<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 11, 1997
REGISTRATION NO. 333-7137
==============================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------------
AMENDMENT NO. 4
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:
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<S> <C>
THOMAS J. POLETTI, ESQ.
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
</TABLE>
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.
[ ]
<PAGE>
-------------------
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 MARCH 11, 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 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>
<PAGE>
- -----------------------------------------------------------------------------
(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, the
Company 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 have 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 Stockholder."
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]
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
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 INVESTORS
Each purchaser of shares of Common Stock in California 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 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."
SUMMARY FINANCIAL DATA
(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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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; 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; 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
9
<PAGE>
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
10
<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."
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
11
<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
12
<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
13
<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. 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 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
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<PAGE>
(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 450,000 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 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
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<PAGE>
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.
IMMEDIATE AND SUBSTANTIAL DILUTION
Purchasers of shares of Common Stock in this offering will incur immediate
and substantial dilution in the pro forma net tangible book value per share
from the initial public offering price. In addition, investors purchasing
shares in this offering will incur additional dilution to the extent that
stock options (whether currently outstanding or subsequently issued or
granted) are exercised. See "Dilution."
LACK OF DIVIDENDS
The Company currently intends to retain all earnings, if any, for future
growth and, therefore, does not intend to pay cash dividends on its Common
Stock in the foreseeable future. See "Dividend Policy."
FORWARD-LOOKING STATEMENTS
This Prospectus contains forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934. Investors are cautioned that all forward-looking
statements involve risks and uncertainty. Although the Company believes that
the assumptions underlying the forward-looking statements contained herein
are reasonable, any of the assumptions could be inaccurate, and therefore,
there can be no assurance that the forward-looking statements included in
this Prospectus will prove to be accurate. In light of the significant
uncertainties inherent in the forward-looking statements included herein, the
inclusion of such information should not be regarded as a representation by
the Company or any other person that the objectives and plans of the Company
will be achieved. Actual results could differ from those projected in any
forward-looking statements for the reasons detailed in the other sections of
this "Risk Factors" portion of the Prospectus. The forward-looking statements
are made as of the date of this Prospectus and the Company assumes no
obligation to update the forward-looking statements, or to update the reasons
why actual results could differ from those projected in the forward-looking
statements.
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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<PAGE>
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 to new investors purchasing shares in
this offering. The following table illustrates the dilution on a per share
basis:
<TABLE>
<CAPTION>
<S> <C> <C>
Assumed initial public offering price per share (1) ........................... $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
NUMBER PERCENT AMOUNT PERCENT PER SHARE
----------- --------- ------------- --------- -------------
<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 from
a predecessor company that had been engaged in voice verification and speech
recognition research and development since its inception in 1979. The Company
has, until recently, conducted its business and operations as the Votan
division of MOSCOM and is currently a wholly owned subsidiary of MOSCOM. In
June 1996, MOSCOM transferred substantially all of the voice verification and
speech recognition business, operations (including research and development),
assets and associated liabilities of its Votan division to the Company.
Accordingly, the Company has no independent operating history upon which an
evaluation of the Company and its prospects can be based. After this
offering, the Company will continue to be a subsidiary of MOSCOM, but will
operate as a separate, stand-alone business. See "Certain Transactions --
MOSCOM Relationship."
Since its acquisition by MOSCOM through 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.
The Company's future revenues and operating results are uncertain and may
fluctuate from quarter to quarter and from year to year due to a combination
of factors, including the timing of capital expenditures, demand for the
Company's products, the volume and timing of orders and the ability to
fulfill orders, the level of product and price competition, promotional
discounts, the expansion of the Company's sales and marketing organization,
its ability to develop new and enhanced products, the type of distribution
channels through which products are sold, the mix of products and services
sold, and general economic factors.
The Company's working capital requirements and cash flow provided by its
operating activities are likely to vary greatly from quarter to quarter,
depending on the volume of production, the timing of deliveries and the
payment terms offered to customers. In the past, the Company's working
capital needs have been met by MOSCOM. However, MOSCOM will no longer be
providing funds to finance the Company's operations, and except as otherwise
described in this Prospectus, MOSCOM has no obligation to provide financial
or management assistance to the Company and has no plans to do so. The
Company and MOSCOM have entered into certain agreements providing for the
Formation and governing various interim and ongoing relationships between and
among the two companies. See "Certain Transactions -- MOSCOM Relationship."
The financial information included herein does not necessarily reflect the
results of operations, financial position and cash flows of the Company in
the future or what the results of operations, financial position and cash
flows would have been had the Company been a separate, stand-alone entity
during the periods presented. The financial information included herein does
not reflect the many significant changes that will occur in the funding and
future operations of the Company as a result of the Formation and this
offering. The financial information contained herein does not reflect the
sales of the Company's products as part of products and systems sold by
MOSCOM. In the future, the sale of the Company's products by MOSCOM will
result in royalties payable by MOSCOM to Votan pursuant to the terms of the
agreements governing the ongoing relationship between the two companies. See
"Certain Transactions -- MOSCOM Relationship." The financial information
contained herein does not reflect any revenues resulting from such royalties.
Historically, the Company's products have been sold to a limited number of
customers. In the years ended December 31, 1994, 1995 and 1996, the Company
made significant sales to only four, six and three
21
<PAGE>
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.
The Company's product sales have consisted mostly of the sale of computer
boards to third parties that have added application software to meet their
requirements or those of the ultimate end-user. The Company plans to shift
its strategy to place greater emphasis on the delivery of complete end-user
solutions. This is expected to result in larger per transaction sales, the
timing of which would have a material effect on the reported results of
operations from period to period. Moreover, the inability of the Company to
successfully implement this new strategy would have a material adverse effect
on the business, results of operations and financial condition of the
Company.
In the past, the Company's sales have resulted primarily from sales of the
Company's boards, as stand-alone products, to systems integrators, VARs and
OEMs. After the consummation of this offering, the Company intends to
substantially expand its sales and marketing organization in order to
increase the direct sales of its products as a fully integrated systems
solution. This shift in the Company's marketing strategy is likely to result
in greater fluctuations in quarterly sales due to a number of factors,
including greater expenditures in its sales and marketing efforts, higher
pricing on systems (as opposed to stand-alone boards), additional expenses
associated with a more expansive direct sales and marketing organization, as
well as higher general and administrative expenses attendant to the foregoing
and resulting from it being a publicly traded company.
In addition, the Company intends to continue to expend substantial
resources on its engineering and software development efforts in order to
continue the improvement and enhancement of its core technologies, as well as
the development of its next generation auditory-based technologies. These
expenditures are likely to materially differ from previous levels of spending
reflected in the historical financial information included herein. Moreover,
such expenditures are likely to contribute significantly to greater
fluctuations in the Company's quarterly results of operations.
This Prospectus contains certain statements of a forward-looking nature
relating to future events or the future financial performance of the Company.
Prospective investors are cautioned that such statements are only predictions
and that actual events or results may differ materially. In evaluating such
statements, prospective investors should specifically consider the various
factors identified in this Prospectus, including the matters set forth under
the caption "Risk Factors," which could cause actual results to differ
materially from those indicated by such forward-looking statements.
RESULTS OF OPERATIONS
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.
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.
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.
22
<PAGE>
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.
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.
23
<PAGE>
Engineering and software development expenses, net, increased from
$342,000 for the year ended December 31, 1993 to $579,000 for the year ended
December 31, 1994, net of amounts capitalized of $308,000 and $104,000 for
the years ended December 31, 1993 and 1994, respectively. This increase
occurred during the first half of 1994 and was primarily due to the final
development of the Company's new generation board and to a lesser extent the
final development of the Company's VoiceBuilder for Windows products.
Selling and marketing expenses increased from $223,000 for the year ended
December 31, 1993 to $293,000 for the year ended December 31, 1994. The
increase was primarily due to higher commissions due to higher sales levels
of the Company's products and a shift in the mix of sales into international
markets.
General and administrative expenses decreased from $490,000 for the year
ended December 31, 1993 to $418,000 for the year ended December 31, 1994.
This decrease was primarily due to a decline in facility costs and travel
expenses.
LIQUIDITY AND CAPITAL RESOURCES
To date, the Company's capital resources have been met by capital
infusions by MOSCOM. Net contributions from MOSCOM amounted to $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
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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.
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.
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<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
Richard C. Vail (2) ................ 65 Executive Vice President and Director
Albert J. Montevecchio(1)(2)........ 60 Director
William E. O'Connor (3)............. 57 Chief Financial Officer -- 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
upon consummation of this offering.
(4) Mr. Heitt has agreed to join the Board of Directors 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.
Richard C. Vail has served as Executive Vice President and a director of
the Company since June 1996. From October 1984 to June 1996, Mr. Vail held
various senior management positions with MOSCOM and has served as Vice
President and General Manager of the Votan division of MOSCOM since 1991.
From 1974 to October 1984, Mr. Vail held various senior management positions
with Taylor Instrument Company, a process control company.
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.
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. 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 The Kiosk Co. 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 Resource
Partners, Inc., a sales and marketing distributor and consulting company.
From May 1982 until
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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 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.
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<PAGE>
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.
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.
Mr. Heitt has agreed to serve as an independent member of the Board of
Directors upon consummation of the offering. As soon as possible after the
date of this Prospectus, the Company intends to appoint an additional
independent member to the Board of Directors. The Company anticipates that
such independent directors will serve on the Audit Committee and the
Compensation Committee.
DIRECTOR COMPENSATION
Directors do not currently receive a fee for attending Board of Directors
or committee meetings, but are reimbursed for expenses incurred in connection
with performing their respective duties as directors of the Company. However,
the Board of Directors may in the future establish a policy of compensating
directors for attending Board of Directors' or committee meetings.
Additionally, non-employee directors are entitled to be granted options under
the Company's 1996 Stock Option Plan. See "-- 1996 Stock Option Plan."
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Company's Compensation Committee currently consists of Mr.
Montevecchio and Mr. White. The Compensation Committee determines the
salaries and incentive compensation of the officers of the Company and
provides recommendations for the salaries and incentive compensation of the
other employees and the consultants of the Company. The Compensation
Committee also administers various incentive compensation, stock and benefit
plans. Mr. White is the President and Chief Executive Officer of the Company.
Mr. Montevecchio is the Chairman of the Board of Directors 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 (2)
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 52,800 and 28,160, 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
450,000 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.
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<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
NAME OPTIONS GRANTED TO PRICE EXPIRATION FOR OPTION TERM (3)
GRANTED(1) EMPLOYEES ($/SH) DATE(2) 0%($) 5%($) 10%($)
-----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
John A. White(4)...... 52,800 31% $4.25(5) 3/6/07 39,600 205,628 460,348
Richard C. Vail(6).... 28,160 16% $4.25(5) 3/6/07 21,120 109,668 245,519
</TABLE>
- ------------
(1) Such stock options vest 25% per year over a period of four years after
the date of grant.
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<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 52,800 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
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<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
Effective June 26, 1996, MOSCOM transferred substantially all of the voice
verification and speech recognition business, operations (including research
and development), assets and liabilities of the Votan division to the
Company. In connection with the Formation, the Company has entered into the
following agreements with MOSCOM which govern the continuing relationship
between MOSCOM and the Company: (i) a Subsidiary Formation Agreement; (ii) a
License Agreement; and (iii) a Service and Supply Agreement.
Pursuant to the Subsidiary Formation Agreement (the "Formation
Agreement"), MOSCOM has transfered all of the assets of its Votan division to
the Company in consideration for the issuance to MOSCOM of 1,000 (does not
give effect to 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 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."
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
44
<PAGE>
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.
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 February 24, 1996,
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) ....................... -- -- -- -- --
Richard C. Vail (3) ..................... -- -- -- -- --
Albert J. Montevecchio (4)
3750 Monroe Ave., Pittsford, NY 14534 . -- -- -- -- --
William E. O'Connor (3)(5) .............. -- -- -- -- --
Donald G. Heitt (6)
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 has granted the Underwriter a 30 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.
(3) The individual may be reached at the Company's address.
(4) Does not include shares owned by MOSCOM. Mr. Montevecchio is Chairman
of the Board and Chief Executive Officer and a controlling stockholder
of MOSCOM and, as a result, may be deemed to beneficially own the
shares of Common Stock owned by MOSCOM. Mr. Montevecchio disclaims
beneficial ownership of such shares.
(5) Mr. O'Connor has agreed to become the Chief Financial Officer of the
Company upon the consummation of the offering.
(6) 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. Of these shares, the 1,600,000 shares sold in
this offering (or 1,720,000 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 7, 1997, 172,480 options were outstanding under the 1996 Stock
Option Plan. The Company intends to file one or more registration statements
on Form S-8 under the Securities Act approximately 90 days after the date of
this Prospectus to register the 450,000 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."
50
<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 have 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 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 ($276,000 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.
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 the Underwriters 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.
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.
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
52
<PAGE>
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 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.
53
<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 OMMITTED]
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]
[VOTAN LOGO]
VOTAN CORPORATION
COMMON STOCK
PROSPECTUS
H. J. MEYERS & CO., INC.
MARCH , 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
Financial advisor fees .................................. 100,000
Underwriter's non-accountable expense allowance (1) ..... 240,000
Miscellaneous ........................................... 57,710
-----------
Total (2) ............................................. $1,200,000
===========
</TABLE>
- ------------
(1) $276,000 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.
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. 4 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 11th day of March, 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. 4 TO THIS REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS
IN THE CAPACITIES INDICATED ON THE 11TH DAY OF MARCH, 1997:
<TABLE>
<CAPTION>
Signature Title(s)
- ---------- ---------
<S> <C>
By:/s/ John A. White President, Chief Executive Officer
------------------------ and Director (Principal Executive
John A. White and Financial Officer)
By: * Executive Vice President
----------------------- and Director
Richard C. Vail
By: * Director
- ---------------------------
Albert J. Montevecchio
*By:/s/ John A. White
- ---------------------------
John A. White as
Attorney-in-Fact
</TABLE>
II-4
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION PAGE NO.
- --------------- --------------------------------------------------------------------------------------- ------------
<S> <C> <C>
1.2 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.
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.
<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:
VOTAN CORPORATION, a Delaware corporation (the "Company"), proposes
to issue and sell pursuant to this Underwriting Agreement (the "Agreement"),
an aggregate of 1,600,000 shares of Common Stock, par value $0.01 per share
(the "Shares"), commencing on the effective date of the Registration Statement
(the "Effective Date"). In addition, the Company proposes to grant the option
referred to in Section 2(b) to purchase all or any part of an aggregate of
240,000 additional Shares.
The aggregate of 1,600,000 Shares, together with all or any part of
the 240,000 Shares which you have the option to purchase, are herein called
the "Shares." The Common Stock of the Company to be outstanding after giving
effect to the sale of the Shares (including the 240,000 Shares that the
Underwriters have the option to purchase) is herein called the "Common Stock."
You have advised the Company that you desire to purchase the Shares.
The Company confirms the agreements made by it with respect to the purchase of
the Shares by you, as follows:
1. Representations and Warranties of the Company.
The Company represents and warrants to, and agrees with you
that:
(a) A registration statement (File No. 333-7137) on Form S-1
relating to the public offering of the Shares, including a preliminary form of
prospectus, copies of which have heretofore been delivered to you, has been
prepared by the Company in conformity with the requirements of the Securities
Act of 1933, as amended (the "Act") and the rules and regulations (the "Rules
and Regulations") of the Securities and Exchange
1
<PAGE>
Commission (the "Commission") thereunder, and has been filed with the
Commission under the Act. "Preliminary Prospectus" shall mean each prospectus
filed pursuant to Rule 430 of the Rules and Regulations. The registration
statement (including all financial schedules and exhibits) as amended at the
time it becomes effective and the final prospectus included therein are
respectively referred to as the "Registration Statement" and the "Prospectus",
except that (i) if the prospectus first filed by the Company pursuant to Rule
424(b) or Rule 430A of the Rules and Regulations or otherwise utilized and not
required to be so filed shall differ from said prospectus as then amended, the
term "Prospectus" shall mean the prospectus first filed pursuant to Rule
424(b) or Rule 430A or so utilized from and after the date on which it shall
have been filed or utilized, and (ii) if such registration statement or
prospectus is amended or such prospectus is supplemented, after the effective
date of such registration statement and prior to the Option Closing Date (as
defined in Section 2(b)), the term "Registration Statement" shall include such
registration statement as so amended, and the term "Prospectus" shall include
the prospectus as so amended or supplemented, or both, as the case may be.
(b) At the time the Registration Statement becomes effective
and at all times subsequent thereto up to the Option Closing Date (hereinafter
defined), (i) the Registration Statement and Prospectus will in all material
respects conform to the requirements of the Act and the Rules and Regulations;
and (ii) neither the Registration Statement nor the Prospectus will include
any untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary to make the statements therein not
misleading in light of the circumstances under which they were made; provided,
however, that the Company makes no representations, warranties or agreements
as to information contained in or omitted from the Registration Statement or
Prospectus in reliance upon, and in conformity with, written information
furnished to the Company by or on behalf of you specifically for use in the
preparation thereof. It is understood that the statements set forth in the
Prospectus with respect to stabilization, the material set forth under the
heading "Underwriting" and the identity of counsel to you under the heading
"Legal Matters" constitute the only information furnished in writing by you
for inclusion in the Registration Statement and Prospectus, as the case may
be.
(c) The Company has been duly incorporated and is validly
existing as a corporation in good standing under the laws of the jurisdiction
of its incorporation, with full power and authority (corporate and other) to
own its properties and conduct its business as described in the Prospectus and
is duly qualified to do business as a foreign corporation and is in good
standing in all other jurisdictions in which the nature of its business or the
character or location of its properties requires such qualification, except
where failure to so qualify is not reasonably likely to materially adversely
affect the Company's business, properties or financial condition.
(d) The authorized capital stock of the Company as of the
Effective Date was as set forth under "Capitalization" in the Prospectus. The
shares of issued and outstanding capital stock of the Company set forth
thereunder have been duly authorized, validly issued and are fully paid and
non-assessable; except as set forth in the Prospectus, no options, warrants or
other rights to purchase, agreements or other obligations to issue,
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or agreements or other rights to convert any obligation into, any shares of
capital stock of the Company have been granted or entered into by the Company.
The Shares and Underwriter's Warrant conform in all material respects to all
statements relating thereto contained in the Registration Statement and
Prospectus.
(e) The Shares are duly authorized and, when issued,
delivered and paid for pursuant to this Agreement, will be duly authorized,
validly issued, fully paid and nonassessable and free of preemptive rights of
any security holder of the Company. The certificates evidencing the Shares are
and will be in valid and proper legal form. The Underwriter's Warrant (as
defined in Section 11) will be exercisable for shares of Common Stock of the
Company in accordance with the terms of the Underwriter's Warrant and at the
prices therein provided for. The shares of Common Stock have been duly
authorized and reserved for issuance upon such exercise, and such shares, when
issued upon such exercise in accordance with the terms of the Underwriter's
Warrant and when the price is paid, shall be fully paid and non-assessable.
