSCOM by Grady &
Hatch. The amended agreement terminated of February 6, 1997 without further
payment or liability to Brady & Hatch. H.J. Meyers & Co., Inc. was not
introduced to either MOSCOM or the Company by Grady & Hatch and Grady & Hatch
rendered no additional services from September 4, 1996 through February 6,
1997, pursuant to which amounts were owed to it by either MOSCOM or the
Company, other than the reimbursement of these expenses set forth above.
The Company has agreed that, for a period of 12 months from the date of
this Prospectus, it will not sell any securities, with the exception of the
shares of Common Stock issued upon exercise of currently outstanding options,
without the Underwriter's prior written consent, which consent shall not be
unreasonably withheld. In addition, for a period of 24 months from the date
of this Prospectus, the Company will not issue any shares of Preferred Stock
or sell or issue any securities pursuant to Regulation S under the Securities
Act without the Underwriter's prior written consent.
Holders of all of the Company's Common Stock outstanding prior to this
offering are expected to be subject to lock-up agreements under which the
holders of such shares will agree not to sell or dispose of any shares owned
by them prior to this offering, or subsequently acquired under any option,
warrant or convertible security owned by them prior to this offering, for a
period of 13 months after the date of this Prospectus, without prior written
consent of the Underwriter.
The Underwriting Agreement provides for reciprocal indemnification between
the Company and MOSCOM, on the one hand, and the Underwriters, on the other
hand, against certain liabilities in connection with the Registration
Statement, including liabilities under the Securities Act.
In addition, the Company has agreed that for a period of 36 months from
the closing of the offering, the Underwriter shall have the right to
designate two members to the Board of Directors, provided that the designees
are acceptable to the Company and not more than one will be an affiliate of
the Underwriter. Such members shall be entitled to the same compensation,
reimbursements and indemnification as other members of the Company's Board of
Directors.
52
<PAGE>
The Underwriter has advised the Company that the Underwriter does not
intend to confirm sales to any account over which they exercise discretionary
authority.
In addition, the Company has agreed that, for the three years following
the offering, it will not (i) implement a "poison pill" or other device
designed to prevent a hostile takeover of the Company, or increase the size
of the Company's Board of Directors, or (ii) increase the compensation of or
introduce severance packages for, its directors and officers, without the
approval of those members of the Company's Board of Directors who are not
employees of the Company.
On July 16, 1996, the National Association of Securities Dealers, Inc.
("NASD") issued a notice of acceptance of Acceptance, Waiver and Consent (the
"AWC") whereby the Underwriter was censured, and ordered to pay fines and
restitution to retail customers in the amount of $250,000 and approximately
$1.025 million, respectively. The AWC was issued in connection with claims by
the NASD that the Underwriter charged excessive markups and markdowns in
connection with the trading of four certain securities originally
underwritten by the Underwriter; the activities in question occurred during
periods between December 1990 and October 1993. The Underwriter has informed
the Company that the fines and refunds will not have material adverse effect
on the Underwriter's operations and that the Underwriter has effected
remedial measures to help ensure that the subject conduct does not recur.
Prior to this offering, there has been no public market for the shares of
Common Stock. The initial public offering price has been negotiated
among the Company and the Underwriter. Among the factors considered
in determining the initial public offering price of the Common Stock,
in addition to prevailing market conditions, are estimates of the
business potential and earning prospects of the Company, an assessment of the
Company's management and the consideration of the above factors in relation
to market valuation of companies in related businesses.
In connection with the offering, the Underwriter may engage in
transactions that stabilize, maintain or otherwise affect the price of the
Common Stock. Specifically, the Underwriter may overallot the offering,
creating a syndicate short position. In addition, the Underwriter may bid for
and purchase shares of Common Stock in the open market to cover syndicate
short positions or to stabilize the price of the Common Stock. Finally, the
underwriting syndicate may reclaim selling concessions from syndicate members
in the offering, if the syndicate repurchases previously distributed Common
Stock in syndicate covering transactions, in stabilization transactions or
otherwise. Any of these activities may stabilize or maintain the market price
of the Common Stock above independent market levels. The Underwriter is not
required to engage in these activities, and may end any of these activities
at any time.
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, San
Francisco, California. Certain legal matters in connection with the sale of
the shares of Common Stock offered hereby will be passed upon for the
Underwriter by Freshman, Marantz, Orlanski, Cooper & Klein, a law
corporation, Beverly Hills, California.
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 with respect thereto, and
are included herein in reliance upon the authority of said firm as experts in
giving said reports.
AVAILABLE INFORMATION
The Company has filed with the Commission, Washington, D.C. 20549 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
53
<PAGE>
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.
54
<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, 1996 and 1995,
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, 1996.
These financial statements are the responsibility of the Company's management
and 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, 1996 and 1995, and the results of its operations and its cash
flows for each of the three years in the period ended December 31, 1996 in
conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 2 to the
financial statements, the Company has suffered recurring losses from
operations and has a net capital deficiency that raises substantial doubt
about its ability to continue as a going concern. Management's plans in
regard to these matters are also described in Note 2. The financial
statements do not include any adjustments that might result from the outcome
of this uncertainty.
ARTHUR ANDERSEN LLP
Rochester, New York
March 7, 1997
F-2
<PAGE>
VOTAN CORPORATION
(FORMERLY A DIVISION OF MOSCOM CORPORATION)
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1995 1996
---------- -------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash................................................... $ 8,000 $ 3,000
Accounts receivable.................................... 2,000 26,000
Inventory.............................................. -- 4,000
---------- -------------
Total current assets.................................. 10,000 33,000
---------- -------------
PROPERTY AND EQUIPMENT, net............................. 63,000 123,000
---------- -------------
CAPITALIZED SOFTWARE, net of accumulated amortization
of $195,000 and $341,000 in 1995 and 1996,
respectively........................................... 269,000 207,000
---------- -------------
Total assets......................................... $342,000 $ 363,000
========== =============
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES:
Accounts Payable ...................................... $ -- $ 33,000
Accrued payroll, commissions and related taxes ........ 17,000 57,000
Deferred compensation.................................. 207,000 --
Due to MOSCOM Corporation.............................. -- 1,367,000
Other accrued liability................................ -- 2,000
---------- -------------
Total current liabilities............................. 224,000 1,459,000
---------- -------------
COMMITMENTS AND CONTINGENCIES ..........................
STOCKHOLDER'S EQUITY:
Preferred stock; 1,000,000 shares authorized, none
issued and outstanding at December 31, 1996,
$.01 par value........................................ -- --
Common stock; 20,000,000 shares authorized,
1,600,000 shares issued and outstanding at
December 31, 1996, $0.01 par value.................... -- 16,000
Additional paid-in capital............................. -- 201,000
Retained deficit ...................................... -- (1,313,000)
Divisional equity...................................... 118,000 --
---------- -------------
Total stockholder's equity (deficit).................. 118,000 (1,096,000)
---------- -------------
Total liabilities and stockholder's equity .......... $342,000 $ 363,000
========== =============
</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
DECEMBER 31,
--------------------------------------------
1994 1995 1996
-------------- ------------ --------------
<S> <C> <C> <C>
SALES...................................... $ 593,000 $ 572,000 $ 246,000
COST OF SALES:
Direct costs.............................. 122,000 132,000 82,000
Amortization of software development
costs.................................... 183,000 197,000 146,000
-------------- ------------ --------------
305,000 329,000 228,000
-------------- ------------ --------------
Gross profit.............................. 288,000 243,000 18,000
OPERATING EXPENSES:
Engineering and software development,
net...................................... 579,000 424,000 521,000
Selling and marketing..................... 293,000 323,000 407,000
General and administrative................ 418,000 386,000 964,000
-------------- ------------ --------------
1,290,000 1,133,000 1,892,000
-------------- ------------ --------------
Loss from operations...................... (1,002,000) (890,000) (1,874,000)
PROVISION FOR TAXES........................ 1,000 1,000 1,000
-------------- ------------ --------------
NET LOSS................................... $(1,003,000) $ (891,000) $(1,875,000)
============== ============ ==============
UNAUDITED PRO FORMA NET LOSS PER SHARE .... $ (1.17)
==============
Weighted average shares outstanding ....... 1,600,000
==============
</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 RETAINED
EQUITY STOCK STOCK CAPITAL DEFICIT
------------- ----------- --------- ------------ -------------
<S> <C> <C> <C> <C> <C>
Balance--January 1, 1994 .................... $ 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 for the period from January 1, 1996
through June 26, 1996 ...................... (562,000) -- -- -- --
Net loss for the period from June 27, 1996
through December 31, 1996 .................. -- -- -- -- (1,313,000)
Contribution from MOSCOM Corporation ....... 661,000 -- -- -- --
Transfer to common stock .................... (16,000) -- 16,000 -- --
Transfer to additional paid-in capital ..... (201,000) -- -- 201,000 --
------------- ----------- --------- ------------ -------------
Balance--December 31, 1996 .................. $ -- $-- $16,000 $201,000 $(1,313,000)
============= =========== ========= ============ =============
</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
DECEMBER 31,
--------------------------------------------
1994 1995 1996
-------------- ------------ --------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss...................................................... $(1,003,000) $(891,000) $(1,875,000)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation................................................. 28,000 26,000 27,000
Amortization of capitalized software......................... 183,000 197,000 146,000
Changes in operating assets and liabilities:
Decrease (increase) in:
Accounts receivable......................................... (41,000) 106,000 (24,000)
Other current assets........................................ -- 1,000 (4,000)
Increase (decrease) in:
Accounts Payable and other accrued liability ............... -- -- 35,000
Accrued payroll, commissions and related taxes.............. -- 1,000 40,000
Deferred compensation....................................... (4,000) 18,000 (207,000)
-------------- ------------ --------------
Net cash used in operating activities...................... (837,000) (542,000) (1,862,000)
-------------- ------------ --------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of equipment, furniture and fixtures................. -- (2,000) (87,000)
Capitalized software expenditures............................. (104,000) (51,000) (84,000)
-------------- ------------ --------------
Net cash used in investing activities...................... (104,000) (53,000) (171,000)
-------------- ------------ --------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net contribution from MOSCOM Corporation...................... 916,000 601,000 661,000
Due to MOSCOM Corporation .................................... -- -- 1,367,000
Net cash provided by financing activities.................. 916,000 601,000 2,028,000
-------------- ------------ --------------
NET INCREASE (DECREASE) IN CASH................................ (25,000) 6,000 (5,000)
CASH, beginning of period...................................... 27,000 2,000 8,000
-------------- ------------ --------------
CASH, end of period............................................ $ 2,000 $ 8,000 $ 3,000
============== ============ ==============
</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, 1994, 1995 AND 1996
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 11,
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 26, 1996 have been transferred to common stock and
additional paid-in capital, reflecting MOSCOM's initial capitalization of the
Company. The Company began accumulating its retained earnings as of June 27,
1996. 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. GOING CONCERN AND RISK FACTORS
The accompanying financial statements have been prepared assuming the
Company will continue as a going concern. 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 future operations. The
Company believes that its existing capital resources, together with the net
proceeds of an equity offering and the interest earned thereon, will be
adequate to fund the Company's operations for the next twelve months. 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 of 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.
The Company is also subject to certain risks common to companies in
similar stages of development. See "Risk Factors -- Going Concern Assumption;
Past and Anticipated Operating Losses; Uncertainty of Future Results,"
"--Recent Organization: Absence of Operating History as an Independent
Business; Limited Relevance of Historical Financial Information,"
"--Uncertainties Regarding Future Capital Requirements; Absence of MOSCOM
Funding," "--Early Stage of Market Development; Uncertainty of Market
Acceptance," "--No Assurance of Commercialization of Products Under
Development," and " -- Potential Fluctuations in Quarterly Results."
3. 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.
F-7
<PAGE>
VOTAN CORPORATION
(FORMERLY A DIVISION OF MOSCOM CORPORATION)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (Continued)
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.
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
Inventories are carried at the lower of cost or market value on a
first-in, first-out (FIFO) basis. Inventories are manufactured on a contract
basis as required. Cost of sales on Votan products are reflected herein at
MOSCOM's costs. See Note 10 for a further description of related party
transactions.
