<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 27, 1996
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------------
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
--------------------------
VOICENET, INC.
(Exact names of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 7372 13-3896031
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employee
of Classification Code Number) Identification
incorporation or organization) Number)
</TABLE>
380 LEXINGTON AVENUE
NEW YORK, NEW YORK 10168
(212) 399-6688
(Address, including zip code, and telephone number, including area code,
of Registrant's principal executive offices)
MR. FRANK CARR
VOICENET, INC.
380 LEXINGTON AVENUE, SUITE 517
NEW YORK, NEW YORK 10168
(212) 399-6688
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
--------------------------
COPIES TO:
DAVID E. FLEMING, ESQ.
Campbell & Fleming, P.C.
250 Park Avenue
New York, New York 10177
(212) 351-4925
--------------------------
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, please check the following box. /X/
--------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO OFFERING PRICE AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED BE REGISTERED(1) PER UNIT(1) OFFERING PRICE(1) REGISTRATION FEE
<S> <C> <C> <C> <C>
Common Stock, $.01 par value.......... 1,250,000 $8.00 $10,000,000 $3,448.27
Representative's Warrants to purchase
Shares (2).......................... 75,000 $.01 $750 0.26
Common Stock, $.01 par value (3)...... 75,000 $8.00 $600,000 $206.90
Total................................. 1,325,000 $3,655.43
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(b).
(2) Together with such indeterminate number of additional securities as may be
issued pursuant to the anti-dilution provisions of the Representative's
Warrants pursuant to Rule 416(a).
(3) Issuable upon exercise of the Representative's Warrants.
--------------------------
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 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
IN CONNECTION WITH THIS OFFERING, THE PLACEMENT AGENTS MAY EFFECT TRANSACTIONS
WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE SHARES AT A LEVEL ABOVE THAT
WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH STABILIZING, IF
COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
2
<PAGE>
SUBJECT TO COMPLETION, DATED SEPTEMBER 25, 1996
THIS PRELIMINARY OFFICIAL STATEMENT AND THE INFORMATION CONTAINED HEREIN ARE
SUBJECT TO COMPLETION OR AMENDMENT WITHOUT NOTICE. THESE SECURITIES MAY NOT BE
SOLD NOR MAY OFFERS TO BUY THEM BE ACCEPTED, PRIOR TO THE TIME THE OFFICIAL
STATEMENT IS DELIVERED IN FINAL FORM. UNDER NO CIRCUMSTANCES SHALL THIS
PRELIMINARY OFFICIAL STATEMENT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF
AN OFFER TO BUY, NOR SHALL THERE BE ANY SALE OF, THESE SECURITIES IN ANY
JURISDICTION IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION, QUALIFICATION OR FILING UNDER THE SECURITIES LAWS OF ANY SUCH
JURISDICTION.
<PAGE>
VOICENET, INC.
1,250,000 SHARES OF COMMON STOCK AT A PRICE OF $8.00
------------------
Voicenet, Inc., a Delaware corporation (the "Company"), hereby offers
1,250,000 Sharess (the "Shares") of Common Stock, par value $.01 per share (the
"Common Stock" for a price of $8.00 per Share. Pan American Securities, Inc.
("Pan American") will act as representative (the "Representative") of the
several placement agents including FAI Insurances Limited of Sydney, Australia,
which will act as the International Advisor to the offering (collectively, the
"Placement Agents") on a "best effort", minimum or none basis.
Prior to this offering, there has been no public market for the Common Stock
and there can be no assurance that such a market will develop for any of such
securities after the completion of this offering. The offering price of the
Common Stock has been arbitrarily determined by the Company and the
Representatives, and bears no relationship to the Company's assets, book value,
or other generally accepted criteria of value. The Shares are being offered on
a" best efforts" basis by the Company through the Representative. In the event
that a minimum of 750,000 Shares (the "Minimum Offering") are not subscribed and
sold by January 31, 1997, then no Shares will be sold. The maximum number of
Shares that may be sold is 1,250,000 Shares (the "Maximum Offering"). For
additional information regarding the factors considered in determining the
initial public offering price of the Common Stock, see "Risk Factors" and "Plan
of Distribution." The Company anticipates that the Common Stock will be quoted
on the NASDAQ Small Cap Market System under the symbol "VNET".
------------------------
THESE SECURITIES INVOLVE A HIGH DEGREE OF RISK AND IMMEDIATE SUBSTANTIAL
DILUTION AND SHOULD BE PURCHASED ONLY BY PERSONS WHO CAN AFFORD THE LOSS OF
THEIR ENTIRE INVESTMENT. SEE "RISK FACTORS" (PAGE 6) AND "DILUTION."
------------------------
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.
<TABLE>
<CAPTION>
SELLING(1) PROCEEDS TO
PRICE TO PUBLIC COMMISSIONS COMPANY(2)(3)
<S> <C> <C> <C>
Per Share.......................................... $8.00 $0.40 $7.60
Minimum Offering (750,000 Shares).................. $6,000,000 $300,000 $5,700,000
Maximum Offering (1,250,000 Shares)................ $10,000,000 $500,000 $9,500,000
</TABLE>
(1) Does not include additional compensation to the Representative in the form
of a non-accountable expense allowance equal to 3% of the gross proceeds of
this offering. For indemnification arrangements with the Placement Agents
and additional compensation payable to the Representative, see "Plan of
Distribution."
(2) Before deducting estimated offering expenses, including the Representative's
3% non-accountable expense allowance, of $540,000 payable by the Company.
(3) Used as a basis for calculating the selling commissions with respect to the
Shares.
The Shares are being offered by the Placement Agents on a" best efforts
basis", subject to prior sale, when, as and if delivered to and accepted by the
Placement Agents, and subject to its right to withdraw, cancel or modify this
offering and to reject any order in whole or in part. In the event that the
Minimum Offering of 750,000 Shares has not been offered and sold by January 31,
1997, then none of the Shares will be sold. It is expected that delivery of
certificates will be made at the offices of Pan American Securities, Inc., New
York, New York on or about , 1996.
------------------------
PAN AMERICAN SECURITIES, INC.
<PAGE>
INTERNATIONAL ADVISOR:
FAI INSURANCES LIMITED
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING IS A SUMMARY OF CERTAIN INFORMATION CONTAINED IN THIS
PROSPECTUS AND IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED INFORMATION AND
FINANCIAL STATEMENTS (INCLUDING THE NOTES THERETO) APPEARING ELSEWHERE IN THIS
PROSPECTUS. EXCEPT AS OTHERWISE NOTED, ALL INFORMATION IN THIS PROSPECTUS
REFLECTS A 2,500-FOR-1 SPLIT OF THE COMMON STOCK OF THE COMPANY EFFECTED ON
SEPTEMBER 17, 1996. INVESTORS SHOULD CONSIDER CAREFULLY THE INFORMATION SET
FORTH IN THIS PROSPECTUS UNDER THE HEADING "RISK FACTORS."
THE COMPANY
Voicenet, Inc. (the "Company" or "Voicenet"), a Delaware corporation, was
recently established for the marketing and distribution of continuous speech,
voice recognition systems and of digital audio reporting, transcription,
archiving and retrieval systems. The products and technologies to be marketed by
the Company are the result of research and development conducted by Southern
Group Limited ("Southern") and Philips Electronics, N.V. ("Philips"). Southern
is a publicly owned Australian corporation listed on the Australian Stock
Exchange. Philips is a multi-national corporation based in the Netherlands which
has traditionally been in the forefront of the dictation and recording markets
world-wide. The Company has recently acquired from Southern pursuant to a
Technology Transfer Agreement dated as of August 1, 1996 (the "Technology
Transfer Agreement") the exclusive rights for the North, Central and South
American markets (the "Territory") to the technology developed by Southern
relating to the voice products and the digital audio reporting, transcription,
archiving and retrieval systems, including the right to manufacture and market
digital audio reporting, transcription, archiving and retrieval systems known as
COURTSMART-TM- for the court recording industry; digital audio products and
technologies for the broadcasting industry; and the digital audio products
developed to exploit the markets for continuous, speech recognition and
automatic transcription technology (collectively, the "Technology"). Pursuant to
the terms of the Technology Transfer Agreement, Southern transferred the
Technology and related rights to the Company for the purchase price of
$4,500,000. The Company paid the purchase price by issuing its Promissory Note
in the amount of $4,500,000, due in full on the earlier of (a) August 31, 1997,
or (b) the completion of this Offering by the Company. See "Business of the
Company--Technology Transfer Agreement".
Southern is the developer of proprietary continuous speech recognition
systems and software using the Philips continuous speech engine. In April, 1996,
Southern signed a technology licensing agreement with Philips for the product
development, integration, marketing and distribution of the world's first large
vocabulary continuous speech recognition system.
The Company has obtained the rights to the Technology from Southern, and
accordingly, will have the exclusive right to exploit the Technology and related
technologies and products in the Territory. The Technology and products acquired
by the Company under the Technology Transfer Agreement embrace two main voice
technologies: digital voice compression/transmission and speech recognition. The
Company has the rights under the Technology Transfer Agreement to manufacture
and market digital audio reporting, transcription, archiving and retrieval
systems known as COURTSMART-TM- for the court reporting industry; digital and
audio products and technologies for the broadcasting industry; and the digital
audio products developed to exploit the markets for continuous, large vocabulary
speech recognition and automatic transcription technology.
Management of the Company believes that the voice recognition industry is a
significant growth industry with major potential. As the industry is in its
infancy and industry standards yet to be defined, the Company is believed to
have considerable opportunity. Southern concentrates its efforts in the legal,
medical and government segments for speech to text application software. The
advances facilitated by the amalgamation of the technology developed by Southern
are expected by the Company to have a significant impact on the interactivity
aspect of the computer industry, where continuous large vocabulary speech can
3
<PAGE>
be processed and transcribed by voice activation. Both the audio and transcribed
material will be archived and retrieved on and from the same storage medium in a
totally synchronous manner.
While speech recognition technology has been available for several years in
various limited applications, two of the major limitations of speech recognition
technology to date have been (i) that the speech recognition systems could only
facilitate discrete speech (i.e., pauses are required between the words spoken)
and (ii) speaker dependence whereby there is a requirement for each individual
user to train the system to ensure an acceptable level of recognition. The
Company believes that these limitations have made the adoption of the technology
slow and isolated. Although the management of the Company believes that there is
great potential for the use of speech recognition not only as an enhancement for
traditional applications, but also as an enabling technology for new
applications; these two limitations severely hindered the feasibility and
effectiveness and, consequently, the market penetration of speech recognition.
Philips has developed a large vocabulary continuous speech recognition
engine which can process speech from normal parlance. The Company believes that
the implications of such a continuous speech recognition system are (i) the
significantly greater market penetration through higher levels of acceptance of
the technology and (ii) new markets, for which discrete speech systems are too
limiting, opening up the market for speech recognition applications
exponentially.
Management believes the general market for large vocabulary continuous
speech technology and systems is expected to grow to several billion dollars
within the foreseeable future. Management of the Company believes that by being
a technology leader of this market development, significant opportunities will
be open to the Company.
The Company's principal business address is 380 Lexington Avenue, Suite 517,
New York, New York 10168, and its telephone number is (212) 399-6682.
THE OFFERING
<TABLE>
<S> <C>
Securities Offered................ A minimum of 750,000 shares of Common Stock ($6,000,000)
and a maximum of 1,250,000 shares of Common Stock
($10,000,000). See "Description of Securities."
Price Per Share................... $8 Per Share.
Common Stock...................... The Company has 10,000,000 shares of Common Stock
authorized of which 2,500,000 shares are issued as of
the date hereof. The Company's Common Stock is not
publicly registered. See "Risk Factors", "Dilution", and
"Description of Securities."
Common Stock to be Outstanding
after Offering(1)............... 3,750,000 shares of Common Stock.
Risk Factors...................... Purchase of the Common Stock offered hereby involves a
high degree or risk including, among others, recently
formed company with no financial or operating history,
arbitrary offering price, immediate substantial
dilution, the absence of a public market for the Common
Stock, intense competition in the industry in which the
Company hopes to compete and numerous risks associated
with the development of a new business. These securities
should not be purchased by investors who cannot afford
the loss of their entire investment. Prospective
purchasers should consider carefully the factors
specified under "Risk Factors" and "Dilution."
</TABLE>
4
<PAGE>
<TABLE>
<S> <C>
Terms of the Offering............. Offering proceeds will be deposited and held in escrow
at Chase Manhattan Bank, N.A., until the earlier of the
Closing of the Offering or January 31, 1997. If a
minimum of $6,000,000 of the Offering is not subscribed
during the Offering Period, all funds received will be
promptly refunded to subscribers without deduction
therefrom and without interest thereon. See "Terms of
the Offering."
Plan of Distribution.............. The Company has engaged the Placement Agents to sell the
Common Stock on a "best efforts" basis. The Placement
Agent, will be paid a selling commission of 5% of the
price of the shares of the Company's Common Stock sold
hereby. Additionally, the Placement Agent, will receive
a non-accountable expense allowance equal to 3% of the
gross offering proceeds received and shall be granted an
option exercisable over five years to purchase an
additional 75,000 shares of Common Stock for a price of
$8.00 per share. See "Plan of Distribution" and "Certain
Transactions."
Use of Proceeds................... For payment of Promissory Note issued on technology
acquisition, for working capital, for management
consulting services, for general corporate purposes and
for sales and marketing. See "Use of Proceeds".
</TABLE>
SUMMARY FINANCIAL INFORMATION
Voicenet, Inc. was organized on April 2, 1996.The Company is a development
stage company and has no revenues or operating history. The summary financial
information set forth below should be read in conjunction with the Company's
financial statements and accompanying notes, appearing elsewhere in this
Prospectus. The Company's fiscal year will end March 31.
<TABLE>
<CAPTION>
JUNE 30, 1996
-----------------------
AS
ACTUAL ADJUSTED(1)
--------- ------------
<S> <C> <C>
BALANCE SHEET DATA:
Current Assets..................................................... $ 25,020 $ 4,725,020
Total Assets....................................................... 38,453 $ 9,238,453
Current Liabilities................................................ 13,500 13,500
Stockholders' Equity............................................... 24,953 $ 9,224,953
</TABLE>
- ------------------------
(1) Gives effect to the sale of the 1,250,000 Shares at the initial public
offering price of $8.00 per Share, and initial application of the estimated
net proceeds of $9,200,000 (after the payment of all estimated offering
expenses, including the Representatives' non-accountable expense allowance)
therefrom and payment of the Promissory Note in the amount of $4,500,000 due
on account of the purchase of the Technology under the Technology Transfer
Agreement. See "Use of Proceeds". Assumes no exercise of the
Representative's Warrants. See "Plan of Distribution".
5
<PAGE>
RISK FACTORS
THE SECURITIES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK, INCLUDING, BUT
NOT LIMITED TO, THE SEVERAL FACTORS DESCRIBED BELOW. THESE SECURITIES SHOULD BE
PURCHASED ONLY BY PERSONS WHO CAN AFFORD A LOSS OF THEIR ENTIRE INVESTMENT.
INVESTORS SHOULD CONSIDER CAREFULLY THE FOLLOWING RISK FACTORS INHERENT IN AND
AFFECTING THE BUSINESS OF THE COMPANY AND THIS OFFERING IN EVALUATING AN
INVESTMENT IN THE SECURITIES OFFERED HEREBY.
NEW VENTURE--NO OPERATING HISTORY.
Voicenet, Inc. was incorporated on April 2, l996 in the State of Delaware
and its proposed operations are subject to all the problems, expenses, delays
and other risks inherent in the establishment of a new business enterprise
without an operating history, as well as the problems inherent in developing and
marketing a new product/service and in establishing a name and business
reputation. The likelihood of the success of the Company must also be considered
in connection with the rapidly and continually changing technology and the
competitive environment in which the Company will operate. The planned
commencement of operations is dependent upon the proceeds of this offering. See
"Business" and "Financial Statements." There can be no assurance that the
Company's operations will result in its becoming or remaining economically
viable. Potential investors should be aware of the problems, delays, expenses
and difficulties encountered by any company in a developmental stage, many of
which may be beyond the Company's control. These include, but are not limited
to, unanticipated regulatory compliance, marketing problems and intense
competition that may exceed current estimates. The Company has had no revenues
to date and, as a result of the start-up nature of the Company's business and
the fact that it has not yet commenced operations, the Company will likely
sustain operating losses for an indeterminate time period. There can be no
assurance that the operations of the Company will ever be competitive or
profitable.
NEED FOR ADDITIONAL FINANCING.
If the Company sells only the Minimum Offering or slightly more, the Company
will require additional capital within a very short time. Even if the Company
sells the Maximum Offering, it may nevertheless require additional capital,
whether because of the occurrence of unforeseen events, or in the event that the
sales anticipated by the Company do not occur. In the event the Company has
insufficient working capital, and is unable to locate additional capital on
acceptable terms, investors may suffer significant or complete economic loss of
their investment. See "Use of Proceeds; "Financial Statements."
EARLY STAGE OF MARKET DEVELOPMENT.
The speech technology market is at a relatively early stage of development.
To date, the speech technology products that will be manufactured and marketed
by the Company have only been incorporated in commercially available products on
a limited bass. Acceptance of these technologies on a commercial basis will be
dependent upon the development of the speech technology markets, the performance
and price of the Company's products and customer reaction to these products.
There can be no assurance that the speech technology market will develop further
or that the Company's products will achieve market acceptance. See
"Business--Industry Background".
DEPENDENCE ON ACCEPTANCE BY COURT ADMINISTRATORS.
Sales of the Company's COURTSMART-TM- product on a commercial basis will be
substantially dependent on acceptance by the court community. There can be no
assurance that the Company's proposed product will be accepted in the court
community, and the Company is unable to estimate the length of time it would
take to gain such acceptance. See "Business."
6
<PAGE>
UNCERTAINTY OF MARKET ACCEPTANCE--LACK OF MARKETING ARRANGEMENTS.