Neither the filing of the Registration Statement nor the offering or sale of
the Shares as contemplated in this Agreement gives rise to any rights, other
than those which have been waived or satisfied, for or relating to the
registration of any securities of the Company, except as described in the
Registration Statement.
(f) This Agreement and the Underwriter's Warrant have been
duly and validly authorized, executed and delivered by the Company, and
assuming due execution by the other party or parties hereto and thereto,
constitute valid and binding obligations of the Company enforceable against
the Company in accordance with their respective terms, except as rights to
indemnity and contribution hereunder may be limited by applicable law and
except as enforceability may be limited by bankruptcy, insolvency or other
laws affecting the rights of creditors generally or by general equitable
principles. The Company has full power and lawful authority to authorize,
issue and sell the Shares to be sold by it hereunder on the terms and
conditions set forth herein, and no consent, approval, authorization or other
order of any governmental authority is required in connection with such
authorization, execution and delivery or with the authorization, issue and
sale of the Shares or the Underwriter's Warrant, except such as may be
required under the Act or state securities laws.
(g) Except as described in the Prospectus, the Company is
not in material violation, breach or default of or under, and consummation of
the transactions herein contemplated and the fulfillment of the terms of this
Agreement and the Underwriter's Warrant will not conflict with, or result in a
breach of, any of the terms or provisions of, or constitute a default under,
or result in the creation or imposition of any lien, charge or encumbrance
pursuant to the terms of, any indenture, mortgage, deed of trust, loan
agreement or other agreement or instrument to which the Company is a party or
by which the Company may be bound or to which any of the property or assets of
the Company are subject, which would have a material adverse effect on the
business, properties or financial condition of the Company, nor will such
action result in any violation of the provisions of the certificate of
incorporation or the by-laws of the Company, as amended, or any statute or any
order, rule or regulation applicable to the Company of any court or of any
regulatory
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authority or other governmental body having jurisdiction over the Company,
which would have a material adverse effect on the business, properties or
financial condition of the Company.
(h) The Company owns no real property and, subject to the
qualifications stated in the Prospectus, the Company has good and marketable
title to all properties and assets described in the Prospectus as owned by it,
free and clear of all liens, charges, encumbrances or restrictions, except
such as are not materially significant or important in relation to its
business; all of the leases and subleases under which the Company is the
lessor or sublessor of properties or assets or under which the Company holds
properties or assets as lessee or sublessee as described in the Prospectus are
in full force and effect, and, except as described in the Prospectus, the
Company is not in default in any respect with respect to any of the terms or
provisions of any of such leases or subleases which would have a material
adverse effect on the business, properties or financial condition of the
Company, and no claim has been asserted by anyone adverse to rights of the
Company as lessor, sublessor, lessee or sublessee under any of the leases or
subleases mentioned above, or affecting or questioning the right of the
Company to continued possession of the leased or subleased premises or assets
under any such lease or sublease except as described or referred to in the
Prospectus, which would have a material adverse effect on the business
properties or financial condition of the Company; and the Company owns or
leases all such properties described in the Prospectus as are necessary to its
operations as now conducted and, except as otherwise stated in the Prospectus,
as proposed to be conducted as set forth in the Prospectus.
(i) Arthur Anderson LLP, who have given their report on
certain financial statements filed and to be filed with the Commission as a
part of the Registration Statement, which are included in the Prospectus, are
with respect to the Company independent public accountants as required by the
Act and the Rules and Regulations.
(j) The financial statements and schedules, together with
related notes, set forth in the Prospectus or the Registration Statement
present fairly the financial position and results of operations and changes in
financial position of the Company on the basis stated in the Registration
Statement, at the respective dates and for the respective periods to which
they apply. Said statements and schedules and related notes have been prepared
in accordance with generally accepted accounting principles applied on a basis
which is consistent during the periods involved.
(k) Subsequent to the respective dates as of which
information is given in the Registration Statement and Prospectus, the Company
has not incurred any liabilities or obligations, direct or contingent, not in
the ordinary course of business, or entered into any transaction not in the
ordinary course of business, which is material to the business of the Company,
and there has not been any change in the capital stock of, or any incurrence
of long-term debt by, the Company or any issuance of options, warrants or
other rights to purchase the capital stock of the Company or any adverse
change or any development involving, so far as the Company can now reasonably
foresee, a prospective adverse change in the condition (financial or other),
net worth, results of operations, business, key personnel
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or properties of it which would be material to the business or financial
condition of the Company, and the Company has not become party to, and neither
the business nor the property of the Company has become the subject of, any
material litigation whether or not in the ordinary course of business.
(l) Except as set forth in the Prospectus, there is not now
pending nor, to the knowledge of the Company, threatened, any action, suit or
proceeding (including those related to environmental matters or discrimination
on the basis of age, sex, religion or race) to which the Company is a party
before or by any court or governmental agency or body, which, if adversely
determined, would result in any material adverse change in the condition
(financial or other), business prospects, net worth or properties of the
Company; and, except as set forth in the Prospectus, no labor disputes
involving the employees of the Company exist which, if adversely determined,
would result in any material adverse change in the condition (financial or
otherwise), business prospects, net worth or property of the Company.
(m) Except as disclosed in the Prospectus, the Company has
filed all necessary federal, state and foreign income and franchise tax
returns and has paid all taxes shown as due thereon; and there is no tax
deficiency which has been or to the knowledge of the Company might be asserted
against the Company which has not been adequately reserved for on the
Company's balance sheet.
(n) The Company has sufficient licenses, permits and other
governmental authorizations currently required for the conduct of its business
or the ownership of its property as described in the Prospectus and is in all
material respects complying therewith and owns or possesses adequate rights to
use all material patents, patent applications, trademarks, mark registrations,
copyrights and licenses necessary for the conduct of such business and has not
received any notice of conflict with the asserted rights of others in respect
thereof. To the best knowledge of the Company, none of the activities or
business of the Company is in violation of, or causes the Company to violate,
any law, rule, regulation or order of the United States, any state, county or
locality, or of any agency or locality, the violation of which would have a
material adverse effect upon the condition (financial or otherwise), business
prospects, net worth or properties of the Company.
(o) The Company has not, directly or indirectly, at any time
(i) made any contributions to any candidate for foreign political office, or
if made, failed to disclose fully any such contribution made in violation of
law, or (ii) 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 or contributions required or allowed
by applicable law. The Company's internal accounting controls and procedures
are sufficient to cause the Company to comply in all material respects with
the Foreign Corrupt Practices Act of 1977, as amended.
(p) On the Closing Dates (as defined in Section 2(c)), all
transfer or other taxes (including franchise, capital stock or other tax,
other than income taxes imposed by any jurisdiction), if any, which are
required to be paid in connection with the sale and
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transfer of the Shares to the Underwriters hereunder will have been fully paid
or provided for by the Company and all laws imposing such taxes will have been
fully complied with.
(q) All contracts and other documents of the Company which
are, under the Rules and Regulations, required to be filed as exhibits to the
Registration Statement have been so filed.
(r) The Company has not taken and will not take, directly or
indirectly, any action designed to cause or result in, or which has
constituted or which might reasonably be expected to constitute, the
stabilization or manipulation of the price of the Shares or to facilitate the
sale or resale of the Shares.
(s) The Company has no subsidiaries.
(t) Except for this Agreement and other agreements with you,
the Company has not entered into any agreement pursuant to which any person is
entitled either directly or indirectly to compensation from the Company for
services as a finder in connection with the proposed public offering.
2. Purchase, Delivery and Sale of the Shares.
(a) Subject to the terms and conditions of this Agreement,
and upon the basis of the representations, warranties and agreements herein
contained, the Company agrees to issue and sell to you, and you agree to buy
from the Company at $_____ per Share at the place and time hereinafter
specified, the number of Shares set forth opposite your name in Schedule I
hereto (the "Firm Shares").
Delivery of the Firm Shares against payment
therefor shall take place at the offices of H.J. Myers & Co., Inc., 1895 Mt.
Hope Avenue, Rochester, New York 14620 (or at such other place as may be
designated by agreement between you and the Company) at 10:00 a.m. New York
time on ____________ ___, 1997, or at such other time and date, not later than
10 business days thereafter, as you may designate, such time and date of
payment and delivery for the Firm Shares being herein called the "First
Closing Date." Time shall be of the essence and delivery at the time and place
specified in this subsection (a) is a further condition to your obligations
hereunder.
(b) In addition, subject to the terms and conditions of this
Agreement, and upon the basis of the representations, warranties and
agreements herein contained, the Company hereby grants you an option to
purchase all or any part of an aggregate of 240,000 additional Shares at the
same price per Share as you shall pay for the Shares being sold pursuant to
the provisions of sub section (a) of this Section 2 (such additional Shares
being referred to herein as the "Option Shares"). This option may be exercised
on one occasion within 30 business days after the Effective Date upon notice
by you to the Company advising it as to the amount of Option Shares as to
which the option is being exercised, the names and denominations in which the
certificates for such Option Shares are to be registered and the time and date
when such certificates are to be delivered. Such time and
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<PAGE>
date shall be determined by you but shall not be earlier than four and not
later than ten full business days after the exercise of said option, nor in
any event prior to the First Closing Date, and such time and date is referred
to herein as the "Option Closing Date." Delivery of the Option Shares against
payment therefor shall take place at the offices of H.J. Meyers & Co., Inc.,
1895 Mt. Hope Avenue, Rochester, New York 14620. Time shall be of the essence
and delivery at the time and place specified in this subsection (b) is a
further condition to your obligations hereunder.
The Option granted hereunder may be exercised only
to cover over-allotments in the sale by you of Firm Shares referred to in
subsection (a) above.
(c) The Company will make the certificates for the Shares to
be purchased by you hereunder available to you for checking at least two full
business days prior to the First Closing Date or the Option Closing Date
(which are collectively referred to herein as the "Closing Dates" and
individually as a "Closing Date"), as the case may be. The certificates shall
be in such names and denominations as you may request, at least two full
business days prior to the relevant Closing Dates. Time shall be of the
essence and the availability of the certificates at the time and place
specified in this Agreement is a further condition to your obligations.
Definitive engraved certificates in negotiable form
for the Shares to be purchased by you hereunder will be delivered by the
Company to you for your account against payment of the purchase price by you,
at your option, by certified or bank cashier's checks in New York Clearing
House funds or by wire transfer, payable to the order of the Company.
In addition, in the event you exercise the option to
purchase from the Company all or any portion of the Option Shares pursuant to
the provisions of subsection (b) above, payment for such Option Shares shall
be made to or upon the order of the Company by you, at your option, by
certified or bank cashier's checks payable in New York Clearing House funds or
by wire transfer, at the offices of H.J. Meyers & Co., Inc. at the time and
date of delivery of such Option Shares as required by the provisions of
subsection (b) above, against receipt of the certificates for such Option
Shares by you, registered in such names and in such denominations as you may
request.
It is understood that you propose to offer the
Shares to be purchased hereunder to the public upon the terms and conditions
set forth in the Registration Statement, after the Registration Statement
becomes effective.
3. Covenants of the Company.
The Company covenants and agrees with you that:
(a) Company will use its best efforts to cause the
Registration Statement to become effective and, upon notification from the
Commission that the Registration Statement has become effective, will so
advise you and will not at any time, whether before
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<PAGE>
or after the Effective Date, file any amendment to the Registration Statement
or supplement to the Prospectus of which you shall not previously have been
advised and furnished with a copy or to which you or your counsel shall have
reasonably objected in writing or which is not in compliance with the Act and
the Rules and Regulations. At any time prior to the later of (A) the
completion by you of the distribution of the Shares contemplated hereby (but
in no event more than nine months after the Effective Date) and (B) 25 days
after the Effective Date, the Company will prepare and file with the
Commission, promptly upon your request, any amendments or supplements to the
Registration Statement or Prospectus which, in your reasonable opinion, may be
necessary or advisable in connection with the distribution of the Shares.
Promptly after you or the Company is advised
thereof, you will advise the Company or the Company will advise you, as the
case may be, and confirm the advice in writing, of the receipt of any comments
of the Commission, of the effectiveness of any post-effective amendment to the
Registration Statement, of the filing of any supplement to the Prospectus or
any amended Prospectus, of any request made by the Commission for amendment of
the Registration Statement or for supplementing of the Prospectus or for
additional information with respect thereto, of the issuance by the Commission
or any state or regulatory body of any stop orders or other order suspending
the effectiveness of the Registration Statement or any order preventing or
suspending the use of any preliminary prospectus or the Prospectus, or of the
suspension of the qualification of the Shares for offering in any
jurisdiction, or the institution of any proceedings for any of such purposes,
and will use its best efforts to prevent the issuance of any such order and,
if issued, to obtain as soon as possible the lifting thereof.
The Company has caused to be delivered to you copies
of each Preliminary Prospectus, and the Company has consented and hereby
consents to the use of such copies for the purposes permitted by the Act. The
Company authorizes you and selected dealers to use the Prospectus in
connection with the sale of the Shares for such period not to exceed nine
months from the Effective Date as in the reasonable opinion of counsel for you
the use thereof is required to comply with the applicable provisions of the
Act and the Rules and Regulations. In case of the happening, at any time
within such period as a Prospectus is required under the Act to be delivered
in connection with sales by an underwriter or dealer, of any event of which
the Company has knowledge and which materially affects the Company or the
Shares, or which in the opinion of counsel for the Company or counsel for you
should be set forth in an amendment to the Registration Statement or a
supplement to the Prospectus in order to make the statements therein not then
misleading, in light of the circumstances existing at the time the Prospectus
is required to be delivered to a purchaser of the Shares, or in case it shall
be necessary to amend or supplement the Prospectus to comply with the Act or
with the Rules and Regulations, the Company will notify you promptly and
forthwith prepare and furnish to you copies of such amended Prospectus or of
such supplement to be attached to the Prospectus, in such quantities as you
may reasonably request, in order that the Prospectus, as so amended or
supplemented, will not contain any untrue statement of a material fact or omit
to state any material facts necessary in order to make the statements in the
Prospectus, in the light of the circumstances under which they are made, not
misleading. The preparation and
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<PAGE>
furnishing of any such amendment or supplement to the Registration Statement
or amended Prospectus or supplement to be attached to the Prospectus shall be
without expense to the Underwriters, except that in case you are required, in
connection with the sale of the Shares, to deliver a Prospectus nine months or
more after the Effective Date, the Company will upon request of and at your
expense, amend or supplement the Registration Statement and Prospectus and
furnish you with reasonable quantities of prospectuses complying with Section
10(a)(3) of the Act.
(b) The Company will comply with the Act, the Rules and
Regulations and the Exchange Act of 1934, as amended (the "Exchange Act") and
the rules and regulations thereunder in connection with the offering and
issuance of the Shares.
The Company will use its best efforts to qualify or
register the Shares for sale under the securities or "blue sky" laws of such
jurisdictions as you may have designated in writing prior to the execution
hereof and will make such applications and furnish such information to counsel
for you as may be required for that purpose and to comply with such laws,
provided that the Company shall not be required to qualify as a foreign
corporation or a dealer in securities or to execute a general consent to
service process in any jurisdiction. The Company will, from time to time,
prepare and file such statements and reports as are or may be required to
continue such qualification in effect for so long a period as you may
reasonably request. Legal fees for such qualifications shall be itemized based
on the time expended and costs incurred, shall be reasonable and shall not in
any event exceed $35,000.00, exclusive of filing fees (unless otherwise
agreed).
(c) The Company will instruct its transfer agent to provide
you with copies of the Depository Trust Company stock transfer sheets on a
weekly basis for a period of six months from the First Closing Date and on a
monthly basis thereafter for six additional months.
(d) The Company will use its best efforts to cause a
Registration Statement under the Exchange Act to be declared effective on the
Effective Date.
(e) For so long as the Company is a reporting company under
either Section 12(g), 13 or 15(d) of the Exchange Act, the Company, at its
expense, will furnish to its stockholders an annual report (including
financial statements audited by independent public accountants), in reasonable
detail and at its expense, will furnish to you during the period ending five
years from the date hereof, (i) as soon as practicable after the end of each
fiscal year, a balance sheet of the Company and any subsidiaries as at the end
of such fiscal year, together with statements of income, stockholders, equity
and cash flows of the Company and any subsidiaries as at the end of such
fiscal year, all in reasonable detail and accompanied by a copy of the
certificate or report thereon of independent accountants; (ii) as soon as they
are available, a copy of all reports (financial or other) mailed to security
holders; (iii) as soon as they are available, a copy of all non-confidential
reports and financial statements furnished to or filed with the Commission;
and (iv) such other information of a public nature as you may from time to
time reasonably request.
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(f) In the event the Company has an active subsidiary or
subsidiaries, such financial statements referred to in subsection (e) above
will be on a consolidated basis to the extent the accounts of the Company and
its subsidiary or subsidiaries are consolidated in reports furnished to its
stockholders generally.
(g) The Company will deliver to you at or before the First
Closing Date one signed copy of the Registration Statement including all
financial statements and exhibits filed therewith, and of all amendments
thereto. The Company will deliver to or upon your order, from time to time
until the Effective Date as many copies of any Preliminary Prospectus filed
with the Commission prior to the Effective Date as the Underwriters may
reasonably request. The Company will deliver to you on the Effective Date and
thereafter for so long as a Prospectus is required to be delivered under the
Act, from time to time, as many copies of the Prospectus, in final form, or as
thereafter amended or supplemented, as you may from time to time reasonably
request.
(h) The Company will make generally available to its
security holders and deliver to you as soon as it is practicable to do so, but
in no event later than 90 days after the end of 12 months after its current
fiscal quarter, an earnings statement (which need not be audited) covering a
period of at least 12 consecutive months beginning after the Effective Date
which shall satisfy the requirements of Section 11(a) of the Act.
(i) The Company will apply the net proceeds from the sale of
the Shares substantially for the purposes set forth under "Use of Proceeds" in
the Prospectus, and will file such reports with the Commission with respect to
the sale of the Shares and the application of the proceeds therefrom as may be
required pursuant to Rule 463 of the Rules and Regulations.
(j) The Company will, promptly upon your request, prepare
and file with the Commission any amendments or supplements to the Registration
Statement, preliminary Prospectus or Prospectus and take any other action,
which in the opinion of Freshman, Marantz, Orlanski, Cooper & Klein, counsel
to you may be reasonably necessary or advisable in connection with the
distribution of the Shares and will use its best efforts to cause the same to
become effective as promptly as possible.
(k) Prior to the Effective Date, the Company will use its
best efforts to cause all the stockholders of the Company to enter into a
written agreement with you, which, among other things, shall provide that for
a period of (3) months following the closing date of the offering, such
stockholders will not sell, assign, hypothecate or pledge any of the shares of
Common Stock of the Company owned by them on the Effective Date, or
subsequently acquired by the exercise of any options or warrants or conversion
of any convertible security of the Company held by them on the Effective Date
directly or indirectly, except with your prior written consent and such
stockholders will permit all certificates evidencing those shares to be
stamped with an appropriate restrictive legend, and will cause the transfer
agent for the Company to note such restrictions on the transfer books and
records of the Company.