Property and Equipment
Property and equipment is recorded at cost. Depreciation is computed on a
straight-line basis using the following estimated useful lives:
<TABLE>
<CAPTION>
<S> <C>
Computer hardware and software .... 3-5 years
Machinery and equipment ............ 4-7 years
Furniture and fixtures ............. 5-10 years
</TABLE>
Software Development Costs
Software development costs meeting recoverability tests are capitalized
and amortized on a product-by-product basis over their economic lives,
generally three years, or the ratio of current revenues to current and
anticipated revenues from such software, whichever provides the greater
amortization. The Company continually evaluates, based upon cash flow
projections on a product basis and other factors as appropriate, whether
events and circumstances have occurred that indicate that the remaining
estimated useful life of the applicable asset warrants revision or that the
remaining balance of the asset may not be recoverable. Software development
costs and related accumulated amortization are written off when fully
amortized.
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
has begun accumulating retained earnings (accumulated deficit) as of June 27,
1996.
F-8
<PAGE>
VOTAN CORPORATION
(FORMERLY A DIVISION OF MOSCOM CORPORATION)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (Continued)
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 11, the Company will
receive royalty income relative to such sales.
Income Taxes
MOSCOM Corporation files a consolidated federal income tax return in the
United States. Prior to June 26, 1996, Votan was 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.
Certain of the 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, giving retroactive effect to the
capitalization of the Company and the 5,499 per share stock dividend on the
Common Stock and the 3.4375 to 1 reverse stock split (see Notes 11 and 12).
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.
Long-Lived Assets
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.
Stock-Based Compensation
In October, 1995, Statement of Financial Accounting Standards (SFAS) No.
123, "Accounting for Stock-Based Compensation" was issued which sets forth a
fair value method of recognizing stock based compensation expense. As
permitted by SFAS No. 123, 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" and will disclose the additional information relative to issued
stock options and 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. There was no effect on the Company's financial statements as a result
of adopting this statement.
F-9
<PAGE>
VOTAN CORPORATION
(FORMERLY A DIVISION OF MOSCOM CORPORATION)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
4. PROPERTY AND EQUIPMENT:
The major classifications of property and equipment as of December 31,
1995 and 1996 are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1995 1996
--------- ---------
<S> <C> <C>
Machinery and equipment........... $ 18,000 $ 30,000
Computer hardware and software ... 84,000 137,000
Furniture and fixture............. 58,000 79,000
--------- ---------
Property and equipment, at cost .. 160,000 246,000
Less: Accumulated depreciation ... 97,000 123,000
--------- ---------
Total property and equipment,
net.............................. $ 63,000 $123,000
========= =========
</TABLE>
5. ENGINEERING AND SOFTWARE DEVELOPMENT EXPENDITURES:
Engineering and software development expenditures incurred during the
years ended December 31, 1994, 1995 and 1996 were recorded as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------
1994 1995 1996
---------- ---------- ----------
<S> <C> <C> <C>
Engineering and software development expense
included in the statements of operations ... $579,000 $424,000 $521,000
Amounts capitalized and included in the
balance sheets.............................. 104,000 51,000 84,000
---------- ---------- ----------
Total expenditures for engineering and
software development....................... $683,000 $475,000 $605,000
========== ========== ==========
</TABLE>
6. 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. Net cash paid on behalf of the Company by MOSCOM was accounted for
as capital contributions to divisional equity through June 26, 1996.
Subsequent to June 26, 1996, advances to the Company from MOSCOM are included
as a short-term liability and included on the Company's balance sheet with
$1,367,000 due to MOSCOM. Amounts outstanding under this arrangement are
noninterest bearing and due upon demand. All amounts outstanding are expected
to be repaid to MOSCOM upon the successful completion of the Company's
initial stock offering. The Company has not reflected either interest income
or interest expense on centralized cash balances or borrowings and any such
amounts are not material to the financial statements.
7. SIGNIFICANT CUSTOMERS AND CONCENTRATION OF CREDIT RISK:
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. Sales to three customers were approximately
44%, 20%, and 20% of the Company's total sales in 1996.
Export sales to European companies amounted to $359,000 and $397,000 for
the years ended December 31, 1994 and 1995, respectively. There were no sales
to European companies for the year ended December 31, 1996.
F-10
<PAGE>
VOTAN CORPORATION
(FORMERLY A DIVISION OF MOSCOM CORPORATION)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
8. 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, 1994, 1995 and 1996, 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, 1994, 1995 and
1996 includes the following:
<TABLE>
<CAPTION>
1994 1995 1996
----------- ----------- -----------
<S> <C> <C> <C>
Current:
$ $ $
Federal ........................ -- -- --
State........................... 1,000 1,000 1,000
Deferred:
Federal ........................ (324,000) (286,000) (610,000)
State........................... (49,000) (48,000) (79,000)
Increase in valuation
allowance....................... 373,000 334,000 689,000
----------- ----------- -----------
Total.......................... $ 1,000 $ 1,000 $ 1,000
=========== =========== ===========
</TABLE>
The income tax provision differs from those computed using the statutory
federal rate of 34%, for the years ended December 31, 1994, 1995 and 1996 due
to the following:
<TABLE>
<CAPTION>
1994 1995 1996
------------ ------------ ------------
<S> <C> <C> <C>
Tax at statutory rate................... $(341,000) $(303,000) $(637,000)
State taxes, net of federal tax effect (32,000) (31,000) (52,000)
Increase in valuation allowance......... 373,000 334,000 689,000
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, 1995 and 1996 as
follows:
<TABLE>
<CAPTION>
1995 1996
------------- -------------
<S> <C> <C>
Net operating loss
carryforwards................... $ 1,318,000 $ 2,059,000
Fixed assets..................... (9,000) (8,000)
Capitalized software............. (107,000) (83,000)
Deferred compensation............ 85,000 8,000
Valuation allowance.............. (1,287,000) (1,976,000)
------------- -------------
Deferred asset (liability) ..... $ -- $ --
============= =============
</TABLE>
Certain of the net operating loss tax carryforwards reflected herein have
been utilized by MOSCOM and will not be available for use in future periods.
9. COMMITMENTS AND CONTINGENCIES:
Operating Leases
The Company leases its office facilities under an operating lease which
was originally scheduled to expire in 1998. On July 8, 1996, the Company
entered into a new lease for a 10,680 square foot facility
F-11
<PAGE>
VOTAN CORPORATION
(FORMERLY A DIVISION OF MOSCOM CORPORATION)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
9. COMMITMENTS AND CONTINGENCIES: (Continued)
commencing December 1, 1996 and ending November 30, 2001. This lease
superseded the Company's current lease which was to expire in 1998. Rent
expense (exclusive of real estate taxes and other expenses) was $69,000,
$23,000 and $56,000 for the years ended December 31, 1994, 1995 and 1996,
respectively. The future minimum payments under the new operating lease for
the years ending December 31 are as follows:
<TABLE>
<CAPTION>
<S> <C>
1997... $173,000
1998... 179,000
1999... 184,000
2000... 191,000
2001... 175,000
</TABLE>
MOSCOM rent expense allocated to the Company was $17,000, $13,000 and
$4,000 for the years ended December 31, 1994, 1995 and 1996, respectively.
This is included within the allocations discussed in Note 10.
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.
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.
10. 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, 1994, 1995 and 1996 as
follows:
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
----------------------------------
1994 1995 1996
---------- ---------- ----------
<S> <C> <C> <C>
Engineering and software development .... $405,000 $249,000 $139,000
Marketing................................ 66,000 62,000 19,000
Selling.................................. 101,000 135,000 3,000
Administrative........................... 118,000 132,000 88,000
---------- ---------- ----------
Total allocation of operating
expenses................................ $690,000 $578,000 $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 employees are reflected directly in the accompanying
financial statements.
F-12
<PAGE>
VOTAN CORPORATION
(FORMERLY A DIVISION OF MOSCOM CORPORATION)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
10. RELATED PARTY TRANSACTIONS: (Continued)
Reflected in the balance sheet as of December 31, 1996 is $1,367,000 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 11. These amounts
will be repaid to MOSCOM, up to a maximum of $1.6 million, upon successful
completion of the initial public offering. Any amounts in excess of $1.6
million will be treated as an increase to the Company's equity upon
completion of the 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 $2.1 million, $2.2 million and $2.5
million for the years ended December 31, 1994, 1995 and 1996, respectively.
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.
11. 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 balance sheet as of December 31, 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 transfered 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 agreed to assume and pay, perform and discharge all
debts, obligations, contracts and liabilities of MOSCOM related to these
assets. The Company also agreed 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. 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.
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
F-13
<PAGE>
VOTAN CORPORATION
(FORMERLY A DIVISION OF MOSCOM CORPORATION)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
11. CAPITALIZATION: (Continued)
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 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.
Options granted under this plan are exercisable for ten years from the
date of grant and vest over a four year period. No options, however, are
exercisable prior to the completion of a public offering of the Company's
Common Stock.
During 1996, 402,000 options were granted and are outstanding at December
31, 1996, consisting of 342,000 incentive stock options exercisable at $6.00
per share and 60,000 non-qualified stock options exercisable at $5.15 per
share. No options were exercised during 1996.
On September 20, 1996, the Company declared a stock 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.
12. SUBSEQUENT EVENTS:
Reverse Stock Split
On March 7, 1997, the Board of Directors of the Company approved a 3.4375
to 1 reverse stock split. All share and per share amounts have been restated
to reflect the effects of the reverse stock split.
Stock Option Plan
On March 7, 1997, the following events occurred; (i) the Company cancelled
all outstanding stock options previously granted under the Plan, (ii) amended
the 1996 Stock Option Plan reducing the number of shares of Common Stock
originally authorized for issuance from 825,000 shares to 450,000 shares and
(iii) issued 172,480 non-qualified stock options exercisable at $4.25 per
share which vest over a four year period. No options, however, are
exercisable prior to the earlier of (i) the completion of a public offering
of the Company's Common Stock or (ii) March 7, 1998.
F-14
<PAGE>
[GRAPHIC OMITTED]
This chart depicts potential applications within a bank for the Company's voice
verification technologies including: bank teller verification, home banking and
automatic teller machines.
[VOTAN LOGO]
<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 UNDERWRITER. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY OF THE
SECURITIES OFFERED HEREBY IN ANY JURISDICTION TO ANY PERSON TO WHOM IT IS
UNLAWFUL TO MAKE SUCH OFFER IN SUCH JURISDICTION. NEITHER THE DELIVERY OF
THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES,
CREATE ANY IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF
ANY TIME SUBSEQUENT TO THE DATE HEREOF OR THAT THERE HAS BEEN NO CHANGE IN
THE AFFAIRS OF THE COMPANY SINCE SUCH DATE.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
Prospectus Summary ......................... 3
Risk Factors ............................... 7
Use of Proceeds ............................ 17
Dividend Policy ............................ 17
Capitalization ............................. 18
Dilution ................................... 19
Selected Financial Data .................... 20
Management's Discussion and Analysis of
Financial Condition and Results of
Operations ................................ 21
Business ................................... 25
Management ................................. 37
Certain Transactions ....................... 43
Principal Stockholders ..................... 46
Description of Capital Stock................ 47
Shares Eligible for Future Sale ............ 49
Underwriting ............................... 51
Legal Matters .............................. 53
Experts .................................... 53
Available Information ...................... 53
Index to Financial Statements .............. F-1
</TABLE>
UNTIL , 1997 (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.
1,600,000 SHARES
#############################################################################
GRAPHIC OMITTED
PICKUP: "P1"
=============================================================================
IMAGE: "VOTANLOGO"
=============================================================================
#############################################################################
VOTAN CORPORATION
COMMON STOCK
PROSPECTUS
H. J. MEYERS & CO., INC.
, 1997
<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 Small
Cap Market listing fee.
<TABLE>
<CAPTION>
AMOUNT TO
BE PAID
-----------
<S> <C>
SEC registration fee................................. $ 13,562
NASD filing fee ..................................... 8,728
Nasdaq SmallCap Market listing fee .................. 20,000
Printing and engraving expenses ..................... 200,000
Legal fees and expenses ............................. 250,000
Accounting fees and expenses ........................ 260,000
Blue sky fees and expenses (including counsel fees) 40,000
Transfer agent and registrar fees and expenses ..... 10,000
Fee paid to Grady & Hatch ........................... 100,000
Underwriter's non-accountable expense allowance (1) 240,000
Miscellaneous ....................................... 57,710
-----------
Total (2).......................................... $1,200,000
===========
</TABLE>
- ------------
(1) $258,000 and $18,000 payable by the Registrant and MOSCOM, respectively,
if the Underwriter's over-allotment option is exercised in full.