The Company has only recently commenced significant marketing activities,
primarily through hiring sales personnel, and the distribution of promotional
materials. Achieving market acceptance for the Company's products will require
substantial marketing efforts and the expenditure of significant funds. To date,
the Company has not formulated a comprehensive marketing plan. There is no
assurance that the Company will be able to create a successful marketing
program, or that the Company's products can be sold in a manner that will permit
the Company to achieve long range profitability. See "Business."
LIMITATIONS OF SCOPE FOR THE COMPANY'S PRODUCT LINE.
The Company intends to engage in the marketing and distribution of speech
recognition systems and of court reporting systems. The Company's success will
be totally dependent on its ability to market its product line. The Company's
current plans do not include any other potential sources of revenue. See
"Business".
POSSIBLE PRODUCT OBSOLESCENCE.
The Company expects technological developments to continue at a rapid pace
in the computer and communications industries, and there can be no assurance
that technological developments will not cause the Company's technology to be
rendered obsolete. The Company's future success, if any, will be dependent upon
its ability to remain competitive with others involved in the development,
manufacture and marketing of similar products and technologies through its
continued capability to design high quality products in a cost efficient and
timely manner, of which there can be no assurance. See "Business."
NO ASSURANCE AS TO PROTECTION OF INTELLECTUAL PROPERTY; DEPENDENCE ON
INTELLECTUAL PROPERTY.
Patents have been applied for in relation to the COURTSMART-TM- System and
its components. No patents have, as yet, been issued but it is expected that
patents will be issued. However, the Company's ability to compete effectively
with other companies will depend, in part, on its ability to maintain the
proprietary nature of its technologies. The Company also intends to rely on
unpatented proprietary information and know-how, and there can be no assurance
that others will not develop such information and know-how independently or
otherwise obtain access to the Company's technology. Also, no assurance can be
given that the Company's products will not infringe upon the patents of others,
licenses to which may not be available to the Company. The computer software
source codes which are essential elements of the Company's products, are
proprietary trade secrets of the Company. The Company has attempted to protect
the proprietary nature of this technology by reliance upon copyright laws,
patents applied for, and contractual arrangements with its employees and
customers, although it is questionable whether computer software and technology
can be adequately protected by such means. In the event of any misappropriation,
the Company may be without an effective legal remedy. There can be no assurance
that the Company's competitors will not independently develop comparable or
superior technologies. In the future, third parties may assert that the
Company's or its licensor's products infringe their proprietary rights. Should
litigation with respect to any such claims commence, such litigation could be
extremely expensive and time consuming and could materially and adversely affect
the Company's results of operations regardless of the outcome of the litigation.
See "Business--Intellectual Property."
DEPENDENCE UPON KEY PERSONNEL AND POSSIBLE CONFLICT OF INTEREST.
The success of the Company is substantially dependent upon existing
management, all of whom devote only a portion of their time to the Company.
These individuals may have conflicts between their responsibilities to the
Company and to other entities with which they are affiliated. The directors or
affiliates of the Company may in the future seek to exploit opportunities of
which the Company is not able to undertake because of limited capital. Frank
Carr, the President, Chief Executive Officer and Chief
7
<PAGE>
Financial Officer will devote only a portion of his time to the Company. The
loss of the services of Mr. Carr, as well as other key personnel, or any
inability to attract and retain qualified personnel, may adversely affect the
Company's business. The Company has not applied for key man life insurance on
the life of Frank Carr and does not intend to. See "Management." Because of the
nature of its business, the Company will be dependent upon its ability to
attract and retain qualified personnel, including competition from companies
with substantially greater resources than the Company. There is no assurance
that the Company will successfully recruit or retain personnel of the requisite
technical caliber or in adequate numbers to enable it to conduct its business as
proposed. See "Management--Potential Conflict of Interest."
INITIAL RELIANCE ON SOLE MANUFACTURER AND SUPPLIER.
The Company does not own or operate any manufacturing or production
facilities. Southern, an Australian company which owns 58% of the Company,
causes or provides for the manufacturing of three of the components required for
the operation of the COURTSMART-TM- System. Further, approximately 45% of the
proceeds of this offering are being paid to the Southern for the acquisition of
the Technology from Southern. Should Southern terminate its relationship with
the Company, there can be no assurance that the Company could obtain a
satisfactory arrangement with another manufacturer on the same terms, i.e.,
price and credit terms.
NO FEASIBILITY AND MARKETING STUDIES.
The Company's planned commencement of operations is being undertaken
primarily on the basis of management's evaluation of market potential and only
limited, informal studies regarding its proposed operations in North and South
America.
PRODUCT DEVELOPMENT AND INTEGRATION.
The development of the Company's technology for its customers has required,
and will continue to require, significant technical innovations. Once the
Company has developed a product, the Company must adapt that product to meet the
specific requirements of the customer hardware or software in which it is to be
integrated. 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 technology. Any such failure could materially
and adversely affect the Company's business and prospects.
MANAGEMENT OF CHANGING BUSINESS.
Due to the level of technical and marketing expertise necessary to support
its anticipated new customers, the Company must attract and retain highly
qualified and well-trained personnel. There are a limited number of persons with
the requisite skills to serve in these positions, and it may become increasingly
difficult for the Company to hire such personnel. The Company's expansion may
also significantly strain the Company's management, financial and other
resources. The Company believes that improvements in management and operational
controls and operations, financial and management information systems are needed
to manage future growth, should it occur. The failure to implement such
improvements could have a material adverse effect upon the Company. See
"Management."
PRODUCTS RELIABILITY.
Most applications incorporating the Company's technologies are being
developed or have only recently been introduced to the market. As a result of
the limited period of use and the controlled environment in which most of the
Company's technologies have been tested and used to date, there can be
8
<PAGE>
no assurance that they will meet their performance specifications under all
conditions or for all applications. If any of the Company's technologies fail 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. Any significant reliability problems could have
a material adverse effect on the Company's business and prospects.
RAPID TECHNOLOGICAL CHANGE.
The market for speech technology products has been characterized by rapid
technological change, frequent product introductions and evolving industry
requirements. The Company believes that these trends will continue into the
foreseeable future. The Company's success will depend, among other matters, upon
its ability to enhance its existing products and to successfully develop new
products that meet increasing customer requirements and gain market acceptance.
Achieving these goals will require continued substantial investment by the
Company in product development and marketing. There can be no assurance that the
Company will have sufficient resources to make these investments, that the
Company will be successful in developing product enhancements or new products on
a timely basis, if at all, or that the Company will be able to successfully
market these enhancements and new products once developed. Further, there can be
no assurance that the Company's products will not be rendered obsolete by new
industry standards or changing technology. See "Business--Industry Background."
PRODUCTS LIABILITY AND OTHER CLAIMS.
The Company may be subject to substantial products liability costs if claims
arise out of problems associated with the products by the Company. The Company
will seek to maintain products liability coverage for the benefit of the Company
to protect the Company against such liabilities, but there can be no assurance
that such arrangements can be made, or if made, will be effective to insulate
the assets of the Company from such claims. The Company will attempt to maintain
insurance against such contingencies, in scope and amount which it believes to
be adequate. However, there can be no assurance that such product liability
insurance will be available, or if available, that it will adequately insure
against such claim.
COMPETITION.
Although the Company is of the opinion that the speech recognition systems
and its COURTSMART-TM- System are at the forefront of their respective fields at
the present time, there is no assurance that other companies with greater
resources than the Company may not enter the field. The speech technology
markets are extremely competitive and rapidly changing. A number of companies
have already developed or are expected to develop speech technology products
that will compete with the Company's products. Many of these competitors and
potential competitors, including AT&T, Apple Computer, Inc., International
Business Machines Corp., Microsoft Corporation, NEC Corp., Philips, N.V. and
Texas Instruments Incorporated have substantially greater resources than the
Company. The Company also competes with other smaller companies which have
developed advanced speech technology products. In addition, current and
potential competitors have established or may establish cooperative
relationships among themselves or with their 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 or
alliances among competitors may emerge and rapidly acquire significant market
share. There is no assurance that the Company will be able to compete
successfully. See "Business--Competition."
GENERAL ECONOMIC CONDITIONS
The operations of the Company are subject to general economic conditions,
particularly relating to government agency spending and payment practices. The
risks would include governmental appropriations and budgeting, any potential
restrictions imposed by governmental authorities, changes in federal, state, or
local tax laws applicable to the Company, availability of skilled labor,
availability of capital for future
9
<PAGE>
needs, purchasing habits and trends, etc. The Company may not have sufficient
capitalization to survive lack of market acceptance and economic exigencies in
general.
CONTROL TO BE RETAINED BY PRESENT SHAREHOLDERS.
Following the Offering, the Company's present shareholders, together will
have a super-majority (66 2/3%) of the Company's outstanding Common Stock and
the ability to elect the Company's directors and to determine the outcome of
corporate actions requiring shareholder approval. This concentration of
ownership may have the effect of delaying or preventing a change in control of
the Company. Accordingly, no person should purchase any of the Common Stock
offered hereby unless he is willing to entrust existing management with all
decision-making for the Company. Further, there is nothing to preclude any
officer or director from resigning at any time and withdrawing from active
participation in the business of the Company. See "Management"; "Principal
Stockholders" and Description of Securities".
QUALIFICATION FOR AND POSSIBLE DELISTING OF SECURITIES FROM NASDAQ SYSTEM
Under current NASDAQ rules, in order to qualify for initial listing in the
NASDAQ Small Cap Market System, a company must, among other things, have at
least $4,000,000 in total assets, $2,000,000 in capital and surplus (net worth),
a minimum bid price for its common stock of $3.00 per share and 300
stockholders. In addition, in order to continue to qualify for listing in the
NASDAQ System, a company must have, among other things, at least $2,000,000 in
total assets, $1,000,000 in capital and surplus and a minimum bid price for its
common stock of $1.00 per share. However, even upon completion of the offering,
if the Company is able to initially meet the minimum test to qualify for NASDAQ
listing, of which there can be no assurance, if the Company is thereafter unable
to continue to satisfy the listing criteria under the NASDAQ rules, any listed
security will be subject to delisting. In such an event, the Common Stock may
not be eligible for continued listing on the NASDAQ Small Cap Market System.
If as a result of delisting , trading, if any, in the securities would be
conducted on the over-the-counter market in what are commonly referred to as the
"pink sheets," or in the "OTC Bulletin Board." If such result occurs, an
investor may find it more difficult to dispose of, or to obtain accurate
quotations as to the price of, the Common Stock. In addition, if the Company's
securities are not listed on NASDAQ they are subject to a rule that imposes
additional sales practice requirements on broker-dealers which sell such
securities to persons other than established customers and accredited investors
(generally persons with assets in excess of $1,000,000 or annual income
exceeding $200,000, or $300,000 together with their spouse). For transactions
covered by this rule, the broker-dealer must make a special suitability
determination for the purchaser and have received the purchaser's written
consent to the transaction prior to purchase. Consequently, the rule may
restrict the ability of broker-dealers to sell Acquisition's or the Company's
securities and may affect the ability of stockholders to sell their securities
in the secondary market. The loss of continued listing in the NASDAQ System may
also cause a decline in share price, loss of news coverage of the Company and
difficulty in obtaining subsequent financing.
DETERMINATION OF OFFERING PRICE.
The offering price for the Common Stock has been determined arbitrarily by
the Company, without negotiation, and are not related to the Company's asset
value, net worth or any other established criteria of value. See
"Capitalization" and "Dilution".
ISSUANCE OF ADDITIONAL SHARES.
The Company is currently authorized to issue up to a total of 10,000,000
shares of Common Stock and 1,000,000 shares of preferred stock. There are
currently 2,500,000 shares of Common Stock outstanding and Representative's
Warrants to acquire 75,000 additional shares of Common Stock.
10
<PAGE>
The Company's Board of Directors is authorized to issue preferred stock in
one or more series and to fix the voting powers and the designations,
preferences and relative, participating, optional or other rights and
restrictions thereof. Accordingly, the Company may further issue a series of
preferred stock in the future that will have preference over the Common Stock
with respect to the payment of dividends and proceeds from the Company's
liquidation, dissolution or winding up or have voting or conversion rights which
could adversely effect the voting power and percentage ownership of the holders
of the Common Stock. See "Description of Securities--Preferred Stock."
SHARES ELIGIBLE FOR FUTURE SALE.
All of the 2,500,000 shares of Common Stock outstanding as of the date of
this Prospectus are "restricted securities," as that team is defined under Rule
144 promulgated under the Securities Act of 1933, as amended (the "Securities
Act"). In general, under Rule 144 as currently in effect, subject to the
satisfaction of certain other conditions, a person (or persons whose shares are
aggregated under the terms of Rule 144), including an affiliate of the Company,
who has owned restricted shares of Common Stock beneficially for at least two
years, is entitled to sell, within any three-month period, a number of shares
that does not exceed the greater of 1% of the total number of outstanding shares
of the same class, or the average weekly trading volume of the Common Stock
during the four calendar weeks preceding the sale, as reported by all national
securities exchanges on which the Common Stock is traded and/or the automated
quotation system of a registered securities association, or an approved
consolidated transaction reporting system. A person who has not been an
affiliate of the Company for at least the three months immediately preceding the
sale and who has beneficially owned shares of Common Stock for at least three
years is entitled to sell such shares under Rule 144 without regard to the
volume limitations described above. No prediction can be made as to the effect,
if any, that sales of shares of Common Stock or the availability of shares for
sale will have on the market prices prevailing from time to time. The
possibility that substantial amounts of Common Stock may be sold in the public
market in the future may adversely affect prevailing market prices for the
Common Stock and could impair the Company's ability to raise capital through the
sale of its equity securities. See "Shares Eligible for Future Sale."
NO ASSURANCE OF PUBLIC MARKET; ARBITRARY DETERMINATION OF OFFERING PRICE; LACK
OF PUBLIC MARKET FOR SECURITIES; POSSIBLE INABILITY TO BE LISTED FOR TRADING
ON NASDAQ
Prior to this offering, there has been no public market for the Shares of
Common Stock. The initial public offering prices of the Shares have been
arbitrarily determined by negotiations between the Company and the
Representative and bear no relationship to such established valuation criteria
such as assets, book value or prospective earnings.
Although it can act as a "best efforts" placement agent, Pan American
Securities, is not eligible under its securities broker-dealer licenses to serve
as a market maker for the Company's securities. The Representative will seek to
find other securities broker-dealers to act as market makers for the Company's
Shares; however, there can be no assurance that such broker-dealers can be
located. Neither the Company nor anyone acting on the Company's behalf will take
affirmative steps to request or encourage any other broker-dealers to act as
market makers for the Company's securities. To date, there have not been any
preliminary discussions or understandings between the Company and any potential
market makers regarding the participation of such market makers in the future
trading market, if any, for the Company's securities. If there are no market
makers for the Company's securities, the securities would not be eligible to be
traded on the NASDAQ's Small Cap Market or the OTC Bulletin Board. In such
event, although the Shares are registered securities, it would likely be very
difficult for any shareholder to sell his Shares in a prompt, efficient manner,
if at all.
Moreover, no member of management of the Company or any promoter or anyone
else acting at the Company's direction will recommend, encourage or advise
investors to open brokerage accounts with any
11
<PAGE>
broker-dealer making a market in the Company's securities and the Company does
not intend to influence investors with regard to their decisions as to whether
to hold or sell their securities of the Company.
IMMEDIATE SUBSTANTIAL DILUTION; DISPARITY OF CONSIDERATION
This offering involves an immediate and substantial dilution of $5.33 per
share between the pro forma net tangible book value per share after the offering
of $2.67 and the initial public offering price of $8.00 per Share of Common
Stock . The existing stockholders of the Company, including an affiliate of
certain of its executive officers and directors, acquired their shares of Common
Stock at prices substantially lower than the initial public offering price and,
accordingly, new investors will bear substantially all of the risks inherent in
an investment in the Company. See "Dilution."
ANTI-TAKEOVER PROVISIONS.
Certain provisions of Delaware law, the Certificate of Incorporation and the
Company's By-laws, as amended (the "By-laws"), could have the effect of making
it more difficult for a third party to acquire, or of discouraging a third party
from attempting to acquire, control of the Company. These provisions and the
prohibition against certain business combinations could have the effect of
delaying, deferring or preventing a change in control or the removal of existing
management of the Company. See "Description of Securities."
SERVICE OF PROCESS IN AUSTRALIA.
Certain of the Company's officers and directors are residents of Australia,
and Southern Group Limited, the transferor of the Technology, is incorporated
and has its principal place of business under the laws of Australia.
Consequently, it might be difficult for investors or the Company to effect
service of process within the United States upon such persons, or to enforce
against them judgments obtained in United States courts predicated upon the
civil liability provisions of the Securities Act of 1933, or any other U.S. or
individual state's laws or regulations. There is also substantial doubt whether
an action could be brought in Australia in the first instance on the basis of
liability predicated upon such law.
NO FIRM COMMITMENT.
This is a "best efforts" offering and there is no firm commitment on the
part of anyone to purchase all or any part of this Offering, and no assurance
that any part of the offering will be sold. If the Minimum Offering is not sold
during the Offering Period, the Offering will terminate and any monies received
from subscribers will be returned without interest thereon or deduction
therefrom. In such event, subscribers will have lost the use of and interest on
their funds during such offering period. See "Plan of Distribution."
LACK OF EXPERIENCE OF REPRESENTATIVE
Pan American Securities was organized in 1993 and was first registered as a
broker-dealer and became a member firm of the NASD in 1994. Pan American
Securities Inc. is principally engaged in retail brokerage and various corporate
finance projects. Although Pan American Securities Inc. has acted as a placement
agent in private offerings, it has not acted as placement agent or selling agent
in any public offerings, as it is doing here. No assurance can be given that Pan
American Securities' lack of experience as a selling agent or placement agent of
any public offerings will not adversely affect this offering and the subsequent
development of a public trading market in the Common Stock. See "Risk
Factors--No Assurance of Public Market; Arbitrary Determination of Offering
Price; Lack of Public Market for Securities."
FOR ALL OF THE FOREGOING REASONS AND OTHERS SET FORTH IN THIS PROSPECTUS.