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(l) The Company shall, upon the initial filing of the
Registration Statement, make all filings required to obtain approval for the
quotation of the Shares on the National Association of Securities Dealers,
Inc. ("NASDAQ") SmallCap Market and will use its best efforts to effect and
maintain the aforesaid approval for at least five (5) years from the date of
this Agreement. Within ten (10) days after the Effective Date, the Company
shall cause the Company to be listed in the Moody's OTC Industrial Manual and
cause such listing to be maintained for five years from the date of this
Agreement.
(m) The Company represents that it has not taken, and agrees
that it will not take, directly or indirectly, any action designed to or which
has constituted or which might reasonably be expected to cause or result in
the stabilization or manipulation of the price of the Shares or to facilitate
the sale or resale the Shares.
(n) During the period of the offering, and for a period of
twelve (12) months from the Effective Date, the Company will not sell or
otherwise dispose of any securities of the Company (except for shares of
Common Stock issuable upon exercise of options or warrants or conversion of
convertible securities outstanding on the Effective Date or upon exercise of
options granted or the grant of options for up to ___________ shares under
said plan less any options to purchase shares granted prior to the Effective
Date, pursuant to the Company's Stock Option Plan) without your prior written
consent, which consent shall not be unreasonably withheld. For a period of
twenty-four (24) months from the Effective Date, the Company will not issue,
sell or otherwise dispose of any securities of the Company pursuant to
Regulation S under the Act without your prior written consent.
(o) Prior to the filing of the Registration Statement, the
Company shall retain a public relations firm acceptable to you, and shall
continue to retain such firm, or any alternate firm acceptable to you, for a
minimum period of one (1) year.
(p) The Company will reserve and keep available that maximum
number of its authorized but unissued securities which are issuable upon
exercise of the Representative's Warrant outstanding from time to time.
(q) The Company shall deliver to you, at the Company's
expense, three (3) bound volumes in form and content acceptable to you,
containing the Registration Statement and all exhibits filed therewith, and
all amendments thereto, and all other material correspondence, filings,
certificates and other documents filed and/or delivered in connection with
this offering. The Company shall use its best efforts to deliver such volumes
with one hundred eighty (180) days of the First Closing Date.
(r) For a period of thirty-six (36) months from the First
Closing Date, the Company shall allow the Underwriter 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 directors in the future, such
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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.
4. Conditions of Obligations of H.J. Meyers & Co., Inc.
Your obligations to purchase and pay for the Shares which
they have agreed to purchase hereunder are subject to the accuracy (as of the
date hereof, and as of the Closing Dates) of and compliance with the
representations and warranties of the Company herein, to the performance by
the Company of its obligations hereunder, and to the following conditions:
(a) The Registration Statement shall have become effective
and you shall have received notice thereof not later than 10:00 a.m., New York
time, on the date of this Agreement, or at such later time or on such later
date as to which you may Agree in writing; on the Closing Dates, no stop order
suspending the effectiveness of the Registration Statement shall have been
issued and no proceedings for that or any similar purpose shall have been
instituted or shall be pending or, to the knowledge of any Underwriter or to
the knowledge of the Company, shall be contemplated by the Commission; any
request on the part of the Commission for additional information shall have
been complied with to the reasonable satisfaction of Freshman, Marantz,
Orlanski, Cooper & Klein, counsel to you; and no stop order shall be in effect
denying or suspending effectiveness of the Registration Statement nor shall
any stop order proceedings with respect thereto be instituted or pending or
threatened under the Act.
(b) At the First Closing Date, you shall have received the
opinion, dated as of the First Closing Date, of Brobeck, Phleger & Harrison
LLP, counsel for the Company, in form and substance reasonably satisfactory to
counsel for you, to the effect that:
(i) the Company has been duly incorporated and is
validly existing as a corporation in good standing under the laws of
the State of Delaware and is duly qualified or licensed to do
business as a foreign corporation in good standing in each other
jurisdiction in which the ownership or leasing of its properties or
the conduct of its business requires such qualification, except where
failure to so qualify will not have a material adverse effect in the
business, properties or financial condition of the Company;
(ii) the authorized capitalization of the Company as
of the date of the Prospectus was as set forth in the Prospectus; all
of the shares of the Company's outstanding stock requiring
authorization for issuance by the Company's Board of Directors have
been duly authorized and validly issued, are fully paid and
non-assessable and conform to the description thereof contained in
the Prospectus; the outstanding shares of Common Stock of the Company
to such counsels knowledge, have not been issued in violation of the
preemptive rights of any stockholder and the shareholders of the
Company do not have any preemptive rights or other rights to
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subscribe for or to purchase; except for the transfer restrictions
regarding "affiliates" contained in Rule 144 promulgated under the
Act, there are no restrictions upon the voting or transfer of, any of
the Shares; the Common Stock and the Underwriter's Warrants conform
in all material respects to the respective descriptions thereof
contained in the Prospectus; the Shares to be issued as contemplated
in the Registration Statement and this Agreement have been duly
authorized and, when paid, will be validly issued, fully paid and
non-assessable and free of preemptive rights contained in the
Company's certificate of incorporation or By-laws, or any other
document, instrument or agreement known to counsel; a sufficient
number of shares of Common Stock has been reserved for issuance upon
exercise of the Representative's Warrant; to such counsels knowledge,
neither the filing of the Registration Statement nor the offering or
sale of the Shares as contemplated by this Agreement gives rise to
any registration rights or other rights, other than those
contemplated by the Underwriter's Warrant or which have-been waived
or satisfied, for or relating to the registration of the Shares;
(iii) this Agreement and the Underwriter's Warrant
(sometimes hereinafter collectively referred to as the
"Representative Agreements") have been duly and validly authorized,
executed and delivered by the Company, and assuming due execution and
delivery of this Agreement by you, such agreements are, or when duly
executed will be, the valid and legally binding obligations of the
Company except as enforceability may be limited by bankruptcy,
insolvency, moratorium or other laws affecting the rights of
creditors, or by general equitable principles; provided that no
opinion need be expressed as to the enforceability of the indemnity
provisions contained in Section 6 or the contribution provisions
contained in Section 7 of this Agreement;
(iv) the certificates evidencing the Shares are in
valid and proper legal form; the Underwriter's Warrants will be
exercisable for shares of Common Stock of the Company in accordance
with the terms of the Underwriter's Warrants and at the prices
therein provided for; the shares of Common Stock of the Company
issuable upon exercise of the Underwriter's Warrants have been duly
authorized and reserved for issuance upon such exercise, and such
shares, when issued upon such exercise in accordance with the terms
of the Underwriter's Warrants and when the price is paid shall be
fully paid and non-assessable;
(v) Such counsel knows of no pending or threatened
legal or governmental proceedings to which the Company is a party
which are required to be described or referred to in the Registration
Statement which are not so described or referred to;
(vi) The execution and delivery of this Agreement
and the Underwriter's Warrant and the incurrence of the obligations
herein and therein set forth and the consummation of the transactions
herein or therein contemplated will not result in a violation of, or
constitute a default under, the certificate or articles of
incorporation or by-laws of the Company, or in a material violation
of or default
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under any obligation, agreement, covenant or condition contained in
any bond, debenture, note or other evidence of indebtedness or in any
of the contracts, indentures, mortgages, loan agreements, leases,
joint ventures or other agreements or instruments to which the
Company is a party that are filed as Exhibits to the Registration
Statement or otherwise known to counsel;
(vii) The Registration Statement has become
effective under the Act, and to such counsels knowledge, no stop order
suspending the effectiveness of the Registration Statement is in
effect, no proceedings for that purpose have been instituted or are
pending before, or threatened by, the Commission and the Registration
Statement and the Prospectus (except, in the case of both the
Registration Statement and any Amendment thereto, and the Prospectus
and any supplement thereto for the financial statements and notes and
schedules thereto, and other financial information or statistical
data contained therein, or omitted therefrom, as to which such
counsel need express no opinion) comply as to form in all material
respects with the applicable requirements of the Act and the Rules
and Regulations;
(viii) All descriptions in the Registration
Statement and the Prospectus, and any amendment or supplement
thereto, of contracts and other documents are accurate and fairly
present the information required to be shown, and such counsel is
familiar with all contracts and other documents referred to in the
Registration Statement and the Prospectus and any such amendment or
supplement, or filed as exhibits to the Registration Statement, and
such counsel does not know of any contracts or documents of a
character required to be summarized or described therein or to be
filed as exhibits thereto which are not so summarized, described or
filed;
(ix) No authorization, approval, consent or license
of any governmental or regulatory authority or agency is necessary in
connection with the authorization, issuance, transfer, sale or
delivery of the Shares by the Company, in connection with the
execution, delivery and performance of this Agreement or the
Underwriter's Warrant by the Company or in connection with the taking
of any action contemplated herein or therein, or the issuance of the
Underwriter's Warrant or the Shares underlying the Underwriter's
Warrant, other than registration or qualification of the Shares under
applicable state or foreign securities or blue sky laws (as to which
such counsel need express no opinion) and registration under the Act;
and
(x) The statements in the Registration Statement
under the caption "Description of Capital Stock," to the extent that
such statements constitute a matter of law or legal conclusion have
been reviewed by such counsel and are correct in all material
respects; and
Such counsel has participated in the preparation of
the Registration Statement and the Prospectus and although such counsel has not
reviewed the accuracy or
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<PAGE>
completeness of the statements contained in the Registration Statement or
Prospectus nothing has come to the attention of such counsel that caused such
counsel to have reason to believe that the Registration Statement or any
amendment thereto at the time it became effective contained any untrue
statement of a material fact or omitted to state any material fact required to
be stated therein or necessary to make the statements therein not misleading
or that the Prospectus or any supplement thereto contains any untrue statement
of a material fact or omits to state a material fact necessary in order to
make statements therein in light of the circumstances under which they were
made not misleading (except, in the case of both the Registration Statement
and any amendment thereto and the Prospectus and any supplement thereto, for
the financial statements, notes and schedules thereto and other financial
information and statistical data contained therein, as to which such counsel
need express no opinion);
In rendering such opinion, such counsel may rely
upon certificates of any officer of the Company or public officials as to
matters of fact; and in rendering such opinion may either (i) rely as to all
matters of law other than the law of the United States or of the State of
California or of the State of 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 to so rely or (ii) assume that the
laws of any state other than the State of California or of the State of
Delaware are identical to the laws of the State of California, in rendering
such opinion.
(c) All corporate proceedings and other legal matters
relating to this Agreement, the Registration Statement, the Prospectus, and
other related matters shall be reasonably satisfactory to or approved by
Freshman, Marantz, Orlanski, Cooper Klein, counsel to you, and you shall have
received from such counsel a signed opinion, dated as of the First Closing
Date, with respect to the validity of the issuance of the Shares, the form of
the Registration Statement and Prospectus (other than the financial statements
and other financial data contained therein), the execution of this Agreement
and other related matters as you may reasonably require. The Company shall
have furnished to counsel for you such documents as they may reasonably
request for the purpose of enabling them to render such opinion.
(d) You shall have received a letter on and as of the
Effective Date and again on and as of the First Closing Date, in each instance
describing procedures carried out to a date within five (5) days of the date
of the letter, from Arthur Anderson LLP, independent public accountants for
the Company, substantially in the form approved by you.
(e) At each of the Closing Dates, (i) the representations
and warranties of the Company contained in this Agreement shall be true and
correct with the same effect as if made on and as of such Closing Date, and
the Company shall have performed all of its obligations hereunder and
satisfied all the conditions on its part to be satisfied at or prior to such
Closing Date; (ii) the Registration Statement and the Prospectus and any
amendments or supplements thereto shall contain all statements which are
required to be stated therein in accordance with the Act and the Rules and
Regulations, and shall in all material respects conform to the requirements
thereof, and neither the Registration Statement nor
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<PAGE>
the Prospectus nor any amendment or supplement thereto shall contain any
untrue statements of a material fact or omit to state any material fact
required to be stated therein or necessary to make the statements therein not
misleading in light of the circumstances under which they were made; (iii)
there shall have been, since the respective dates as of which information is
given, no material adverse change in the business, properties, condition
(financial or otherwise), results of operations, capital stock, long-term or
short-term debt or general affairs of the Company from that set forth in the
Registration Statement and the Prospectus, except changes which the
Registration Statement and Prospectus indicate might occur after the Effective
Date and the Company shall not have incurred any material liabilities nor
entered into any agreement not in the ordinary course of business other than
as referred to in the Registration Statement and Prospectus; and (iv) except
as set forth in the Prospectus, no action, suit or proceeding at law shall be
pending or threatened against the Company which would be required to be
disclosed in the Registration Statement, and no proceedings shall be pending
or threatened against the Company before or by any commission, board or
administrative agency in the United States or elsewhere, wherein an
unfavorable decision, ruling or finding would materially and adversely affect
the business, property, condition (financial or otherwise), results of
operations or general affairs of the Company. In addition, you shall have
received, at the First Closing Date, a certificate signed by the President and
the principal financial or accounting officer of the Company, dated as of the
First Closing Date, evidencing compliance with the provisions of this
subsection (e).
(f) Upon exercise of the option provided for in Section 2(b)
hereof, your obligations to purchase and pay for the Option Shares referred to
therein will be subject (as of the date hereof and as of the Option Closing
Date) to the following additional conditions:
(i) The Registration Statement shall remain
effective at the Option Closing Date, no stop order suspending the
effectiveness thereof shall have been issued, and no proceedings for
that purpose shall have been instituted or shall be pending, or, to
your knowledge or the knowledge of the Company, shall be contemplated
by the Commission, and any reasonable request on the part of the
Commission for additional information shall have been complied with
to the reasonable satisfaction of Freshman, Marantz, Orlanski, Cooper
& Klein, counsel to you.
(ii) At the Option Closing Date there shall have
been delivered to you the signed opinion of Brobeck, Phleger &
Harrison LLP, counsel for the Company, dated as of the Option Closing
Date, in form and substance reasonably satisfactory to Freshman,
Marantz, Orlanski, Cooper & Klein, counsel to you, which opinion
shall be substantially the same in scope and substance as the opinion
furnished to you at the First Closing Date pursuant to Section 4(b)
hereof, except that such opinion, where appropriate, shall cover the
Option Shares rather than the Firm Shares. If the First Closing Date
is the same as the Option Closing Date, such opinions may be
combined.
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<PAGE>
(iii) At the Option Closing Date, there shall have
been delivered to you a certificate of the President and the Chairman
of the Board of the Company dated the Option Closing Date, in form
and substance reasonably satisfactory to Freshman, Marantz, Orlanski,
Cooper & Klein, counsel to you, substantially the same in scope and
substance as the certificate furnished to you at the First Closing
Date pursuant to Section 4(e) hereof.
(iv) At the Option Closing Date, there shall have
been delivered to you a letter in form and substance satisfactory to
you from Arthur Anderson LLP, dated the Option Closing Date and
addressed to you, confirming the information in their letter referred
to in Section 4(d) hereof as of the date thereof and stating that,
without any additional investigation required, nothing has come to
their attention during the period from the ending date of their
review referred to in said letter to a date not more than five-(5)
days prior to the Option Closing Date which would require any change
in said letter if it were required to be dated the Option Closing
Date.
(v) All proceedings taken at or prior to the Option
Closing Date in connection with the sale and issuance of the Option
Shares shall be reasonably satisfactory in form and substance to you,
and you and Freshman, Marantz, Orlanski, Cooper & Klein, counsel to
you, shall have been furnished with all such documents and
certificates as you may request in connection with this transaction
in order to evidence the accuracy and completeness of any of the
representations, warranties or statements of the Company or its
compliance with any of the covenants or conditions contained therein.
(g) If any of the conditions herein provided for in this
Section shall not have been completely fulfilled as of the date indicated,
this Agreement and all obligations of the Underwriters under this Agreement
may be cancelled at, or at any time prior to, each Closing Date by your
notifying the Company of such cancellation in writing or by telegram at or
prior to the applicable Closing Date. Any such cancellation shall be without
liability of any Underwriter to the Company, except as otherwise provided
herein.
5. Conditions of the Obligations of the Company.
The obligation of the Company to sell and deliver the Shares
is subject to the following conditions:
(a) The Registration Statement shall have become effective
not later than 9:00 a.m. New York time, on the date of this Agreement, or on
such later date or time as you and the Company may agree in writing.
(b) on the Closing Dates, no stop order suspending the
effectiveness of the Registration Statement shall have been issued under the
Act or any proceedings therefor initiated or threatened by the Commission.
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If the conditions to the obligations of the Company provided
for in this Section have been fulfilled on the First Closing Date but are not
fulfilled after the First Closing Date and prior to the Option Closing Date,
then only the obligation of the Company to sell and deliver the Option Shares
on exercise of the option provided for in Section 2(b) hereof shall be
affected.
6. Indemnification.
(a) The Company agrees to indemnify and hold harmless you
and each person, if any, who controls you, within the meaning of the Act, from
and against any losses, claims, damages or liabilities (which shall, for all
purposes of this Agreement, include, but not be limited to, all reasonable
costs of defense and investigation and all reasonable attorneys, fees), to
which you or such controlling person may become subject, under the Act or
otherwise, insofar as such losses, claims, damages or liabilities (or actions
in respect thereof) arise out of or are based upon any untrue statement or
alleged untrue statement of any material fact contained in (A) the
Registration Statement, any Preliminary Prospectus, the Prospectus, or any
amendment thereof or supplement thereto, (B) any blue sky application or other
document executed by the Company specifically for that purpose or based upon
written information furnished by the Company filed in any state or other
jurisdiction in order to qualify any or all of the Shares under the securities
laws thereof (any such application, document or information being hereinafter
called a "Blue Sky Application"), or arise out of or are based upon the
omission or alleged omission to state in the Registration Statement, or any
supplement thereto, or in any Blue Sky Application, a material fact required
to be stated therein or necessary to make the statements therein not
misleading; provided, however, that the Company will not be liable in any such
case to the extent, but only to the extent, that any such loss, claim, damage
or liability arises out of or is based upon an untrue statement or alleged
untrue statement or omission or alleged omission made in reliance upon and in
conformity with written information furnished to the Company through you
specifically for use in the preparation of the Registration Statement or any
such amendment or supplement thereof or any such Blue Sky Application or any
such Preliminary Prospectus or the Prospectus or any such amendment or
supplement thereto and provided further, that the indemnity agreement provided
in this Section 6(b) with respect to any preliminary Prospectus shall not
inure to the benefit of any Underwriter from whom the person asserting any
losses, claims, charges, liabilities or litigation based upon any untrue
statement or alleged untrue statement of a material fact or omission or
alleged omission to state therein a material fact purchased Shares, if a copy
of the Prospectus in which such untrue statement or alleged untrue statement
or omission or alleged omission was corrected has not been sent or given to
such person within the time required by the Act and the Rules and Regulations
thereunder. This indemnity will be in addition to any liability which the
Company may otherwise have.