(2) This total includes approximately $400,000 of expenses, which were
paid by MOSCOM in connection with the Company's postponed 1996
offering that will not be reimbursed by the Company.
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 stock 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.
II-1
<PAGE>
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
- ------------ ----------------------------------------------------------------------------------------------
<S> <C>
1.2 Form of Underwriting Agreement between the Registrant and H.J. Myers & Co., Inc.
3.1 * Amended and Restated Certificate of Incorporation of the Registrant.
3.1(a)* Certificate of Amendment of Certificate of Incorporation of the Registrant.
3.2 * Amended and Restated Bylaws of the Registrant.
3.2(a) Second 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).
4.3 * Form of Underwriter's Warrant.
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.
10.2(a)* First Amendment to Bernal Corporate Park Lease.
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.
10.8 * 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.
10.11 * Financial Consulting Agreement between Registrant and H.J. Meyers & Co. Inc.
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).
23.4 * Consent of William E. O'Connor (Chief Financial Officer Designee).
24.1 * Powers of Attorney (see Signature page).
27.1 * Financial Data Schedule.
</TABLE>
- ------------
* Previously filed.
(b) Financial Statement Schedules
Schedules not listed above have been omitted because the information
required to be set forth therein is not applicable or is shown in the
Financial Statements or notes thereto.
II-2
<PAGE>
ITEM 17. UNDERTAKINGS
The Registrant hereby undertakes to provide to the Underwriters at the
closing specified in the Underwriting Agreement certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the Delaware General Corporation Law, the Certificate
of Incorporation of the Registrant, the Underwriting Agreement, or otherwise,
the Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as
expressed in the Act, and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the Registrant of expenses incurred or paid by a director, officer or
controlling person of the Registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered hereunder, the
Registrant will, unless in the opinion of counsel the matter has been settled
by controlling precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of such
issue.
The Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Act, the
information omitted from the form of Prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a
form of Prospectus filed by the Registrant pursuant to Rule 424 (b)
(1) or (4), or 497 (h) under the Act shall be deemed to be part of
this Registration Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act
of 1933, each post-effective amendment that contains a form of
Prospectus shall be deemed to be a new Registration Statement relating
to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering
thereof.
The Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement;
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after the
effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
registration statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high end of the estimated maximum offering range
may be reflected in the form of prospectus filed with the Commission
pursuant to Rule 424(b) if, in the aggregate, the changes in volume and
price represent no more than a 20 percent change in the maximum aggregate
offering price set forth in the "Calculation of Registration Fee" table in
the effective registration statement.
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement."
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment 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.
(3) To remove from registration by means of a post-effectiv amendment any
of the securities being registered which remain unsold at the
termination of the offering.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment No. 5 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 8th day of April, 1997.
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. 5 TO THIS REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS
IN THE CAPACITIES INDICATED ON THE 8TH DAY OF APRIL, 1997:
SIGNATURE TITLE(S)
- --------- --------
By: /s/ John A. White President, Chief Executive Officer
---------------------------- and Director (Principal Executive
John A. White and Financial Officer)
By: * Director
----------------------------
Albert J. Montevecchio
*By: /s/ John A. White
----------------------------
John A. White as
Attorney-in-Fact
II-4
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION PAGE NO.
- --------------- --------------------------------------------------------------------------------------- ------------
<S> <C> <C>
1.2 Form of Underwriting Agreement between the Registrant and H.J. Myers & Co., Inc.
3.1 * Amended and Restated Certificate of Incorporation of the Registrant.
3.1(a)* Certificate of Amendment of Certificate of Incorporation of the Registrant.
3.2 * Amended and Restated Bylaws of the Registrant.
3.2(a) Second 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).
4.3 * Form of Underwriter's Warrant.
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.
10.2(a)* First Amendment to Bernal Corporate Park Lease.
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.
10.8 * 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.
10.11 * Financial Consulting Agreement between Registrant and H.J. Meyers & Co. Inc.
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).
23.4 * Consent of William E. O'Connor (Chief Financial Officer Designee)
24.1 * Powers of Attorney (see Signature page).
27.1 * Financial Data Schedule.
</TABLE>
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* Previously filed.
<PAGE>
VOTAN CORPORATION
6920 Koll Center Parkway, Suite 214
Pleasanton, California 94566
UNDERWRITING AGREEMENT
_____________, 1997
H.J. Meyers & Co., Inc.
1895 Mt. Hope Avenue
Rochester, New York 14620
Ladies and Gentlemen:
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 Representative. 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 "Representative" will refer to
you in your capacity as the representative 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 Representative.
Section 2. Shares Offered. The Company proposes to issue and sell to the
Underwriters an aggregate of 1,600,000 shares of its authorized and unissued
common stock, $0.01 par value per share (the "Common Stock") (the "Firm
Shares"). The Selling Stockholder proposes to grant to the Underwriters an
Option (hereinafter defined) to purchase up to an additional aggregate of
240,000 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
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<PAGE>
been so prepared and filed. If such registration statement has not become
effective as of the execution and delivery of this Agreement, and the
filing of a further amendment (the "Final Amendment") to such registration
statement is necessary to permit such registration statement to become
effective, such amendment will promptly be filed by the Company with the
Commission. If such registration statement has become effective and any
post-effective amendment has been filed with the Commission prior to the
execution and delivery of this Agreement, the most recent such amendment
has been declared effective by the Commission. If such registration
statement has become effective, either (A) if the Company relies on Rule
434 under the Act, a Term Sheet (hereinafter defined) relating to the
Shares, that shall identify the preliminary prospectus (hereinafter
defined) that it supplements containing such information as is required or
permitted by Rules 434, 430A and 424(b) under the Act, will be promptly
filed with the Commission by the Company or (B) if the Company does not
rely on Rule 434 under the Act, a final prospectus (the "Rule 430A
Prospectus") containing information permitted to be omitted at the time of
effectiveness by Rule 430A of the Rules and Regulations will promptly be
filed by the Company pursuant to Rule 424(b) of the Rules and Regulations.
The term "preliminary prospectus" as used herein means each prospectus
subject to completion included at any time as part of such registration
statement or any amendment thereto or filed with the Commission pursuant
to Rule 424(a) of the Rules and Regulations; such registration statement,
as amended at the time that it becomes or became effective, or, if
applicable, as amended at the time the most recent post-effective
amendment to such registration statement filed with the Commission 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
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<PAGE>
any Term Sheet that is a part thereof (as amended or as supplemented if
the Company shall have filed with the Commission any amendment thereof or
supplement thereto; provided, that no amendment or supplement to the
Registration Statement or the Prospectus, including as a result of the
filing of a Term Sheet, shall be made without prior consultation with you,
and your approval), will comply with the requirements of the Act and the
Rules and Regulations, will contain all statements required to be stated
therein in accordance with the Act and the Rules and Regulations, will not
contain an untrue statement of a material fact and will not omit to state
a material fact required to be stated therein or necessary in order to
make the statements therein, in the light of the circumstances under which
they were made, not misleading; provided, however, that the
representations and warranties in this subsection (ii) do not apply to
statements or omissions in the Registration Statement or the Prospectus
based upon and made in conformity with written information furnished to
the Company by or on behalf of any Underwriter specifically for inclusion
therein.
(iii) The Commission has not issued an order preventing or suspending
the use of any preliminary prospectus with respect to the Shares and has
not instituted or threatened to institute any proceedings with respect to
such an 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
Representative 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
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<PAGE>
firm, partnership, association or other entity, except as otherwise set
forth in the Prospectus. A complete and correct copy of the certificate of
incorporation of the Company and by-laws of the Company as currently in
effect have been delivered to you and no changes therein will be made
subsequent to the date hereof and prior to the Closing Time or each Option
Exercise Time.
(v) The Company is, and at the Closing Time and at the Option
Exercise Time will be, authorized to issue only 20,000,000 shares of
Common Stock and 1,000,000 shares of preferred stock, $0.01 par value (the
"Preferred Stock"), and has heretofore validly issued, and has
outstanding, and at the Closing Time and at each Option Exercise Time will
have outstanding, fully paid and nonassessable, 1,600,000 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 450,000 shares of Common
Stock under the Company's 1996 Stock Option Plan, of which 172,480 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.
(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
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<PAGE>
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 December 31, 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 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,
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<PAGE>
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 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
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<PAGE>
under this Agreement and the consummation of the transactions contemplated
hereby will not conflict with or result in a breach or violation of any of
the terms and provisions of, or constitute a default under (there being no
existing state of events which with notice or lapse of time or both would
constitute a default) or result (or with the giving of notice or lapse of
time or both will result) in the creation or imposition of any lien,
charge or encumbrance upon the assets or properties of the Company
pursuant to any indenture, mortgage, deed of trust, voting trust
agreement, loan agreement, letter of credit agreement, bond, debenture,
note agreement or other evidence of indebtedness, lease, contract or other
agreement or instrument to which the Company is a party or by which the
Company or any of its properties is bound, or under the certificate of
incorporation or by-laws of the Company or under any statute or under any
order, rule or regulation applicable to the Company or its business or
properties or of any court or other governmental body; and no consent,
approval, authorization or order of any court or governmental agency or
body is required for the consummation by the Company of the transactions
on its part herein contemplated, except such as may be required under the
Act or under state securities or blue sky laws.
(xvii) The Company has good and marketable title to all properties
and assets owned by it, free and clear of all liens, charges, encumbrances
or restrictions, except such as are described in or referred to in the
Prospectus or are not material or important in relation to the business of
the Company. The Company has valid, subsisting and enforceable leases for
the properties described in the Prospectus as leased by it, with such
exceptions as are not material and do not interfere with the use made, and
proposed to be made, of such properties by it.
(xviii) There is no document or contract of a character required to
be described in the Prospectus or to be filed as an exhibit to the
Registration Statement which is not described or filed as required; and no
statement, representation, warranty or covenant made by the Company in
this Agreement or in any certificate or document required by this
Agreement to be delivered to you is, was when made, or as of the Closing
Time or any Option Exercise Time will be, inaccurate, untrue or incorrect.
No transaction has occurred between or among the Company and the Selling
Stockholder and any of their officers, directors or stockholders or any
affiliate of any such officer, director or stockholder that is required to
be described in and is not described in the Registration Statement and the
Prospectus.
(xix) The Company has sufficient trademarks, trade names, registered
service marks, patents, patent applications, patent rights, licenses,
permits, copyright protection and governmental or other authorizations
currently required for the conduct of its business, and the Company is in
all material respects complying therewith and, to the best knowledge of
the Company and the Selling Stockholder and except as otherwise set forth
in the Prospectus, the products and services, and the marks associated
therewith, used by the Company do not violate or infringe any trademarks,
trade names, registered service marks, patents, patent rights, licenses,
permits or copyrights held or owned by any other party. Other than as
disclosed in the Prospectus, the Company has not received any notice of
violation or infringement of or conflict with asserted rights of others
with respect to any trademarks, trade names, registered service marks,
patents, patent rights, licenses,
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<PAGE>
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.
(xxiv) Other than its obligations to the Representative pursuant to
the Financial Consulting Agreement dated as of even date herewith between
the Company and the Representative, 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 financial consulting fees,
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
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<PAGE>
materially adversely affect the business, financial condition or results
of operations of the Company.
(xxvi) For a period of thirty-six (36) months from the First Closing
Date, the Company shall allow the Representative to designate two (2)
members to the Board of Directors which designees shall be acceptable to
the Company. Such directors shall be reimbursed for all out-of-pocket
expenses incurred in attending such meetings and in the event the Company
establishes a policy of compensating
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<PAGE>
directors in the future, such directors shall be eligible for such
compensation. The Company shall hold at least four (4) meetings per year
and the directors will be indemnified by the Company against any claims
arising out of their participation at Board meetings.
(xxvii) The Company will not implement a "poison pill" or other
device designed to prevent a hostile takeover of the Company, or increase
the size of the Company's Board of Directors, or increase the compensation
of or introduce severance packages for its directors and officers without
the approval of those members of the Company's Board of Directors who are
not employees of the Company, for a period of three years from the Closing
Time.