THE SECURITIES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK. ANY PERSON
CONSIDERING AN INVESTMENT IN THE SECURITIES OFFERED HEREBY SHOULD BE AWARE OF
12
<PAGE>
THESE AND OTHER FACTORS SET FORTH IN THIS PROSPECTUS. THESE SECURITIES SHOULD BE
PURCHASED ONLY BY PERSONS WHO CAN AFFORD A TOTAL LOSS OF THEIR INVESTMENT IN THE
COMPANY.
USE OF PROCEEDS
The net proceeds to be received by the Company from the sale of the Common
Stock offered hereby, after deducting offering expenses payable by the Company,
are estimated at $9,200,000. The Company presently intends to use the net
proceeds over the 12 month period following this offering as follows:
<TABLE>
<CAPTION>
APPLICATION OF PROCEEDS MINIMUM PROCEEDS MAXIMUM PROCEEDS
- -------------------------------------------------------------------------- ------------------ ------------------
<S> <C> <C>
Payment of Technology Note(1)............................................. $ 4,500,000 $ 4,500,000
Marketing activities and personnel(2)..................................... 480,000 1,980,000
Technical Consultants(3).................................................. 240,000 450,000
Facilities management and office administrations(4)....................... 120,000 180,000
Warehouse assembly plant(5)............................................... 50,000 100,000
Purchase of components(6)................................................. 80,000 160,000
Corporate purposes(7)..................................................... 25,000 100,000
Working capital........................................................... 25,000 1,730,000
------------------ ------------------
Total..................................................................... $ 5,540,000 $ 9,200,000
</TABLE>
The allocation of the net proceeds of the offering set forth above
represents the Company's best estimate based upon its present plans. If any of
these plans change, the Company may find it necessary or advisable to reallocate
some of the proceeds within the above-described categories or to other purposes.
Pending expenditure of the proceeds from the offering, the Company may make
temporary investments in interest bearing savings accounts, certificates of
deposit, or short term United States government obligations. In the opinion of
management, the above proceeds should be sufficient for the Company's initial
operations together with funds received from the private placement and founders
purchase of shares and internally generated funds to provide the Company's
working capital needs for 12 months from the date of this offering. See
"Management Analysis--Liquidity and Capital Resources.
- ------------------------
(1) Payment of Promissory Note to Southern under Technology Transfer
Agreement. See "Certain Transactions."
(2) The Company intends to initially employ 11 sales representatives, one in
each of the U.S. Federal Court Circuits and at least 1 technician per
Circuit who can install and maintain the systems. The estimated annual cost
is approximately $180,000 per District. If the Minimum Offering is sold
there will be five salesman who would each cover at least two Federal Court
Circuit.
(3) Includes costs of technicians to assist the Company in sales,
installation, and maintenance of systems sold.
(4) Includes the cost of office facilities and administrative personnel. See
"Certain Transactions."
(5) The Company intends to rent approximately 5,000 sq. feet to use for
assembling and storing the speech recognition and COURTSMART-TM- systems,
components and for warehouse personnel.
(6) Components for initial inventory of systems.
(7) Includes anticipated audit and legal costs.
13
<PAGE>
CAPITALIZATION
Set forth below is the pro forma capitalization of the Company as of June
30, 1996 as adjusted to give effect the Minimum and Maximum Number of Shares.
<TABLE>
<CAPTION>
AS ADJUSTED
AFTER THIS OFFERING
OUTSTANDING -----------------------------------------
ON JUNE 30, MINIMUM MAXIMUM
SHARES L996(1) 750,000 COMMON SHARES 1,250,000 COMMON
- -------------------------------------------------- ----------------- ---------------------- -----------------
<S> <C> <C> <C>
Common Stock, $.01 par value 10,000,000 shares
authorized 2,500,000 shares issued and
outstanding...................................... $ 25,000 $ 32,500 $ 37,500
Additional Paid in Capital........................ $ 20 $ 6,000,020 $ 10,000,020
Deficit accumulated during the development
stage............................................ (67) (67) (67)
Total............................................. $ 24,953 $ 6,032,453 $ 10,037,453
</TABLE>
DILUTION
In April l996 the Company issued 2,500,000 shares of its Common Stock to the
founders of the Company, to Southern, to its officers and directors and to
others for $.01 per share. See "Principal Stockholders" and "Management--Certain
Transactions."
As of June 30, l996 the net tangible book value of the outstanding 2,500,000
shares of the Company's Common Stock was $24,953 or approximately $.01 per
share. Net tangible book value per share of Common Stock represents the tangible
assets of the Company less all liabilities and further reduced by the
liquidation rights of the holders of Common Stock, if any outstanding, divided
by the number of shares of Common Stock outstanding. Dilution represents the
difference between the price per share of Common Stock paid by the investors in
this offering ("New Investors") and the net tangible book value per share of
Common Stock after the offering.
The pro forma net tangible book value of the Common Stock at June 30, l996,
as adjusted above, would have been $6,032,453 or $1.85 per share if the Minimum
Number of Common Shares are sold (i.e., $6,032,453 DIVIDED BY 3,250,000
shares) or $10,037,453 or $2.67 per share if the Maximum Number of Common Shares
are sold (i.e., $10,037,453 DIVIDED BY 3,750,000 shares). The following table
illustrates this dilution on a per share basis:
ASSUMING 750,000 MINIMUM COMMON SHARES SOLD
<TABLE>
<S> <C>
Price Per Share...................................................................... $ 8.00
Net Tangible Book Value Before Offering.............................................. $ .01
Pro Forma Net Tangible Book Value After Offering..................................... $ 1.85
Dilution of Net Tangible Book Value to New Investors................................. $ 6.15
</TABLE>
ASSUMING 1,250,000 MAXIMUM COMMON SHARES SOLD
<TABLE>
<S> <C>
Price Per Share...................................................................... $ 8.00
Net Tangible Book Value Before Offering.............................................. $ .01
Pro Forma Net Tangible Book Value After Offering..................................... $ 2.67
Dilution of Net Tangible Book Value to New Investors................................. $ 5.33
</TABLE>
The following tables summarize, as of June 30, l996 the number of shares of
Common Stock purchased from the Company by, the total consideration received by
the Company from, and the average
14
<PAGE>
price per share of the shares purchased by, (a) the New Investors of the 750,000
Minimum Number of Shares and, alternatively, the 1,250,000 Maximum Number of
Shares offered hereby (without deduction for offering expenses or selling
commissions) and (b) the initial shareholders.
ASSUMING SALE OF MINIMUM NUMBER OF SHARES
OF COMMON STOCK*
<TABLE>
<CAPTION>
COMMON TOTAL AVERAGE
SHARES PURCHASED CONSIDERATION PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------------- ----------- ------------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Initial Shareholders.............................. 2,500,000 76.9 $ 25,000 .41% $ .01
New Investors..................................... 750,000 33.1 $ 6,000,000 99.58 8.00
---------------- ----- ------------- ----- -----
3,250,000 100.0% 6,025,000 100.0% $ 1.85
---------------- ----- ------------- ----- -----
</TABLE>
ASSUMING SALES OF MAXIMUM NUMBER OF SHARES AND
OF COMMON STOCK*
<TABLE>
<CAPTION>
COMMON TOTAL AVERAGE
SHARES PURCHASED CONSIDERATION PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------------- ----------- ------------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Initial Shareholders.............................. 2,500,000 66.7 25,000 0.25% $ .01
New Investors..................................... 1,250,000 33.3 10,000,000 99.75 8.00
---------------- ----- ------------- ----- -----
3,750,000 100.0 10,025,000 100.0% $ 2.67
</TABLE>
- ------------------------
* No effect is given for the possible exercise of the Representative's Warrants.
SELECTED FINANCIAL DATA
Voicenet, Inc. was organized on April 2, 1996. The Company is a development
stage company and has no revenues or operating history. The selected financial
information set forth below should be read in conjunction with the Company's
financial statements and accompanying notes, appearing elsewhere in this
Prospectus. The Company's fiscal year will end March 31.
<TABLE>
<CAPTION>
JUNE 30, 1996
-----------------------
AS
ACTUAL ADJUSTED(1)
--------- ------------
<S> <C> <C>
BALANCE SHEET DATA:
Current Assets..................................................... $ 25,020 $ 4,725,020
Total Assets....................................................... 38,453 $ 9,238,453
Current Liabilities................................................ 13,500 13,500
Stockholders' Equity............................................... 24,953 $ 9,224,953
</TABLE>
- ------------------------
(1) Gives effect to the sale of the 1,250,000 Shares at the initial public
offering price of $8.00 per Share, and initial application of the estimated
net proceeds of $9,200,000 (after the payment of all estimated offering
expenses, including the Representative's non-accountable expense allowance)
therefrom and payment of the Promissory Note in the amount of $4,500,000 due
on account of the purchase of the Technology under the Technology Transfer
Agreement. See "Use of Proceeds". Assumes no exercise of the
Representative's Warrants. See "Plan of Distribution".
15
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS--INCEPTION (APRIL 2, L996) THROUGH JUNE 30, L996.
The Company is considered to be in the development stage as defined in
Statement of Financial Accounting Standards No. 7 and is in the process of
raising capital. There have been no operations or income since incorporation.
All activity of the Company to date has been related to its formation, proposed
financing and purchase of the Technology from Southern under the Technology
Transfer Agreement. The Company's ability to commence and continue operations is
contingent upon obtaining adequate financial resources through this offering.
LIQUIDITY AND CAPITAL RESOURCES
The Company sold 2,500,000 shares of its common stock to the founding
shareholders, its directors and officers for $25,000 in cash. The $25,000 in
cash will be used for organizational and offering expenses. The Company has no
other capital resources. Effective as of August 1, 1996, the purchase of the
Technology was effected under the Technology Transfer Agreement through the
Company making a non-interest bearing Promissory Note in the amount of
$4,500,000 to the order of Southern, payable in full upon the earlier of (a)
August 31, 1997, or (b) upon the Company's completion of this offering. The
Promissory Note is secured by a collateral pledge of the Technology to Southern.
If the Company is unsuccessful in completing this offering, it currently has no
other sources of capital from which it can pay the $4,500,000 Promissory Note.
As of June 30, 1996, the Company had approximately $25,020 in cash, total
assets of $38,453, total current liabilities of $13,500 and a total
stockholders' equity of $24,953.
DIVIDEND POLICY
The Company has never had income or earnings and has never paid cash
dividends and it does not anticipate that it will pay cash dividends on its
Common Stock or alter its dividend policy in the foreseeable future. The payment
of dividends on the Common Stock by the Company will depend on its earnings and
financial condition and such other factors as the Board of Directors of the
Company may consider relevant. The Company currently intends to retain its
earnings to assist in financing the development of its business.
16
<PAGE>
BUSINESS
THE COMPANY
Voicenet, Inc., a Delaware corporation, was recently established for the
marketing and distribution of continuous speech, voice recognition systems and
of digital audio reporting, transcription, archiving and retrieval systems. The
products and technologies to be marketed by the Company are the result of
research and development conducted by Southern Group Limited and Philips
Electronics, N.V. Southern is a publicly owned Australian corporation listed on
the Australian Stock Exchange. Philips is a multi-national corporation based in
the Netherlands which has traditionally been in the forefront of the dictation
and recording markets world-wide. The Company has acquired from Southern
pursuant to a Technology Transfer Agreement dated as of August 1, 1996 the
exclusive rights for the North, Central and South American markets to the
technology developed by Southern relating to the voice products and the digital
audio reporting, transcription, archiving and retrieval systems, including the
right to manufacture and market digital audio reporting, transcription,
archiving and retrieval systems known as COURTSMART-TM- for the court recording
industry; digital audio products and technologies for the broadcasting industry;
and the digital audio products developed to exploit the markets for continuous
speech recognition and automatic transcription technology (collectively the
"Technology"). Pursuant to the terms of the Technology Transfer Agreement,
Southern transferred the Technology and related rights for the purchase price of
$4,500,000, which was paid by the Company issuing a non-interest bearing
Promissory Note in such amount to Southern, due in full on the earlier of (a)
August 31, 1997, or (b) the completion of this Offering by the Company. See
"Business of the Company--Technology Transfer Agreement".
Southern is the developer of proprietary continuous speech recognition
systems using the Philips continuous speech engine. In April, 1996, Southern
signed a technology licensing agreement with Philips for the product
development, integration, marketing and distribution of the world's first large
vocabulary continuous speech recognition system.
The Company has obtained the rights to the Technology in the Territory from
Southern, and accordingly, will have the exclusive right to exploit the
Technology and related technologies and products. The Company has the rights
under the Technology Transfer Agreement to manufacture and market digital audio
reporting, transcription, archiving and retrieval systems known as
COURTSMART-TM- for the court reporting industry; digital and audio products and
technologies for the broadcasting industry; and the digital audio products
developed to exploit the markets for continuous, large vocabulary speech
recognition and automatic transcription technology.
Management of the Company believes that the voice recognition industry is a
significant growth industry with major potential. As the industry is in its
infancy and industry standards yet to be defined, the Company is believed to
have considerable opportunity. Southern concentrates its efforts in the legal,
medical and government segments for speech to text application software. The
advances facilitated by the amalgamation of the technology developed by Southern
are expected by the Company to have a significant impact on the interactivity
aspect of the computer industry, where continuous large vocabulary speech can be
processed and transcribed. Both the audio and transcribed material will be
archived and retrieved on and from the same storage medium in a totally
synchronous manner using this technology.
While speech recognition technology has been available for several years in
various limited applications; management believes that two of the major
limitations of speech recognition recognition technology to date have been (i)
that the speech recognition systems could only facilitate discrete speech (i.e.,
pauses are required between the words spoken) and (ii) speaker dependence
whereby there is a requirement for each individual user to train the system to
ensure an acceptable level of recognition. The Company believes that these
limitations have made the adoption of the technology slow and isolated. Although
management of the Company believes that there is great potential for the use of
speech recognition not only as an enhancement for traditional applications, but
also as an enabling technology for new applications; these
17
<PAGE>
two limitations severely hindered the feasibility and effectiveness and,
consequently, the market penetration of speech recognition.
Philips has developed a large vocabulary continuous speech recognition
engine which can process speech from normal parlance. The Company believes that
the implications of such a continuous speech recognition system are (i) the
significantly greater market penetration through higher levels of acceptance of
the technology, and (ii) new markets, for which discrete speech systems are too
limiting, opening up the market for speech recognition applications
exponentially.
Management anticipates that the market for large vocabulary continuous
speech technology and systems will grow significantly within the next decade.
Management of Company believes that by being a technology leader of this market
development, significant opportunities will be open to the Company.
SOUTHERN GROUP LIMITED AND DEVELOPMENT OF THE TECHNOLOGY
Southern is a research and development company whose developments and
products have concentrated on digital signal processing and applications.
Southern was listed on the main board of the Australian Stock Exchange in 1988.
In 1989, Southern developed the world's first digital audio mass storage system
("DAMS-TM-") for the broadcasting industry. The system permitted, for the first
time, the facility for radio broadcasters to digitally store, and
instantaneously access from a simple in-studio system control panel, all
broadcast material from archives which could be saved on hard disk or CD Rom.
The DAMS-TM- system was featured on the world syndicated science television
program "Beyond 2000" and has been sold to numerous broadcasting stations in 22
countries around the world, including Radio Luxembourg (2 systems); Capitol
Radio, London (3 systems); British Sky Broadcasting (6 systems); Moffatt
Communications, Canada (5 systems); FM Chiba, Tokyo (3 systems); RTL, Paris (1
system); RAI (Italian State Radio), Rome (3 systems); Singapore Broadcasting
Corporation (1 system) and Vatican Radio, Rome (1 system). The DAMS-TM- was also
chosen as the basis for the first unmanned radio station in the world (FM Hyogo,
Tokyo) and the first all digital radio station in the world (PCM Japan, Tokyo).
Southern has won various awards for its innovations in technology
development and, as a result of its expertise in the field of digital audio
processing and application. In addition, in 1992, Southern was commissioned by
Auscript (a division of the Australian Federal Attorney General's department) to
develop a digital system for recording, reporting and archiving court
proceedings. The result of that commission was the development of a system code
named DART-TM-. On completion and sale to Auscript of the DART-TM-, Southern
continued to research and develop the application, and with the assistance of
the Los Angeles County Superior Court Division, which permitted the use of four
of its courts as a test site for a twelve month period, completed the new system
of digital audio recording and transcription, known as COURTSMART-TM-. Since the
completion of COURTSMART-TM-, the system has been recently sold to courts in
Canberra (the Australian Capital Territory), Hong Kong, Maryland and
Pennsylvania. It is currently being marketed in various other countries around
the world. Southern's management believes that the technology has many other
applications such as use in hospitals, law enforcement agencies, surveillance
authorities, conference services, security agencies, capital markets,
universities, schools and banks.
In November 1995, Southern entered into an $8 million research and
development syndicate, approved by the Australian Federal authorities, for the
development of a system of digital audio parliamentary reporting now known by
the acronym, "DAPR". Southern believes the system under development will
facilitate the automatic recording, archiving and transcription of the
proceedings of parliaments, senates, senate committees, legislatures,
commissions and counsels having up to a maximum of 500 members.
Southern has recently signed a technology licensing agreement with Philips
for the product development, marketing and distribution of its continuous
speech, large vocabulary recognition system. The advances facilitated by the
amalgamation of the large vocabulary continuous digital voice recognition and
18
<PAGE>
compression technology developed by Southern are expected by management to have
a significant impact on the interactivity aspect of the computer industry,
where, for the first time, continuous large vocabulary speech can be processed,
transcribed, stored and printed. Both the audio and transcribed material can be
archived and retrieved on and from the same storage medium in a totally
synchronous manner.
TECHNICAL SUMMARY OF COURTSMART-TM- AND CONTINUOUS SPEECH RECOGNITION ENGINE
The Technology and products acquired by the Company under the Technology
Transfer Agreement embrace two main voice technologies: digital voice
compression/transmission and speech recognition.