(b) You agree to indemnify and hold harmless the Company,
each of its directors, each nominee (if any) for director named in the
Prospectus, each of its officers who have signed the Registration Statement,
and each person, if any, who controls the Company, within the meaning of the
Act, from and against any losses, claims, damages or liabilities (which shall,
for all purposes of this Agreement, shall include, but not be limited
18
<PAGE>
to, all reasonable costs of defense and investigation and all reasonable
attorneys, fees) to which the Company or any such director, nominee, officer
or controlling person may become subject under the Act or otherwise, insofar
as such losses, claims, damages or liabilities (or actions in respect thereof)
arise out of or are based upon any untrue statement or alleged untrue
statement of any material fact contained in the Registration Statement, any
preliminary Prospectus, the Prospectus, or any amendment or supplement
thereto, or arise out of or are based upon the omission or the alleged untrue
statement or omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading, in each
case to the extent, but only to the extent, that any such loss, claim, damage
or liability arises out of or is based upon an untrue statement or omission or
alleged untrue statement or omission made in the Registration Statement, any
Preliminary Prospectus, the Prospectus, or any amendment or supplement
thereto, in reliance upon and in conformity with written information furnished
to the Company through you specifically for use in preparation thereof. This
indemnity agreement will be in addition to any liability which you may
otherwise have.
(c) Promptly after receipt by an indemnified party under
this Section of notice of the commencement of any action, such indemnified
party will, if a claim in respect thereof is to be made against the
indemnifying party under this Section, notify in writing the indemnifying
party of the commencement thereof,, but the omission so to notify the
indemnifying party will not relieve it from any liability which it may have to
any indemnified party otherwise than under this Section. In case any such
action is brought against any indemnified party, and it notifies the
indemnifying party of the commencement thereof, the indemnifying party will be
entitled to participate in and, to the extent that it may wish, jointly with
any other indemnifying party similarly notified, to assume the defense
thereof, subject to the provisions herein stated, with counsel reasonably
satisfactory to such indemnified party, and after notice from the indemnifying
party to such indemnified party of its election so to assume the defense
thereof, the indemnifying party will not be liable to such indemnified party
under this Section for any legal or other expenses subsequently incurred by
such indemnified party in connection with the defense thereof other than
reasonable costs of investigation. The indemnified party shall have the right
to employ separate counsel in any such action and to participate in the
defense thereof, but the fees and expenses of such counsel shall not be at the
expense of the indemnifying party if the indemnifying party has assumed the
defense of the action with counsel reasonably satisfactory to the indemnified
party; provided that if the indemnified party is any Underwriter or a person
who controls any Underwriter within the meaning of the Act, the fees and
expenses of such counsel shall be at the expense of the indemnifying party if
(i) the employment of such counsel has been specifically authorized in writing
by the indemnifying party or (ii) the named parties to any such action
(including any impleaded parties) include both such Underwriter or such
controlling persona nd the indemnifying party, and in your judgment, it is
advisable for such Underwriter or controlling persons to be represented by
separate counsel (in which case the indemnifying party shall not have the
right to assume the defense of such action on behalf of such Underwriter or
such controlling person, it being understood, however, that the indemnifying
party shall not, in connection with any one such action or separate but
substantially similar or related actions in the same jurisdiction arising out
of the same general allegations or circumstances, be liable for the
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<PAGE>
reasonable fees and expenses of more than one separate firm of attorneys). No
settlement of any action against an indemnified party shall be made without
the consent of the indemnified party, which shall be unreasonably withheld.
7. Contribution.
In order to provide for just and equitable contribution
under the Act in any case in which (i) the indemnified party makes claims for
indemnification pursuant to Section 6 hereof but it is judicially determined
(by the entry of a final judgment or decree by a court of competent
jurisdiction and the expiration of time to appeal or the denial of the last
right of appeal) that such indemnification may not be enforced in such case,
notwithstanding the fact that the express provisions of Section 6 provide for
indemnification in such case, or (ii) contribution under the Act may be
required on the part of you, then the Company and each person who controls the
Company, in the aggregate, and you shall contribute to the aggregate losses,
claims, damages or liabilities to which they may be subject (which shall, for
all purposes of this Agreement, include, but not be limited to, all reasonable
costs of defense and investigation and all reasonable attorneys' fees) in
either such case (after contribution from others) in such proportions that
such Underwriter is responsible in the aggregate for that portion of such
losses, claims, damages or liabilities represented by the percentage that the
underwriting discount per Unit appearing on the cover page of the Prospectus
bears to the public offering price per Unit appearing thereon, and the Company
shall be responsible for the remaining portion, provided, however, that if
such allocation is not permitted by applicable law, then the relative fault of
the Company and you and controlling persons, in the aggregate, in connection
with the statements or omissions which resulted in such damages and other
relevant equitable considerations shall also be considered. The relative fault
shall be determined by reference to, among other things, whether in the case
of an untrue statement of a material fact or the omission to state a material
fact, such statement or omission relates to information supplied by the
Company or you, and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such untrue statement or
omission. The Company and the Underwriters agree (a) that it would not be just
and equitable if the respective obligations of the Company and you to
contribute pursuant to this Section 7 were to be determined by pro rata or per
capita allocation of the aggregate damages (even if the Underwriters have to
be 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 the first sentence of this Section 7 and (b) that the contribution of
any Underwriter shall not be in excess of its proportionate share of the
portion of such losses, claims, damages or liabilities for which you are
responsible. No person guilty of a fraudulent misrepresentation (within the
meaning of Section 11(f) of the Act) shall be entitled to contribution from
any person who is not guilty of such fraudulent misrepresentation. As used in
this paragraph, the word "Company" within the meaning of Section 15 of the
Act. Your obligations to contribute pursuant to this Section 7 are several in
proportion to their respective underwriting obligations and not joint. If the
full amount of the contribution specified in this paragraph is not permitted
by law, then you and each person who controls you shall be entitled to
contribution from the Company to the full extent permitted by law. The
foregoing contribution agreement shall in no way affect the contribution
liabilities of any persons
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having liability under Section 11 of the Act other
than the Company and you. No contribution shall be requested with regard to
the settlement of any matter from any party who did not consent.to the
settlement; provided, however, that such consent shall not be unreasonably
withheld.
8. Costs and Expenses.
(a) Whether or not this Agreement becomes effective or the
sale of the Shares to you is consummated, the Company will pay all costs and
expenses incident to the performance of this Agreement by the Company,
including but not limited to the fees and expenses of counsel to the Company
and of the Company's accountants; the costs and expenses incident to the
preparation, printing, filing and distribution under the Act of the
Registration Statement (including the financial statements therein and all
amendments and exhibits thereto), each Preliminary Prospectus and the
Prospectus, as amended or supplemented, the fee of the National Association of
Securities Dealers, Inc. ("NASD") in connection with the filing required by
the NASD relating to the offering of the Shares contemplated hereby; all
expenses, including reasonable fees (but not in excess of the amount set forth
in Section 3(b)) and disbursements of counsel to you, in connection with the
qualification of the Shares under the State Securities or Blue Sky Laws which
you shall designate; the cost of printing and furnishing to you copies of the
Registration Statement, each Preliminary Prospectus, the Prospectus, this
Agreement, the Warrant Agreement and the Blue Sky Memorandum; the cost of
printing the certificates representing the Shares, the expenses of Company due
diligence meetings and presentations, (but not of you or your counsel in
connection therewith) and the expense (which shall not exceed $5,000) of
placing one or more "tombstone" advertisements as directed by you. The Company
and shall pay any and all taxes (including any transfer, franchise, capital
stock or other tax imposed by any jurisdiction) on sales to you hereunder. The
Company will also pay all costs and expenses incident to the furnishing of any
amended Prospectus or of any supplement to be attached to the Prospectus as
called for in Section 3(a) of this Agreement except as otherwise set forth in
said Section.
(b) In addition to the foregoing expenses, the Company shall
at the First Closing Date pay to you the balance of a non-accountable expense
allowance three (3%) of the gross proceeds of the offering, of which $_____
has been paid. In the event the over-allotment option is exercised in part or
in full, the Company shall pay to you at the Option Closing Date an additional
amount equal to three (3%) of the gross proceeds received upon exercise of the
overallotment option. In the event the transactions contemplated hereby are
not consummated for any reason, the Company shall be liable for your actual
accountable out-of-pocket expenses (with credit given to the $_____ paid),
including legal fees, provided however, that any portion of the $_____ paid by
the Company that has not been utilized by you in connection with the offering
on an accountable basis shall be refunded by you to the Company; and further
provided that if the contemplated transactions are not consummated by reason
of breach by the Company of this Agreement or of any representation, warranty,
covenant or condition contained herein, the Company shall be liable for all of
your accountable expenses.
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(c) No person is entitled either directly or indirectly to
compensation from the Company, from any Underwriter or from any other person
for services as a finder in connection with the proposed offering, and the
Company agrees to indemnify and hold harmless you, and you agree to indemnify
and hold harmless, severally and not jointly, the Company from and against any
losses, claims, damages or liabilities, joint or several (which shall, for all
purposes of this Agreement, include, but not be limited to, all reasonable
costs of defense and investigation and all reasonable attorneys' fees), to
which the indemnified party may become subject insofar as such losses, claims,
damages or liabilities (or actions in respect thereof) arise out of or are
based upon the claim of any person (other than an employee of the party
claiming indemnity) or entity that he or it is entitled to a finder's fee in
connection wit the proposed offering by reason of such person's or entity's
influence or prior contact with the indemnifying party.
9. Effective Date.
The Agreement shall become effective upon its execution,
except that you may, at your option, delay its effectiveness until the earlier
to occur of 10:00 A.M., New York time on the first full business day following
the Effective Date as you in your discretion shall first commence the initial
public offering by you of any of the Shares. The time of the initial public
offering shall mean the time of release by you of the first newspaper
advertisement with respect to the Shares, or the time when the Shares are
first generally offered by you to dealers by letter or telecopier, whichever
shall first occur. This Agreement may be terminated by you at any time before
it becomes effective as provided above, except that Sections 3(c), 6, 7, 8,
12, 13, 14 and 15 shall remain in effect notwithstanding such termination.
10. Termination.
(a) This Agreement, except for Sections 3(c), 6, 7, 8, 12,
13, 14 and 15, may be terminated at any time prior to the First Closing Date,
and the option referred to in Section 2(b), if exercised, may be cancelled, at
any time prior to the Option Closing Date, by you if in your judgment it is
impracticable to offer for sale or to enforce contracts made by you for the
resale of the Shares agreed to be purchased hereunder, by reason of (i) the
Company having sustained a material loss, whether or not insured, by reason of
fire, earthquake, flood, accident or other calamity, or from any labor dispute
or court or government action, order or decree, (ii) trading in securities on
the New York Stock Exchange or the American Stock Exchange having been
suspended or limited, (iii) material governmental restrictions having been
imposed on trading in securities generally which are not in force and effect
on the date hereof, (iv) a banking moratorium having been declared by federal
of New York State authorities, (v) an outbreak of major international
hostilities or other national or international calamity having occurred, (vi)
the passage by the Congress of the United States or by any state legislative
body of similar impact, of any act or measure, or the adoption of any orders,
rules or regulations by any governmental body or any authoritative accounting
institute or board, or any governmental executive, which is reasonably
believed likely by you to have a material adverse impact on the business,
financial condition or financial statements of the Company, (vii) any material
adverse
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change in the financial or securities markets beyond normal fluctuations in
the United States having occurred since the date of this Agreement, or (viii)
any material adverse change having occurred, since the respective dates for
which information is given in the Registration Statement and Prospectus, in
the earnings, business, prospects or general condition of the Company,
financial or otherwise, whether or not arising in the ordinary course of
business.
(b) If you elect to prevent this Agreement from becoming
effective or to terminate this Agreement as provided in this Section 10 or in
Section 9, the Company shall be promptly notified by you, by telephone or
facsimile transmission, confirmed by letter.
11. Underwriter's Warrant.
On the First Closing Date, the Company will issue to you,
for a consideration of $5.00 and upon the terms and conditions set forth in
the form of Underwriter's Warrant annexed as an exhibit to the Registration
Statement, an Underwriter's Warrant to purchase 160,000 Shares. In the event
of conflict in the terms of this Agreement and the Underwriter's Warrant, the
language of the Underwriter's Warrant shall control.
12. Representations, Warranties and Agreements to Survive
Delivery.
The respective indemnities, agreements, representations,
warranties and other statements of the Company or its Existing Shareholders,
where appropriate, and you, set forth in or made pursuant to this Agreement
will remain in full force and effect regardless of any investigation made by
or on behalf of you, the Company or any of its officers or directors or any
controlling persons and will survive delivery of and payment for the Shares
and the termination of this Agreement.
13. Notice.
All communications hereunder will be in writing and, except
as otherwise expressly provided herein, if sent to you, will be mailed,
delivered or telecopied and confirmed to it at H.J. Meyers & Co., Inc., 1895
Mt. Hope Avenue, Rochester, New York 14620-4596, with a copy sent to Thomas J.
Poletti, Esq. at Freshman, Marantz, Orlanski, Cooper & Klein, 9100 Wilshire
Boulevard, 8th Floor East, Beverly Hills, California 90212-3480, of if sent to
the Company, will be mailed, delivered, or facsimiled and confirmed to John A.
White of Votan Corporation, 7020 Koll Center Parkway, Suite 214, Pleasanton,
California 94566, with copy sent to William L. Hudson, Esq. of Brobeck,
Phleger & Harrison LLP, at Spear Street Tower, San Francisco, California
94105.
14. Parties in Interest.
The Agreement herein set forth is made solely for your
benefit, the Company and, to the extent expressed, the Existing Shareholders,
any person controlling the Company, or you, and directors of the Company,
nominees for directors of the Company (if any) named in the Prospectus, the
officers of the Company who have signed the Registration Statement, and their
respective executors, administrators, successors and
23
<PAGE>
assigns, and no other person shall acquire for have any right under or by
virtue of this Agreement. The term "successors and assigns" shall not include
any purchaser, as such purchaser, from you of the Shares.
15. Applicable Law.
This Agreement will be governed by, and construed in
accordance with, the laws of the State of New York applicable to agreements
made and to be entirely performed within New York.
24
<PAGE>
If the foregoing is in accordance with your understanding of
our agreement, kindly sign and return this Underwriting Agreement, whereupon
it will become a binding agreement between the Company and you in accordance
with its terms.
Very truly yours,
Votan Corporation
Dated: ______________, 1995 By:________________________________
Name:
Title:
The foregoing Underwriting Agreement is hereby confirmed and accepted
as of the date first above written.
H.J. Meyers & Co., Inc.
Dated: ______________, 1995 By:________________________________
Authorized Officer
<PAGE>
SCHEDULE I
Underwriting Agreement dated ___________ ___, 1997
Number of Firm
Shares
Underwriter to be Purchased
---------------
H.J. Meyers & Co., Inc. 1,600,000
26
<PAGE>
EXHIBIT 3.1(a)
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE INCORPORATION
OF
VOTAN CORPORATION
Pursuant to Section 242 of the General Corporation
Law of the State of Delaware
----------------------------------------------------------
The undersigned, pursuant to the provisions of the General Corporation Law
of the State of Delaware, do hereby certify and set forth the following:
FIRST: The name of the corporation is Votan Corporation.
SECOND: The amendment to the Certificate of Incorporation to be
effected hereby is as follows:
Paragraph FOURTH of the Certificate of Incorporation of this corporation
shall be amended to read as follows:
"FOURTH. The total number of shares of stock which the corporation
shall have the authority to issue is Twenty Million (20,000,000)
shares of Common Stock, $.01 par value (the "Common Stock") and One
Million (1,000,000) shares of Preferred Stock, $.01 par value (the
"Preferred Stock"). As of the date of this amendment, each 3.4375
shares of the corporation's issued and outstanding Common Stock shall
be converted and reclassified into one share of the corporation's
Common Stock.
THIRD: The foregoing amendment to this Certificate of Incorporation
was first authorized by the Board of Directors and subsequently adopted by the
stockholders by the written consent of stockholders holding a majority of the
corporation's outstanding stock entitled to vote thereon in accordance with
Section 228 of the General Corporation Law of the State of Delaware.
FOURTH: In accordance with Section 228 of the General Corporation Law
of the State of Delaware, notice of the authorization and adoption of this
Certificate of Amendment has been promptly given to all stockholders of the
corporation who have not consented in writing to this corporate action.
-1-
<PAGE>
IN WITNESS WHEREOF, the undersigned, being the President and the
Secretary of the corporation, for the purpose of amending the Certificate of
Incorporation of the Corporation pursuant to the General Corporation Law, do
make this certificate, hereby declaring and certifying that this is our act and
deed and the facts herein stated are true, and accordingly have hereunto set
our hand this 7th day of March, 1997.
/s/ John A. White
----------------------------
John A. White, President
/s/ Richard C. Vail
----------------------------
Richard C. Vail, Secretary
-2-
<PAGE>
Warrant to Purchase 160,000
Shares of Common Stock
REPRESENTATIVE'S WARRANT
------------------------
Dated: ___________, ___, 1997
THIS CERTIFIES THAT H.J. Meyers & Co., Inc. (herein sometimes called
the "Holder" or the "Representative") is entitled to purchase from VOTAN
CORPORATION, a Delaware corporation (the "Company"), at the price and during
the period as hereinafter specified, up to One Hundred Sixty Thousand (160,000)
shares of common stock, no par value per share (the "Common Stock") at a
purchase price of $_____ (120% of the initial public offering price) per share,
subject to adjustment as described below, at any time during the four-year
period commencing one (1) year from the effective date of the Registration
Statement (the "Effective Date").
This Representative's Warrant (the "Representative's Warrant") is
issued pursuant to an Underwriting Agreement between the Company and H.J.
Meyers & Co., Inc. in connection with a public offering, through the
Representative, of 1,600,000 shares of Common Stock as therein described (and
up to 240,000 additional shares of Common Stock covered by an over-allotment
option granted by the Company to the Representative), and in consideration of
$5.00 received by the Company for the Representative's Warrant. Except as
specifically otherwise provided herein, the Common Stock issued pursuant to the
Representative's Warrant shall bear the same terms and conditions as described
under the caption "Description of Securities" in the Registration Statement on
Form S-1, File No. 333-7137 (the "Registration Statement") except that the
Holder shall have registration rights under the Securities Act of 1933, as
amended (the "Act"), for issuance pursuant thereto, the Representative's
Warrant and the Common Stock issuable pursuant thereto, as more fully described
in paragraph 6 herein.
1. The rights represented by the Representative's Warrant shall be
exercised at the price, subject to adjustment in accordance with Section 8
hereof (the "Exercise Price"), and during the periods as follows:
(a) During the period from the Effective Date to and through
___________ ___, 1998 (the "First Anniversary Date"),
inclusive, the Holder shall have no right to purchase any
Common Stock hereunder, except that in the event of any merger,
consolidation or sale of substantially all the assets of the
Company as an entirety prior to the First Anniversary Date
(other than (i) a merger or consolidation in which the Company
is the continuing corporation and which does not result in any
reclassification or reorganization of any outstanding shares of
Common Stock or (ii) any sale/leaseback, mortgage or other
financing transaction), the Holder shall have the right to
exercise the Representative's Warrant concurrently with such
event and into the kind and amount of shares of stock and other
1
<PAGE>
securities and property (including cash) receivable by a holder
of the number of shares of Common Stock into which the
Representative's Warrant were exercisable immediately prior
thereto.