(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 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.
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<PAGE>
(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,
the Company agrees to sell to the Underwriters, and the Underwriters agree
to purchase from the Company, 1,600,000 Shares at and for a price of $___
per Share. The number of Shares to be purchased from the Company (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.
(ii) Delivery of the Firm Shares shall be made to you for the
accounts of the respective Underwriters, at your offices at 1895 Mt. Hope
Avenue, Rochester, New York, or such other location 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 by wire transfer in immediately available
funds to the Company of the amount to which it is entitled, at 10:00 A.M.,
New York City Time, on _________ __, 1997, 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 Representative and the Company may agree upon or as the
Representative 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
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<PAGE>
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 will make the certificates for the Firm Shares
available to you for examination at the offices of H.J. Meyers & Co.,
Inc., at 1895 Mt. Hope Avenue, Rochester, 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 240,000 Option Shares, in the same proportion as each
Underwriter has agreed to purchase the Firm Shares, at and for a price of
$______ for each Option Share; provided, however, that the Option may be
exercised only for the purpose of covering any over-allotments which may
be made by you in connection with the distribution and sale of the Firm
Shares.
(ii) The Option is exercisable by you in whole or in part at any time
or times on or before 12:00 noon, New York City time, on the day prior to
the Closing Time, and at any time or times thereafter during the period
ending 30 days after the date of the Prospectus (or if such 30th 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.
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<PAGE>
(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 1895 Mt. Hope Avenue,
Rochester, New York, or such other location 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.
(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 H.J. Meyers & Co., Inc., at 1895 Mt. Hope
Avenue, Rochester, New, 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 Representative
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 Representative 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
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<PAGE>
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 H.J. Meyers & 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 Representative, for an aggregate purchase price of $5.00, five-year
warrants (the "Warrants") to purchase an aggregate of 160,000 shares of the
Common Stock at an exercise price per share equal to 120% of the initial public
offering price per share set forth on the cover page of the Prospectus. The
Warrants shall be exercisable beginning one year from the date of the
Prospectus. The Warrants shall be in the form of Exhibit 4.3 to the
Registration Statement. Execution and delivery of Warrants, registered in your
name or the names of such of your officers as you shall notify the Company in
writing, shall be made to you, c/o H.J. Meyers & Co., Inc., at their offices at
1895 Mt. Hope Avenue, Rochester, 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 Representative, without charge, as many copies
of the Prospectus and any amendment or supplement thereto as the Representative
may reasonably request for purposes of confirming orders that are expected to
settle at the Closing Time.
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<PAGE>
(c) The Company has authorized the Underwriters to use, and make available
for use by prospective dealers, the preliminary prospectuses, and authorizes
each Underwriter, all dealers (the "Selected Dealers") selected by you in
connection with the distribution of the Shares and all dealers to whom any of
such Shares may be sold by the Underwriters or by any Selected Dealer, to use
the Prospectus, as from time to time amended or supplemented, in connection
with the sale of the Shares in accordance with the applicable provisions of the
Act, the applicable Rules and Regulations and applicable state law until
completion of the public offering of the Shares and for such longer period as
you may request if the Prospectus is required to be delivered in connection
with sales of the Shares by an Underwriter or a dealer.
Section 7. Covenants. (a) The Company covenants and agrees with each
Underwriter that:
(i) After the execution and delivery of this Agreement, the Company
will not, at any time, whether before or after the Effective Date, file
any Term Sheet or any amendment of or supplement to the Registration
Statement or the Prospectus of which you shall not previously have been
advised and furnished with a copy, or which you or Freshman, Marantz,
Orlanski, Cooper & Klein, a law corporation ("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
Prospectus untrue or which requires the making of any changes in the
Registration Statement or the Prospectus in order to make the
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<PAGE>
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 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
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fiscal year of the Company, either (1) a consolidated balance sheet of the
Company and its then consolidated subsidiaries, and a separate balance
sheet of each subsidiary, if any, of the Company the accounts of which are
not included in such consolidated balance sheet, as of the end of such
fiscal year, and consolidated statements of income and stockholders'
equity of the Company and its consolidated subsidiaries, and separate
statements of income and stockholders' equity of each of the subsidiaries,
if any, of the Company the accounts of which are not included in such
consolidated statements, for the fiscal year then ended, all in reasonable
detail, prepared in accordance with generally accepted accounting
principles, consistently applied, and all certified by independent
accountants (within the meaning of the Act and the Rules and Regulations),
or (2) the Company's Form 10-K for such fiscal year as filed with the
Commission in accordance with the Exchange Act; (B) within 60 days after
the end of each of the first three fiscal quarters of each fiscal year,
either (1) similar balance sheets as of the end of such fiscal quarter and
similar statements of income and stockholders' equity for the fiscal
quarter then ended, all in reasonable detail, and all certified by the
Company's principal financial officer or the Company's principal
accounting officer as having been prepared in accordance with generally
accepted accounting principles, consistently applied, or (2) the Company's
Form 10-Q for such fiscal quarter as filed with the Commission in
accordance with the Exchange Act; (C) as soon as available, each report
furnished to or filed with the Commission or any securities exchange and
each report and financial statement furnished to the Company's
stockholders generally; and (D) as soon as available, such other material
as such Underwriter may from time to time reasonably request regarding the
financial condition and operations of the Company and its subsidiaries;
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 Representative 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 12 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
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<PAGE>
opinions, the letters and the certificates referred to in subsections (e),
(f), (g), (h), (i) and (j) of Section 9 hereof, and, in the event that the
Company shall file any amendment to the Registration Statement relating to
the offering of the Shares or any amendment or supplement to the
Prospectus relating to the offering of the Shares subsequent to the
Effective Date, whether pursuant to subsection (iii) of this Section 7(a)
or otherwise, such counsel, such accountants and such officers will, at
the time of such filing or at such subsequent time as you shall specify,
respectively, furnish to you such opinions, letters and certificates, each
dated the date of its delivery, of the same nature as the opinions, the
letters and the certificates referred to in said subsections (e), (f),
(g), (h), (i) and (j) respectively, as you may reasonably request, or, if
any such opinion, letter or certificate cannot be furnished by reason of
the fact that such counsel or such accountants or any such officer
believes that the same would be inaccurate, such counsel or such
accountants or any such officer will furnish an accurate opinion, letter
or certificate with respect to the same subject matter.
(x) Prior to the later to occur of the termination of the Option and
the Option Exercise Time, the Company will not issue, directly or
indirectly, without your prior consent and that of counsel for the
Underwriters, any press release or other communication or hold any press
conference with respect to the Company or its activities or this offering.
(xi) The Company will not, without your prior written consent, sell,
contract to sell or otherwise dispose of any securities, including shares
of Common Stock, except the sale of the Shares, 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
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<PAGE>
the following investments so long as they have maturities of one year or
less: (A) obligations issued or guaranteed by the United States or by any
person controlled or supervised by or acting as an instrumentality of the
United States pursuant to authority granted by Congress; (B) obligations
issued or guaranteed by any state or political subdivision thereof rated
either Aa or higher, or MIG 1 or higher, by Moody's Investors Service,
Inc. or AA or higher, or an equivalent, by Standard & Poor's Corporation,
both of New York, New York, or their successors; (C) commercial or finance
paper which is rated either Prime-1 or higher or an equivalent by Moody's
Investors Service, Inc. or A-1 or higher or an equivalent by Standard &
Poor's Corporation, both of New York, New York, or their successors; and
(D) certificates of deposit or time deposits 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) The Company has caused the Common Stock to be duly included for
quotation on the Nasdaq Stock Market's SmallCap Market (the "Nasdaq
SmallCap").
(xv) On or before the Closing Time, the Company shall have (i)
executed and delivered to the Representative the Financial Consulting
Agreement, in the form filed as an Exhibit to the Registration Statement
and (ii) paid the Representative the full non-refundable fee pursuant to
the Financial Consulting Agreement.
(xvi) On or before the Closing Time, the Company shall have amended its
by-laws to include a provision to prevent the Company from performing any of
the following actions without the approval of those members of the Company's
Board of Directors who are not employees of the Company for a period of three
years: (i) implementing a "poison pill" or other device designed to prevent a
hostile takeover of the Company, (ii) increasing the size of the Board of
Directors, (iii) increase the compensation of or introduce severance packages
for its directors and officers.
(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
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<PAGE>
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
Representative, to such effect.
(iii) The Selling Stockholder will not, without your prior written
consent, directly or indirectly, offer, pledge, sell, contract to sell,
transfer or otherwise dispose of any shares of Common Stock or any
securities convertible into, or exchangeable or exchangeable for shares of
Common Stock, except the sale of Shares to the Underwriters pursuant to
this Agreement, for a period of one year after the Effective Date.
(iv) The Selling Stockholder will furnish the certificates referred
to in subsections (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 Representative, 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
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.
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<PAGE>
(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 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,
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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 Nasdaq SmallCap 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 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
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Company upon exercise of the Warrants have been duly authorized and
reserved for sale or issuance, and, when sold or issued and delivered
upon payment of the exercise price therefor as provided in the
Warrants, will be duly and validly issued, fully paid and
nonassessable.
(vii) The Company has full corporate power and authority to
enter into this Agreement and this Agreement has been duly
authorized, executed and delivered by the Company.
(viii) The Registration Statement and the Prospectus, and each
amendment thereof or supplement thereto, comply as to form with, and
appear on their face to be appropriately responsive in all material
respects, to the requirements of the Act and the Rules and
Regulations (except that no opinion need be expressed as to financial
statements and other financial data contained in the Registration
Statement or the Prospectus).
(ix) All contracts filed as exhibits to the Registration
Statement and the Prospectus have been fairly summarized or described
therein, conform in all material respects to the descriptions 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.
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<PAGE>
(xii) To the best knowledge of such counsel, the Company has
obtained all trademarks, trade names, patents, patent rights,
licenses, permits and governmental or other authorizations as set
forth in the Prospectus; to the best knowledge of such counsel, such
trademarks, trade names, patents, patent rights, licenses, permits
and governmental or other authorizations are in full force and effect
and the Company is in all material respects complying therewith.
(xiii) The real properties described in the Registration
Statement and the Prospectus as being leased by the Company are held
under valid, subsisting and enforceable leases with only such
exceptions as are not material.
Such counsel shall state that such counsel has participated in conferences
with officers and other representatives of the Company and representatives of
the independent 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, Brobeck, Phleger & Harrison, 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:
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(i) The Selling Stockholder is a corporation, validly existing and in
good standing under the laws of the State of Delaware.
(ii) No authorization, approval, consent or license of any
governmental or regulatory body, except as may be required under the Act
or the blue sky laws of the various jurisdictions (with respect to which
such counsel need express no opinion), is required in connection with (A)
the transfer, sale or delivery of the Shares to be sold by the Selling
Stockholder; (B) the execution, delivery and performance of this Agreement
by the Selling Stockholder; or (C) the taking of any action contemplated
herein by the Selling Stockholder, or if so required all such
authorizations, approvals, consents and licenses have been obtained and
are in full force and effect.
(iii) Upon delivery of the certificates for the Shares to be sold by
the Selling Stockholder, duly endorsed or accompanied by duly executed
stock powers, and payment therefor in accordance with the terms hereof,
each of the Underwriters will acquire good title thereto free and clear of
any adverse claim assuming that such Underwriters purchased such Shares in
good faith and without notice (in each case as such term is defined in the
Uniform Commercial Code in effect in the State of New York) of such
adverse claim.
(iv) The Selling Stockholder has full corporate power and authority
to execute and deliver this Agreement and to sell, transfer and deliver
the Shares being sold by the Selling Stockholder in accordance with the
terms hereof and all actions necessary to effect the transfer of title to
such Shares, free and clear of all claims, encumbrances and defects in
title, in accordance with this Agreement, have been duly completed; and
such opinion delivered at the Closing Time shall state that the Selling
Stockholder has taken all corporate action necessary to authorize the
execution and delivery of this Agreement and the transactions contemplated
hereby.
(v) The execution and delivery of this Agreement by the Selling
Stockholder, the consummation by the Selling Stockholder of the
transactions herein contemplated and the compliance with the terms of this
Agreement do not result in a breach of any of the terms or provisions of
or violate or constitute a default under, the certificate of incorporation
or by-laws of the Selling Stockholder.