The proprietary hardware and software utilized in Southern's COURTSMART-TM-
system has been designed, developed and manufactured by Southern and it's
subsidiaries. The main hardware components of the COURTSMART-TM- system are a
mixer and encoder/decoder cards. The mixer receives 16 channels of analogue
audio, mixes it into 4 channels of 4 lines and sends it to the encoder card
which digitizes and compresses the audio using ADPCM compression. The current
mixer also performs Automatic Gain Control ("AGC"). The COURTSMART-TM- system
uses a choice of 8/4, 8/3, or 8/2 rates of compression which is sampled at 8kHz
using 8 bytes per sample for excellent voice grade audio quality. The system
currently operates over a Microsoft-TM- network.
The next generation of COURTSMART-TM- will include an encoder card that will
make the external analogue mixer redundant as the encoder card will input
directly 16 channels of analogue audio, perform AGC, mix the audio into 4
channels and digitize with a choice of using either ADPCM or MPEG for
compression facilitating audio quality ranging from voice grade to broadcast
grade as required. This new encoder card will also have an in-built wide are a
network ("WAN") capability.
Southern's Voice Recognition Division utilizes licensed technology from
Philips. This new technology is a large vocabulary (i.e., 64,000 words
capacity), continuous speech (i.e., unbroken speech) voice recognition engine.
The main barrier for processing speech continuously has been computer
processing power. Even with rapid developments in Personal Computer ("PC")
technology, management believes that not even the currently fastest Intel
Pentium-TM- microprocessor can process speech continuously. Hence, a special
accelerator board has recently been developed by Philips to increase the
processing of continuous speech by approximately ten fold.
The methodology embraced in utilizing this continuous speech recognition
technology is heavily context orientated. The reason for this is that to process
continuous speech, you not only need acoustical models for comparison
computation, but a statistical language model that can calculate the probability
of word sequences in this context. This is an integral part of achieving high
recognition rates. The Philips continuous speech engine performs these
comparisons by using feature vectors. A feature vector is a mathematical
representation of phonemes (the smallest unit of speech) that is created from
the input speech to compare with a library of feature vectors to identify the
correct interpretation with the aid of Hidden Markov Modelling.
The accelerator board acts as a pre-processor (i.e., it performs the
computationally intensive numerical calculations). The board's principal
function is to compare feature vectors created from the input speech with the
feature vectors in the known context (vocabulary) and output the required
distance value between the vectors for the voice recognition engine to process
quickly, without this initial computational overhead.
The accelerator board inputs a 31 byte feature vector and outputs a 16 bit
distance value to each specified phoneme segment to compute the correctly
recognized segment. This distance calculation (i.e., how close the input is to
vectors in the vocabulary) and the language model are used to correctly
recognize the speech.
19
<PAGE>
The accelerator board can accept three possible input formats. The audio
capture can be made using one of three formats: Philips proprietary LPC-BB,
PCM256 or simple WAV file format. The latter two are SoundBlaster-TM- sound card
compatible however the Philips audio capture board and LPC-BB is strongly
recommended by the Company for maximum optimization as the other two formats
don't support feature vectors which require longer processing times for
recognition.
INDUSTRY COMPARISON OF TECHNOLOGY
Southern's technology licensing agreement with Philips for product
development, integration, marketing and distribution, and in turn the transfer
of this technolgy under the Technology Transfer Agreement to Voicenet, is for
its large vocabulary continuous speech recognition systems. This is to be
distinguished from speech recognition systems currently available which are
either (i) speaker dependent and discrete speech systems such as developed by
Dragon Systems, Inc.; (ii) application specific systems such as developed by
Kolvox; and (iii) "command and control" systems such as those developed by
Lernout & Hauspie.
While speech technology has been available for several years in various
limited applications; two of the major limitations of speech recognition
technology to date have been (i) that the speech recognition systems could only
facilitate "discrete" speech (i.e., distinct pauses are required between the
words spoken for the computer to recognize the individual words) and (ii)
speaker dependence whereby there is a requirement for each individual user to
train or custom program the system to ensure an acceptable level of recognition
of the speaker's voice. These previous limitations have made the adoption of the
speech recognition technology slow and isolated.
Although the Company believes that there is great potential for the use of
speech recognition not only as an enhancement for traditional applications, but
also as an enabling technology for new applications; these two prior limitations
severely hindered the feasibility and effectiveness and, consequently, the
market penetration and commercial acceptability of speech recognition.
Management believes that Philip's continuous speech engine has substantially
overcome these two previous system limitations.
Philips has addressed these two limitations in its large vocabulary
continuous speech recognition engine which can process speech from normal
parlance. The implications of such a continuous speech recognition system are
(i) the significantly greater market penetration through higher levels of
consumer acceptance of the technology, and (ii) new markets, for which discrete
speech systems are too limiting, opening up the market for speech recognition
applications exponentially. From their examinations of the market, Southern and
the Company believe that there are no other voice recognition systems close to
this level of speech recognition technology.
Although there can be no assurance, management believes that the market for
large vocabulary continuous speech technology and systems could grow to a
significant industry within the next decade. Management believes that by being a
technology leader of this market development, significant opportunities will be
open to the Company, including special product development such as COURTSMART,
and possible licensing programs with major personal computer software and
hardware manufacturers.
DEVELOPMENT AND USE OF COURTSMART-TM-
A prototype of an early version of the court recording system code named
DART, was developed by Southern and has been sold to the Commonwealth of
Australia's Court reporting division and has been demonstrated widely within the
Australian Federal Court system. A variation of the system has been sold to the
Australian Federal Police.
The COURTSMART-TM- system subsequently developed and was installed, as a
test site, in December 1993 in a courtroom operated for the Los Angeles County
Superior Court Division. During that period, the information received from the
Los Angeles Superior Court administration on the operation of
20
<PAGE>
the COURTSMART-TM- system was instrumental in determining the final
characteristics of the current system.
The COURTSMART-TM- system, using computer and other shelf and proprietary
hardware with proprietary software, operates as follows:
1. Microphones within the courtroom are combined and processed with other
relevant communication channels and employ automation and control techniques
that normally do not require a local operator to be in attendance.
2. Speech is then recorded directly to a combination of digital storage
mediums which provide the optimum mix of both instant access and archived
storage in a secure and efficient manner. During this process several levels of
automated "tagging" are available, to both users and operators so that sections
of text can be readily recalled and identified at a later time.
3. The voice recordings once stored digitally, are made available in
rapidly accessible and reusable format through a local network, to any number of
workstations for transcription purposes. Each workstation can take any part of
any recording and in any required length. The text thus produced using any one
of several popular word processing packages, is then automatically merged and
stored in association with the voice recording. The network can then at any time
print text, replay the audio or archive material in any required format.
Non-active material is archived to DDS (Digital Data Storage) Tape providing
storage densities far greater than any analogue system, and can be easily
reloaded at any subsequent time.
The Company believes that the system introduces three major advances over
currently available systems: one is the delivery of recorded audio direct from
the court to the transcription operator via computer network negating all
physical handling of recordings (present tape based systems are labor
intensive); the second is the ability to tag direct to incoming audio providing
Transcription Staff with fault free recognition of a particular speaker; the
third is the ability to search many hours of recorded audio rapidly (random
access), based on the permanently stored time and date stamp or text tag
attached to each one second of audio.
All facilities provided by the COURTSMART-TM- system are aimed at increasing
the overall efficiency of the recording and transcription operation, thus
ultimately being reflected in a reduction in the cost per page of transcript
generated.
OVERVIEW OF THE COURT REPORTING INDUSTRY
Court reporting is the verbatim transcription of the spoken word into the
written word, generally from sworn legal testimony. The industry is divided into
two distinct sectors--the recording of proceedings in court, or "official" court
reporting, and all other court reporting. Official court reporting is performed
by civil servant court reporters employed by municipal, state, or federal
courts. All other court reporting is performed outside the courtroom by
free-lance court reporters, who may be either self-employed, or employees of
independent contractors affiliated with a court reporting agency.
Although there are no independently verified statistics with respect to the
number of court reporters, there are approximately 20,000 members of the
National Court Reporting Association ("NACRA"), the only national professional
association in the industry, and an additional 13,000 student members. The
Company estimates that there are approximately 40,000 court reporters in the
United States.
Court reporting requires a trained professional capable of transcribing
speech usually by steno type machine, which generally approximates 200 words per
minute, using shorthand symbols. The shorthand notes are translated from the
paper or magnetic medium, then edited to produce a final transcript.
21
<PAGE>
OPERATION OF THE COURTSMART-TM- SYSTEM
COURTSMART-TM- is a modular system which enables the entire court reporting
process to be handled by computer without the need for data to leave the
computer at any stage. The data is recorded on four channels, with digital audio
quality, making it easy to identify the individual speaker.
COURTSMART-TM- is based on four principal processing stations which can
communicate freely with each other either directly or over a high speed Local
Area Network. They are:
1. SAMPLING STATION. Incorporating the sampler, back-up sampler, and
uploader. Provides the analogue to digital conversion of all incoming audio and
storage for both short term and archival purposes. Storage is thus inherently
redundant and can be made available in several forms
2. MONITOR STATION. Controls the recording process and allows the
simultaneous indexing and tagging of material with textual information which is
then embedded with the digital audio recording. It is thus available for later
automated recall and search facilities.
3. SUPERVISOR STATION. Allows the preparation, distribution and subsequent
collation of transcription "grabs" together with the control of network
operations and archival material.
4. TRANSCRIPTION STATION. For transcription of recorded audio using digital
techniques in both voice and text reproduction.
The number of each type of workstation is entirely flexible and can be
tailored to suit the demands in any situation. The allocation of Transcription
Stations, for example, can be adjusted to match transcription loads in either
the short or longer term. Throughout the COURTSMART-TM- system, various
strategies and technologies are employed which ensure that systems operate in
the most effective, efficient and reliable manner. Importantly, this process
begins in the Courtroom where microphones and any other user supplied equipment
is combined and analytically processed.
The resultant audio channels are then immediately digitized and recorded and
as such are available to be passed freely around the COURTSMART-TM- network.
Since the audio is in digital form it can be retrieved and replayed any number
of times without any loss of quality. The digital recording is done in two
forms. Firstly to a high capacity, hard disk unit which provides immediate
random access for all work stations--and secondly, on a routine basis, to a DDS
(digital data storage) tape, or other specified medium, which ultimately
provides the longer term archival storage of both voice and text together with
any indexing tags that were input. The DDS tape cartridge provides a highly cost
effective storage medium providing space savings of up to one hundred to one
compared to conventional analogue audio recording methods.
Any archival tape can be easily reloaded into the live system at any time
and the process of locating relevant material is vastly enhanced through the
inherent indexing data it contains. The transaction stations, through the
COURTSMART-TM- system, combine tried and proven techniques with the ability to
work within or alongside modern word processing software.
There are three stages to the COURTSMART-TM- System:
STAGE 1--THE FRONT END--CAPTURING, TAGGING AND ASSIGNING THE AUDIO
In the multiple channel system where there may be several courts or
conference rooms, in which there are several parties participating, one of the
major problems is the need to identify area each speaker in each location. This
unique tagging system used by COURTSMART-TM- solves this problem.
An operator either located in the room where the recording is taking place,
or remote from the room--possibly in a central location or within the
complex--has the ability to place text stage on any piece of audio. This system
also allows participants to tag audio for longer use. This has application where
a
22
<PAGE>
Judge may consider a particular piece of audio to be of interest and thus tag it
for later reference. Subsequently, the Judge may use the audio search facilities
to immediately access the audio.
COURTSMART-TM- also considers the possibility when the operator misses the
change of speaker and a tag is not inserted. COURTSMART-TM- uses a four channel
format to record on separate channels so that at a later point a simple check of
microphone location identifies the speaker. Tagging of audio can be performed
not only on a court by court basis, but also down to individual microphones. All
audio and text is stored on common media in a centralized storage location with
access via high speed Local Area Networks to workstation positions.
While the system constantly automatically tags the audio on a location, time
and at basis, using the COURTSMART-TM-console, a single operator can listen to
the proceedings in any one of several court rooms and, where relevant, insert
permanent typewritten tags which identify the person speaking, the microphone
being used, the subject of testimony, or any other relevant matter such as the
impeachment of a witness. The tagging facilitates the later rapid retrieval of
specific sections of the recording. This can be done simply by entering the
appropriate command on the keyboard.
STAGE 2--STORING, PROCESSING AND ARCHIVING THE AUDIO
At this stage audio is coming from each court or conference room. it is
necessary to store that audio in a format that will provide maximum flexibility.
This needs to be done in a way that assures the audio is recorded without loss
of any part of it or its quality. Long term storage must also be considered both
in terms of quality and cost.
COURTSMART-TM- uses a combination of hard disk storage and tape based
products, in a format that provides the best mix of speed, reliability and cost.
The speed comes from the instant access of the hard drives. The incoming audio
is processed and then stored on a hard drive. It is available instantly for
playback or transcription. The incoming audio is stored as identical copies, at
three separate locations to provide security in the case of failure of any
section.
When the audio has been typed or is no longer required for a period of time,
it is sent to a tape based product such as DDS. A DDS tape and can store the
entire proceedings before four courts, sitting simultaneously for a week. The
COURTSMART-TM- system allows a single operator to record and tag several courts
at the same time. The system permits large savings in staff and overhead.
At stage two the audio has been processed, stored and available for instant
access and then archived. All this is achieved at a central location, often
using a single operator monitoring several courts. The audio is now ready for
transcription.
STAGE 3--TRANSCRIPTION AND PLAYBACK
The audio can now be accessed from the hard drives or from the archive
material. At this point the COURTSMART-TM-system allows the audio to be sent in
any length to any station on the network. Thus provides for any requirement such
as daily transcript. Once the audio is sent to each station it can then be
typed, merging software is used to bring the document together. From that point
it is ready for printing or transfer to disk for distribution.
The COURTSMART-TM- system enables a single transcription service supervisor
to select a specific recording, cut it into "turns" or "grabs" and assign it to
one of the dedicated transcription stations for hands-free audio control typing.
There is total flexibility in choosing the size of the turns to be sent to the
stations and the turns can be sent automatically in a predetermined sequence. On
completion of the transcription, the supervisor uses the merging software to
combine the individual turns into one complete document. Security is added to
the system by the incorporation of a digital "fingerprint" which prevents
interference with the recording and the transcription.
23
<PAGE>
If required, the COURTSMART-TM- system can also incorporate a facility
whereby documentary evidence such as affidavits can be optically scanned into
the same storage medium resulting in a total record of the proceedings and
submissions; audio, textual, and documentary evidence being stored
simultaneously in a fraction of the storage space currently required.
Features of COURTSMART-TM- are:
- High quality degradation free digital audio recording
- 16 voice-channel digital audio recording
- Intelligent automatic gain control resulting in high quality audio
- Tagging the audio of a court-session with textual identification
information which makes it easier to identify and locate a particular
court-session for playback and transcription purposes
- Tagging the live audio of each channel with textual information makes it
easier to identify the speaker as well as allows the rapid search of audio
based on channel tag/phrase information
- Various playback options while monitoring the live audio recording
- Optical scanning of affidavit and other evidence
- Centralized recording operation using one person to record multiple courts
simultaneously
- Direct random access of recorded audio
- Instantaneous and continuous access to recorded proceedings enables real
time transcription
- Cost effective digital storage and archival medium which enables rapid
audio search facilities to be employed
- No physical human contact with the recorded audio material from the time
it is spoken to the production of the transcript
- Auto merging of all the transcript documents generated by one or more
transcribers to a single master transcript document
- Remote transcription and playback facilities using a network
- Efficient transcript production management facilities which include
controlled distribution of audio turns, priority assignment to
transcription tasks and transcription progress status display
- Allows only authorized persons to have access to the system
COST SAVINGS FEATURES OF THE COURTSMART-TM- SYSTEM
The Los Angeles Superior Court was granted the right to test electronic
court reporting in selected courts in 1991 by the California State Legislature.
It tested during this period the tape recording of testimony by reel analog tape
recorders. In an internal report made by the court administration, it concluded
that electronic recording reduced the annual cost of maintaining a single
courtroom from $78,270 to $45,221 and thus effected a savings of 45%. In the
opinion of the Company, the use of the COURTSMART-TM- system would further
reduce the cost of maintaining a courtroom to $23,586 per courtroom per year,
since the four module system permits one person to monitor four courtrooms at
the same time. Based on the Company's calculations, when compared to the average
annual cost of a current court reporter, a court system can pay for the
COURTSMART-TM- system out of savings effectuated in approximately 9.3 months.
The Judicial Council of California ruled that commencing January 1, 1994, all
Civil Courts in the state could use electronic recording of court proceedings as
the official record.
24
<PAGE>
MARKETS
The Company intends to distribute the COURTSMART-TM- system to courts
initially. Based upon unverified statistics supplied by personnel at the Library
of Congress, there are approximately 36,000 court currently operating in the
United States. The number of courts, using the eleven judicial circuits as areas
is approximately as follows:
NUMBER OF COURTS
<TABLE>
<CAPTION>
US DISTRICT
- -----------------------------------------------------------------------------------------
<C> <S> <C>
9 California.................................................................... 5,894
5 Texas......................................................................... 4,503
6 Michigan/Ohio................................................................. 3,661
11 Florida....................................................................... 3,515
2 New York...................................................................... 3,478
3 Pennsylvania.................................................................. 3,478
4 Virginia...................................................................... 3,112
7 Illinois...................................................................... 2,599
8 Missouri...................................................................... 2,453
10 Oklahoma...................................................................... 2,270
1 Massachusetts................................................................. 1,648
---------
Total..................................................... 36,611
</TABLE>
MARKETING STRATEGY
The Company plans to appoint up to eleven sales representatives for the
United States, who will operate as independent contractors and primarily be
compensated on a commission basis, which represents one for each of the eleven
Federal Court Circuits. The Company to date has appointed the sales manager for
the Company and intends to appoint sales representatives for the circuits after
the completion of this offering at the rate of one per month. The Company
intends to appoint three sales representatives for Canada, covering the
provinces of Ontario, Quebec and British Columbia.