(b) Between ___________ ___, 1998 and ___________ ___, 2002, (five
(5) years from the Effective Date, i.e. the "Expiration Date")
inclusive, the Holder shall have the option to purchase Common
Stock hereunder at a price of $_____ per share (120% of public
offering price per share).
(c) After the Expiration Date, the Holder shall have no right to
purchase any Common Stock hereunder.
2. (a) The rights represented by the Representative's Warrant may be
exercised at any time within the periods above specified, in whole or in part,
by (i) the surrender of the Representative's Warrant (with the purchase form at
the end hereof properly executed) at the principal executive office of the
Company (or such other office or agency of the Company as it may designate by
notice in writing to the Holder at the address of the Holder appearing on the
books of the Company); (ii) payment to the Company of the exercise price then
in effect for the number of shares of Common Stock specified in the
above-mentioned purchase form together with applicable stock transfer taxes, if
any; and (iii) delivery to the Company of a duly executed agreement signed by
the person(s) designated in the purchase form to the effect that such person(s)
agree(s) to be bound by the provisions of paragraph 6 and subparagraphs (b),
(c) and (d) of paragraph 7 hereof. The Representative's Warrant shall be deemed
to have been exercised, in whole or in part to the extent specified,
immediately prior to the close of business on the date the Representative's
Warrant is surrendered and payment is made in accordance with the foregoing
provisions of this paragraph 2, and the person or persons in whose name or
names the certificates for shares of Common Stock shall be issuable upon such
exercise shall become the holder or holders of record of such Common Stock at
that time and date. The Common Stock and the certificates for the Common Stock
so purchased shall be delivered to the Holder within a reasonable time, not
exceeding ten (10) business days, after the rights represented by this
Representative's Warrant shall have been so exercised.
(b) Notwithstanding anything to the contrary contained in paragraph
2(a), the Holder may elect to exercise this Representative's Warrant in whole
or in part by receiving shares of Common Stock equal to the value (as
determined below) of this Representative's Warrant, or any part hereof, upon
surrender of the Representative's Warrant at the principal office of the
Company together with notice of such election in which event the Company shall
issue to the Holder a number of shares of Common Stock computed using the
following formula:
X = Y(A-B)
------
A
Where X = the number of shares of Common Stock to be issued to the
Holder;
2
<PAGE>
Y = the number of shares of Common Stock to be exercised under
this Representative's Warrant (the "Shares");
A = the current fair market value of one share of Common Stock;
B = the Exercise Price of the Representative's Warrant;
As used herein, current fair market value of Common Stock shall
mean with respect to each share of Common Stock the average of the
closing prices of the Company's Common Stock sold on the principal
national securities exchanges on which the Common Stock is at the
time admitted to trading or listed, or, if there have been no sales
of any such exchange on such day, the average of the highest bid
and lowest ask price on such day as reported by NASDAQ, or any
similar organization if NASDAQ is no longer reporting such
information, either (i) on the date which the form of election is
deemed to have been sent to the Company (the "Notice Date") or (ii)
over a period of five (5) trading days preceding the Notice Date,
whichever of (i) or (ii) is greater. If on the date for which
current fair market value is to be determined the Common Stock is
not listed on any securities exchange or quoted in the NASDAQ
System or the over-the-counter market, the current fair market
value of Common Stock shall be the highest price per share which
the Company could then obtain from a willing buyer (not a current
employee or director) for shares of Common Stock sold by the
Company, from authorized but unissued shares, as determined in good
faith by the Board of Directors of the Company, unless prior to
such date the Company has become subject to a binding agreement for
a merger, acquisition or other consolidation pursuant to which the
Company is not the surviving party, in which case the current fair
market value of the Common Stock shall be deemed to be the value to
be received by the holders of the Company's Common Stock for each
share thereof pursuant to the Company's acquisition.
3. The Representative's Warrant shall not be transferred, sold,
assigned, or hypothecated for a period of one year commencing on the Effective
Date except that it may be transferred to successors of the Holder, and may be
assigned in whole or in part to any person who is an officer of the Holder to
any members of the selling group and/or the officers or partners thereof during
such period. This Representative's Warrant must be executed immediately upon
its transfer at any time after one year from the Effective Date, and if not so
executed, shall lapse. Any such assignment shall be effected by the Holder by
(i) executing the form of assignment at the end hereof and (ii) surrendering
the Representative's Warrant for cancellation at the office or agency of the
Company referred to in paragraph 2 hereof, accompanied by a certificate (signed
by an officer of the Holder if the Holder is a corporation) stating that each
transferee is a permitted transferee under this paragraph 3; whereupon the
Company shall issue, in the name or names specified by the Holder (including
the Holder), a new Representative's Warrant or Warrants of like tenor and
representing in the aggregate rights
3
<PAGE>
to purchase the same number of shares of Common Stock as are purchasable
hereunder at such time.
4. The Company covenants and agrees that all shares of Common Stock
which may be purchased hereunder will, upon issuance and delivery against
payment therefor of the requisite purchase price, be duly and validly issued,
fully paid and nonassessable. The Company further covenants and agrees that,
during the periods within which the Representative's Warrant may be exercised,
the Company will at all times have authorized and reserved a sufficient number
of shares of its Common Stock to provide for the exercise of the
Representative's Warrant.
5. The Representative's Warrant shall not entitle the Holder to any
voting rights or other rights, including without limitation notice of meetings
of other actions or receipt of dividends, as a stockholder of the Company.
6. (a) The Company shall advise the Holder or its permitted
transferee, whether the Holder holds the Representative's Warrant or has
exercised the Representative's Warrant and holds shares of Common Stock related
thereto, by written notice at least four weeks prior to the filing of any new
registration statement thereto under the Act, or the filing of a notification
on Form 1-A under the Act for a public offering of securities, covering any
securities of the Company, for its own account or for the account of others,
except for any registration statement filed on Form S-4 or S-8 (or other
comparable form), and will, during the five (5) year period from the Effective
Date, upon the request of the Holder, include in any such new registration
statement (or notification as the case may be) such information as may be
required to permit a public offering of, all or any of the shares of Common
Stock underlying the Representative's Warrant (the "Registrable Securities").
For so long as the Representative's Warrant remains outstanding the Company
currently intends to file post-effective amendments to the Registration
Statement (or any new registration statement filed by the Company) setting
forth or otherwise relating certain information contained in the then most
recent quarterly report on Form 10-Q or annual report on Form 10-K filed by the
Company (each such post-effective amendment, a "Quarterly Amendment"). The
parties hereby agree that if at any time during such five (5) year period the
Company receives written notice from the Holder at least two weeks prior to the
filing of any such Quarterly Amendment indicating such Holder's intention to
offer Registrable Securities in such Quarterly Amendment, the Company will
include in such Quarterly Amendment such information as may be required to
permit a public offering of such Registrable Securities. The delivery by the
Holder of any such notice shall not constitute a demand made pursuant to
Section 6(b). The Company shall supply prospectuses and such other documents as
the Holder may reasonably request in order to facilitate the public sale or
other disposition of the Registrable Securities, use its best efforts to
register and qualify any of the Registrable Securities for sale in such states
(i) as such Holder designates and (ii) with respect to which the Company
obtained a qualification in connection with its initial public offering; and do
any and all other acts and things which may be necessary or desirable to enable
such Holder to consummate the public sale or other disposition of the
Registrable Securities, all at no expense to the Holder or the Representative
(other than sales commissions, underwriting discounts or commissions, or other
expenses of such sale), and furnish indemnification in the manner
4
<PAGE>
provided in paragraph 7 hereof. The Holder shall furnish information and
indemnification as set forth in paragraph 7.
(b) At any time during the four (4) year period beginning one (1)
year after the Effective Date, a 50% Holder (as defined below) may request, on
up to an aggregate of two occasions, that the Company register under the Act
any and all of the Registrable Securities held by such 50% Holder. Upon the
receipt of any such notice, the Company will promptly, but no later than four
weeks after receipt of such notice, file a post-effective amendment to the
current Registration Statement or a new registration statement pursuant to the
Act, so that such designated Registrable Securities may be publicly sold under
the Act as promptly as practicable thereafter and the Company will use
reasonable efforts to cause such registration to become and remain effective
(including the taking of such reasonable steps as are necessary to obtain the
removal of any stop order) within 120 days after the receipt of such notice,
provided, that such Holder shall furnish the Company with appropriate
information in connection therewith as the Company may reasonably request in
writing. The 50% Holder may, at its option, request the registration of any of
the Common Stock underlying the Representative's Warrant in a registration
statement made by the Company as contemplated by Section 6(a) or in connection
with a request made pursuant to this Section 6(b) prior to acquisition of the
shares of Common Stock issuable upon exercise of the Representative's Warrant.
The 50% Holder may, at its option, request such post-effective amendment or new
registration statement during the described period with respect to the
Representative's Warrant, and such registration rights may be exercised by the
50% Holder prior to or subsequent to the exercise of the Representative's
Warrant. Within ten days after receiving any such notice pursuant to this
subsection (b) of paragraph 6, the Company shall give notice to any other
Holders of the Representative's Warrant, advising that the Company is
proceeding with such post-effective amendment or registration statement and
offering to include therein the securities underlying that part of the Warrant
held by the other Holders, provided that they shall furnish the Company with
such appropriate information (relating to the intentions of such Holders) in
connection therewith as the Company shall reasonably request in writing. All
costs and expenses of the first post-effective amendment or new registration
statement shall be borne by the Company, except that the Holder(s) shall bear
the fees of their own counsel and any other advisors retained by them and any
underwriting discounts or commissions applicable to any of the securities sold
by them. All costs and expenses of the second such post-effective amendment or
new registration statement shall be borne by the Holder(s). The Company will
use its best efforts to maintain such registration statement or post-effective
amendment current under the Act for a period of at least six months (and for up
to an additional three (3) months if so requested by the Holder(s)) from the
effective date thereof. The Company shall supply prospectuses, and such other
documents as the Holder(s) may reasonably request in order to facilitate the
public sale or other disposition of the Registrable Securities, use its best
efforts to register and qualify any of the Registrable Securities for sale in
such states (i) as such Holder(s) designate and (ii) with respect to which the
Company obtained a qualification in connection with its initial public offering
and furnish indemnification in the manner provided in paragraph 7 hereof.
Notwithstanding the foregoing set forth in this paragraph 6(b), the Company
shall not be required to include in any registration statement any Registration
Securities which in the opinion of counsel to the Company (which opinion is
reasonably acceptable to counsel to the Representative) would be saleable
5
<PAGE>
immediately without restriction under Rule 144 (or its successor) if the
Representative's Warrant was exercised pursuant to paragraph 2(b) herein.
(c) The term "50% Holder" as used in this paragraph 6 shall mean
the Holder(s) of at least 50% of the Representative's Warrant and/or the Common
Stock underlying the Representative's Warrant (considered in the aggregate).
7. (a) Whenever pursuant to paragraph 6 a registration statement
relating to any Common Stock issued upon exercise of the Representative's
Warrant is filed under the Act, amended or supplemented, the Company will
indemnify and hold harmless each Holder of the Common Stock covered by such
registration statement, amendment or supplement (such Holder being hereinafter
called the "Distributing Holder"), and each person, if any, who controls
(within the meaning of the Act) the Distributing Holder, and each underwriter
(within the meaning of the Act) of such Common Stock and each person, if any,
who controls (within the meaning of the Act) any such underwriter, against any
losses, claims, damages or liabilities, joint or several, to which the
Distributing Holder, any such controlling person or any such underwriter may
become subject, under the Act or otherwise, insofar as such losses, claims,
damages or liabilities, or actions in respect thereof, arise out of or are
based upon any untrue statement or alleged untrue statement of any material
fact contained in any such registration statement as declared effective or any
final prospectus constituting a part thereof or any amendment or supplement
thereto, or arise out of or are based upon the omission or the alleged omission
to state therein a material fact required to be stated therein or necessary to
make the statements therein not misleading and will reimburse the Distributing
Holder or such controlling person or underwriter for any legal or other expense
reasonably incurred by them in connection with investigating or defending any
such loss, claim, damage, liability or action; provided, however, that the
Company will not be liable in any such case to the extent that any such loss,
claim, damage or liability arises out of or is based upon an untrue statement
or alleged untrue statement or omission or alleged omission made in said
registration statement, said preliminary prospectus, said final prospectus or
said amendment or supplement in reliance upon and in conformity with written
information furnished by such Distributing Holder or any other Distributing
Holder for use in the preparation thereof and provided further, that the
indemnity agreement provided in this Section 7(a) with respect to any
preliminary prospectus shall not inure to the benefit of any Distributing
Holder, controlling person of such Distributing Holder, underwriter or
controlling person of such underwriter from whom the person asserting any
losses, claims, charges, liabilities or litigation based upon any untrue
statement or alleged untrue statement of a material fact or omission or alleged
omission to state therein a material fact, received such preliminary
prospectus, if a copy of the prospectus in which such untrue statement or
alleged untrue statement or omission or alleged omission was corrected has not
been sent or given to such person within the time required by the Act and the
Rules and Regulations thereunder.
(b) The Distributing Holder will indemnify and hold harmless the
Company, each of its directors, each of its officers who have signed said
registration statement and such amendments and supplements thereto, and each
person, if any, who controls the Company (within the meaning of the Act)
against any losses, claims, damages or liabilities, joint or several, to which
the Company or any such director, officer or controlling person may become
6
<PAGE>
subject, under the Act or otherwise, insofar as such losses, claims, damages or
liabilities, or actions in respect thereof, arise out of or are based upon any
untrue or alleged untrue statement of any material fact contained in said
registration statement, said preliminary prospectus, said final prospectus, or
said amendment or supplement, or arise out of or are based upon the omission or
the alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading, in each
case to the extent, but only to the extent, that such loss, claim, damage or
liability arises out of or is based upon an untrue statement or alleged untrue
statement or omission or alleged omission made in said registration statement,
said preliminary prospectus, said final prospectus or said amendment or
supplement in reliance upon and in conformity with written information
furnished by such Distributing Holder for use in the preparation thereof; and
will reimburse the Company or any such director, officer or controlling person
for any legal or other expenses reasonably incurred by them in connection with
investigating or defending any such loss, claim, damage, liability or action.
(c) Promptly after receipt by an indemnified party under this
paragraph 7 of notice of the commencement of any action, such indemnified party
will, if a claim in respect thereof is to be made against any indemnifying
party, give the indemnifying party notice of the commencement thereof, but the
omission so to notify the indemnifying party will not relieve it from any
liability which it may have to any indemnified party otherwise than under this
paragraph 7.
(d) In case any such action is brought against any indemnified
party, and it notifies an indemnifying party of the commencement hereof, the
indemnifying party will be entitled to participate in and, to the extent that
it may wish, jointly with any other indemnifying party similarly notified, to
assume the defense thereof, with counsel reasonably satisfactory to such
indemnified party, and after notice from the indemnifying party to such
indemnified party of its election so to assume the defense thereof, the
indemnifying party will not be liable to such indemnified party under this
paragraph 7 for any legal or other expenses subsequently incurred by such
indemnified party in connection with the defense thereof other than reasonable
costs of investigation.
8. The Exercise Price in effect at the time and the number and kind of
securities purchasable upon the exercise of this Representative's Warrant shall
be subject to adjustment from time to time upon the happening of certain events
as follows:
(a) In case the Company shall (i) declare a dividend or make a
distribution on its outstanding shares of Common Stock in shares of Common
Stock, (ii) subdivide or reclassify its outstanding shares of Common Stock into
a greater number of shares, (iii) combine or reclassify its outstanding shares
of Common Stock into a smaller number of shares, or (iv) enter into any
transaction whereby the outstanding shares of Common Stock of the Company are
at any time changed into or exchanged for a different number or kind of shares
or other security of the Company or of another corporation through
reorganization, merger, consolidation, liquidation or recapitalization, then
appropriate adjustments in the number of Shares (or other securities for which
such Shares have previously been exchanged or converted) subject to this
Representative's Warrant shall be made and the Exercise Price in effect at the
time of the record date for such dividend or distribution or of the effective
date of such subdivision, combination,
7
<PAGE>
reclassification, reorganization, merger, consolidation, liquidation or
recapitalization shall be proportionately adjusted so that the Holder of this
Representative's Warrant exercised after such date shall be entitled to receive
the aggregate number and kind of Shares which, if this Representative's Warrant
had been exercised by such Holder immediately prior to such date, he would have
been entitled to receive upon such dividend, distribution, subdivision,
combination, reclassification, reorganization, merger, consolidation,
liquidation or recapitalization. For example, if the Company declares a 2 for 1
stock distribution and the Exercise Price hereof immediately prior to such
event was $_____ per share and the number of Shares purchasable upon exercise
of this Representative's Warrant was ___________, the adjusted Exercise Price
immediately after such event would be $_____ per Share and the adjusted number
of Shares purchasable upon exercise of this Representative's Warrant would be
__________. Such adjustment shall be made successively whenever any event
listed above shall occur.
(b) In case the Company shall fix a record date for the issuance of
rights or warrants to all holders of its Common Stock entitling them to
subscribe for or purchase shares of Common Stock (or securities convertible
into Common Stock) at a price (the "Subscription Price") (or having a
conversion price per share) less than the Exercise Price on a per share basis
(the "Per Share Exercise Price") on such record date, the Exercise Price shall
be adjusted so that the same shall equal the price determined by multiplying
the Per Share Exercise Price in effect immediately prior to the date of
issuance by a fraction, the numerator of which shall be the sum of the number
of shares outstanding on the record date mentioned below and the number of
additional shares of Common Stock which the aggregate offering price of the
total number of shares of Common Stock so offered (or the aggregate conversion
price of the convertible securities so offered) would purchase at the Per Share
Exercise Price in effect immediately prior to the date of such issuance, and
the denominator of which shall be sum of the number of shares of Common Stock
outstanding on the record date mentioned below and the number of additional
shares of Common Stock offered for subscription or purchase (or into which the
convertible securities so offered are convertible). Such adjustment shall be
made successively whenever such rights or warrants are issued and shall become
effective immediately after the record date for the determination of
shareholders entitled to receive such rights or warrants; and to the extent
that shares of Common Stock are not delivered (or securities convertible into
Common Stock are not delivered) after the expiration of such rights or warrants
the Exercise Price shall be readjusted to the Exercise Price which would then
be in effect had the adjustments made upon the issuance of such rights or
warrants been made upon the basis of deliver of only the number of shares of
Common Stock (or securities convertible into Common Stock) actually delivered.