In rendering such opinions, Brobeck, Phelger & Harrison 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.
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<PAGE>
(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 December 31, 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 sheet as of December
31, 1996, included in the Registration Statement or any decrease from
January 1, 1997 to the specified date, on a proportional basis with
the year ended December 31, 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
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<PAGE>
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 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.
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<PAGE>
(vi) Each of the representations and warranties of the Company
contained in this Agreement and in each certificate and document
contemplated under this Agreement to be delivered to you was, when
originally made and is, at the time such certificate is dated, true
and correct.
(vii) Each of the covenants required herein to be performed by
the Company on or prior to the date of such certificate has been
duly, timely and fully performed and each condition herein required
to be complied with by the Company on or prior to the date of such
certificate has been duly, timely and fully complied with by the
Company.
(i) The Selling Stockholder shall have performed all of the covenants
contained herein and in any certificate or document contemplated under
this Agreement to be delivered to you and required to be performed by the
Selling Stockholder at or prior to the Closing Time, and you shall have
received at the Closing Time a certificate of the Selling Stockholder,
dated as of the Closing Time, to the effect that the representations and
warranties of the Selling Stockholder contained in this Agreement and in
each such certificate and document are true and correct in all respects on
and as of the date of such certificate as if made on and as of such date,
and each of the covenants and conditions required to be performed or
complied with by the Selling Stockholder on or prior to the date of such
certificate has been duly, timely and fully performed or complied with.
(j) The Company and the Selling Stockholder shall have furnished to
you such certificates, in addition to those specifically mentioned herein,
as you may have reasonably requested in a timely manner as to the accuracy
and completeness, at the Closing Time, of any statement in the
Registration Statement or the Prospectus; as to the accuracy, at the
Closing Time, of the representations and warranties of the Company and the
Selling Stockholder herein and in each certificate and document
contemplated under this Agreement to be delivered to you; as to the
performance by the Company and the Selling Stockholder of their respective
obligations hereunder and under each such certificate and document; or as
to the fulfillment of the conditions concurrent and precedent to your
obligations hereunder.
(k) Except as contemplated by the Registration Statement and the
Prospectus, since the date hereof, there shall not have been any change in
the capitalization of the Company or any material adverse change in the
business, financial condition or results of operations of the Company or
in the value of the assets of the Company, or any 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.
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<PAGE>
(m) All corporate proceedings and other legal matters relating to the
sale and transfer of the Shares, this Agreement, the Warrants, the
Registration Statement, the Prospectus and other related matters shall be
reasonably satisfactory in all material respects to counsel for the
Underwriters, who shall have furnished to you at the Closing Time such
opinion, in form and substance reasonably satisfactory to you, with
respect to the sufficiency of the aforementioned corporate proceedings and
other legal matters as you may reasonably require; and the Company shall
have furnished to such counsel such records and documents as such counsel
may have reasonably requested in a timely manner for the purpose of
enabling them to pass upon such matters.
(n) The Common Stock shall be authorized for quotation on the Nasdaq
SmallCap 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
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<PAGE>
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, 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
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<PAGE>
Prospectus. Each Underwriter agrees to pay any legal and other
expenses for which it is liable under this subsection (b) from time
to time (but not more frequently than monthly) within 30 days after
receipt of a bill therefor.
(c) If any action is brought against a person entitled to
indemnification pursuant to the foregoing subsections (a) or (b) (an
"indemnified party") in respect of which indemnity may be sought
against a person granting indemnification (an "indemnifying party")
pursuant to such subsections, such indemnified party shall promptly
notify such indemnifying party in writing of the commencement
thereof; but the omission so to notify the indemnifying party of any
such action shall not release the indemnifying party from any
liability it may have to such indemnified party otherwise than on
account of the indemnity agreement contained in subsection (a) or (b)
of this Section 10. In case any such action is brought against an
indemnified party and it notifies an indemnifying party of the
commencement thereof, the indemnifying party against which a claim is
to be made will be entitled to participate therein at its own expense
and, to the extent that it may wish, to assume at its own expense the
defense thereof, with counsel reasonably satisfactory to such
indemnified party; provided, however, that (i) if the defendants in
any such action include both the indemnified party and the
indemnifying party and the indemnified party shall have reasonably
concluded based upon advice of counsel that there may be legal
defenses available to it and/or other indemnified parties which are
different from or additional to those available to the indemnifying
party and representation of both parties by the same counsel would be
inappropriate due to actual or potential differing interests between
them, the indemnified party shall have the right to select separate
counsel to assume such legal defenses and otherwise to participate in
the defense of such action on behalf of such indemnified party or
parties; and (ii) in any event, the indemnified party shall be
entitled to have counsel chosen by such indemnified party participate
in, but not conduct, the defense at such indemnified party's own
expense. Upon receipt of notice from the indemnifying party to such
indemnified party of its election so to assume the defense of such
action and approval by the indemnified party of counsel, the
indemnifying party will not be liable to such indemnified party under
this Section 10 for any legal or other expenses subsequently incurred
by such indemnified party in connection with the defense thereof
unless (i) the indemnified party shall have employed such counsel in
connection with the assumption of legal defenses in accordance with
proviso (i) to the next preceding sentence (it being understood,
however, that the indemnifying party shall not be liable for the
expenses of more than one separate counsel); (ii) the indemnifying
party shall not have employed counsel reasonably satisfactory to the
indemnified party to represent the indemnified party within a
reasonable time after notice of commencement of the action; or (iii)
the indemnifying party has authorized the employment of counsel for
the indemnified party at the expense of the indemnifying party. An
indemnifying party shall not be liable for any settlement of any
action or proceeding effected without its written consent.
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<PAGE>
(d) In order to provide for just and equitable contribution in
circumstances in which the indemnity agreement provided for in
subsection (a) or (b) of this Section 10 is unavailable in accordance
with its terms, the Company, the Selling Stockholder and, subject to
the limitations set forth below, the Underwriters shall contribute to
the aggregate losses, claims, damages and liabilities, of the nature
contemplated by said indemnity agreement, incurred by the Company,
the Selling Stockholder and one or more Underwriters, in such
proportions as are applicable to reflect the relative benefits
received by the Company and the Selling Stockholder, on the one hand,
and the Underwriters, on the other hand, from the offering of the
Shares; provided, however, that if such allocation is not permitted
by applicable law or if the indemnified party failed to give the
notice required under subsection (c) of this Section 10, then the
relative fault of the Company and the Selling Stockholder, on the one
hand, and the Underwriters, on the other hand, in connection with the
statements or omissions which resulted in such losses, claims,
damages and liabilities and other relevant equitable considerations
will be considered together with such relative benefits. The relative
benefits received by the Company and the Selling Stockholder, on the
one hand, and the Underwriters, on the other hand, shall be deemed to
be in such proportion as the total proceeds from the offering (net of
underwriting discounts and commissions but before deducting expenses)
received by the Company and the Selling Stockholder bear to the total
underwriting discount received by the Underwriters, in each case as
set forth in the table on the cover page of the Prospectus and in the
notes thereto. The relative fault of the Company and the Selling
Stockholder, on the one hand, and of the Underwriters, on the other,
shall be determined by reference to, among other things, whether in
the case of an untrue statement or alleged untrue statement of a
material fact or the omission or alleged omission to state a material
fact, such statement or omission relates to information supplied by
the Company or the Selling Stockholder, on the one hand, or by the
Underwriters, on the other hand, and the parties' relative intent,
knowledge, access to information and opportunity to correct or
prevent such untrue statement or omission. The Company, the Selling
Stockholder and the Underwriters agree that it would not be just and
equitable if contribution pursuant to this subsection (d) were
determined by pro-rata allocation (even if the Underwriters were
treated as one entity for such purpose) or by any other method of
allocation that does not take account of the equitable considerations
referred to in this subsection (d). The amount paid or payable by the
indemnified party as a result of the losses, claims, damages or
liabilities referred to above in this subsection (d) shall be deemed
to include any legal or other expenses reasonably incurred by such
indemnified party in connection with investigating or defending
against or appearing as a third-party witness in any such action or
claim. Notwithstanding the provisions of this subsection (d), (i) no
Underwriter shall be required to contribute any amount in excess of
the amount by which the total price at which the Shares purchased by
it were offered to the public exceeds the amount of any damages which
such Underwriter has otherwise been required to pay in respect of any
loss, claim, damage, liability or action covered by this Section and
(ii) no person guilty of fraudulent misrepresentation within the
meaning of Section 11(f) of the Act shall be entitled to contribution
from any person
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<PAGE>
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 Representative 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 Representative to dealers.
(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
- 34 -
<PAGE>
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, the Nasdaq SmallCap
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 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 Representative 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
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<PAGE>
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, 6920 Koll Center Parkway, # 214, 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.,
Spear Street Tower, One Market, San Francisco, California (telecopier number
(415) 442-1400), Attention: William L. Hudson, 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 H.J. Meyers & Co., Inc., and delivered at 1895 Mt.
Hope Avenue, Rochester, New York (telecopier number * -*- *), Attention: Peter
M. Graham, with a copy to Thomas J. Poletti, Esq., Freshman, Marantz, Orlanski,
Cooper & Klein, 9100 Wilshire Boulevard, Suite 800-E, Beverly Hills, California
90212 (telecopier number 310-274-8357); or at such other address or telecopier
number as a party hereto may give notice in accordance herewith.
Section 14. Miscellaneous.
(a) This Agreement is made solely for the benefit of the
Underwriters, the Selling Stockholder and the Company, the Company's
directors, the Company's officers who shall have signed the Registration
Statement and any controlling person referred to in Section 10 hereof, and
their respective successors and assigns, and no other person, partnership,
association or corporation shall acquire or have any right under or by
virtue of this Agreement. The term "successor" or the term "successors and
assigns" as used in this Agreement shall not include any buyer, as such,
of any of the Shares from the Underwriters. All of the obligations of the
Underwriters hereunder are several and not joint.
(b) The information in the Prospectus under the section
"Underwriting" with respect to (i) the names of, and number of Shares to
be purchased by, each of the Underwriters and (ii) the amounts of the
selling concession and reallowance shall constitute the only information
furnished in writing by or on behalf of the several Underwriters for use
in connection with the preparation of the Registration Statement as
originally filed or in any amendment thereto, any preliminary prospectus
or the Prospectus as the case may be.
(c) This Agreement shall supersede any agreement or understanding,
oral or in writing, express or implied, between the Company, the Selling
Stockholder and you relating to the sale of any of the Shares.
(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.
- 36 -
<PAGE>
(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.
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
H.J. MEYERS CO., INC.
By: H.J. Meyers, Co., Inc.
By:___________________________________
- 37 -
<PAGE>
Acting on behalf of itself and as the
Representative of the other Underwriters
named in Schedule A attached hereto.
- 38 -
<PAGE>
SCHEDULE A
Number
Name of Underwriter of Shares
H.J. Meyers & Co., Inc.
---------
Total 1,600,000
- 39 -
<PAGE>
SECOND AMENDED AND RESTATED
BY-LAWS
OF
VOTAN CORPORATION
<PAGE>
SECOND AMENDED AND RESTATED
BY-LAWS
TABLE OF CONTENTS
Page
----
ARTICLE 1 - Stockholders................................................ 1
1.1 Place of Meetings..................................... 1
1.2 Annual Meeting........................................ 1
1.3 Special Meetings...................................... 1
1.4 Notice of Meetings.................................... 1
1.5 Voting List........................................... 2
1.6 Quorum................................................ 2
1.7 Adjournments.......................................... 2
1.8 Voting and Proxies.................................... 2
1.9 Action at Meeting..................................... 3
1.10 Action by Written Consent Without a Meeting........... 3
ARTICLE 2 - Directors................................................... 5
2.1 General Powers........................................ 5
2.2 Number; Election and Qualification.................... 5
2.3 Enlargement of the Board.............................. 5
2.4 Tenure................................................ 5
2.5 Vacancies............................................. 5
2.6 Resignation........................................... 5
2.7 Regular Meetings...................................... 6
2.8 Special Meetings...................................... 6
2.9 Notice of Special Meetings............................ 6
2.10 Meetings by Telephone Conference Calls................ 6
2.11 Quorum................................................ 6
2.12 Action at Meeting..................................... 6
2.13 Action by Consent..................................... 7
2.14 Removal............................................... 7
2.15 Committees............................................ 7
ARTICLE 3 - Officers.................................................... 7
3.1 Enumeration........................................... 7
3.2 Election.............................................. 8
3.3 Qualification......................................... 8
i.