The Company has had marketing material prepared by an advertising agency
including a professional video of approximately 7 minutes duration which covers
(a) the existing court system; (b) cost benefit analysis; (c) the COURTSMART-TM-
System; and (d) how it functions.
Upon completion of the Offering, the Company anticipates hiring the sales
and marketing force of eleven persons. Sales and marketing activities to be
conducted by the Company will consist of direct sales calls, participation in
trade shows, publication of articles and advertisements in trade journals.
The Company believes it will need to provide a high level of customer
support to assist in the integration of the Company's products into the
customer's application and use.
COMPETITION
Digitized audio technology similar to that pioneered by Southern for the
broadcasting industry is currently being used by competitors to produce products
for the broadcasting industry. The Company believes that none of these
competitors or any other company has developed a system for court reporting,
transcription and archiving as advanced as COURTSMART-TM- with the potential to
provide automatic voice to text. However, there can be no assurance that other
established competitors or new entrants will not develop competitive products.
Companies have specifically attempted to copy the system of court reporting
developed by Southern with limited success. There are also other companies
operating in the field of voice recognition such as Dragon Systems, Inc.,
Kolvox, Fonix, Voice Control Systems, Inc., Voice
25
<PAGE>
Processing Corporation and Lernout & Hauspie. Lernout & Hauspie are involved in
"command and control' aspects of speech recognition technology and while
continuous speech is applicable, it is on the basis of individual single word
recognition within a sentence and based on small vocabulary: Kolvox and Dragon
Dictate systems have large vocabulary capacity but are restricted to discrete
speech. Fonix, while claiming a vocabulary of 64,000 words, the active
vocabulary available to the user at any one time is limited. Voice Control
Systems, Inc. And Voice Processing Corporation seem to be principally involved
in speech recognition in telephony applications such as voice verification over
telephone fields of "command and control", continuous digit recognition and
alpha-numerics. There can be no guarantee that these companies or other new
entrants in to the market segments or similar technologies will not succeed in
developing similar or competitive products or technologies.
TECHNOLOGY TRANSFER AGREEMENT
The Company has acquired from Southern pursuant to a Technology Transfer
Agreement dated as of August 1, 1996 the exclusive rights for the North, Central
and South American markets (the "Territory") to the Technology developed by
Southern relating to the voice products and the digital audio reporting,
transcription, archiving and retrieval systems, inculding the right to
manufacture and market digital audio reporting, transcription, archiving and
retrieval systems known as COURTSMART-TM- for the court recording industry;
digital audio products and technologies for the broadcasting industry; and the
digital audio products developed to exploit the markets for continuous speech
recognition and automatic transcription technology. Pursuant to the terms of the
Technology Transfer Agreement, Southern transferred the Technology and related
rights for the purchase price of $4,500,000, which was paid by the Company
issuing its non-interest bearing Promissory Note in such amount, due in full on
the earlier of (a) August 31, 1997, or (b) the completion of this Offering by
the Company.
The Company commissioned Gorey & Sinclair, an independent Australian
chartered accounting firm to prepare a valuation report of the COURTSMART-TM-
system in the United States. In the opinion of Gorey & Sinclair, the
COURTSMART-TM- system for the United States has a potential value between $23.7
million and $32 million upon full commercialization. The report by Gorey &
Sinclair is necessarily based upon a number of estimates, assumptions and
forecasts that, while they are considered reasonable by the Company, are
inherently subject to significant material business, economic, and competitive
uncertainties and contingencies which are beyond the control of the Company, and
upon assumptions with respect to future sales which may never develop.
Accordingly, there can be no assurance that these results will be achieved
or that the value estimated by Gorey & Sinclair will ever be realized. The
prospective financial valuation presented in the Gorey & Sinclair report will
vary from actual results, and these variations may be material. The inclusion of
such information in the Gorey & Sinclair report should not be regarded as a
representation by the Company or any other person that these results or
estimated will be ever obtained. It is merely an estimation of potential if the
underlying assumptions are realized. Prospective investors in the Offering are
cautioned not to place undue reliance on this information.
MANUFACTURING AND SUPPLY OF PRODUCTS
Except for one small hardware component and two software components, all of
the remaining components utilized in the COURTSMART-TM- system are readily
available and can be purchased from several sources in the United States. The
one hardware component and the two software components contain the proprietary
technology developed by the Southern. Southern has agreed to manufacture the one
small hardware component and the two software components of the system in
Australia and sell them to the Company at prices which shall not be greater than
the prices at which the Southern sells the components to unaffiliated parties,
less a minimum discount of 10%.
26
<PAGE>
INTELLECTUAL PROPERTY
The Company does not own any patents, trademarks or trade secrets. Under the
Technology Transfer Agreement for the COURTSMART-TM- system and related
technology, the Company is granted the exclusive right to manufacture, market,
sell and distribute the COURTSMART-TM- system and other digital voice systems
developed by Southern in the North and South America under Southern's
trademarks. Southern developed the systems, and has copyrighted the computer
software used in the COURTSMART-TM- system and it has applied for a patent on
the hardware component that it developed. Pending the issuance of any patents,
which cannot be assured, Southern intends to rely on unpatented proprietary
technology and technical know-how. Accordingly, because the Company will only
receive under the Technology Transfer Agreement such intellectual property
rights as may be owned by Southern, the Company will similarly rely on
unpatented proprietary technology and technical know-how. No assurance can be
given that others will not independently develop substantially equivalent
technology, knowledge and techniques or otherwise gain access to Southern's
technology or that Southern or the Company can meaningfully protect its rights
in such unpatented proprietary technology or know-how.
EMPLOYEES
The Company currently has three full time employees including its principal
officers. Of that number, one is engaged in administrative functions,and two are
engaged in the technical and sales aspects of the business of the Company.
PROPERTY
The Company subleases approximately 500 sq. ft. of office space on a
month-to-month basis from an affiliated landlord at Suite 517, 380 Lexington
Avenue, New York, New York 10168. The base rent is $10,000 per year. Upon
completion of the Offering, the Company intends to lease additional space for
its sales and technical support personnel as needed and believes such space is
readily available from unaffiliated lessors. The current premises are adequate
for the Company's needs for the short-term future.
The Company's principal business address is 380 Lexington Avenue, Suite 517,
New York, New York 10168, and its telephone number is (212) 399-6682.
27
<PAGE>
LEGAL PROCEEDINGS
The Company knows of no litigation or other legal proceedings pending or
threatened to which it is, or may become, a party.
MANAGEMENT
The following table sets forth information with respect to each executive
officer and director of the Company. Each executive officer or director has been
appointed as of this year to serve for a term of one year.
<TABLE>
<CAPTION>
DIRECTORS AND
EXECUTIVE OFFICERS AGE POSITION
- ----------------------------------------------------- --- -----------------------------------------------------
<S> <C> <C>
James Sim............................................ 75 Chairman of the Board
Frank Carr........................................... 48 President, Director, and Chief Executive Officer
Edward S. Tabb....................................... 56 Vice President, Technology Development
Ronald Cross......................................... 51 Vice President, Sales and Marketing
Jason Beever......................................... 26 Vice President, Voice Technologies
William J. Potter.................................... 47 Director and Secretary
John Gilbert......................................... 62 Director
</TABLE>
JAMES SIM, CHAIRMAN OF THE BOARD
Mr. Sim has spent his career in banking, retiring as Director and General
Manager (Area North) and a member of the Court of Directors of the Bank of
Ireland. Since his retirement, he has been appointed by the British Government
as its representative to the board of directors of several companies, including
that of Short Bros. Aircraft. He was the Founding Chairman of the Northern
Island Co-Ownership Housing Association ("NICHA"). NICHA is an initiative of Her
Majesty's Government, funded by the British Department of the Environment, by
which families are assisted to purchase their own homes in a part buy/ part rent
scheme. In the 15 years of its operation it has provided funding in excess of
US$1 billion. He was also vice-Chairman of the Progressive Building Society
(assets in excess of US$500m). He is a Member of the Institute of Bankers in the
United Kingdom and a Fellow of the Institute of Directors.
FRANK CARR, PRESIDENT & CHIEF EXECUTIVE OFFICER
Mr. Carr has been a director, President and Chief Executive Officer of the
Company since its inception. He has been the Chief Executive Officer of
Southern, a public company listed on the Australia Stock Exchange Limited, for 5
years. He has been involved in company management and direction for 25 years and
in 1986 was jointly awarded the Australian Business Entrepreneur of the Year
Award for his work in establishing and developing a waste disposal business and,
in the same year, his company was awarded the marketing award by the Australian
Marketing Institute. Mr. Carr was elected to Fellowship of the Institute of
Directors in the U.K. in 1981 and to Fellowship of the Australian Institute of
Management in 1986.
EDWARD S. TABB, VICE PRESIDENT, TECHNOLOGY DEVELOPMENT
Mr. Tabb is General Manager, Technology Division, of Southern Group Limited,
responsible for implementation of a current $8 million (Australian) research and
development program and the commercialization of a fully automated digital audio
parliamentary recording sysem and of the Company's other hardware and software
technologies. He was, for 5 years before, Project Director with the Wool
Research
28
<PAGE>
& Development Corporation and the University of Western Australia. Previously,
he held the positions of Industrial Process Research Director with the Gas
Research Institute in Chicago for five years, responsible for the
commercialization of its industrial process and energy technology. He has worked
in various research and development roles with U.S. companies such as Peabody
Gordon-Piatt, Southern California Gas Company and Northrop Norair Corporation.
Mr. Tabb is a citizen of the United States and holds a degree in Aerospace
Engineering from Northrop University in California.
RONALD CROSS, VICE-PRESIDENT, SALES & MARKETING
Mr. Cross has, for many years, worked in the computer and technology related
industries in a sales capacity and, specifically, on digital and video aspects
of computer applications. He has extensive experience in the field of global
positioning, tracking systems and satellite communication systems and was
instrumental in introducing global positioning systems in Australia. He was
employed by Southern Group in 1993, and will be responsible in the Company for
coordinating all sales activities relating to court technologies for the Company
within the Territory. Mr. Cross is a citizen of Canada.
JASON BEEVER, VICE PRESIDENT, SPEECH TECHNOLOGIES
Mr. Beever is Southern Group's General Manager for its speech recognition
products and technologies. Formerly a computer programmer, he has for three
years been responsible for the successful development, marketing and sale of
such products; systems integration of voice recognition products; and the
design, development and implementation of interactive voice response systems. He
has most recently completed a certification program on the large vocabulary
continuous speech technology with Philips Dictation Systems at its Vienna,
Austria. Mr. Beever graduated from Curtin University of Technology in Western
Australia with a Bachelor of Science degree in computer science and marketing.
WILLIAM J. POTTER, SECRETARY AND DIRECTOR
Mr. Potter is president of the Ridgewood Group International, Inc., a New
York based investment bank. Prior to establishing the Ridgewood Group in 1989,
Mr. Potter was Managing Director for International Investment Banking at
Prudential-Bache Securities Inc. and Director of Prudential-Bache Securities
Canada Ltd. He was previously a senior executive with Barclays Bank PLC, and
Toronto Dominion Bank. Mr. Potter received a Bachelor of Arts degree from
Colgate University and a Master of Business Administration from the Harvard
Business School.
He is currently Finance Committee Chairman of the National Foreign Trade
Council; a director of Impulsora del Fondo Mexico, SA de CV; First Australia
Fund; First Australia Prime Income Fund Inc.; First Australia Prime Income Co.,
Inc.; International Panorama Resources, Inc.; First Commonwealth Fund; Battery
Technologies, Inc., Alexandria Bancorp; Compuflex Systems, Inc. and serves as a
consultant to the Guardian Capital Group Ltd.
JOHN GILBERT, DIRECTOR
The Rt. Honorable Dr. John Gilbert has been a Member of the United Kingdom
Parliament since 1970. He is the Senior Opposition Member of the Committee on
Intelligence & Security, and has been Privy Councillor since 1978. He is the
Chairman of John Gilbert & Associates, and is a director of Edmund Nuttal
Limited, Kyle Stewart Limited, the American Heritage Fund, the International
Jewelers Block & Fine Arts Insurance Services, Inc., and A.B.S. Hovercraft
Limited. He is also an Advisor to Jardine Insurance Brokers International
Limited.
29
<PAGE>
From 1987 to 1992, he served as the Senior Opposition Member of Select
Committee on Trade and Finance. From 1979 to 1987, Dr. Gilbert served as the
Senior Opposition Member of Select Committee on Defence.
Dr. Gilbert received his Bachelor of Arts degree with honors in Politics,
Philosophy and Economics from Oxford University in 1951. He received a Doctorate
of Philosophy from the Graduate School of Business Administration, New York
University, in 1968. In 1958, he was Qualified as Chartered Accountant in
Canada. In 1963 he received the Advanced Certificate, American Institute of
Banking.
Dr. Gilbert is a Member of the Trilateral Commission, the Royal Institute of
International Affairs, the International Institute for Strategic Studies, the
Institute for Fiscal Studies, the Council for Arms Control, the Centre for
European Defence Studies, the Royal United Services Institute, the British
American Parliamentary Group, and numerous other groups and organizations.
Board members are reimbursed for their expenses for each meeting attended
and may be compensated for serving as directors in the future.
REMUNERATION
Prior to the date of this Prospectus, no officer or director of the Company
has received any cash compensation for services performed in these
capacities.Upon completion of this Offering, Directors shall receive a fee of
$10,000 per year per director for serving in such capacity. Additionally, each
director shall receive options to acquire 50,000 shares of Common Stock for a
price of $.10 per share, exercisable over a period of five years, which options
shall vest after 12 months of service as a director ("Directors' Options").
The Company intends to retain Frank Carr as its President and Chief
Executive Officer under a employment contract at a fee of $180,000 per year for
a three year term commencing with the month following the completion of this
Offering.
The Company intends to retain James Sim as its Chairman under a management
contract at a fee of $30,000 per year for a three year term commencing with the
month following the completion of this Offering. Mr. Sim agreed to be available
for consulting up to 4 days per month.
The Company intends to retain Ridgewood Group International, Ltd., of which
Mr. William J. Potter, a director and Secretary of the Company, is President and
the major shareholder, as investment advisor to the Company at a fee of $8,000
per month for a three year term commencing the month following the completion of
this offering.
Except as set forth above, no director or executive officer of the Company
is currently a director with any other Company with a class of securities
registered pursuant to Section 12 of the 1934 Securities Act or subject to the
requirements of Section 15(d) of such act or any investment company registered
under the Investment Company Act of 1940.
No event listed in Subparagraphs (1) through (5) of Subparagraph (f) of Item
401 of Regulation S-K, has occurred with respect to any present executive
officer or director of the Registrant or any nominee for director during the
past five years which is material to an evaluation of the ability or integrity
of such director or officer.
ELECTION OF DIRECTORS AND OFFICERS; COMMITTEES
The Company's bylaws provide for a Board of Directors consisting of not less
than three nor more than nine members who are elected annually by the
shareholders. The officers of the Company are elected by the Board of Directors
from time to time.
30
<PAGE>
The Company currently has no committees of its Board of Directors, but it is
anticipated that standing audit and compensation committees will be established
following the offering. It is expected that the audit committees will be
established following the offering. It is expected that the audit committee will
consist of members of the Board who are not otherwise affiliated with the
Company.
All directors hold office until the next annual meeting of stockholders and
the election and qualification of their successors. Directors receive no
compensation for serving on the Board of Directors other than the reimbursement
of reasonable expenses incurred in attending meetings. Officers are elected
annually by the Board of Directors and serve at the discretion of the Board.
No family relationships exist among any of the named directors or the
Company's officers. No arrangement or understanding exists between any such
director or officer and any other person pursuant to which any director or
officer was elected as a director or officer of the Company. There are no
agreements or understandings for any officer or director of the Company to
resign at the request of another person and none of the officers or directors of
the Company are acting on behalf of, or will act at the direction of, any other
person.
Other than as set forth in this Prospectus, no other relationships exist
between and among management stockholders and non-management stockholders.
Moreover, there are no arrangements, agreements or understandings between
non-management stockholders and management under which non-management
stockholders may directly or indirectly participate in or influence the
management of the Company's affairs. The Company has no knowledge of whether or
not non-management stockholders will exercise their voting right to continue to
elect the current directors to the Company's board. See "Conflicts of Interest."
CONFLICTS OF INTEREST
The success of the Company is substantially dependent upon existing
management, all of whom devote only a portion of their time to the Company.
These individuals may have conflicts between their responsibilities to the
Company and to other entities with which they are affiliated. The directors or
affiliate of the Company may in the future seek to exploit opportunities of
which the Company is not able to undertake because of limited capital. Frank
Carr, the President, Chief Executive Officer is also the President and Chief
Executive Officer of Southern, the seller and licensor of the technology to the
Company. Accordingly, he will devote only a portion of his time to the Company.
The loss of the services of Mr. Carr, as well as other key personnel, or an
inability to attract and retain qualified personnel, may adversely affect the
Company's business. The Company has not applied for key man life insurance on
the life of Frank Carr and does not intend to. Because of the nature of its
business, the Company will be dependent upon its ability to attract and retain
technologically qualified personnel, particularly computer engineers. There is
substantial competition for qualified personnel, including competition from
companies with substantially greater resources than the Company. There is no
assurance that the Company will successfully recruit or retain personnel of the
requisite engineering caliber or in adequate numbers to enable it to conduct its
business as proposed.
31
<PAGE>
CERTAIN TRANSACTIONS
All of the existing shareholders acquired the outstanding 2,500,000 shares
of the Company's common stock for $.01 per Share. To the extent that it sells
any of the Shares offered herein, Ridgewood Capital Funding, Inc., a securities
broker-dealer of which Mr. Potter a Director and Secretary of the Company is
Chairman and President, may also receive selling commissions and a portion of
the Representative's Warrants entitling it to purchase 75,000 shares of Common
Stock for $8.00 per year for a period ending five years after closing of the
Offering.
In connection with the acquisition of the Technology rights from Southern,
the Company has agreed to pay Southern $4,500,000. This obligation is evidenced
by a Promissory Note in the amount of $4,500,000, which bears no interest,
secured by a first security interest collateral pledge of the Technology to
Southern. The Promissory Note is due in full along with all accrued interest
thereon on the earlier of (a) the completion of this Offering, or (b) August 31,
1997.