(c) In case the Company shall hereafter distribute to all holders
of its Common Stock evidences of its indebtedness or assets (excluding cash
dividends or distributions and dividends or distributions referred to in
Subsection (a) above) or subscription rights or warrants (excluding those
referred to in Subsection (b) above, then in each such case the Exercise Price
in effect thereafter shall be determined by multiplying the Per Share Exercise
Price in effect immediately prior thereto by a fraction, the numerator of which
shall be the total number of shares of Common Stock then outstanding multiplied
by the current market price per share of Common Stock (as defined in Subsection
(e) below), less the fair market value (as determined by the Company's Board of
Directors) of said assets, or evidences of indebtedness so distributed or of
such rights or warrants, and the denominator of which shall be the total number
of shares
8
<PAGE>
of Common Stock outstanding multiplied by such current market price per share
of Common Stock. Such adjustment shall be made whenever any such distribution
is made and shall become effective immediately after the record date for the
determination of shareholders entitled to receive such distribution.
(d) Whenever the Exercise Price payable upon exercise of the
Representative's Warrant is adjusted pursuant to Subsections (a), (b) or (c)
above, the number of Shares purchasable upon exercise of this Representative's
Warrant shall simultaneously be adjusted by multiplying the number of Shares
issuable upon exercise of this Representative's Warrant by the Exercise Price
in effect on the date hereof and dividing the product so obtained by the
Exercise Price, as adjusted.
(e) For the purpose of any computation under Subsection (c) above,
the current market price per share of Common Stock at any date shall be deemed
to be the average of the daily closing prices of the Common Stock for 30
consecutive business days before such date. The closing price for each day
shall be the last sale price regular way or, in case no such reported sale
takes place on such day, the average of the last reported bid and asked prices
regular way, in either case on the principal national securities exchange on
which the Common Stock is admitted to trading or listed, or, if not listed or
admitted to trading on such exchange, the average of the highest reported bid
and lowest reported asked prices as reported by NASDAQ, or other similar
organization if NASDAQ is no longer reporting such information, or if not so
available, the fair market price as determined by the Board of Directors.
(f) No adjustment in the Exercise Price shall be required unless
such adjustment would require an increase or decrease of at least five cents
($0.05) in such price; provided, however, that any adjustments which may by
reason of this Subsection (f) are not required to be made shall be carried
forward and taken into account in any subsequent adjustment required to be made
hereunder. All calculations under this Section 8 shall be made to the nearest
cent or to the nearest one-hundredth of a share, as the case may be. Anything
in this Section 8 to the contrary notwithstanding, the Company shall be
entitled, but shall not be required, to make such changes in the Exercise
Price, in addition to those required by this Section 8, as it shall determine,
in its sole discretion, to be advisable in order that any dividend or
distribution in shares of Common Stock, or any subdivision, reclassification or
combination of Common Stock, hereafter made by the Company shall not result in
any Federal income tax liability to the holders of the Common Stock or
securities convertible into Common Stock.
(g) Whenever the Exercise Price is adjusted, as herein provided,
the Company shall promptly cause a notice setting forth the adjusted Exercise
Price and adjusted number of Shares issuable upon exercise of the
Representative's Warrant to be mailed to the Holder, at its address set forth
herein, and shall cause a certified copy thereof to be mailed to the Company's
transfer agent, if any. The Company may retain a firm of independent certified
public accountants selected by the Board of Directors (who may be the regular
accountants employed by the Company) to make any computation required by this
Section 8, and a certificate signed by such firm shall be conclusive evidence
of the correctness of such adjustment.
9
<PAGE>
(h) In the event that at any time, as a result of an adjustment
made pursuant to the provisions of this Section 8, the Holder of the
Representative's Warrant thereafter shall become entitled to receive any shares
of the Company other than Common Stock, thereafter the number of such other
shares so receivable upon exercise of the Representative's Warrant shall be
subject to adjustment from time to time in a manner and on terms as nearly
equivalent as practicable to the provisions with respect to the Common Stock
contained in Subsections (a) to (f), inclusive, above.
9. This Agreement shall be governed by and in accordance with the laws
of the State of New York without regard to conflict of laws provision.
10
<PAGE>
IN WITNESS WHEREOF, VOTAN CORPORATION has caused this Representative's
Warrant to be signed by its duly authorized officers under its corporate seal,
and this Representative's Warrant to be dated ____________ ___, 1997.
VOTAN CORPORATION
By:
--------------------------------------
John A. White
President, Chief Executive Officer and
Chairman of the Board
(Corporate Seal)
Attest:
- ----------------------------------
Richard C. Vail
Executive Vice President and
Director
11
<PAGE>
PURCHASE FORM
(To be signed only upon exercise of Warrant)
The undersigned, the holder of the foregoing Representative's Warrant,
hereby irrevocably elects to exercise the purchase rights represented by such
Warrant for, and to purchase thereunder, _______________ shares of no par value
Common Stock of VOTAN CORPORATION, and herewith makes payment of $_______
therefor, and requests that the certificates for the shares of Common Stock be
issued in the name(s) of, and delivered to ________________________, whose
address(es) is (are):
Dated: , 19
---------------- --
By:
----------------------------------
-------------------------------------
-------------------------------------
Address
<PAGE>
TRANSFER FORM
(To be signed only upon transfer of Warrant)
For value received, the undersigned hereby sells, assigns, and
transfers unto ______________________________ the right to purchase shares of
Common Stock represented by the foregoing Representative's Warrant to the
extent of __________ shares of no par value Common Stock, and appoints
_________________________ attorney to transfer such rights on the books of
_________________ ____________, with full power of substitution in the
premises.
Dated: , 19
---------------- --
By:
----------------------------------
-------------------------------------
-------------------------------------
Address
In the presence of:
<PAGE>
March 11, 1997
Votan Corporation
6920 Koll Center Parkway #214
Pleasanton, California 94566
Ladies and Gentlemen:
We have assisted in the preparation and filing by Votan
Corporation (the "Company") of a Registration Statement on Form S-1, as
amended through March 11, 1997 (the "Registration Statement"), with the
Securities and Exchange Commission, relating to (i) the issuance and sale of
up to 1,840,000 shares of Common Stock (the "Shares"), par value $0.01 per
share, including 1,600,000 shares to be offered by the Company and 120,000
shares of Common Stock to be sold by the Company and 120,000 shares of Common
Stock to be sold by MOSCOM Corporation as part of the underwriter's
over-allotment option and (ii) the issuance and sale of an underwriter's
warrant (the "Underwriter's Warrant"), and 160,000 shares of Common Stock to
be issued upon conversion of the Underwriter's Warrant (the "Warrant Shares").
A form of underwriting agreement (the "Underwriting Agreement") has been filed
as an exhibit to the Registration Statement.
We have examined such records and documents and have made
such examination of laws as we considered necessary to form a basis for the
opinion set forth herein. In our examination, we have assumed the genuineness
of all signatures, the authenticity of all documents submitted to us as
originals, and the conformity with the originals of all documents submitted to
us as copies thereof.
Based upon and subject to the foregoing, we are of the
opinion that:
1. The Shares have been duly authorized and, when sold and
paid for in accordance with the terms of the Underwriting Agreement,
will be validly issued, fully paid and nonassessable.
2. The issuance of the Underwriter's Warrant has been duly
authorized and such warrant when issued will constitute a legal,
valid and binding obligation of the Company, and will be enforceable
against the Company in accordance with its terms, except as
enforceability may be limited by (i) the effect of bankruptcy,
insolvency, reorganization, moratorium and other similar laws
relating to or affecting the relief of debtors or the rights and
remedies of creditors generally, including without limitation the
effect of statutory or other law regarding fraudu-
<PAGE>
Votan Corporation March 11, 1997
Page 2
lent conveyances and preferential transfers and (ii) limitations
imposed by state law, federal law or general equitable principles
upon the specific enforceability of any of the remedies, covenants or
other provisions of the underwriter's warrant and upon the
availability of injunctive relief or other equitable remedies,
regardless of whether enforcement of any such agreement is considered
a proceeding in equity or at law.
3. The Warrant Shares have been duly authorized and, upon
exercise of the Underwriter's Warrant in accordance with its terms
and payment of the exercise price therefor, will be validly issued,
fully paid and non-assessable.
We hereby consent to the use of our name in the Registration
Statement under the caption "Legal Matters" in the related Prospectus and
consent to the filing of this opinion as an exhibit thereto.
Very truly yours,
BROBECK, PHLEGER & HARRISON LLP
<PAGE>
EX 10.2(a)
BERNAL CORPORATE PARK LEASE
FIRST AMENDMENT TO LEASE
That certain Lease dated July 8, 1996 by and between PATRICIAN
ASSOCIATES, INC., a California corporation, and PRINCIPAL MUTUAL LIFE
INSURANCE COMPANY, an Iowa Corporation, California partnership as tenants in
common operating as a joint venture under the name BERNAL CORPORATE PARK,
Landlord, and VOTAN CORPORATION, a Delaware Corporation, Tenant, for the
premises located at 6920 Koll Center Parkway, Suite 214, is amended this 6th
day of November, 1996, by amending (or adding as the case may be) the clauses
below with the like numbered clauses in the Lease:
BASIC LEASE TERMS
1.e. Premises Area: 10,680 Rentable Square Feet, a reduction of 1,907
Rentable Square Feet.
1.g. Premises Percent of Project: 8.905%
1.i. Base Monthly Rent:
Effective Date of Rental Adjustment Base Monthly Rent
----------------------------------- -----------------
December 1, 1996 to May 31, 1998 $12,511.60
June 1, 1998 to November 30, 1999 $13,259.20
December 1, 1999 to November 30, 2001 $13,793.20
Additionally Votan agrees to pay a one time charge of $7,000 to reduce the
square footage as provided in this lease amendment.
All other terms and conditions of the above described Lease shall remain in
full force and effect.
BERNAL CORPORATE PARK, a joint venture between Principal Mutual Life Insurance
Company, an Iowa Corporation and Patrician Associates, Inc., a California
Corporation.
PATRICIAN ASSOCIATES, INC., a California Corporation, Joint Venture Partner
BY: /s/ Ronald B. Franklin
------------------------------------
Ronald B. Franklin
ITS: Vice President
-----------------------------------
PRINCIPAL MUTUAL LIFE INSURANCE COMPANY, an Iowa Corporation, Joint Venture
Partner
BY: /s/ Kurt D. Schaefer
------------------------------------
Kurt D. Schaefer
Assistant Director
ITS: Commercial Real Estate
-----------------------------------
TENANT: VOTAN CORPORATION, a Delaware Corporation
BY: /s/ John A. White
------------------------------------
ITS: President & CEO
-----------------------------------
<PAGE>
VOTAN CORPORATION
1996 STOCK OPTION PLAN
(AS AMENDED AND RESTATED AS OF MARCH 7, 1997)
ARTICLE ONE
GENERAL PROVISIONS
I. PURPOSE OF THE PLAN
This 1996 Stock Option Plan is intended to promote the
interests of Votan Corporation, a Delaware corporation, by providing eligible
persons with the opportunity to acquire a proprietary interest, or otherwise
increase their proprietary interest, in the Corporation as an incentive for
them to remain in the service of the Corporation.
Capitalized terms shall have the meanings assigned to such
terms in the attached Appendix.
II. STRUCTURE OF THE PLAN
A. The Plan shall be divided into two separate equity
programs:
(i) the Discretionary Option Grant Program under which
eligible persons may, at the discretion of the Plan Administrator, be
granted options to purchase shares of Common Stock, and
(ii) the Automatic Option Grant Program under which
Eligible Directors shall automatically receive option grants at
periodic intervals to purchase shares of Common Stock.
B. The provisions of Articles One and Four shall apply to
all equity programs under the Plan and shall accordingly govern the interests
of all persons under the Plan.
III. ADMINISTRATION OF THE PLAN
A. The Primary Committee shall have sole and exclusive
authority to administer the Discretionary Option Grant Program with respect to
Section 16 Insiders.
B. Administration of the Discretionary Option Grant Program
with respect to all other persons eligible to participate in that program may,
at the Board's discretion, be vested in the Primary Committee or a Secondary
Committee, or the Board may retain the power to administer those programs with
respect to all such persons.
<PAGE>
C. Members of the Primary Committee or any Secondary
Committee shall serve for such period of time as the Board may determine and
may be removed by the Board at any time. The Board may also at any time
terminate the functions of any Secondary Committee and reassume all powers and
authority previously delegated to such committee.
D. Each Plan Administrator shall, within the scope of its
administrative functions under the Plan, have full power and authority to
establish such rules and regulations as it may deem appropriate for proper
administration of the Discretionary Option Grant Program and to make such
determinations under, and issue such interpretations of, the provisions of
such program and any outstanding options thereunder as it may deem necessary
or advisable. Decisions of the Plan Administrator within the scope of its
administrative functions under the Plan shall be final and binding on all
parties who have an interest in the Discretionary Option Grant Program under
its jurisdiction or any option thereunder.
E. Service on the Primary Committee or the Secondary
Committee shall constitute service as a Board member, and members of each such
committee shall accordingly be entitled to full indemnification and
reimbursement as Board members for their service on such committee. No member
of the Primary Committee or the Secondary Committee shall be liable for any
act or omission made in good faith with respect to the Plan or any option
grants under the Plan.
F. Administration of the Automatic Option Grant Program
shall be self- executing in accordance with the terms of that program, and no
Plan Administrator shall exercise any discretionary functions with respect to
option grants made thereunder.
IV. ELIGIBILITY
A. The persons eligible to participate in the Discretionary
Option Grant Program are as follows:
(i) Employees,
(ii) non-employee members of the Board or the board of
directors of any Parent or Subsidiary, and
(iii) consultants and other independent advisors who
provide services to the Corporation (or any Parent or Subsidiary).
B. Each Plan Administrator shall, within the scope of its
administrative jurisdiction under the Plan, have full authority (subject to
the provisions of the Plan) to determine, with respect to the option grants
under the Discretionary Option Grant Program, which eligible persons are to
receive option grants, the time or times when such option
2.
<PAGE>
grants are to be made, the number of shares to be covered by each such grant,
the status of the granted option as either an Incentive Option or a
Non-Statutory Option, the time or times at which each option is to become
exercisable and the vesting schedule (if any) applicable to the option shares
and the maximum term for which the option is to remain outstanding.
C. The individuals eligible to participate in the Automatic
Option Grant Program shall be the non-employee members of the Board.
V. STOCK SUBJECT TO THE PLAN
A. The stock issuable under the Plan shall be shares of
authorized but unissued or reacquired Common Stock, including shares
repurchased by the Corporation on the open market. The maximum number of
shares of Common Stock which may be issued over the term of the Plan shall
initially not exceed 450,000 shares.
B. The number of shares of Common Stock available for
issuance under the Plan shall automatically increase on the first trading day
of each calendar year during the term of the Plan, beginning with the 2000
calendar year, by an amount equal to one percent (1%) of the shares of Common
Stock outstanding on December 31 of the immediately preceding calendar year.
No Incentive Options may be granted on the basis of the additional shares of
Common Stock resulting from such annual increases.
C. No one person participating in the Plan may receive
options and separately exercisable stock appreciation rights for more than
150,000 shares of Common Stock in the aggregate over the term of the Plan.
D. Shares of Common Stock subject to outstanding options
shall be available for subsequent issuance under the Plan to the extent (i)
the options expire or terminate for any reason prior to exercise in full or
(ii) the options are cancelled in accordance with the cancellation-regrant
provisions of Article Two. Unvested shares issued under the Plan and
subsequently repurchased by the Corporation, at the option exercise price paid
per share, pursuant to its repurchase rights under the Plan, shall be added
back to the number of shares of Common Stock available for subsequent issuance
under the Plan. However, should the exercise price of an option under the Plan
be paid with shares of Common Stock or should shares of Common Stock otherwise
issuable under the Plan be withheld by the Corporation in satisfaction of the
withholding taxes incurred in connection with the exercise of an option under
the Plan, then the number of shares of Common Stock available for issuance
under the Plan shall be reduced by the gross number of shares for which the
option is exercised, and not by the net number of shares of Common Stock
issued to the holder of such option.
E. Should any change be made to the Common Stock by reason of
any stock split, stock dividend, recapitalization, combination of shares,
exchange of shares or
3.
<PAGE>
other change affecting the outstanding Common Stock as a class without the
Corporation's receipt of consideration, appropriate adjustments shall be made
to (i) the maximum number and/or class of securities issuable under the Plan,
(ii) the number and/or class of securities for which any one person may be
granted options and separately exercisable stock appreciation rights over the
term of the Plan, (iii) the number and/or class of securities for which
automatic option grants are to be made subsequently per Eligible Director
under the Automatic Option Grant Program and (iv) the number and/or class of
securities and the exercise price per share in effect under each outstanding
option in order to prevent the dilution or enlargement of benefits thereunder.
The adjustments determined by the Plan Administrator shall be final, binding
and conclusive.
4.
<PAGE>
ARTICLE TWO
DISCRETIONARY OPTION GRANT PROGRAM
I. OPTION TERMS
Each option shall be evidenced by one or more documents in
the form approved by the Plan Administrator; provided, however, that each such
document shall comply with the terms specified below. Each document evidencing
an Incentive Option shall, in addition, be subject to the provisions of the
Plan applicable to such options.
A. Exercise Price.
1. The exercise price per share shall be fixed by the Plan
Administrator in accordance with the following provisions:
(i) The exercise price per share shall not be less
than eighty-five percent (85%) of the Fair Market Value per share of
Common Stock on the option grant date.
(ii) If the person to whom the option is granted is a
10% Stockholder, then the exercise price per share shall not be less
than one hundred ten percent (110%) of the Fair Market Value per
share of Common Stock on the option grant date.
2. The exercise price shall become immediately due upon
exercise of the option and shall be payable in one or more of the forms
specified below:
(i) cash or check made payable to the Corporation,
(ii) shares of Common Stock held for the requisite
period necessary to avoid a charge to the Corporation's earnings for
financial reporting purposes and valued at Fair Market Value on the
Exercise Date, or
(iii) to the extent the option is exercised for vested
shares, through a special sale and remittance procedure pursuant to
which the Optionee shall concurrently provide irrevocable written
instructions to (a) a Corporation-designated brokerage firm to effect
the immediate sale of the purchased shares and remit to the
Corporation, out of the sale proceeds available on the settlement
date, sufficient funds to cover the aggregate exercise price payable
for the purchased shares plus all applicable Federal, state and local
income and employment taxes required to be withheld by the
5.
<PAGE>
Corporation by reason of such exercise and (b) the Corporation to
deliver the certificates for the purchased shares directly to such
brokerage firm in order to complete the sale.
Except to the extent such sale and remittance procedure is
utilized, payment of the exercise price for the purchased shares must be made
on the Exercise Date.
B. Exercise and Term of Options. Each option shall be
exercisable at such time or times, during such period and for such number of
shares as shall be determined by the Plan Administrator and set forth in the
documents evidencing the option. However, the Plan Administrator may not
impose an exercise schedule for any option (other than an option granted to an
officer, a non-employee Board member or consultant) which is more restrictive
than twenty percent (20%) per year, with initial exercise to occur not later
than one (1) year after the option grant date. In addition, no option shall
have a term in excess of ten (10) years measured from the option grant date.