<PAGE>
3.4 Tenure................................................ 8
3.5 Resignation and Removal............................... 8
3.6 Vacancies............................................. 8
3.7 Chairman of the Board and Vice-Chairman of the Board.. 8
3.8 President............................................. 9
3.9 Vice Presidents....................................... 9
3.10 Secretary and Assistant Secretaries................... 9
3.11 Treasurer and Assistant Treasurers.................... 10
3.12 Salaries.............................................. 10
ARTICLE 4 - Capital Stock............................................... 10
4.1 Issuance of Stock..................................... 10
4.2 Certificates of Stock................................. 10
4.3 Transfers............................................. 11
4.4 Lost, Stolen or Destroyed Certificates................ 11
4.5 Record Date........................................... 11
ARTICLE 5 - Indemnification............................................. 12
ARTICLE 6 - General Provisions.......................................... 13
6.1 Fiscal Year........................................... 13
6.2 Corporate Seal........................................ 13
6.4 Waiver of Notice...................................... 13
6.5 Voting of Securities.................................. 14
6.6 Evidence of Authority................................. 14
6.7 Certificate of Incorporation.......................... 14
6.8 Transactions with Interested Parties.................. 14
6.9 Transactions with MOSCOM.............................. 15
6.10 Restrictions Pursuant to Underwriting Agreement....... 15
6.11 Severability.......................................... 15
6.12 Pronouns.............................................. 15
ARTICLE 7 - Amendments.................................................. 15
7.1 By the Board of Directors............................. 15
7.2 By the Stockholders................................... 15
ii.
<PAGE>
SECOND AMENDED AND RESTATED
BY-LAWS
OF
VOTAN CORPORATION
ARTICLE 1 - Stockholders
1.1 Place of Meetings. All meetings of stockholders shall be held at
such place within or without the State of Delaware as may be designated from
time to time by the Board of Directors or the President or, if not so
designated, at the registered office of the corporation.
1.2 Annual Meeting. The annual meeting of stockholders for the
election of directors and for the transaction of such other business as may
properly be brought before the meeting shall be held on a date to be fixed by
the Board of Directors or the President (which date shall not be a legal
holiday in the place where the meeting is to be held) at the time and place to
be fixed by the Board of Directors or the President and stated in the notice
of the meeting. If no annual meeting is held in accordance with the foregoing
provisions, the Board of Directors shall cause the meeting to be held as soon
thereafter as convenient. If no annual meeting is held in accordance with the
foregoing provisions, a special meeting may be held in lieu of the annual
meeting, and any action taken at that special meeting shall have the same
effect as if it had been taken at the annual meeting, and in such case all
references in these By-Laws to the annual meeting of the stockholders shall be
deemed to refer to such special meeting.
1.3 Special Meetings. Special meetings of stockholders may be called
only (i) by the Board of Directors, (ii) by the Chairman of the Board of
Directors, or (iii) by the holders of shares entitled to cast not less than 10
percent of the votes at such special meeting upon not fewer than 10 nor more
than 60 days notice. Any request for a special meeting of stockholders shall
be sent to the Chairman and the Secretary and shall state the purposes of the
proposed meeting. Business transacted at any special meeting of stockholders
shall be limited to matters relating to the purpose or purposes stated in the
notice of meeting.
1.4 Notice of Meetings. Except as otherwise provided by law, written
notice of each meeting of stockholders, whether annual or special, shall be
given not less than 10 nor more than 60 days before the date of the meeting to
each stockholder entitled to vote at such meeting. The notices of all meetings
shall state the place, date and hour of the meeting. The notice of a special
meeting shall state, in addition, the purpose or
1.
<PAGE>
purposes for which the meeting is called. If mailed, notice is given when
deposited in the United States mail, postage prepaid, directed to the
stockholder at his address as it appears on the records of the corporation.
1.5 Voting List. The officer who has charge of the stock ledger of
the corporation shall prepare, at least 10 days before every meeting of
stockholders, a complete list of the stockholders entitled to vote at the
meeting, arranged in alphabetical order, and showing the address of each
stockholder and the number of shares registered in the name of each
stockholder. Such list shall be open to the examination of any stockholder,
for any purpose germane to the meeting, during ordinary business hours, for a
period of at least 10 days prior to the meeting, at a place within the city
where the meeting is to be held. The list shall also be produced and kept at
the time and place of the meeting during the whole time of the meeting, and
may be inspected by any stockholder who is present.
1.6 Quorum. Except as otherwise provided by law, the Certificate of
Incorporation or these By-Laws, the holders of a majority of the shares of the
capital stock of the corporation issued and outstanding and entitled to vote
at the meeting, present in person or represented by proxy, shall constitute a
quorum for the transaction of business.
1.7 Adjournments. Any meeting of stockholders may be adjourned to any
other time and to any other place at which a meeting of stockholders may be
held under these By-Laws by the stockholders present or represented at the
meeting and entitled to vote, although less than a quorum, or, if no
stockholder is present, by any officer entitled to preside at or to act as
Secretary of such meeting. It shall not be necessary to notify any stockholder
of any adjournment of less than 30 days if the time and place of the adjourned
meeting are announced at the meeting at which adjournment is taken, unless
after the adjournment a new record date is fixed for the adjourned meeting. At
the adjourned meeting, the corporation may transact any business which might
have been transacted at the original meeting.
1.8 Voting and Proxies. Each stockholder shall have one vote for each
share of stock entitled to vote held of record by such stockholder and a
proportionate vote for each fractional share so held, unless otherwise
provided in the Certificate of Incorporation. Each stockholder of record
entitled to vote at a meeting of stockholders, or to express consent or
dissent to corporate action in writing without a meeting, may vote or express
such consent or dissent in person or may authorize another person or persons
to vote or act for him by written proxy executed by the stockholder or his
authorized agent and delivered to the Secretary of the corporation. No such
proxy shall be voted or acted upon after three years from the date of its
execution, unless the proxy expressly provides for a longer period.
2.
<PAGE>
1.9 Action at Meeting. When a quorum is present at any meeting, the
holders of shares of stock representing a majority of the votes cast on a
matter (or if there are two or more classes of stock entitled to vote as
separate classes, then in the case of each such class, the holders of shares
of stock of that class representing a majority of the votes cast on a matter)
shall decide any matter to be voted upon by the stockholders at such meeting,
except when a different vote is required by express provision of law, the
Certificate of Incorporation or these By-Laws. When a quorum is present at any
meeting, any election by stockholders shall be determined by a plurality of
the votes cast on the election.
1.10 Action by Written Consent Without a Meeting. Effective upon the
closing of the corporation's initial public offering of securities pursuant to
a registration statement filed under the Securities Act of 1933, as amended,
the stockholders of the Corporation may not take action by written consent
without a meeting but must take any such actions at a duly called annual or
special meeting.
1.11 Advance Notice of Stockholder Nominees and Stockholder Business.
(a) At an annual meeting of the stockholders, only such business shall be
conducted as shall have been properly brought before the meeting. To be
properly brought before an annual meeting, business must be: (A) specified in
the notice of meeting (or any supplement thereto) given by or at the direction
of the Board of Directors, (B) otherwise properly brought before the meeting
by or at the direction of the Board of Directors, or (C) otherwise properly
brought before the meeting by a stockholder. For business to be properly
brought before an annual meeting by a stockholder, the stockholder must have
given timely notice thereof in writing to the Secretary of the corporation. To
be timely, a stockholder's notice must be delivered to or mailed and received
at the principal executive offices of the corporation not later than the close
of business on the 60th day nor earlier than the close of business on the 90th
day prior to the first anniversary of the preceding year's annual meeting;
provided, however, that in the event that no annual meeting was held in the
previous year or the date of the annual meeting has been changed by more than
30 days from the date contemplated at the time of the previous year's proxy
statement, notice by the stockholder to be timely must be so received not
earlier than the close of business on the 90th day prior to such annual
meeting and not later than the close of business on the later of the 60th day
prior to such annual meeting or, in the event public announcement of the date
of such annual meeting is first made by the corporation fewer than 70 days
prior to the date of such annual meeting, the close of business on the 10th
day following the day on which public announcement of the date of such meeting
is first made by the corporation. A stockholder's notice to the Secretary
shall set forth as to each matter the stockholder proposes to bring before the
annual meeting: (i) a brief description of the business desired to be brought
before the annual meeting and the reasons for conducting such business at the
annual meeting, (ii) the name and address, as they appear on the corporation's
books, of the stockholder proposing such business, (iii) the class and number
of shares of the corporation which are beneficially owned by the stockholder,
(iv) any material interest of the stockholder in
3.
<PAGE>
such business and (v) any other information that is required to be provided by
the stockholder pursuant to Regulation 14A under the Securities Exchange Act
of 1934, as amended (the "1934 Act"), in his or her capacity as a proponent to
a stockholder proposal. Notwithstanding the foregoing, in order to include
information with respect to a stockholder proposal in the proxy statement and
form of proxy for a stockholder's meeting, stockholders must provide notice as
required by the regulations promulgated under the 1934 Act. Notwithstanding
anything in these Bylaws to the contrary, no business shall be conducted at
any annual meeting except in accordance with the procedures set forth in this
paragraph (a). The chairman of the annual meeting shall, if the facts warrant,
determine and declare at the meeting that business was not properly brought
before the meeting and in accordance with the provisions of this paragraph
(a), and, if he or she should so determine, such chairman shall so declare at
the meeting that any such business not properly brought before the meeting
shall not be transacted.
(b) Only persons who are nominated in accordance with the procedures
set forth in this paragraph (b) shall be eligible for election as directors.
Nominations of persons for election to the Board of Directors of the
corporation may be made at a meeting of stockholders by or at the direction of
the Board of Directors or by any stockholder of the corporation entitled to
vote in the election of directors at the meeting who complies with the notice
procedures set forth in this paragraph (b). Such nominations, other than those
made by or at the direction of the Board of Directors, shall be made pursuant
to timely notice (as set forth in paragraph (a) of this Section 1.11) in
writing to the Secretary of the corporation in accordance with the provisions
of paragraph (b) of this Section 1.11. Such stockholder's notice shall set
forth (i) as to each person, if any, whom the stockholder proposes to nominate
for election or re-election as a director: (A) the name, age, business address
and residence address of such person, (B) the principal occupation or
employment of such person, (C) the class and number of shares of the
corporation which are beneficially owned by such person, (D) a description of
all arrangements or understandings between the stockholder and each nominee
and any other person or persons (naming such person or persons) pursuant to
which the nominations are to be made by the stockholder, and (E) any other
information relating to such person that is required to be disclosed in
solicitations of proxies for election of directors, or is otherwise required,
in each case pursuant to Regulation 14A under the 1934 Act (including without
limitation such person's written consent to being named in the proxy
statement, if any, as a nominee and to serving as a director if elected), and
(ii) as to such stockholder giving notice, the information required to be
provided pursuant to paragraph (a) of this Section 1.11. At the request of the
Board of Directors, any person nominated by a stockholder for election as a
director shall furnish to the Secretary of the corporation that information
required to be set forth in the stockholder's notice of nomination which
pertains to the nominee. No person shall be eligible for election as a
director of the corporation unless nominated in accordance with the procedures
set forth in this paragraph (b). The chairman of the meeting shall, if the
facts warrant, determine and declare at the meeting that a nomination was not
made in accordance with the procedures prescribed by these Bylaws, and if he
or she should so determine, such
4.
<PAGE>
chairman shall so declare at the meeting, and the defective nomination shall be
disregarded.
(c) For purposes of this Section 1.11, "public announcement" shall
mean disclosure in a press release reported by the Dow Jones News Service,
Associated Press or comparable national news service or in a document publicly
filed by the corporation with the Securities and Exchange Commission pursuant
to Section 13, 14 or 15(d) of the 1934 Act.
ARTICLE 2 - Directors
2.1 General Powers. The business and affairs of the corporation shall
be managed by or under the direction of a Board of Directors, who may exercise
all of the powers of the corporation except as otherwise provided by law or
the Certificate of Incorporation. In the event of a vacancy in the Board of
Directors, the remaining directors, except as otherwise provided by law, may
exercise the powers of the full Board until the vacancy is filled.