The Company has entered into a one year oral agreement with Ridgewood for
its office space and various associated office and administrative services,
including telephones, postage, fax, courier, beverage; accounting personnel; and
other miscellaneous overhead expenses, at 105% of cost to Ridgewood, payable
monthly. Payments vary from month to month, but currently are approximately
$3,000.
The Company will require that any future transactions between the Company
and its officers, directors, principal stockholders and the affiliates of the
foregoing persons be on terms no less favorable to the Company than could
reasonably be obtained in arm's length transactions with independent third
parties and that any such transactions also be approved by a majority of the
Company's directors disinterested in the transaction. Management of the Company
has not yet ascertained the amount of remuneration that will be payable to the
Company's officers and directors following completion of a Business Combination.
CERTAIN LIMITED LIABILITY, INDEMNIFICATION AND ANTI-TAKEOVER PROVISIONS
The Company's Articles of Incorporation limit the liability of its directors
to the fullest extent permitted by the Delaware Business Corporation Law.
Specifically, directors of the Company will not be personally liable for
monetary damages for breach of fiduciary duty as directors, except for liability
for (i) any breach of the duty of loyalty to the Company or its shareholders,
(ii) acts or omissions not in good faith or that involve intentional misconduct
or a knowing violation of law, (iii) dividends or other distributions of
corporate assets that are in contravention of certain statutory or contractual
restrictions, (iv) violations of certain securities law, or (v) any transaction
from which the director derives an improper personal benefit. Liability under
federal securities law is not limited by the Restated Articles.
The Delaware Business Corporation Law requires that the Company shall
indemnify any director, officer or employee made or threatened to be made a
party to a proceeding, by reason of the former or present official capacity of
the person, against judgments, penalties, fines, settlements and reasonable
expenses incurred by the person in connection with the proceeding if certain
statutory standards are met. "Proceeding" means a threatened, pending or
completed civil, criminal, administrative, arbitration or investigative
proceeding, including a derivative action in the name of the Company. Reference
is made to the detailed terms of the Delaware indemnification statute for a
complete statement of such indemnification rights. The Company's Restated Bylaws
require the Company to provide indemnification to the fullest extent of the
Indemnification statute.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers or persons controlling the
Company pursuant to the foregoing provisions, the Company is aware 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.
32
<PAGE>
STOCK OPTION PLAN
In 1996 the Company adopted a Non-Qualified Stock Option Plan (the "Plan").
An aggregate of 500,000 shares of Common Stock are authorized for issuance under
the Plan. The Plan provides that incentive and non-qualified options may be
granted to officers and directors and consultants to the Company for the purpose
of providing an incentive to those persons to work for the Company. The Plan may
be administered by either the Board of Directors or a committee of three
directors appointed by the Board ("Committee"). The Board or Committee
determines, among other things, the persons to whom stock options are granted,
the number of shares subject to each option, the date or dates upon which each
option may be exercised and the exercise price per share.
Options granted under the Plan are exercisable for a period of up to ten
years from the date of grant. Options terminate upon the optionee's termination
of employment or consulting arrangement with the Company, except that under
certain circumstances an optionee may exercise an option within the three-month
period after such termination of employment. An optionee may not transfer any
options except that an option may be exercised by the personal representative of
a deceased optionee within the three-month period following the optionee's
death. Incentive options granted to any employee who owns more than 10% of the
Company's outstanding Common Stock immediately before the grant must have an
exercise price of not less than 110% of the fair market value of all underlying
stock on the date of the grant and the exercise term may not exceed five years.
The aggregate fair market value of Common Stock (determined at the date of
grant) for which any employee may exercise incentive options in any calendar
year may not exceed $100,000. In addition, the Company will not grant a
non-qualified option with an exercise price less than 85% of the fair market
value of the underlying Common Stock on the date of the grant. No options have
been granted to date.
33
<PAGE>
PRINCIPAL SHAREHOLDERS
The following table sets forth information with respect to the beneficial
ownership of the Common Stock as of the date hereof, as adjusted to reflect the
sale of the Common Stock by the Company pursuant to this offering, and by (i)
each person known by the Company to own beneficially more than 5% of the
outstanding Common Stock; (ii) each director of the Company, and (iii) all
officers and directors as a group. Except as otherwise indicated below, each of
the entities or persons named in the table has sole voting and investment powers
with respect to all shares of Common Stock beneficially owned by it or him as
set forth opposite its or his name.
<TABLE>
<CAPTION>
SHARES
BENEFICIALLY PERCENT OWNED PERCENT OWNED
NAME AND ADDRESS OWNED PRIOR TO OFFERING AFTER OFFERING
- -------------------------------------------------------------------- ----------- ----------------- ---------------
<S> <C> <C> <C>
Southern Group(1)................................................... 1,450,000 58.0% 38.7%
72 Kings Park Road
West Perth, Australia 6005
Frank Carr(1)....................................................... 130,000 5.2% 3.46%
72 Kings Park Road
West Perth Australia 6005
James Sim........................................................... -0- -0- -0-
20 Trench Road
Comber, Nthn, Ireland
William J. Potter(2)................................................ 100,000 4.0% 2.67%
380 Lexington Avenue
New York, NY
Quartern Holdings, Ltd.............................................. 290,000 11.6% 7.73%
George Street
Cayman Islands, NV
Ovation Enterprises Ltd............................................. 156,000 6.24% 4.16%
32 Athol Street
Douglas IM1 1JB
Isle of Man
Karilla of Waterford Ltd............................................ 156,000 6.24% 4.16%
c/o Georgam S.A.M.
17 Ave de la Costa
MC-98000 Monaco
All officers and directors as a group (2 persons)................... 230,000 9.2% 6.13%
</TABLE>
- ------------------------
(1) Mr. Frank Carr also owns a majority of the shares in a private corporation
which owns approximately 13% of Southern, a publicly owned Australian
corporation, which indirect beneficial ownership is not reflected in Mr.
Carr's holdings shown above. Mr. Carr is also Managing Director and Chief
Executive Officer of Southern. By reason of his interest in and ability to
control Southern, he will be able to elect all of the directors and
otherwise control the Company.
(2) Mr. Potter, a Director of the Company, beneficially owns these shares as the
President and majority shareholder and President of Ridgewood Group
International, Inc., which directly owns 100,000 shares of the Company's
common stock.
(3) Unless otherwise noted, the Company believes that each person named in the
table has sole voting and investment power with respect to all shares of
Common Stock beneficially owned by him or it.
(4) Assumes no exercise of the Representatives' Warrants. See "Plan of
Distribution."
Except as described, the officers and directors of the Company have no other
direct or indirect beneficial ownership of shares of Common Stock of the
Company.
34
<PAGE>
PLAN OF DISTRIBUTION
GENERAL
The Company is offering a minimum of 750,000 Shares ($6,000,000) of Common
Stock and a maximum of 1,250,000 Shares ($10,000,000) shares of Common Stock at
a price of $8.00 per Share on a "best efforts" basis through the Representative,
acting on behalf of the Placement Agents. The Placement Agents will be entitled
to receive selling commissions equal to 5 % of the proceeds of this Offering.
Additionally, the Placement Agents shall also receive the Representative's
Warrants entitling them to purchase 75,000 shares of Common Stock for a period
of five years at an exercise price of $8.00 per share. Since the Offering is
conducted on a "best efforts" basis, there is no assurance that the Offering can
be successfully completed.
Unless at least $6,000,000 in Common Stock is sold by January 31, l997, all
funds received will be promptly refunded to subscribers without deduction
therefrom and without interest thereon.
METHOD OF SUBSCRIBING
Persons may subscribe by completing and signing the Subscription Agreement
included herewith (see Appendice 1 ) and delivering the same to the Placement
Agents by January 31, 1997 . The subscription price must be paid in cash or by
check, bank draft or postal or express money order payable in United States
dollars to "Voicenet, Inc. -Escrow Account" to be maintained at Chase Manhattan
Bank, N.A., New York, New York, until the minimum proceeds of $6,000,000 have
been subscribed for. If the minimum amount is received within the prescribed
offering period, the Company may continue the offering and seek additional
investors until the earlier of the sale of the remaining shares or January 31,
l997. If the minimum amount of $6,000,000 is received, certificates representing
the Common Stock subscribed for hereunder will be issued as soon as practicable
after completion of the Offering.
RIGHT TO REJECT
The Company reserves the right to reject any subscription in its sole
discretion for any reason whatsoever prior to the time funds for such
subscription are released from Escrow to the Company and to withdraw this offer,
without notice, at any time prior to receipt by the Company of the subscriptions
received.
SUBSCRIPTION PROCEEDS
All proceeds received in this Offering will be held in the Subscription
Escrow Account at Chase Manhattan Bank, N.A. in trust for the benefit of
subscribers until a minimum of $6,000,000 has been received. In the event that
less than $6,000,000 in cleared funds are received within the Offering period,
all proceeds received will be refunded to subscribers without any deduction
therefrom or interest thereon.
The Company has been advised by the Representative that the Placement Agents
propose to offer the Shares directly to the public at the public offering prices
set forth on the cover page of this Prospectus and to certain dealers at such
price less a concession not in excess of $.40 per Share. The Placement Agents
may allow, and such dealers may reallow, a concession not in excess of $.24 per
Share to certain other dealers as a non-accountable reimbursement of expenses.
The Company has agreed to indemnify the Placement Agents against certain
liabilities, including liabilities under the Securities Act. The Company has
agreed to pay to the Representative a non-accountable expense allowance equal to
three percent of the gross proceeds derived from the sale of the Shares.
In connection with this offering, the Company has agreed to sell to the
Representatives, for nominal consideration, the Representative's Warrants. The
Representative's Warrants are exercisable at a price of
35
<PAGE>
$8.00 per Share for a period of five years, commencing the date of this
Prospectus. The Representative's Warrants contain anti-dilution provisions
providing for adjustment of the number of warrants and exercise price under
certain circumstances.
Prior to this offering there has been no public market for any of the
Company's securities. Accordingly, the offering price of the Shares were
determined by negotiation between the Company and the Representative. Factors
considered in determining such price and terms, in addition to prevailing market
conditions, include an assessment of the Company's prospects. The public
offering prices of the Shares do not bear any relationship to assets, earnings,
book value, or other criteria of value applicable to the Company and should not
be considered an indication of the actual value of the Shares. Such prices are
subject to change as a result of market conditions and other factors, and no
assurance can be given that the Shares can be resold at their respective
offering prices.
The foregoing is a summary of the principal terms of the agreements
described above and does not purport to be complete. Nevertheless, it includes
all information concerning such agreements which the Company believes to be
material. Reference is made to copies of each such agreement which are filed as
exhibits to the Registration Statement.
DESCRIPTION OF SECURITIES
COMMON STOCK
The Company is authorized to issue 10,000,000 shares of Common Stock, par
value $.01 per share. As of the date of this Prospectus, 2,500,000 shares of
Common Stock are outstanding, held of record by nine persons. The holders of
Common Stock are entitled to one vote for each share held of record on all
matters to be voted on by stockholders. There is no cumulative voting with
respect to the election of directors, with the result that the holders of more
than 50% of the shares voting for the election of directors can elect all of the
directors. The holders of Common Stock are entitled to receive dividends when,
as and if declared by the Board of Directors out of the funds legally available
therefor. In the event of the liquidation, dissolution or winding up of the
Company, the holders of Common Stock are entitled to share ratably in all assets
remaining available for distribution after payment of liabilities and after
provision has been made for each class of stock, if any, having preference over
the Common Stock. Holders of shares of Common Stock, as such, have no
conversion, preemptive or other subscription rights, and there are no redemption
provisions applicable to the Common Stock. All of the outstanding shares of
Common Stock are, and the shares of Common Stock to be issued in this offering,
when issued against payment therefor, will be, validly authorized and issued,
fully paid and nonassessable.
PREFERRED STOCK
The Company's Amended Certificate of Incorporation authorizes the issuance
of 1,000,000 shares of "blank check" preferred stock, par value $.01 per share
(the "Preferred Stock"), with such designations, powers, preferences, rights,
qualifications, limitations and restrictions and in such series as the Board of
Directors, subject to the laws of the State of Delaware, may determine from time
to time. Accordingly, the Board of Directors is empowered, without stockholder
approval, to issue Preferred Stock with dividend, liquidation, conversion,
voting or other rights which could adversely affect the voting power or other
rights of the holders of Common Stock. No shares of Preferred Stock are
currently outstanding. Although the Company does not currently intend to issue
any additional shares of Preferred Stock, there can be no assurance that the
Company will not do so in the future.
TRANSFER AGENT, REGISTRAR AND WARRANT AGENT
The transfer and registrar agent for the Common Stock is American Stock
Transfer & Trust Company.
SHARES ELIGIBLE FOR FUTURE SALE
Upon the consummation of this offering , the Company will have 3,750,000
shares of Common Stock outstanding. Of these shares, the 1,250,000 shares sold
by the Company in this offering (750,000 shares if
36
<PAGE>
the Minimum Offering of Shares are subscribed) will be freely tradable without
restriction or further registration under the Securities Act, except for any
shares purchased by an "affiliate" of the Company (as defined in the Securities
Act and the rules and regulations thereunder) which will be subject to the
limitations of Rule 144 promulgated under the Securities Act. All of the
remaining 2,500,000 shares are deemed to be "restricted securities", as that
term is defined under Rule 144 promulgated under the Securities Act, as such
shares were issued in private transactions not involving a public offering. None
of such shares are eligible for sale under Rule 144.
In general, under Rule 144 as currently in effect, subject to the
satisfaction of certain other conditions, a person, including an affiliate of
the Company (or persons whose shares are aggregated), who has beneficially owned
the restricted shares of Common Stock to be sold for at least two years is
entitled to sell, within any three-month period, a number of shares that does
not exceed the greater of 1% of the total number of outstanding shares of the
same class or, if the Common Stock is quoted on an exchange or NASDAQ, the
average weekly trading volume during the four calendar weeks preceding the sale.
A person who has not been an affiliate of the Company for at least the three
months immediately preceding the sale and who has beneficially owned the shares
of Common Stock to be sold for at least three years is entitled to sell such
shares under Rule 144 without regard to any of the limitations described above.
Prior to this offering, there has been no market for the Common Stock,and no
prediction can be made as to the effect, if any, that market sales of restricted
shares of Common Stock or the availability of such shares for sale will have on
the market prices prevailing from time to time. Nevertheless, the possibility
that substantial amounts of Common Stock may be sold in the public market would
likely adversely affect prevailing market prices for the Common Stock and could
impair the Company's ability to raise capital through the sale of its equity
securities.
LEGAL MATTERS
The legality of the securities being registered by the Registration
Statement of which this Prospectus is a part is being passed upon by Campbell &
Fleming, P.C., New York, New York. Mr. David Fleming, a member of Campbell &
Fleming, P.C., owns beneficially 25,000 Shares of Common Stock of the Company.
EXPERTS
The financial statements included in this Prospectus have been audited by
Tanton & Company, independent certified public accountants, to the extent and
for the period set forth in their report appearing elsewhere herein, and is
included in reliance upon such report given upon the authority of said firm as
experts in auditing and accounting.
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement (the "Registration Statement") under the
Securities Act with respect to the securities offered hereby. This Prospectus
does not contain all of the information set forth in the Registration Statement,
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 this
offering, reference is made to the Registration Statement, including the
exhibits and schedules filed therewith, copies of which may be obtained at
prescribed rates from the Commission at its principal office at 450 Fifth Street
N.W., Washington, D.C. 20549, and at the following regional offices of the
Commission: 75 Park Place, New York 10007, and Northwestern Atrium Center, 500
West Madison Street, Suite 1400 Chicago, Illinois, 60604. Descriptions contained
in this Prospectus as to the contents of any agreement or other documents filed
as an exhibit to the Registration Statement are not necessarily complete and
each such description is qualified by reference to such agreement or document.
The Company intends to furnish to its stockholders annual reports containing
financial statements audited and reported upon by its independent public
accountants.
37
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors of
Voicenet, Inc.
New York, New York
We have audited the accompanying balance sheet of Voicenet, Inc., (A
Development Stage Company), as of June 30, 1996, and the related statements of
operations, changes in stockholders' equity, and cash flows for the period April
2, 1996 (date of inception) through June 30, 1996 in accordance with standards
established by the American Institute of Certified Public Accountants. This
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit 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 statements presentation.
We believe that our audit of the financial statements provides a reasonable
basis for our opinion.
In our opinion, the balance sheet referred to above presents fairly, in all
material respects, the financial position of Voicenet, Inc. as of June 30, 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 disclosed in Note 1 to the
financial statements, the Company is in the development stage and there is
substantial doubt that, without additional financing, it will be able to carry
out its business plan and continue as a going concern. The financial statements
do not include any adjustments that might result from the outcome of this
uncertainty.
Tanton & Company
September 16, 1996
F-1
<PAGE>
VOICENET, INC.