C. Effect of Termination of Service.
1. The following provisions shall govern the exercise of any
options held by the Optionee at the time of cessation of Service or death:
(i) Any option outstanding at the time of the
Optionee's cessation of Service for any reason shall remain
exercisable for such period of time thereafter as shall be determined
by the Plan Administrator and set forth in the documents evidencing
the option, but no such option shall be exercisable after the
expiration of the option term.
(ii) Any option exercisable in whole or in part by the
Optionee at the time of death may be exercised subsequently by the
personal representative of the Optionee's estate or by the person or
persons to whom the option is transferred pursuant to the Optionee's
will or in accordance with the laws of descent and distribution.
(iii) During the applicable post-Service exercise
period, the option may not be exercised in the aggregate for more
than the number of vested shares for which the option is exercisable
on the date of the Optionee's cessation of Service. Upon the
expiration of the applicable exercise period or (if earlier) upon the
expiration of the option term, the option shall terminate and cease
to be outstanding for any vested shares for which the option has not
been exercised. However, the option shall, immediately upon the
Optionee's cessation of Service, terminate and cease to be
outstanding to the extent the option is not otherwise at that time
exercisable for vested shares.
6.
<PAGE>
(iv) Should the Optionee's Service be terminated for
Misconduct, then all outstanding options held by the Optionee shall
terminate immediately and cease to be outstanding.
2. The Plan Administrator shall have the discretion,
exercisable either at the time an option is granted or at any time while the
option remains outstanding, to:
(i) extend the period of time for which the option is
to remain exercisable following the Optionee's cessation of Service
from the period otherwise in effect for that option to such greater
period of time as the Plan Administrator shall deem appropriate, but
in no event beyond the expiration of the option term, and/or
(ii) permit the option to be exercised, during the
applicable post-Service exercise period, not only with respect to the
number of vested shares of Common Stock for which such option is
exercisable at the time of the Optionee's cessation of Service but
also with respect to one or more additional installments in which the
Optionee would have vested under the option had the Optionee
continued in Service.
D. Stockholder Rights. The holder of an option shall have no
stockholder rights with respect to the shares subject to the option until such
person shall have exercised the option, paid the exercise price and become a
holder of record of the purchased shares.
E. Repurchase Rights. The Plan Administrator shall have the
discretion to grant options which are exercisable for unvested shares of
Common Stock. Should the Optionee cease Service while holding such unvested
shares, the Corporation shall have the right to repurchase, at the exercise
price paid per share, any or all of those unvested shares. The terms upon
which such repurchase right shall be exercisable (including the period and
procedure for exercise and the appropriate vesting schedule for the purchased
shares) shall be established by the Plan Administrator and set forth in the
document evidencing such repurchase right. However, the Plan Administrator may
not impose a vesting schedule upon any option grant or any shares of Common
Stock subject to the option (other than a grant to an officer, a non-employee
Board member or consultant) which is more restrictive than twenty percent
(20%) per year vesting, with the initial vesting to occur not later than one
(1) year after the option grant date.
F. Limited Transferability of Options. During the lifetime
of the Optionee, the option shall be exercisable only by the Optionee and
shall not be assignable or transferable other than by will or by the laws of
descent and distribution following the Optionee's death.
7.
<PAGE>
II. INCENTIVE OPTIONS
The terms specified below shall be applicable to all
Incentive Options. Except as modified by the provisions of this Section II,
all the provisions of Articles One, Two and Five shall be applicable to
Incentive Options. Options which are specifically designated as Non-Statutory
Options when issued under the Plan shall not be subject to the terms of this
Section II.
A. Eligibility. Incentive Options may only be granted to
Employees.
B. Exercise Price. The exercise price per share shall not be
less than one hundred percent (100%) of the Fair Market Value per share of
Common Stock on the option grant date.
C. Dollar Limitation. The aggregate Fair Market Value of the
shares of Common Stock (determined as of the respective date or dates of
grant) for which one or more options granted to any Employee under the Plan
(or any other option plan of the Corporation or any Parent or Subsidiary) may
for the first time become exercisable as Incentive Options during any one (1)
calendar year shall not exceed the sum of One Hundred Thousand Dollars
($100,000). To the extent the Employee holds two (2) or more such options
which become exercisable for the first time in the same calendar year, the
foregoing limitation on the exercisability of such options as Incentive
Options shall be applied on the basis of the order in which such options are
granted.
D. 10% Stockholder. If any Employee to whom an Incentive
Option is granted is a 10% Stockholder, then the option term shall not exceed
five (5) years measured from the option grant date.
III. CORPORATE TRANSACTION/CHANGE IN CONTROL
A. In the event of any Corporate Transaction, each
outstanding option shall automatically accelerate so that each such option
shall, immediately prior to the effective date of the Corporate Transaction,
become fully exercisable for all of the shares of Common Stock at the time
subject to such option and may be exercised for any or all of those shares as
fully-vested shares of Common Stock. However, except to the extent otherwise
provided in the documents evidencing the option, an outstanding option shall
NOT so accelerate if and to the extent: (i) such option is, in connection with
the Corporate Transaction, either to be assumed by the successor corporation
(or parent thereof) or to be replaced with a comparable option to purchase
shares of the capital stock of the successor corporation (or parent thereof),
(ii) such option is to be replaced with a cash incentive program of the
successor corporation which preserves the spread existing on the unvested
option shares at the time of the Corporate Transaction and provides for
subsequent payout in accordance with the same vesting schedule applicable to
such option or (iii) the acceleration of such option is subject to other
limitations imposed by the Plan Administrator
8.
<PAGE>
at the time of the option grant. The determination of option comparability
under clause (i) above shall be made by the Plan Administrator, and its
determination shall be final, binding and conclusive.
B. All outstanding repurchase rights shall also terminate
automatically, and the shares of Common Stock subject to those terminated
rights shall immediately vest in full, in the event of any Corporate
Transaction, except to the extent: (i) those repurchase rights are to be
assigned to the successor corporation (or parent thereof) in connection with
such Corporate Transaction or (ii) such accelerated vesting is precluded by
other limitations imposed by the Plan Administrator at the time the repurchase
right is issued.
C. Immediately following the consummation of the Corporate
Transaction, all outstanding options shall terminate and cease to be
outstanding, except to the extent assumed by the successor corporation (or
parent thereof).
D. Each option which is assumed in connection with a
Corporate Transaction shall be appropriately adjusted, immediately after such
Corporate Transaction, to apply to the number and class of securities which
would have been issuable to the Optionee in consummation of such Corporate
Transaction had the option been exercised immediately prior to such Corporate
Transaction. Appropriate adjustments shall also be made to (i) the number and
class of securities available for issuance under the Plan following the
consummation of such Corporate Transaction, (ii) the exercise price payable
per share under each outstanding option, provided the aggregate exercise price
payable for such securities shall remain the same and (iii) the maximum number
of securities and/or class of securities for which any one person may be
granted options and separately exercisable stock appreciation rights under the
Plan.
E. The Plan Administrator shall have full power and
authority to grant options under the Discretionary Option Grant Program which
will automatically accelerate (and any of the Corporation's outstanding
repurchase rights which do not otherwise terminate at the time of the
Corporate Transaction shall automatically terminate and the shares of Common
Stock subject to those terminated rights shall immediately vest in full) in
the event the Optionee's Service should subsequently terminate by reason of an
Involuntary Termination within eighteen (18) months following the effective
date of any Corporate Transaction in which those options are assumed and do
not otherwise accelerate. Any options so accelerated shall remain exercisable
for fully-vested shares until the earlier of (i) the expiration of the option
term or (ii) the expiration of the one (1)-year period measured from the
effective date of the Involuntary Termination. In addition, the Plan
Administrator may provide that one or more of the Corporation's outstanding
repurchase rights with respect to shares held by the Optionee at the time of
such Involuntary Termination shall immediately terminate, and the shares
subject to those terminated repurchase rights shall accordingly vest in full.
9.
<PAGE>
F. The Plan Administrator shall have the discretion,
exercisable either at the time the option is granted or at any time while the
option remains outstanding, to (i) provide for the automatic acceleration of
one or more outstanding options (and the automatic termination of one or more
outstanding repurchase rights with the immediate vesting of the shares of
Common Stock subject to those rights) upon the occurrence of a Change in
Control or (ii) condition any such option acceleration (and the termination of
any outstanding repurchase rights) upon the subsequent Involuntary Termination
of the Optionee's Service within a specified period following the effective
date of such Change in Control. Any options accelerated in connection with a
Change in Control shall remain fully exercisable until the expiration or
sooner termination of the option term.
G. The portion of any Incentive Option accelerated in
connection with a Corporate Transaction or Change in Control shall remain
exercisable as an Incentive Option only to the extent the applicable One
Hundred Thousand Dollar ($100,000) limitation is not exceeded. To the extent
such dollar limitation is exceeded, the accelerated portion of such option
shall be exercisable as a Non-Statutory Option under the Federal tax laws.
H. The grant of options under the Discretionary Option Grant
Program shall in no way affect the right of the Corporation to adjust,
reclassify, reorganize or otherwise change its capital or business structure
or to merge, consolidate, dissolve, liquidate or sell or transfer all or any
part of its business or assets.
IV. CANCELLATION AND REGRANT OF OPTIONS
The Plan Administrator shall have the authority to effect,
at any time and from time to time, with the consent of the affected option
holders, the cancellation of any or all outstanding options under the
Discretionary Option Grant Program and to grant in substitution new options
covering the same or different number of shares of Common Stock but with an
exercise price per share based on the Fair Market Value per share of Common
Stock on the new option grant date.
V. STOCK APPRECIATION RIGHTS
A. The Plan Administrator shall have full power and
authority to grant to selected Optionees tandem stock appreciation rights
and/or limited stock appreciation rights.
B. The following terms shall govern the grant and exercise
of tandem stock appreciation rights:
(i) One or more Optionees may be granted the right,
exercisable upon such terms as the Plan Administrator may establish,
to elect between the exercise of the underlying option for shares of
Common Stock and the surrender of that option in exchange for a
distribution from the
10.
<PAGE>
Corporation in an amount equal to the excess of (a) the Fair Market
Value (on the option surrender date) of the number of shares in which
the Optionee is at the time vested under the surrendered option (or
surrendered portion thereof) over (b) the aggregate exercise price
payable for such shares.
(ii) No such option surrender shall be effective
unless it is approved by the Plan Administrator. If the surrender is
so approved, then the distribution to which the Optionee shall be
entitled may be made in shares of Common Stock valued at Fair Market
Value on the option surrender date, in cash, or partly in shares and
partly in cash, as the Plan Administrator shall in its sole
discretion deem appropriate.
(iii) If the surrender of an option is rejected by the
Plan Administrator, then the Optionee shall retain whatever rights
the Optionee had under the surrendered option (or surrendered portion
thereof) on the option surrender date and may exercise such rights at
any time prior to the later of (a) five (5) business days after the
receipt of the rejection notice or (b) the last day on which the
option is otherwise exercisable in accordance with the terms of the
documents evidencing such option, but in no event may such rights be
exercised more than ten (10) years after the option grant date.
C. The following terms shall govern the grant and exercise of
limited stock appreciation rights:
(i) One or more Section 16 Insiders may be granted
limited stock appreciation rights with respect to their outstanding
options.
(ii) Upon the occurrence of a Hostile Take-Over, each
such individual holding one or more options with such a limited stock
appreciation right shall have the unconditional right (exercisable
for a thirty (30)-day period following such Hostile Take-Over) to
surrender each such option to the Corporation, to the extent the
option is at the time exercisable for vested shares of Common Stock.
In return for the surrendered option, the Optionee shall receive a
cash distribution from the Corporation in an amount equal to the
excess of (a) the Take-Over Price of the shares of Common Stock which
are at the time vested under each surrendered option (or surrendered
portion thereof) over (b) the aggregate exercise price payable for
such shares. Such cash distribution shall be paid within five (5)
days following the option surrender date.
(iii) The Plan Administrator shall pre-approve, at the
time the limited right is granted, the subsequent exercise of that
right in accordance with the terms of the grant and the provisions of
this section. No
11.
<PAGE>
additional approval of the Plan Administrator or the Board shall be
required at the time of the actual option surrender and cash
distribution.
(iv) The balance of the option (if any) shall continue
in full force and effect in accordance with the documents evidencing
such option.
12.
<PAGE>
ARTICLE THREE
AUTOMATIC OPTION GRANT PROGRAM
I. OPTION TERMS
A. GRANT DATES. Option grants shall be made on the dates
specified below:
1. Each individual who is serving as a non-employee
Board member on the Underwriting Date shall automatically be granted on that
date a Non-Statutory Option to purchase 5,000 shares of Common Stock, provided
that individual has not previously been in the employ of the Corporation (or
any Parent or Subsidiary).
2. Each individual who is first elected or appointed
as a non- employee Board member at any time after the Underwriting Date shall
automatically be granted, on the date of such initial election or appointment,
a Non-Statutory Option to purchase 5,000 shares of Common Stock, provided that
individual has not previously been in the employ of the Corporation (or any
Parent or Subsidiary).
3. On the date of each Annual Stockholders Meeting
held after the Underwriting Date, each individual who is to continue to serve
as a non-employee Board member after that meeting, shall automatically be
granted a Non-statutory Option to purchase 2,000 shares of Common Stock. There
shall be no limit on the number of such 2,000-share option grants any one
non-employee Board member may receive over his or her period of Board service,
and non-employee Board members who have previously been in the employ of the
Corporation (or any Parent or Subsidiary) shall be eligible to receive one or
more such annual grants over their period of continued Board service.
B. EXERCISE PRICE.
1. The exercise price per share shall be equal to one
hundred percent (100%) of the Fair Market Value per share of Common Stock on
the option grant date.
2. The exercise price shall be payable in one or more
of the alternative forms authorized under the Discretionary Option Grant
Program. Except to the extent the sale and remittance procedure specified
thereunder is utilized, payment of the exercise price for the purchased shares
must be made on the Exercise Date.
C. OPTION TERM. Each option shall have a term of ten (10)
years measured from the option grant date.
13.
<PAGE>
D. EXERCISE AND VESTING OF OPTIONS. Each option shall be
immediately exercisable for any or all of the option shares. However, any
shares purchased under the option shall be subject to repurchase by the
Corporation, at the exercise price paid per share, upon the Optionee's
cessation of Board service prior to vesting in those shares. Each initial
grant shall vest, and the Corporation's repurchase right shall lapse, in a
series of four (4) successive and equal annual installments over the
Optionee's period of continued service as a Board member, with the first such
installment to vest upon the Optionee's completion of one (1) year of Board
service measured from the option grant date. Each annual grant shall vest, and
the Corporation's repurchase right shall lapse, upon the Optionee's completion
of one (1) year of Board service measured from the option grant date.
E. EFFECT OF TERMINATION OF BOARD SERVICE. The following
provisions shall govern the exercise of any options held by the Optionee at
the time the Optionee ceases to serve as a Board member:
(i) The Optionee (or, in the event of Optionee's
death, the personal representative of the Optionee's estate or the
person or persons to whom the option is transferred pursuant to the
Optionee's will or in accordance with the laws of descent and
distribution) shall have a twelve (12)- month period following the
date of such cessation of Board service in which to exercise each
such option.
(ii) During the twelve (12)-month exercise period,
the option may not be exercised in the aggregate for more than the
number of shares of Common Stock for which the option is exercisable
at the time of the Optionee's cessation of Board service.
(iii) In no event shall the option remain
exercisable after the expiration of the option term. Upon the
expiration of the twelve (12)-month exercise period or (if earlier)
upon the expiration of the option term, the option shall terminate
and cease to be outstanding for any shares for which the option has
not been exercised.
II. CORPORATE TRANSACTION/CHANGE IN CONTROL/HOSTILE TAKE-
OVER
A. Immediately following a Corporate Transaction, each
automatic option grant shall terminate and cease to be outstanding, except to
the extent assumed by the successor corporation (or parent thereof).
B. Each automatic option grant outstanding at the time of a
Change in Control shall remain exercisable for the option shares until the
expiration or sooner termination of the option term or surrender of the option
upon a Hostile Take-Over.
14.
<PAGE>
C. Upon the occurrence of a Hostile Take-Over, the Optionee
shall have a thirty (30)-day period in which to surrender to the Corporation
each of his or her outstanding automatic option grants. The Optionee shall in
return be entitled to a cash distribution from the Corporation in an amount
equal to the excess of (i) the Take-Over Price of the shares of Common Stock
at the time subject to each surrendered option over (ii) the aggregate
exercise price payable for such shares. Such cash distribution shall be paid
within five (5) days following the surrender of the option to the Corporation.
No approval or consent of the Board or any Plan Administrator shall be
required in connection with such option surrender and cash distribution.
D. Each option which is assumed in connection with a
Corporate Transaction shall be appropriately adjusted, immediately after such
Corporate Transaction, to apply to the number and class of securities which
would have been issuable to the Optionee in consummation of such Corporate
Transaction had the option been exercised immediately prior to such Corporate
Transaction. Appropriate adjustments shall also be made to the exercise price
payable per share under each outstanding option, provided the aggregate
exercise price payable for such securities shall remain the same.
E. The grant of options under the Automatic Option Grant
Program shall in no way affect the right of the Corporation to adjust,
reclassify, reorganize or otherwise change its capital or business structure
or to merge, consolidate, dissolve, liquidate or sell or transfer all or any
part of its business or assets.
III. REMAINING TERMS
The remaining terms of each option granted under the
Automatic Option Grant Program shall be the same as the terms in effect for
option grants made under the Discretionary Option Grant Program.
15.
<PAGE>
ARTICLE FOUR
MISCELLANEOUS
I. TAX WITHHOLDING
A. The Corporation's obligation to deliver shares of Common
Stock upon the exercise of options or stock appreciation rights under the Plan
shall be subject to the satisfaction of all applicable Federal, state and
local income and employment tax withholding requirements.
B. The Plan Administrator may, in its discretion, provide
any or all holders of Non-Statutory Options under the Plan (other than the
options granted under the Automatic Option Grant Program) with the right to
use shares of Common Stock in satisfaction of all or part of the Taxes
incurred by such holders in connection with the exercise of their options.
Such right may be provided to any such holder in either or both of the
following formats:
(i) Stock Withholding: The election to have the
Corporation withhold, from the shares of Common Stock otherwise
issuable upon the exercise of such Non-Statutory Option, a portion of
those shares with an aggregate Fair Market Value equal to the
percentage of the Taxes (not to exceed one hundred percent (100%))
designated by the holder.
(ii) Stock Delivery: The election to deliver to the
Corporation, at the time the Non-Statutory Option is exercised, one
or more shares of Common Stock previously acquired by such holder
(other than in connection with the option exercise triggering the
Taxes) with an aggregate Fair Market Value equal to the percentage of
the Taxes (not to exceed one hundred percent (100%)) designated by
the holder.