2.2 Number; Election and Qualification. The authorized number of
directors of this corporation is five, subject to amendment of these Bylaws in
accordance with Article 7. No reduction in the number of directors shall
remove any director prior to the expiration of such director's term of office.
2.3 Enlargement of the Board. The number of directors may be
increased at any time and from time to time by the stockholders or by a
majority of the directors then in office.
2.4 Tenure. Each director shall hold office until the next annual
meeting and until his successor is elected and qualified, or until his earlier
death, resignation or removal.
2.5 Vacancies. Unless and until filled by the stockholders, any
vacancy in the Board of Directors, however occurring, including a vacancy
resulting from an enlargement of the Board, may be filled by vote of a
majority of the directors then in office, although less than a quorum, or by a
sole remaining director. A director elected to fill a vacancy shall be elected
for the unexpired term of his predecessor in office, and a director chosen to
fill a position resulting from an increase in the number of directors shall
hold office until the next annual meeting of stockholders and until his
successor is elected and qualified, or until his earlier death, resignation or
removal.
2.6 Resignation. Any director may resign by delivering his written
resignation to the corporation at its principal office or to the President or
Secretary. Such resignation shall be effective upon receipt unless it is
specified to be effective at some other time or upon the happening of some
other event.
5.
<PAGE>
2.7 Regular Meetings. Regular meetings of the Board of Directors may
be held without notice at such time and place, either within or without the
State of Delaware, as shall be determined from time to time by the Board of
Directors; provided that any director who is absent when such a determination
is made shall be given notice of the determination. A regular meeting of the
Board of Directors may be held without notice immediately after and at the
same place as the annual meeting of stockholders.
2.8 Special Meetings. Special meetings of the Board of Directors may
be held at any time and place, within or without the State of Delaware,
designated in a call by the Chairman of the Board, President, two or more
directors, or by one director in the event that there is only a single
director in office.
2.9 Notice of Special Meetings. Notice of any special meeting of
directors shall be given to each director by the Secretary or by the officer
or one of the directors calling the meeting. Notice shall be duly given to
each director (i) by giving notice to such director in person or by telephone
at least 48 hours in advance of the meeting, (ii) by sending a telegram or
telex, or delivering written notice by hand, to his last known business or
home address at least 48 hours in advance of the meeting, or (iii) by mailing
written notice to his last known business or home address at least 72 hours in
advance of the meeting. A notice or waiver of notice of a meeting of the Board
of Directors need not specify the purposes of the meeting.
2.10 Meetings by Telephone Conference Calls. Directors or any members
of any committee designated by the directors may participate in a meeting of
the Board of Directors or such committee by means of conference telephone or
similar communications equipment by means of which all persons participating
in the meeting can hear each other, and participation by such means shall
constitute presence in person at such meeting.
2.11 Quorum. A majority of the total number of the whole Board of
Directors shall constitute a quorum at all meetings of the Board of Directors.
In the event one or more of the directors shall be disqualified to vote at any
meeting, then the required quorum shall be reduced by one for each such
director so disqualified; provided, however, that in no case shall less than
one-third (1/3) of the number so fixed constitute a quorum. In the absence of
a quorum at any such meeting, a majority of the directors present may adjourn
the meeting from time to time without further notice other than announcement
at the meeting, until a quorum shall be present.
2.12 Action at Meeting. At any meeting of the Board of Directors at
which a quorum is present, the vote of a majority of those present shall be
sufficient to take any action, unless a different vote is specified by law,
the Certificate of Incorporation or these By-Laws.
6.
<PAGE>
2.13 Action by Consent. Any action required or permitted to be taken
at any meeting of the Board of Directors or of any committee of the Board of
Directors may be taken without a meeting, if all members of the Board or
committee, as the case may be, consent to the action in writing, and the
written consents are filed with the minutes of proceedings of the Board or
committee.
2.14 Removal. Except as otherwise provided by the General Corporation
Law of Delaware, any one or more or all of the directors may be removed, with
or without cause, by the holders of a majority of the shares then entitled to
vote at an election of directors, except that the directors elected by the
holders of a particular class or series of stock may be removed without cause
only by vote of the holders of a majority of the outstanding shares of such
class or series.
2.15 Committees. The Board of Directors may, by resolution passed by
a majority of the whole Board, designate one or more committees, each
committee to consist of one or more of the directors of the corporation. The
Board may designate one or more directors as alternate members of any
committee, who may replace any absent or disqualified member at any meeting of
the committee. In the absence or disqualification of a member of a committee,
the member or members of the committee present at any meeting and not
disqualified from voting, whether or not he or they constitute a quorum, may
unanimously appoint another member of the Board of Directors to act at the
meeting in the place of any such absent or disqualified member. Any such
committee, to the extent provided in the resolution of the Board of Directors
and subject to the provisions of the General Corporation Law of the State of
Delaware, shall have and may exercise all the powers and authority of the
Board of Directors in the management of the business and affairs of the
corporation and may authorize the seal of the corporation to be affixed to all
papers which may require it. Each such committee shall keep minutes and make
such reports as the Board of Directors may from time to time request. Except
as the Board of Directors may otherwise determine, any committee may make
rules for the conduct of its business, but unless otherwise provided by the
directors or in such rules, its business shall be conducted as nearly as
possible in the same manner as is provided in these By-Laws for the Board of
Directors.
2.16 Compensation of Directors. Directors may be paid such
compensation for their services and such reimbursement for expenses of
attendance at meetings as the Board of Directors may from time to time
determine. No such payment shall preclude any director from serving the
corporation or any of its parent or subsidiary corporations in any other
capacity and receiving compensation for such service.
ARTICLE 3 - Officers
3.1 Enumeration. The officers of the corporation shall consist of a
President, a Secretary, a Treasurer and such other officers with such other
titles as the Board of
7.
<PAGE>
Directors shall determine, including a Chairman of the Board, a Vice-Chairman
of the Board, and one or more Vice Presidents, Assistant Treasurers, and
Assistant Secretaries. The Board of Directors may appoint such other officers
as it may deem appropriate.
3.2 Election. The President, Treasurer and Secretary shall be elected
annually by the Board of Directors at its first meeting following the annual
meeting of stockholders. Other officers may be appointed by the Board of
Directors at such meeting or at any other meeting.
3.3 Qualification. No officer need be a stockholder. Any two or more
offices may be held by the same person.
3.4 Tenure. Except as otherwise provided by law, by the Certificate
of Incorporation or by these By-Laws, each officer shall hold office until his
successor is elected and qualified, unless a different term is specified in
the vote choosing or appointing him, or until his earlier death, resignation
or removal.
3.5 Resignation and Removal. Any officer may resign by delivering his
written resignation to the corporation at its principal office or to the
President or Secretary. Such resignation shall be effective upon receipt
unless it is specified to be effective at some other time or upon the
happening of some other event.
Any officer may be removed at any time, with or without cause, by
vote of a majority of the entire number of directors then in office.
Except as the Board of Directors may otherwise determine, no officer
who resigns or is removed shall have any right to any compensation as an
officer for any period following his resignation or removal, or any right to
damages on account of such removal, whether his compensation be by the month
or by the year or otherwise, unless such compensation is expressly provided in
a duly authorized written agreement with the corporation.
3.6 Vacancies. The Board of Directors may fill any vacancy occurring
in any office for any reason and may, in its discretion, leave unfilled for
such period as it may determine any offices other than those of President,
Treasurer and Secretary. Each such successor shall hold office for the
unexpired term of his predecessor and until his successor is elected and
qualified, or until his earlier death, resignation or removal.
3.7 Chairman of the Board and Vice-Chairman of the Board. The Board
of Directors may appoint a Chairman of the Board and may designate the
Chairman of the Board as Chief Executive Officer. If the Board of Directors
appoints a Chairman of the Board, he shall perform such duties and possess
such powers as are assigned to him by
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the Board of Directors. If the Board of Directors appoints a Vice-Chairman of
the Board, he shall, in the absence or disability of the Chairman of the
Board, perform the duties and exercise the powers of the Chairman of the Board
and shall perform such other duties and possess such other powers as may from
time to time be vested in him by the Board of Directors.
3.8 President. The President shall, subject to the direction of the
Board of Directors, have general charge and supervision of the business of the
corporation. Unless otherwise provided by the Board of Directors, he shall
preside at all meetings of the stockholders and, if he is a director, at all
meetings of the Board of Directors. Unless the Board of Directors has
designated the Chairman of the Board or another officer as Chief Executive
Officer, the President shall be the Chief Executive Officer of the
corporation. The President shall perform such other duties and shall have such
other powers as the Board of Directors may from time to time prescribe.
3.9 Vice Presidents. Any Vice President shall perform such duties and
possess such powers as the Board of Directors or the President may from time
to time prescribe. In the event of the absence, inability or refusal to act of
the President, the Vice President (or if there shall be more than one, the
Vice Presidents in the order determined by the Board of Directors) shall
perform the duties of the President and when so performing shall have all the
powers of and be subject to all the restrictions upon the President. The Board
of Directors may assign to any Vice President the title of Executive Vice
President, Senior Vice President or any other title selected by the Board of
Directors.
3.10 Secretary and Assistant Secretaries. The Secretary shall perform
such duties and shall have such powers as the Board of Directors or the
President may from time to time prescribe. In addition, the Secretary shall
perform such duties and have such powers as are incident to the office of the
secretary, including without limitation the duty and power to give notices of
all meetings of stockholders and special meetings of the Board of Directors,
to attend all meetings of stockholders and the Board of Directors and keep a
record of the proceedings, to maintain a stock ledger and prepare lists of
stockholders and their addresses as required, to be custodian of corporate
records and the corporate seal and to affix and attest to the same on
documents.
Any Assistant Secretary shall perform such duties and possess such
powers as the Board of Directors, the President or the Secretary may from time
to time prescribe. In the event of the absence, inability or refusal to act of
the Secretary, the Assistant Secretary, (or if there shall be more than one,
the Assistant Secretaries in the order determined by the Board of Directors)
shall perform the duties and exercise the powers of the Secretary.
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In the absence of the Secretary or any Assistant Secretary at any
meeting of stockholders or directors, the person presiding at the meeting
shall designate a temporary secretary to keep a record of the meeting.
3.11 Treasurer and Assistant Treasurers. The Treasurer shall be the
chief financial officer and the chief accounting officer of the corporation.
The Treasurer shall perform such duties and shall have such powers as may from
time to time be assigned to him by the Board of Directors or the President. In
addition, the Treasurer shall perform such duties and have such powers as are
incident to the office of treasurer, including without limitation the duty and
power to keep and be responsible for all funds and securities of the
corporation, to deposit funds of the corporation in depositories selected in
accordance with these By-Laws, to disburse such funds as ordered by the Board
of Directors, to make proper accounts of such funds, and to render as required
by the Board of Directors statements of all such transactions and of the
financial condition of the corporation.
The Assistant Treasurers shall perform such duties and possess such
powers as the Board of Directors, the President or the Treasurer may from time
to time prescribe. In the event of the absence, inability or refusal to act of
the Treasurer, the Assistant Treasurer, (or if there shall be more than one,
the Assistant Treasurers in the order determined by the Board of Directors)
shall perform the duties and exercise the powers of the Treasurer.
3.12 Salaries. Officers of the corporation shall be entitled to such
salaries, compensation or reimbursement as shall be fixed or allowed from time
to time by the Board of Directors.
ARTICLE 4 - Capital Stock
4.1 Issuance of Stock. Unless otherwise voted by the stockholders and
subject to the provisions of the Certificate of Incorporation, the whole or
any part of any unissued balance of the authorized capital stock of the
corporation or the whole or any part of any unissued balance of the authorized
capital stock of the corporation held in its treasury may be issued, sold,
transferred or otherwise disposed of by vote of the Board of Directors in such
manner, for such consideration and on such terms as the Board of Directors may
determine.
4.2 Certificates of Stock. Every holder of stock of the corporation
shall be entitled to have a certificate, in such form as may be prescribed by
law and by the Board of Directors, certifying the number and class of shares
owned by him in the corporation. Each such certificate shall be signed by, or
in the name of the corporation by, the Chairman or Vice-Chairman, if any, of
the Board of Directors, or the President or a Vice President, and the
Treasurer or an Assistant Treasurer, or the Secretary or an
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Assistant Secretary of the corporation. Any or all of the signatures on the
certificate may be a facsimile.