BALANCE SHEET
JUNE 30, 1996
<TABLE>
<S> <C>
ASSETS
Current assets:
Cash............................................................................. $ 25,020
---------
Total current assets......................................................... 25,020
Deferred offering costs (Note 2)................................................... 11,500
Organization costs (Note 3)........................................................ 1,933
---------
$ 38,453
---------
---------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable................................................................. $ 13,500
Total current liabilities.................................................... 13,500
Stockholders' equity: (Note 4)
Common stock, $.01 par value, 10,000,000 shares authorized, 2,500,000 shares
issued and outstanding......................................................... 25,000
Additional paid-in-capital....................................................... 20
Deficit accumulated during the development stage................................. (67)
---------
24,953
---------
Total stockholders' equity................................................... $ 38,453
---------
---------
</TABLE>
See accompanying notes to the balance sheet
F-2
<PAGE>
VOICENET, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF OPERATION
FOR THE PERIOD ENDED APRIL 2, 1996
(DATE OF INCEPTION) THROUGH JUNE 30, 1996
<TABLE>
<S> <C>
Revenue............................................................................. $ --
---------
General and administrative expense.................................................. 67
---------
Loss from operations................................................................ 67
---------
Net loss............................................................................ $ 67
---------
---------
Loss per share...................................................................... $ --
---------
---------
Weighted average shares outstanding................................................. 2,500,000
---------
---------
</TABLE>
See accompanying notes to the financial statements
F-3
<PAGE>
VOICENET, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF CHANGES IN STOCKHOLDERS' DEFICIT
FOR THE PERIOD ENDED APRIL 2, 1996
(DATE OF INCEPTION) THROUGH JUNE 30, 1996
<TABLE>
<CAPTION>
DEFICIT
ACCUMULATED
COMMON STOCK ADDITIONAL DURING THE
----------------------- PAID-IN DEVELOPMENT
SHARES AMOUNT CAPITAL STAGE TOTAL
------------ --------- ------------- ------------- ---------
<S> <C> <C> <C> <C> <C>
Founders shares issued for cash..................... 2,500,000 $ 25,000 $ 20 $ 25,020
Net loss for the period ended June 30, 1996......... $ (67) (67)
------------ --------- --- ----- ---------
2,500,000 $ 25,000 $ 20 $ (67) $ 24,953
------------ --------- --- ----- ---------
------------ --------- --- ----- ---------
</TABLE>
See accompanying notes to the financial statements
F-4
<PAGE>
VOICENET, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF CASH FLOWS
FOR THE PERIOD ENDED APRIL 2, 1996
(DATE OF INCEPTION) THROUGH JUNE 30, 1996
<TABLE>
<S> <C>
Net loss.......................................................................... $ (67)
---------
Adjustments to reconcile net loss:
Increase in accounts payable.................................................... 13,500
Amortization expense............................................................ 67
---------
Total adjustments........................................................... 13,567
Net cash provided by operating activities......................................... 13,500
---------
Cash flows from financing activities:
Net proceeds from insurance of stock............................................ 25,020
Cash paid for deferred offering costs........................................... (11,500)
---------
Net cash provided by financing activities......................................... 13,520
---------
Cash flows from investing activities:
Cash paid for organization costs................................................ (2,000)
---------
Net cash used for investing activities............................................ (2,000)
---------
Net increase in cash and cash equivalents......................................... 25,020
Cash and cash equivalents, beginning of period.................................... --
---------
Cash and cash equivalents, beginning of period.................................... $ 25,020
---------
---------
</TABLE>
See accompanying notes to the financial statements
F-5
<PAGE>
VOICENET, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO THE BALANCE SHEET
JUNE 30, 1996
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICES
GOING CONCERN
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. The Company is in the development
stage and there is substantial doubt that, without additional financing, it will
be able to carry out its business plan. The continuation of the Company as a
going concern is dependent on its ability to obtain additional financing as
contemplated by the Company's Initial Public Offering ("IPO")(See Note 3) of at
least 750,000 shares of its common stock for estimated net proceeds of
$5,700,000. The financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
BUSINESS
Voicenet, Inc. (the "Company"), a Delaware corporation, was incorporated on
April 2, 1996. The Company was established for the marketing and distribution of
continuous speech, voice recognition systems and of digital audio reporting,
transcription, archiving and retrieval systems.
LOSS PER SHARE
Loss per share is computed based on the weighted average number of shares of
common stock outstanding. Pursuant to the Securities and Exchange Commission's
Staff Accounting Bulletins, common stock issued at prices below the anticipated
public offering price during the 12-month period prior to the Offering have been
included in the calculation as if they were outstanding for all periods
presented.
DEFERRED OFFERING COSTS
Costs incurred in connection with the proposed offering of securities have
been deferred and will be offset against the proceeds of the offering, or
expensed if the offering is not effected.
ORGANIZATION COSTS
Organization costs have been capitalized and are being amortized over five
years using the straight line method.
STATEMENT OF CASH FLOWS
For purposes of the statements of cash flows, the Company considers all
highly liquid investments purchased with a maturity of three months or less to
be cash equivalents.
2. STOCKHOLDERS' EQUITY
As of June 30, 1996, the Company has authorized 3,000 shares of $.001 par
value common stock. In April, 1996 the Company sold 1,000 shares of common stock
for $25,020.
On September 15, 1996, the Company increased its authorized number of shares
of Common Stock to 10,000,000. In addition, the Company authorized 1,000,000
shares of Preferred Stock, par value $.01 per share.
F-6
<PAGE>
VOICENET, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO THE BALANCE SHEET
JUNE 30, 1996
2. STOCKHOLDERS' EQUITY (CONTINUED)
On September 16, 1996, the Company authorized a 2,500 for-1 stock split. The
financial statements have been adjusted to reflect this transaction.
3. SUBSEQUENT EVENTS
In September, 1996, the Company entered into an underwriting agreement in
which the underwriter agreed on a "best efforts" basis to find qualified
purchasers for a minimum of 750,000 and a maximum of 1,250,000 shares of its
common stock at $7.60 per share (the "Offering"). This offering is being
conducted on a "best efforts" basis, there is no assurance that the Offering can
be successfully completed. Unless a minimum of $6,000,000 in gross proceeds of
common stock is sold by January 31, 1997, all funds received will be promptly
refunded without deductions therefrom and without interest thereon. The Company
has agreed to indemnify the underwriter against certain liabilities in
conjunction with the Offering. The Company has also agreed to pay a
non-accountable expense allowance equal to 3% of the gross proceeds derived from
the Offering.
In conjunction with the closing of the Offering, the Company has agreed to
issue to the underwriter warrants to purchase from the Company 37,500 shares at
the price of $8.00 per share exercisable for five (5) years after the closing
date of the Offering.
During 1996, the Company adopted a non-qualified stock option plan (the
"Plan"). An aggregate of 500,000 shares of Common Stock are authorized for
issuance under the plan. The Plan provides that incentive and non-qualified
options may be granted to officers and directors and consultants to the Company
for the purpose of providing an incentive to these persons to work for the
Company.
On August 1, 1996, the Company entered into an agreement with Southern Group
Limited, which is also a shareholder in the Company, to acquire certain
exclusive rights and ownership respecting the development, use, marketing, sales
and distribution of a continuous computer based digital voice compression,
recognition and recording technology. The rights acquired were for territories
including North America, Central America and South America. These rights were
purchased for $4,500,000 in the form of a promissory note, further described
below.
On August 31, 1996, in connection with the above agreement the Company
executed a $4,500,000 promissory note payable to the Southern Group Limited.
This note bears no interest and is payable in the earlier of (a) August 31, 1997
or (b) the completion of a public offering of the Company's equity or debt for a
minimum gross amount of $6,000,000. The Company has granted to the Southern
Group Limited, as collateral, a security interest in all assets of the Company.
F-7
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO DEALER, SALESMAN OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MAY NOT
BE RELIED ON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR BY ANY OF THE PLACEMENT
AGENTS. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER
SHALL UNDER ANY CIRCUMSTANCES CREATE AN IMPLICATION THAT THERE HAS BEEN NO
CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF. THIS PROSPECTUS DOES
NOT CONSTITUTE AN OFFER TO SELL, OR SOLICITATION OF ANY OFFER TO BUY, BY ANY
PERSON IN ANY JURISDICTION IN WHICH IT IS UNLAWFUL FOR ANY SUCH PERSON TO MAKE
SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY
OFFER, SOLICITATION OR SALE MADE HEREUNDER, SHALL UNDER ANY CIRCUMSTANCES CREATE
ANY IMPLICATION THAT THE INFORMATION HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT
TO THE DATE OF THE PROSPECTUS.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Prospectus Summary............................. 3
The Company.................................... 3
Risk Factors................................... 6
Use of Proceeds................................ 14
Dilution....................................... 15
Capitalization................................. 15
Management's Discussion and Analysis of
Financial Condition and Results of
Operations................................... 17
Business....................................... 19
Management..................................... 30
Certain Transactions........................... 34
Principal Stockholders......................... 36
Plan of Distribution........................... 37
Description of Securities...................... 38
Shares Eligible for Future Sale................ 39
Legal Matters.................................. 39
Experts........................................ 39
Additional Information......................... 39
Index to Financial Statements.................. F-1
</TABLE>
------------------------
UNTIL 90 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 OBLIGATIONS OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS PLACEMENT
AGENTS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
VOICENET, INC.
1,250,000 SHARES
OF
COMMON
STOCK
---------------------
PROSPECTUS
---------------------
PAN AMERICAN
SECURITIES, INC.
INTERNATIONAL ADVISOR:
FAI INSURANCES LIMITED
, 1996
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Voicenet, Inc. (the "Company") is incorporated in Delaware. Under Section
145 of the General Corporation Law of the State of Delaware, a Delaware
corporation has the power, under specified circumstances, to indemnify its
directors, officers, employees and agents in connection with actions, suits or
proceedings brought against them by a third party or in the right of the
corporation, by reason of the fact that they were or are such directors,
officers, employees or agents, against expenses incurred in any action, suit or
proceeding. Article Tenth of the Certificate of Incorporation and Article III of
the Bylaws of the Company provide for indemnification of directors and officers
to the fullest extent permitted by the General Corporation Law of the State of
Delaware. Reference is made to the Certificate of Incorporation of the Company,
filed as Exhibit 3.1 hereto.
Section 102(b)(7) of the General Corporation Law of the State of Delaware
provides that a certificate of incorporation may contain a provision eliminating
or limiting 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 (relating to liability for unauthorized acquisitions or redemptions
of, or dividends on, capital stock) of the General Corporation Law of the State
of Delaware, or (iv) for any transaction from which the director derived an
improper personal benefit. Article Ninth of the Company's Certificate of
Incorporation contains such a provision.
The Placement Agreement filed herewith as Exhibit 1.1 contains provisions by
which each Placement Agent severally agrees to indemnify the Company, any person
controlling the Company within the meaning of Section 15 of the Securities Act
of 1933 or Section 20 of the Securities Exchange Act of 1934, each director of
the Company, and each officer of the Company who signs this Registration
Statement with respect to information relating to such Placement Agent furnished
in writing by or on behalf of such Placement Agent expressly for use in the
Registration Statement.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the expenses in connection with this
Registration Statement. All of such expenses are estimates, other than the
filing fees payable to the Securities and Exchange Commission and the National
Association of Securities Dealers, Inc.
<TABLE>
<S> <C>
Filing Fee--Securities and Exchange Commission................. $ 3,655.43
Filing Fee--National Association of Securities Dealers, Inc....
Fees and Expenses of Accountants............................... 7,500.00
Fees and Expenses of Counsel................................... 125,000.00
Printing and Engraving Expenses................................ 50,000.00
Blue Sky Fees and Expenses..................................... 30,000.00
Transfer and Warrant Agent fees................................ 3,500.00
Miscellaneous Expenses......................................... 15,000.00
----------
Total...................................................... $234,655.43
----------
----------
</TABLE>
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES.
In April 1996, the Company sold to its directors, officers and founders,
1,000 shares of Common Stock (which became 2,500,000 shares on account of the
2,500-for-1 split effected on September 17, 1996) for
II-1
<PAGE>
$2,500, which was paid in full at the time, in a private placement transaction
in which no commissions were paid. To the Company's knowledge, none of these
investors, nor any of their affiliates, was, at the time of their investment in
the Company, or currently is, affiliated or associated with the Placement
Agents, or any other broker-dealer. The Company issued all such securities in
reliance upon the exemption from the registration requirements of the Securities
Act contained in Section 4(2) thereof.
ITEM 27. EXHIBITS.
<TABLE>
<C> <C> <C> <S>
1.1 -- Placement Agreement.
3.1 -- Certificate of Incorporation.
3.2 -- Amended and Restated Certificate of Incorporation.
3.3 -- Bylaws of the Company.
* 4.1 -- Form of Common Stock Certificate.
4.2 -- Form of Representatives' Warrant Agreement.
4.3 -- Form of Representatives' Warrant (included in Exhibit 4.2).
* 5 -- Opinion of Campbell & Fleming, P.C.
10.1 -- Form of Escrow Agreement for proceeds from sale of Shares.
10.2 -- Technology Transfer Agreement between Southern Group Limited and
the Company.
10.3 -- Form of Note and Security Agreement between Southern Group Limited
and the Company.
23.1 -- Consent of Tanton & Company (Included at page II-8).
23.2 -- Consent of Campbell & Fleming, P.C. (Included in Exhibit 5).
24 -- Power of Attorney (Included at page II-7).
</TABLE>
- ------------------------
* To be filed by Amendment.
ITEM 28. UNDERTAKINGS.
The undersigned small business issuer hereby undertakes:
(a)(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;
(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) For determining liability under the Securities Act, treat each
post-effective amendment as new registration statement of the securities
offered, and the offering of the securities at that time to be the initial
bona fide offering.
(3) To file a post-effective amendment to remove from registration any
of the securities that remain unsold at the end of an offering.
II-2
<PAGE>
(d) The undersigned small business issuer hereby undertakes to provide
to the Placement Agents at the closing specified in the placement
agreements, certificates in such denominations and registered in such names
as required by the Placement Agents to permit prompt delivery to each
purchaser.
(e) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and
controlling persons of the registrant pursuant to the foregoing provisions,
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, the
registrant will, unless in the opinion of its 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.
(f) The undersigned registrant hereby undertakes that:
(i) For purposes of determining any liability under the Securities
Act of 1933, 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 Securities Act shall be deemed
to be part of this registration statement as of the time it was declared
effective.
(ii) For the purpose of determining any liability under the
Securities Act of 1933, each post-effective amendment that contains a
form of prospectus shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide
offering thereof.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements of filing on Form SB-2 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of New York, State of New York, on the day of
September, 1996.
VOICENET, INC.
By: /s/ FRANK CARR
-----------------------------------------
Frank Carr
PRESIDENT & CHIEF EXECUTIVE OFFICER
SIGNATURE TITLE DATE
- ------------------------------ -------------------------- -------------------
/s/ JAMES SIM
- ------------------------------ Chairman of the Board September 26, 1996
James Sim
President, Treasurer,
/s/ FRANK CARR Director
- ------------------------------ Principal Executive September 26, 1996
Frank Carr Officer and Principal
Accounting Officer
/s/ WILLIAM J. POTTER
- ------------------------------ Secretary & Director September 26, 1996
William J. Potter
/s/ JOHN GILBERT
- ------------------------------ Director September 26, 1996
John Gilbert
II-4
<PAGE>
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Voicenet, Inc.
New York, New York
We hereby consent to the use in the Prospectus constituting a part of this
Registration Statement of our report dated June 30, 1996, relating to the
financial statements of Voicenet, Inc., which are contained in that Prospectus.
We also consent to the reference to us under the caption "Experts" in the
Prospectus.
New York, New York TANTON & COMPANY
September 26, 1996
II-5
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER EXHIBITS PAGES
- ----------- ------------------------------------------------------------------------------------------- -------------
<C> <S> <C>
1.1 -- Placement Agreement.....................................................................
3.1 -- Certificate of Incorporation............................................................
3.2 -- Amended and Restated Certificate of Incorporation.......................................
3.3 -- Bylaws of the Company...................................................................
*4.1 -- Form of Common Stock Certificate........................................................
4.2 -- Form of Representatives' Warrant Agreement..............................................
4.3 -- Form of Representatives' Warrant (included in Exhibit 4.2)..............................
*5 -- Opinion of Campbell & Fleming, P.C. ....................................................
10.1 -- Form of Escrow Agreement for proceeds from sale of Shares...............................
10.2 -- Form of Technology Transfer Agreement...................................................
10.3 -- Form of Note and Security Agreement.....................................................
23.1 -- Consent of Tanton & Company (Included at page II-8).....................................
23.2 -- Consent of Campbell & Fleming, P.C. (Included in Exhibit 5).............................
24 -- Power of Attorney (Included at page II-7)...............................................
</TABLE>
- ------------------------
* To be filed by Amendment.
<PAGE>
PLACEMENT AGREEMENT
VOICENET, INC.
AGREEMENT made as of the __ day of September, 1996, by and between
VOICENET, INC. (the "Company"), a Delaware corporation with its principal
business address at 380 Lexington Avenue, New York, New York 10168 and PAN
AMERICAN SECURITIES, INC. (the "Agent"), a Delaware corporation with its
principal address at _______________, New York, New York _____.
R E C I T A L S
As more fully described in the Form SB-2 Registration Statement of the
Company dated September__, as amended from time to time, filed with the
Securities and Exchange Commission ( the "Registration Statement"), the
Company proposes to solicit equity capital in the minimum amount of
$6,000,000 (the "Minimum Offering") up to a maximum amount of $10,000,000
(the "Maximum Offering") through the sale of shares of the Company's common
stock, $.001 par value (the "Shares") offered at the price of $8.00 per
Share. The offering of the Shares is being conducted by means of the
Registration Statement.
The Company desires to retain the Agent to obtain such equity capital
and to provide certain services and the Agent desires to accept such
appointment.
The defined terms used in this Agreement have the same meanings as those
set forth in the Registration Statement unless specifically defined herein.
NOW, THEREFORE, in consideration of the foregoing recitals and the
mutual agreements hereinafter set forth, the parties hereto do agree as
follows:
1. APPOINTMENT OF AGENT.
(a) On the basis of the representations, warranties and covenants
contained in this Agreement,
<PAGE>
and subject to the terms and conditions herein set forth, the Agent is hereby
appointed the exclusive agent of the Company during the offering period, as
described in Section l(b) hereof (the "Offering Period"), for the purpose of
finding purchasers of the Shares through a public offering in accordance with
the Registration Statement. Subject to the performance by the Company of all
of its covenants and obligations under this Agreement and to the completeness
and accuracy in all material respects of all of their representations and
warranties contained in this Agreement, the Agent accepts such appointment
and agrees to use its "best efforts" during the Offering Period to find
qualified purchasers for the Shares on the terms and conditions herein set
forth. The Agent shall not have any obligation or liability to purchase any
of the Shares offered under the Registration Statement.