II. EFFECTIVE DATE AND TERM OF THE PLAN
A. The Discretionary Option Grant Program became effective
on the Plan Effective Date and options may be granted under the Discretionary
Option Grant Program at any time after the Plan Effective Date. The Automatic
Option Grant Program shall become effective on the Section 12(g) Registration
Date and option grants under the Automatic Option Grant Program shall be made
to the Eligible Directors after that time. However, no options granted under
the Plan may be exercised until the Plan is approved by the Corporation's
stockholders. If such stockholder approval is not obtained within twelve (12)
months after the Plan Effective Date, then all options previously granted
under
16.
<PAGE>
this Plan shall terminate and cease to be outstanding, and no further options
shall be granted and no shares shall be issued under the Plan.
B. On March 7, 1997, the Board amended and restated the Plan
to (i) reduce the number of shares available for issuance under the Plan to
450,000 shares of Common Stock, (ii) conform the Plan to California state
securities law exemption provided by Section 25102(o) of the California
Corporations Code and (ii) amend the Automatic Option Grant Program.
C. The Plan shall terminate upon the earliest of (i) June
26, 2006, (ii) the date on which all shares available for issuance under the
Plan shall have been issued pursuant to the exercise of the options under the
Plan or (iii) the termination of all outstanding options in connection with a
Corporate Transaction. Upon such Plan termination, all outstanding options
shall continue to have force and effect in accordance with the provisions of
the documents evidencing such options.
III. AMENDMENT OF THE PLAN
A. The Board shall have complete and exclusive power and
authority to amend or modify the Plan in any or all respects. However, no such
amendment or modification shall adversely affect any rights and obligations
with respect to options or stock appreciation rights at the time outstanding
under the Plan unless the Optionee consents to such amendment or modification.
In addition, amendments to the Plan shall be subject to approval of the
Corporation's stockholders to the extent required by applicable laws or
regulations.
B. Options to purchase shares of Common Stock may be granted
under the Discretionary Option Grant Program that are in excess of the number
of shares then available for issuance under the Plan, provided any excess
shares actually issued under those programs are held in escrow until there is
obtained stockholder approval of an amendment sufficiently increasing the
number of shares of Common Stock available for issuance under the Plan. If
such stockholder approval is not obtained within twelve (12) months after the
date the first such excess grants are made, then (i) any unexercised options
granted on the basis of such excess shares shall terminate and cease to be
outstanding and (ii) the Corporation shall promptly refund to the Optionees
the exercise price paid for any excess shares issued under the Plan and held
in escrow, together with interest (at the applicable Short Term Federal Rate)
for the period the shares were held in escrow, and such shares shall thereupon
be automatically cancelled and cease to be outstanding.
IV. USE OF PROCEEDS
Any cash proceeds received by the Corporation from the sale
of shares of Common Stock under the Plan shall be used for general corporate
purposes.
17.
<PAGE>
V. REGULATORY APPROVALS
A. The implementation of the Plan, the granting of any
option or stock appreciation right under the Plan and the issuance of any
shares of Common Stock upon the exercise of any option or stock appreciation
right shall be subject to the Corporation's procurement of all approvals and
permits required by regulatory authorities having jurisdiction over the Plan,
the options and stock appreciation rights granted under it and the shares of
Common Stock issued pursuant to it.
B. No shares of Common Stock or other assets shall be issued
or delivered under the Plan unless and until there shall have been compliance
with all applicable requirements of Federal and state securities laws,
including the filing and effectiveness of the Form S-8 registration statement
for the shares of Common Stock issuable under the Plan, and all applicable
listing requirements of any stock exchange (or the Nasdaq National Market, if
applicable) on which Common Stock is then listed for trading.
VI. NO EMPLOYMENT/SERVICE RIGHTS
Nothing in the Plan shall confer upon the Optionee any right
to continue in Service for any period of specific duration or interfere with
or otherwise restrict in any way the rights of the Corporation (or any Parent
or Subsidiary employing or retaining such person) or of the Optionee, which
rights are hereby expressly reserved by each, to terminate such person's
Service at any time for any reason, with or without cause.
VII. FINANCIAL REPORTS
The Corporation shall deliver a balance sheet and an income
statement at least annually to each individual holding an outstanding option
under the Plan, unless such individual is a key Employee whose duties in
connection with the Corporation (or any Parent or Subsidiary) assure such
individual access to equivalent information.
18.
<PAGE>
APPENDIX
The following definitions shall be in effect under the Plan:
A. AUTOMATIC OPTION GRANT PROGRAM shall mean the automatic option
grant program in effect under the Plan.
B. BOARD shall mean the Corporation's Board of Directors.
C. CHANGE IN CONTROL shall mean a change in ownership or control of the
Corporation effected through either of the following transactions:
(i) the acquisition, directly or indirectly, by any
person or related group of persons (other than the Corporation or a
person that directly or indirectly controls, is controlled by, or is
under common control with, the Corporation), of beneficial ownership
(within the meaning of Rule 13d-3 of the 1934 Act) of securities
possessing more than fifty percent (50%) of the total combined voting
power of the Corporation's outstanding securities pursuant to a
tender or exchange offer made directly to the Corporation's
stockholders which the Board does not recommend such stockholders to
accept, or
(ii) a change in the composition of the Board over a
period of thirty-six (36) consecutive months or less such that a
majority of the Board members ceases, by reason of one or more
contested elections for Board membership, to be comprised of
individuals who either (A) have been Board members continuously since
the beginning of such period or (B) have been elected or nominated
for election as Board members during such period by at least a
majority of the Board members described in clause (A) who were still
in office at the time the Board approved such election or nomination.
D. CODE shall mean the Internal Revenue Code of 1986, as amended.
E. COMMON STOCK shall mean the Corporation's common stock.
F. CORPORATE TRANSACTION shall mean either of the following
stockholder-approved transactions to which the Corporation is a party:
(i) a merger or consolidation in which securities
possessing more than fifty percent (50%) of the total combined voting
power of the Corporation's outstanding securities are transferred to
a person or persons different from the persons holding those
securities immediately prior to such transaction; or
A-1.
<PAGE>
(ii) the sale, transfer or other disposition of all or
substantially all of the Corporation's assets in complete liquidation
or dissolution of the Corporation.
G. CORPORATION shall mean Votan Corporation, a Delaware corporation,
and any corporate successor to all or substantially all of the assets or voting
stock of Votan Corporation which shall by appropriate action adopt the Plan.
H. DISCRETIONARY OPTION GRANT PROGRAM shall mean the discretionary
option grant program in effect under the Plan.
I. EMPLOYEE shall mean an individual who is in the employ of the
Corporation (or any Parent or Subsidiary), subject to the control and
direction of the employer entity as to both the work to be performed and the
manner and method of performance.
J. EXERCISE DATE shall mean the date on which the Corporation shall
have received written notice of the option exercise.
K. FAIR MARKET VALUE per share of Common Stock on any relevant date
shall be determined in accordance with the following provisions:
(i) If the Common Stock is at the time traded on the
Nasdaq National Market, then the Fair Market Value shall be the
closing selling price per share of Common Stock on the date in
question, as such price is reported by the National Association of
Securities Dealers on the Nasdaq National Market or any successor
system. If there is no closing selling price for the Common Stock on
the date in question, then the Fair Market Value shall be the closing
selling price on the last preceding date for which such quotation
exists.
(ii) If the Common Stock is at the time listed on any
Stock Exchange, then the Fair Market Value shall be the closing
selling price per share of Common Stock on the date in question on
the Stock Exchange determined by the Plan Administrator to be the
primary market for the Common Stock, as such price is officially
quoted in the composite tape of transactions on such exchange. If
there is no closing selling price for the Common Stock on the date in
question, then the Fair Market Value shall be the closing selling
price on the last preceding date for which such quotation exists.
(iii) For purposes of any option grants made on the
date the Underwriting Agreement is executed and the initial public
offering price of the Common Stock is established, the Fair Market
Value shall be deemed to be equal to the established initial offering
price per share. For purposes of
A-2.
<PAGE>
option grants made prior to such date, the Fair Market Value shall be
determined by the Plan Administrator after taking into account such
factors as the Plan Administrator shall deem appropriate.
L. HOSTILE TAKE-OVER shall mean the acquisition, directly or
indirectly, by any person or related group of persons (other than the
Corporation or a person that directly or indirectly controls, is controlled
by, or is under common control with, the Corporation) of beneficial ownership
(within the meaning of Rule 13d-3 of the 1934 Act) of securities possessing
more than fifty percent (50%) of the total combined voting power of the
Corporation's outstanding securities pursuant to a tender or exchange offer
made directly to the Corporation's stockholders which the Board does not
recommend such stockholders to accept.
M. INCENTIVE OPTION shall mean an option which satisfies the
requirements of Code Section 422.
N. INVOLUNTARY TERMINATION shall mean the termination of the Service
of any individual which occurs by reason of:
(i) uch individual's involuntary dismissal or discharge
by the Corporation for reasons other than Misconduct, or
(ii) such individual's voluntary resignation following
(A) a change in his or her position with the Corporation which
materially reduces his or her level of responsibility, (B) a
reduction in his or her level of compensation (including base salary,
fringe benefits and participation in corporate-performance based
bonus or incentive programs) by more than fifteen percent (15%) or
(C) a relocation of such individual's place of employment by more
than fifty (50) miles, provided and only if such change, reduction or
relocation is effected by the Corporation without the individual's
consent.
O. MISCONDUCT shall mean the commission of any act of fraud,
embezzlement or dishonesty by the Optionee, any unauthorized use or disclosure
by such person of confidential information or trade secrets of the Corporation
(or any Parent or Subsidiary), or any other intentional misconduct by such
person adversely affecting the business or affairs of the Corporation (or any
Parent or Subsidiary) in a material manner. The foregoing definition shall not
be deemed to be inclusive of all the acts or omissions which the Corporation
(or any Parent or Subsidiary) may consider as grounds for the dismissal or
discharge of any Optionee or other person in the Service of the Corporation
(or any Parent or Subsidiary).
P. 1934 ACT shall mean the Securities Exchange Act of 1934, as
amended.
A-3
<PAGE>
Q. NON-STATUTORY OPTION shall mean an option not intended to satisfy
the requirements of Code Section 422.
R. OPTIONEE shall mean any person to whom an option is granted under
the Discretionary Option Grant or Automatic Option Grant Program.
S. PARENT shall mean any corporation (other than the Corporation) in
an unbroken chain of corporations ending with the Corporation, provided each
corporation in the unbroken chain (other than the Corporation) owns, at the
time of the determination, stock possessing fifty percent (50%) or more of the
total combined voting power of all classes of stock in one of the other
corporations in such chain.
T. PERMANENT DISABILITY OR PERMANENTLY DISABLED shall mean the
inability of the Optionee to engage in any substantial gainful activity by
reason of any medically determinable physical or mental impairment expected to
result in death or to be of continuous duration of twelve (12) months or more.
However, solely for the purposes of the Automatic Option Grant Program,
Permanent Disability or Permanently Disabled shall mean the inability of the
non-employee Board member to perform his or her usual duties as a Board member
by reason of any medically determinable physical or mental impairment expected
to result in death or to be of continuous duration of twelve (12) months or
more.
U. PLAN shall mean the Corporation's 1996 Stock Option Plan, as set
forth in this document.
V. PLAN ADMINISTRATOR shall mean the particular entity, whether the
Primary Committee, the Board or the Secondary Committee, which is authorized
to administer the Discretionary Option Grant Program with respect to one or
more classes of eligible persons, to the extent such entity is carrying out
its administrative functions under those programs with respect to the persons
under its jurisdiction.
W. PLAN EFFECTIVE DATE shall mean the date on which the Plan is
adopted by the Board.
X. PRIMARY COMMITTEE shall mean the committee of two (2) or more non-
employee Board members appointed by the Board to administer the Discretionary
Option Grant Program with respect to Section 16 Insiders.
Y. SECONDARY COMMITTEE shall mean a committee of two (2) or more
Board members appointed by the Board to administer the Discretionary Option
Grant Program with respect to eligible persons other than Section 16 Insiders.
Z. SECTION 16 INSIDER shall mean an officer or director of the
Corporation subject to the short-swing profit liabilities of Section 16 of the
1934 Act.
A-4.
<PAGE>
AA. SECTION 12(G) REGISTRATION DATE shall mean the first date on
which the Common Stock is registered under Section 12(g) of the 1934 Act.
AB. SERVICE shall mean the provision of services to the Corporation
(or any Parent or Subsidiary) by a person in the capacity of an Employee, a
non-employee member of the board of directors or a consultant or independent
advisor, except to the extent otherwise specifically provided in the documents
evidencing the option grant.
AC. STOCK EXCHANGE shall mean either the American Stock Exchange or
the New York Stock Exchange.
AD. SUBSIDIARY shall mean any corporation (other than the
Corporation) in an unbroken chain of corporations beginning with the
Corporation, provided each corporation (other than the last corporation) in
the unbroken chain owns, at the time of the determination, stock possessing
fifty percent (50%) or more of the total combined voting power of all classes
of stock in one of the other corporations in such chain.
AE. TAKE-OVER PRICE shall mean the greater of (i) the Fair Market
Value per share of Common Stock on the date the option is surrendered to the
Corporation in connection with a Hostile Take-Over or (ii) the highest
reported price per share of Common Stock paid by the tender offeror in
effecting such Hostile Take-Over. However, if the surrendered option is an
Incentive Option, the Take-Over Price shall not exceed the clause (i) price
per share.
AF. TAXES shall mean the Federal, state and local income and
employment tax liabilities incurred by the holder of Non-Statutory Options or
unvested shares of Common Stock in connection with the exercise of those
options or the vesting of those shares.
AG. 10% STOCKHOLDER shall mean the owner of stock (as determined
under Code Section 424(d)) possessing more than ten percent (10%) of the total
combined voting power of all classes of stock of the Corporation (or any
Parent or Subsidiary).
AH. UNDERWRITING AGREEMENT shall mean the agreement between the
Corporation and the underwriter or underwriters managing the initial public
offering of the Common Stock.
A-5
<PAGE>
FINANCIAL CONSULTING AGREEMENT
This Agreement made as of , by and between, Votan Corporation,
a Delaware corporation having its business address at 6920 Koll Center
Parkway, Suite 214, Pleasanton, California (hereinafter the "Company") and
H. J. Meyers & Co., a New York corporation having its principal place of
business at 1895 Mt. Hope Avenue, Rochester, New York 14620 (hereinafter
"Consultant").
In consideration of the mutual promises contained herein and on the
terms and conditions hereinafter set forth, the Company and Consultant agree
as follows:
1. Provision of Services.
(a) Consultant agrees, to the extent reasonably requested by
the President of the Company and reasonably required in the conduct of the
business of the Company, as determined by the consultant, to place at the
disposal of the Company its judgment and experience and to provide business
development services to the Company including the following:
(i) assist the Company in its public equity marketing
efforts;
(ii) provide access to the Consultant's retail sales
force through roadshow stops and conference calls;
(iii) provide research coverage from the Consultant's
Research Department;
(iv) advise with regard to stockholder relations and
public relations matters.
All such services shall at all times be at the request of the
Company.
(b) Consultant agrees to use its best efforts at all times in
the furnishing of advice and recommendations, and for this purpose Consultant
shall at all times maintain or keep available for the Company an adequate
organization of personnel or a network of outside professionals for the
performance of its obligations under this Agreement.
1
<PAGE>
2. Compensation. The Company agrees to pay the Consultant a
non-refundable fee of Six Thousand Dollars ($6,000) per month for twelve
months, with the entire amount of Seventy-Two Thousand Dollars ($72,000) due
upon the closing of the Company's initial public offering.
The Company agrees to reimburse Consultant for its expenses incurred
by the Consultant in connection with its services hereunder. All expenses
shall be approved in advance by the Company in writing.
3. Expenses Payment Schedule. Consultant will invoice the Company
for its actual expenses for each month within fifteen (15) days of the
end of the month. Payment of invoices will be due upon receipt.
4. Liability of Consultant. In furnishing the Company with management
advice and other services as herein provided, neither Consultant nor any
officer, director or agent thereof shall be liable to the company or its
creditors for errors of judgment or for anything except willful malfeasance,
bad faith or gross negligence in the performance of its duties or reckless
disregard or its obligations and duties under the terms of this Agreement.
It is further understood and agreed that Consultant may rely upon
information furnished to as reasonably believed to be accurate and reliable
and that, except as herein provided, Consultant shall not be accountable for
any loss suffered by the Company by reason of the Company's action or
non-action on the basis of any advice, recommendation or approval of Consultant,
its partners, employees or agents.
5. Status of Consultant. Consultant shall be deemed to be an
independent contractor and, except as expressly provided or authorized in this
Agreement, shall have no authority to act for or represent the Company.
6. Other Activities of Consultant. The Company recognizes that
Consultant now renders and may continue to render management and other services
to other companies which may or may not have policies and conduct activities
similar to those of the Company. Consultant shall be free to render such
advice and other services and the Company hereby consents thereto. Consultant
shall not be required to devote its full time and attention to the
performance of its duties under this Agreement, but shall devote only so much
of its time and attention as it deems reasonable or necessary for such
purposes.
7. Control. Nothing contained herein shall be deemed to require the
Company to take any action contrary to its Certificate of Incorporation or
By-Laws, or any applicable statute or regulation, or to deprive its Board of
Directors of their responsibility for any control of the conduct or the affairs
of the Company.
2
<PAGE>
8. Term. Consultant's retention hereunder shall be for a term of
one year commencing upon the execution of this Agreement.
9. Miscellaneous. This Agreement sets forth the entire agreement
and understanding between the parties and supersedes all prior discussions,
agreements and understandings of every and any nature between them. This
Agreement shall be construed and interpreted according to the laws of the
State of New York.
3
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be signed
by their respective officers or representatives duly authorized the day and
year first above written.
VOTAN CORPORATION
By:
----------------------
Name: John A. White
Title: President and Chief
Executive Officer
H. J. MEYERS & CO., INC.
By:
---------------------------
Michael Bresner
Managing Director
4
<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,
March 11, 1997
<PAGE>
CONSENT OF WILLIAM E. O'CONNOR
I hereby consent to be named as a designated Chief Financial Officer of the
Board of Directors of Votan Corporation in Amendment Number 4 to the
Registration Statement on Form S-1 of Votan Corporation.
/s/ William E. O'Connor Dated: 2-28-97
- ----------------------- ------------
William E. O'Connor
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<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 3,000
<SECURITIES> 0
<RECEIVABLES> 26,000
<ALLOWANCES> 0
<INVENTORY> 4,000
<CURRENT-ASSETS> 33,000
<PP&E> 246,000
<DEPRECIATION> 123,000
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<CURRENT-LIABILITIES> 1,459,000
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<COMMON> 16,000
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<TOTAL-LIABILITY-AND-EQUITY> 363,000
<SALES> 228,000
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<OTHER-EXPENSES> 1,892,000
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