Each certificate for shares of stock which are subject to any
restriction on transfer pursuant to the Certificate of Incorporation, the
By-Laws, applicable securities laws or any agreement among any number of
shareholders or among such holders and the corporation shall have
conspicuously noted on the face or back of the certificate either the full
text of the restriction or a statement of the existence of such restriction.
4.3 Transfers. Except as otherwise established by rules and
regulations adopted by the Board of Directors, and subject to applicable law,
shares of stock may be transferred on the books of the corporation by the
surrender to the corporation or its transfer agent of the certificate
representing such shares properly endorsed or accompanied by a written
assignment or power of attorney properly executed, and with such proof of
authority or the authenticity of signature as the corporation or its transfer
agent may reasonably require. Except as may be otherwise required by law, by
the Certificate of Incorporation or by these By-Laws, the corporation shall be
entitled to treat the record holder of stock as shown on its books as the
owner of such stock for all purposes, including the payment of dividends and
the right to vote with respect to such stock, regardless of any transfer,
pledge or other disposition of such stock until the shares have been
transferred on the books of the corporation in accordance with the
requirements of these By-Laws.
4.4 Lost, Stolen or Destroyed Certificates. The corporation may issue
a new certificate of stock in place of any previously issued certificate
alleged to have been lost, stolen, or destroyed, upon such terms and
conditions as the Board of Directors may prescribe, including the presentation
of reasonable evidence of such loss, theft or destruction and the giving of
such indemnity as the Board of Directors may require for the protection of the
corporation or any transfer agent or registrar.
4.5 Record Date. The Board of Directors may fix in advance a date as
a record date for the determination of the stockholders entitled to notice of
or to vote at any meeting of stockholders or to express consent (or dissent)
to corporate action in writing without a meeting, or entitled to receive
payment of any dividend or other distribution or allotment of any rights in
respect of any change, conversion or exchange of stock, or for the purpose of
any other lawful action. Such record date shall not be more than 60 nor less
than 10 days before the date of such meeting, nor more than 60 days prior to
any other action to which such record date relates.
If no record date is fixed, the record date for determining
stockholders entitled to notice of or to vote at a meeting of stockholders
shall be at the close of business on the day before the day on which notice is
given, or, if notice is waived, at the close of business on the day before the
day on which the meeting is held. The record date for determining stockholders
entitled to express consent to corporate action in writing
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without a meeting, when no prior action by the Board of Directors is
necessary, shall be the day on which the first written consent is expressed.
The record date for determining stockholders for any other purpose shall be at
the close of business on the day on which the Board of Directors adopts the
resolution relating to such purpose.
A determination of stockholders of record entitled to notice of or to
vote at a meeting of stockholders shall apply to any adjournment of the
meeting; provided, however, that the Board of Directors may fix a new record
date for the adjourned meeting.
ARTICLE 5 - Indemnification
The corporation shall, to the fullest extent permitted by Section 145
of the General Corporation Law of Delaware, as that Section may be amended and
supplemented from time to time, indemnify any director or executive officer
which it shall have power to indemnify under Section 145 against any expenses,
liabilities or other matters referred to in or covered by that Section. The
indemnification provided for in this Article 5 shall: (i) not be deemed
exclusive of any other rights to which those indemnified may be entitled under
any bylaw, agreement or vote of stockholders or disinterested directors or
otherwise, both as to action in their official capacities and as to action in
another capacity while holding such office, (ii) continue as to a person who
has ceased to be a director, officer, employee and/or agent, as the case may
be, and (iii) inure to the benefit of the heirs, executors and administrators
of such a person. The corporation's obligation to provide indemnification
under this Article 5 shall be offset to the extent of any other source of
indemnification or any otherwise applicable insurance coverage under a policy
maintained by the corporation or any other person.
Expenses incurred by a director of the corporation in defending a
civil or criminal action, suit or proceeding by reason of the fact that he is
or was a director of the corporation (or was serving at the corporation's
request as a director or officer of another corporation) shall be paid by the
corporation in advance of the final disposition of such action, suit or
proceeding upon receipt of an undertaking by or on behalf of such director to
repay such amount if it shall ultimately be determined that he is not entitled
to be indemnified by the corporation as authorized by relevant sections of the
General Corporation Law of Delaware.
The foregoing provisions of this Article 5 shall be deemed to be a
contract between the corporation and each director who serves in such capacity
at any time while this bylaw is in effect, and any repeal or modification
thereof shall not affect any rights or obligations then existing with respect
to any state of facts then or theretofore existing or any action, suit or
proceeding theretofore or thereafter brought based in whole or in part upon
any such state of facts.
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The Board of Directors in its discretion shall have power on behalf
of the corporation to indemnify any person, other than a director, made a
party to any action, suit or proceeding by reason of the fact that he, his
testator or intestate, is or was an officer or employee of the corporation.
To assure indemnification under this Article 5 of all directors,
officers and employees who are determined by the corporation or otherwise to
be or to have been "fiduciaries" of any employee benefit plan of the
corporation which may exist from time to time, Section 145 of the General
Corporation Law of Delaware shall, for the purposes of this Article 5, be
interpreted as follows: an "other enterprise" shall be deemed to include such
an employee benefit plan, including without limitation, any plan of the
corporation which is governed by the Act of Congress entitled "Employee
Retirement Income Security Act of 1974," as amended from time to time; the
corporation shall be deemed to have requested a person to serve an employee
benefit plan where the performance by such person of his duties to the
corporation also imposes duties on, or otherwise involves services by, such
person to the plan or participants or beneficiaries of the plan; excise taxes
assessed on a person with respect to an employee benefit plan pursuant to such
Act of Congress shall be deemed "fines"; and action taken or omitted by a
person with respect to an employee benefit plan in the performance of such
person's duties for a purpose reasonably believed by such person to be in the
interest of the participants and beneficiaries of the plan shall be deemed to
be for a purpose which is not opposed to the best interests of the
corporation.
ARTICLE 6 - General Provisions
6.1 Fiscal Year. Except as from time to time otherwise designated by
the Board of Directors, the fiscal year of the corporation shall end on the
last day of December in each year.
6.2 Corporate Seal. The corporate seal shall be in such form as shall
be approved by the Board of Directors.
6.3 Execution of Instruments. The President, the Chief Executive
Officer, any Vice President, the Secretary or the Treasurer shall have power
to execute and deliver on behalf and in the name of the corporation any
instrument requiring the signature of an officer of the corporation, except as
otherwise provided in these Bylaws, or where the execution and delivery of
such an instrument shall be expressly delegated by the Board of Directors to
some other officer or agent of the corporation.
6.4 Waiver of Notice. Whenever any notice whatsoever is required to
be given by law, by the Certificate of Incorporation or by these By-Laws, a
waiver of such notice either in writing signed by the person entitled to such
notice or such person's duly authorized attorney, or by telegraph, cable or
any other available method, whether
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before, at or after the time stated in such waiver, or the appearance of such
person or persons at such meeting in person or by proxy, shall be deemed
equivalent to such notice.
6.5 Voting of Securities. Except as the directors may otherwise
designate, the President or Treasurer may waive notice of, and act as, or
appoint any person or persons to act as, proxy or attorney-in-fact for this
corporation (with or without power of substitution) at, any meeting of
stockholders or shareholders of any other corporation or organization, the
securities of which may be held by this corporation.
6.6 Evidence of Authority. A certificate by the Secretary, or an
Assistant Secretary, or a temporary Secretary, as to any action taken by the
stockholders, directors, a committee or any officer or representative of the
corporation shall as to all persons who rely on the certificate in good faith
be conclusive evidence of such action.
6.7 Certificate of Incorporation. All references in these By-Laws to
the Certificate of Incorporation shall be deemed to refer to the Certificate
of Incorporation of the corporation, as amended and in effect from time to
time. These Bylaws are subject to the provisions of the Certificate of
Incorporation and applicable law.
6.8 Transactions with Interested Parties. No contract or transaction
between the corporation and one or more of the directors or officers, or
between the corporation and any other corporation, partnership, association,
or other organization in which one or more of the directors or officers are
directors or officers, or have a financial interest, shall be void or voidable
solely for this reason, or solely because the director or officer is present
at or participates in the meeting of the Board of Directors or a committee of
the Board of Directors which authorizes the contract or transaction or solely
because his or their votes are counted for such purpose, if:
(1) The material facts as to his relationship or interest
and as to the contract or transaction are disclosed or are known to
the Board of Directors or the committee, and the Board or committee
in good faith authorizes the contract or transaction by the
affirmative votes of a majority of the disinterested directors, even
though the disinterested directors be less than a quorum;
(2) The material facts as to his relationship or interest
and as to the contract or transaction are disclosed or are known to
the stockholders entitled to vote thereon, and the contract or
transaction is specifically approved in good faith by vote of the
stockholders; or
(3) The contract or transaction is fair as to the
corporation as of the time it is authorized, approved or ratified, by
the Board of Directors, a committee of the Board of Directors, or the
stockholders.
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Common or interested directors may be counted in determining the
presence of a quorum at a meeting of the Board of Directors or of a committee
which authorizes the contract or transaction.
6.9 Transactions with MOSCOM. All contracts or transactions between
the corporation and MOSCOM Corporation, which require the approval of the
Board of Directors of the corporation, shall be approved by a committee of the
Board of Directors consisting solely of Directors not otherwise affiliated
with Corporation or MOSCOM.
6.10 Restrictions Pursuant to Underwriting Agreement. Effective upon
the closing of the corporation's initial public offering of securities
pursuant to a registration statement filed under the Securities Act of 1933,
as amended, and pursuant to the Underwriting Agreement with H.J. Meyers & Co.,
Inc. executed in connection with the closing of such offering, for a period of
three years following the closing the Company shall not perform any of the
following actions without the approval of those members of the Company's Board
of Directors who are not employees of the Company: (i) implement a "poison
pill" or other device designed to prevent a hostile take over of the Company,
(ii) increase the size of the Board of Directors, (iii) increase the
compensation of or introduce severance packages for the Company's directors
and officers.
6.11 Severability. Any determination that any provision of these
By-Laws is for any reason inapplicable, illegal or ineffective shall not
affect or invalidate any other provision of these By-Laws.
6.12 Pronouns. All pronouns used in these By-Laws shall be deemed to
refer to the masculine, feminine or neuter, singular or plural, as the
identity of the person or persons may require.
ARTICLE 7 - Amendments
7.1 By the Board of Directors. These By-Laws may be altered, amended
or repealed or new by-laws may be adopted by the affirmative vote of a
majority of the directors present at any regular or special meeting of the
Board of Directors at which a quorum is present.
7.2 By the Stockholders. These By-Laws may be altered, amended or
repealed or new by-laws may be adopted by the affirmative vote of the holders
of a majority of the shares of the capital stock of the corporation issued and
outstanding and entitled to vote at any regular meeting of stockholders, or at
any special meeting of stockholders, provided notice of such alteration,
amendment, repeal or adoption of new by-laws shall have been stated in the
notice of such special meeting. Section 6.8 hereto may not be amended without
the approval of the holders of a majority of the shares of the capital stock
of the Corporation issued and outstanding and entitled to vote, excluding
MOSCOM Corporation, at any regular meeting of stockholders until such time
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as MOSCOM Corporation holds less than twenty percent (20%) of the capital
stock of the corporation.
(The remainder of this page is intentionally left blank.)
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CERTIFICATE OF SECRETARY
I hereby certify that:
I am the duly elected and acting Secretary of Votan Corporation, a
Delaware corporation (the "Company"); and
Attached hereto is a complete and accurate copy of the Bylaws of the
Company as duly adopted by the Board of Directors on April 8, 1997 and said
Bylaws are presently in effect.
IN WITNESS WHEREOF, I have hereunto subscribed my name and affixed
the seal of the Company this 8th day of April, 1997.
/s/ Richaard C. Vail
------------------------------------
Richard C. Vail, Secretary
<PAGE>
Exhibit 23.1
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 No. 333-7137.
ARTHUR ANDERSEN LLP
Rochester, New York,
April 7, 1997