(b) (i) The Offering Period shall commence upon the date hereof and
shall continue, unless earlier terminated pursuant to the terms of this
Agreement or by reason of the sale of the Shares, until January 31, 1997,
unless sooner terminated or unless extended by the agreement of the parties
hereto, but in no event beyond the latest offering date provided for in the
Registration Statement. The date or dates upon which some or all the
Investors are admitted to the Company, as provided for in this Agreement, is
hereinafter referred to as the "Closing Date."
(ii) One or more closings of the sale of Shares may be held under
the following circumstances:
(a) In the event all of the Shares are subscribed for prior
to January 31, 1997, unless extended by agreement of the parties
hereto (the "Termination Date").
(b) In the event less than all the Shares are subscribed for,
but subscriptions have been obtained for 750,000 Shares representing
the Minimum Offering amount of $6,000,000 in the aggregate, so long
as the conditions set forth in the Registration Statement will be
<PAGE>
complied with. Such purchases shall take place no later than the
Termination Date.
(c) In the event less than 1,250,000 Shares are subscribed
for, but subscriptions have been obtained for more than 750,000
Shares, one or more closings may occur if the Placement Agent so
long as the conditions set forth in the Registration Statement will
be complied with. Such purchases shall take place no later than the
Termination Date.
(d) The parties hereto agree that Agent may retain the
services of other qualified securities broker dealers who are
acceptable to the Company and are member firms of the NASD in
connection with the offering and sale of the Shares ("Other Broker
Dealers"), all of which shall be subject to the terms of this
Agreement.
(e) Pending the closing on the Closing Date, theAgent shall
deposit in a separate special subscription bank escrow account, in
trust for prospective Investors, all subscription monies received
with respect to the Shares. The Agent shall on the Closing Date
(i) deliver to the Company a check in the amount of $ 7.60 for each
Share; and (ii) shall refund any monies in said account to any
subscribers who have not been selected as Investors.
2. REPRESENTATIONS, WARRANTS AND COVENANTS OF THE COMPANY. The
Company hereby makes to the Agent the following representations, warranties
and covenants:
(a) The Company's Certificate of Incorporation, as amended, and By-laws,
as now in force, permits the offer and sale of Shares as contemplated by
this Agreement; that at the Closing Date all action required to be taken by
the Company (other than the Agent's compliance with the offering procedures
required under the Securities Act of 1933 and applicable "blue sky" laws) as
a condition to the offer and sale of the Shares to qualified subscribers will
have been taken (assuming that the
<PAGE>
Agent fulfills all of its obligations described in Section 3 hereof relevant
thereto), so that upon satisfaction of the conditions specified in the
Registration Statement and this Agreement such subscribers will receive, duly
authorized, validly issued, fully paid Shares of the Company.
(b) The Company has been duly and validly organized and is validly
existing and in good standing as a corporation under the laws of the State of
Delaware (the "State"), has full Company power and authority to own and
operate its assets and to conduct the business as described in the
Registration Statement.
(d) The Agent shall have been provided with a recent balance sheets
and/or net worth statements (the "Balance Sheets") of the Company. The
Company hereby warrants and represents that:
(i) As of the date of this Agreement, there has been no material
adverse change in the financial positions as reflected in the Balance
Sheets.
(ii) The Balance Sheets have been prepared in accordance with generally
accepted accounting principles applied on a consistent basis. The Balance
Sheets present fairly the financial position of the Company as of the date
thereof and disclose or refer to all material liabilities (contingent or
otherwise) as of such date.
(iii) Except as limited by bankruptcy, insolvency or similar laws
affecting generally the enforcement of creditors' rights, none of the
assets reflected in the Balance Sheets is subject to restrictions on
transferability, and such assets are available to satisfy recourse debts of
the Company, unless otherwise noted in the Balance Sheets.
(iv) There is no material action, suit, proceeding or investigation
pending or to the best of its knowledge upon due inquiry threatened against
the Company which might result in
<PAGE>
any material adverse change in any of its financial condition, operations
or assets or which might impair the right or ability of the Company to
conduct any of the activities contemplated by this Agreement. The Company
hereby covenants and agrees to notify the Agent promptly in the event of
the occurrence during the Offering Period of a material adverse change in
its financial position as reflected in the Balance Sheet.
(e) The Company shall cooperate with the Agent and its counsel in the
review of the Registration Statement. The Registration Statement will be
used by the Agent in connection with the solicitation of offers to purchase
the Shares. The Registration Statement does not contain any untrue statement
of a material fact nor does it omit to state a material fact required to be
stated therein or necessary to make the statements therein, in the light of
the circumstances under which they were made, not misleading.
(f) The Company has not during the six months prior to the date hereof
participated directly or indirectly in the offering of any securities which
offering is required to be combined or integrated with the offering of the
Shares for purposes of the Securities Act of 1933 and the rules, regulations
and administrative and court decisions thereunder.
(g) This Agreement has been duly and validly authorized, executed and
delivered by or on behalf of the Company and constitutes a valid and binding
agreement of the Company, enforceable in accordance with its terms and
conditions.
(i) The Company is duly authorized and empowered to execute and deliver
the subscription agreements for the purchase of the Shares by the Investors
(the form of which is included in the Registration Statement; hereinafter
such subscription agreements are referred to as "Subscription Agreements" )
on behalf of the Company, and, when executed and delivered by an authorized
signatory each of the Subscription Agreements will constitute a valid and
binding agreement of the Company.
<PAGE>
(j) The execution and delivery of this Agreement and the Subscription
Agreements and the incurrence of the obligations of the Company as set forth
herein and therein, and the consummation of the transactions contemplated in
this Agreement, the Subscription Agreements, and the Registration Statement,
will not constitute a material breach of, or default under, any instrument by
which the Company is bound or any order, rule or regulation (applicable to
the Company) issued by any court or any government body or administrative
agency having jurisdiction over the Company or require any exemption,
consent, authorization, approval, permit or order from any court or any
Federal, state or other government or regulatory authority having
jurisdiction thereover, except for those actions to be taken pursuant to the
requirements of Section 2(1) hereof.
(l) The Company covenants and agrees to cooperate with the Agent to
ensure that the offering and sale of all Shares complies in all material
respects with the requirements applicable to registration of the Shares
pursuant to the provisions of the Securities Act of 1933 and the securities
or "blue sky" laws of the jurisdictions required by the Agent in which the
offering of the Shares takes place. The Company shall execute all
applications, instruments, affidavits and documents and take such other and
further action necessary in connection with the foregoing.
(m) The Company covenants and agrees to obtain, at or prior to the
Closing Date, all approvals that are necessary to enter into the transactions
contemplated herein and in the Registration Statement and to effect a sale of
the Shares.
(n) The Company shall promptly notify the Agent and its counsel of any
event that occurs at any time prior to the sale of the Shares, that relates
to or affects the Company which would cause a material statement of fact in
the Registration Statement to be untrue, or the omission of which would cause
any statement therein, in light of the circumstances under which they are
made, to be misleading. The Company shall promptly furnish the Agent with
such written information as is
<PAGE>
deemed necessary to amend or supplement the Registration Statement. In the
event it becomes necessary to amend or supplement the Registration Statement
as described herein, the Agent shall have a reasonable period of time to
provide prospective Investors with copies of such amendments or supplements.
(t) There is no action, suit, or investigation pending or, to the best
of the Company's knowledge upon due injury, threatened against the Company or
any of its Affiliates
(u) With respect to the actions of the Other Broker Dealers, the
Company makes the representations, covenants and warranties provided by the
Agent pursuant to Section 3 hereof. Furthermore, the Agent shall be provided
with copies of all agreements entered into with the Other Broker Dealers
regarding the offering and sale of the Shares. The Company shall obtain
written representations from such Other Broker Dealers, in form and substance
acceptable to the Agent, to the same effect as those provided by the Agent
pursuant to Section 3 hereof.
3. REPRESENTATIONS WARRANTIES AND COVENANTS OF THE AGENT.
The Agent hereby undertakes to the Company solely with respect to its actions
taken pursuant to this Agreement, the representations, covenants and
warranties listed below:
(a) The Agent will not offer any of the Shares for sale, or solicit any
offers to subscribe for or buy any Shares, or otherwise negotiate with any
person with respect to the Shares, except on the basis of the Registration
Statement, and the Subscription Agreement. The Agent agrees to provide to
each subscriber for Shares prior to he subscriber purchasing Shares, the
Prospectus contained in the Registration Statement and the Subscription
Agreement.
(b) The Agent will not assist in the sale of Shares except to such
persons who the Agent has
<PAGE>
reasonable grounds to believe and does believe meet the suitability
requirements (i) specified in the Registration Statement and the Subscription
Agreement,and (ii) of the various "blue sky" laws, rules and regulations of
the jurisdictions in which the Shares are offered upon the advice of the
Agent's
(c) The Agent will periodically report in writing to the Company the
jurisdictions in which the Shares are being, or will be, offered, and the
status of the offering of Shares being conducted by it and the compliance of
its activities in connection with such offering with the requirements of the
Securities Act of 1933, the Securities Exchange Act of 1934 and the
securities or "blue sky" laws of all relevant jurisdictions.
(d) The Agent is a corporation duly organized and existing and in good
standing under the laws of the State of ______, the Agent has full corporate
power and authority to carry out its activities under this Agreement, and the
Agent or its affiliates have all licenses and registrations required, to
engage in the business of making offers of securities in each jurisdiction
wherein any offer of the Shares is to be made by the Agent or such
affiliates. The Agent represents and warrants that the Agent or such
affiliates is or are registered as a broker-dealer in good standing in all
such jurisdictions and that the Agent and each such affiliate is registered
as a broker-dealer in compliance with the requirements of the Securities
Exchange Act of 1934, and is a member in good standing of the NASD.
(e) The Agent represents and warrants that this Agreement has been duly
and validly authorized, executed and delivered by the Agent and constitutes
the valid, binding and enforceable agreement and obligation of the Agent.
4. CLOSING. The closing shall take place when subscriptions for all
the Shares have been obtained, but in no event beyond January 31, 1997,
subject to any extension provided for in the Registration Statement, and as
may be otherwise agreed to by the parties hereto and subject to the
provisions set forth in Section l(b) hereof. On the Closing Date, the Agent
shall tender to the
<PAGE>
Company (i) the monies due from subscribers (as provided in Sections l(f)
hereof and in the Registration Statement) for Shares, (ii) with respect to
each such subscriber the documents required including executed Subscription
Agreements, and such number of copies of any other documents duly executed by
the Investors as the Company may reasonably request, and (iii) such other
documents as shall be required to satisfy the conditions of the Company's
obligations specified in Section 6 hereof; provided, however, except as
expressly indicated herein, that the Agent shall be entitled to reasonable
advance notice of all such other documents as may be required. The closing
shall take place at the offices of Campbell & Fleming, P.C., 250 Park Avenue,
New York, New York 10177, or such other place as may be designated by the
Company and the Agent.
5. CONDITIONS OF THE OBLIGATION OF AGENT. The obligations of the
Agent under this Agreement are subject to the accuracy of the representations
and warranties of the Company set forth in this Agreement, to the substantial
performance by the Company of its covenants and obligations under this
Agreement and to the satisfaction of the following conditions at the Closing
Date:
(a) (1) The Agent and its counsel shall have received, and shall be
entitled to rely upon, the opinion of counsel to the Company, which counsel
is admitted to practice law in the state of New York in form and substance
reasonably satisfactory to counsel to the Agent, to the effect that:
(i) The Company is, as of the date hereof, duly and validly
existing as a corporation under the laws of Delaware with full power and
authority to conduct business as provided for in its Certicate of
Incorporation and By-laws;
(ii) The Shares have been duly authorized, validly issued, and are
fully paid, nonredeemable Shares of Common Stock of the Company;
(iii) There is no material default or event which with the giving of
notice or the passage of time, or both would constitute a default which has
occurred or is continuing under any agreement affecting the Company;
<PAGE>
(2) The Agent and its counsel shall have received and shall be entitled
to rely upon the opinion of Campbell & Fleming, P.C., in the form contained
in the Registration Statement. In addition, the Agent and its counsel shall
have received and shall be entitled to rely upon the opinion of such firm in
form and substance reasonably acceptable to the Agent and its counsel to the
effect that:
(i) The offer and sale of the Shares in the manner and under the
circumstances contemplated by the Registration Statement and the Subscription
Agreements was in accordance with the registration requirements under Section
5 of the Securities Act of 1933, as amended; provided, however, that for
purposes of such opinion, such counsel may rely on (a) written
representations made by each person subscribing for Shares; (b) the
covenants, certifications and representations of the Company; (c) the
representations of the Agent; and (d) the opinion of counsel to the Agent
insofar as the same relates to the manner in which the offering has been
conducted by the Agent;
(ii) The execution and delivery of the Subscription Agreements and
the incurrence of the obligations of the Company set forth therein, and the
consummation of the transactions contemplated in the Subscription Agreements
and the Registration Statement do not constitute a material breach of or a
default under, any instrument known to such counsel by which the Company is
bound.
If any of the conditions specified in this Section 5 and in Section l(b)
hereof shall not have been fulfilled, this Agreement and all of the
obligations of the General Partner, the Company, and the Agent hereunder may
be cancelled by the Agent by notifying the Company of such cancellation in
writing or by telegram at any time prior to the sale of any or all of the
Shares pursuant to this Agreement at such time as it shall be determined that
any condition of this Agreement cannot be satisfied on or prior to the sale
of any or all of the Shares, and any such cancellation shall be without
liability of any party to any other parties or to any subscriber for any of
the Shares, except as
<PAGE>
otherwise expressly provided in this Section 5 and in Sections l(b), 9 and 10
hereof.
6. CONDITIONS OF THE OBLIGATIONS OF THE COMPANY. The obligations of
the Company under this Agreement are subject to the accuracy of and
compliance with the representations, warranties and covenants of the Agent
set forth in Section 3 of this Agreement, to the performance by the Agent of
its obligations hereunder, and to the satisfaction of these further
conditions on the Closing Date:
(a) The Company shall have received, and shall be entitled to rely
upon, a certificate signed by an officer of the Agent, specifying the number
and state of residence of all persons to whom the Agent has made offers of
Shares and the names and addresses of all such persons who have subscribed
for any Shares. Such certificate shall designate the jurisdictions in which
such offers have been made and shall contain representations by the Agent to
the effect that (i) offers to sell Shares and negotiations and sales in
connection therewith have been made only by or under the control and
supervision of the Agent, in compliance with each and all of the express
provisions of Sections 3(a) through 3(e) hereof, (ii) the representations and
warranties of the Agent contained in Section 3 hereof are true and correct in
all material respects, with the same force -and effect as though expressly
made on and as of the Closing Date, and (iii) the Agent has not defaulted, or
suffered or permitted to exist any default, in the Performance of any of its
covenants or obligations under this Agreement.
If any of the material conditions specified in Sections 3 or 6 shall not
have been fulfilled, this Agreement and all of the obligations of the Company
and the Agent hereunder may be cancelled by the Company by notifying the
Agent of such cancellation in writing or by telegram on the Closing Date (or
earlier, at such time as it shall be conclusively determined that any such
condition cannot
<PAGE>
be satisfied on or prior to such dates), and any such cancellation shall be
without liability of any party to any other parties or to any subscriber for
any of the Shares, except as otherwise expressly provided in this Section 6
and in Sections 9 and 10 hereof.
7. SELLING COMMISSION AND OTHER FEES TO AGENT AND ITS AFFILIATES.
(a) In consideration of the services to be performed by the Agent and
its affiliates pursuant to this Agreement, and subject to the consummation of
the closing on the Closing Date as herein provided, the Company agrees to
pay to the Agent, by certified or bank cashier's, if requested, check, a
selling commission equal to 5% of the total of all payments and obligations
of purchasers of the Shares offered and sold by the Agent and others obtained
by the Agent pursuant to this Agreement (the "Selling Commission") (the
Selling Commission will equal $0.40 per Share). The Agent shall have earned
the Selling Commission upon the consummation of the closing on the Closing
Date, as described herein.
(b) In the event the closing has occurred on the Closing Date, the
Company agrees to issue to Agent, or Agent's designees, a common stock
purchase warrant entitling the Agent to purchase 37,500 Shares at the price
of $8.00 per Share exercisable for five (5) years after the Closing Date (the
"Warrants").
8. EXPENSES OF THE OFFERING. The Company shall pay Agent a
nonaccountable expense allowance equal to 3% of purchase price of the Shares
sold in the Offering. The Company shall pay any legal fees incurred in
connection with the obtainment of clearance from the various states to offer
and sell the Shares.
9. INDEMNIFICATION.
(a) The Company (for the purpose of this paragraph (a) referred to as
"Indemnitor') does hereby indemnify and hold the Agent, their officers,
directors, employees, affiliates,
<PAGE>
agents, attorneys at law and in fact stockholders and controlling
persons, and each of them (for the purposes of this paragraph (a)
referred to as "Indemnitee") harmless from and against any and all
losses, claims, damages, liabilities to which they or any of them may
become subject by reason of any claim, demand or cause of action
asserted against them or any of them under any Federal, state or local
securities law, as well as under common law or any other law of such
jurisdictions, or any order, rule, regulation or action of any court or
regulatory authority (together with any legal or other expenses
incurred by them in connection with defending, settling or
investigating any actions) but only insofar as such losses, claims,
damages, liabilities or expenses arise out of or are based solely upon
(i) any incorrect statement or alleged incorrect statement of a
material or allegedly material fact contained in the Registration
Statement or contained in any other document or information provided
pursuant to Section 2(k) hereof, or the omission or alleged omission to
state therein a material or allegedly material fact required to be
stated therein or necessary to make the statements therein, in the
light of the circumstances under which they were made, not misleading,
or (ii) the breach of any representation, warranty or covenant of the
Company stated herein; provided, however that the foregoing
indemnification is expressly conditioned upon the Company being
notified, by letter or telegram, of any action begun against the Agent
or any other Indemnitee within 30 days after such Indemnitee shall have
had actual notice of such action. The Indemnitor shall be entitled to
participate in and direct the defense of any such action, provided it
employs counsel reasonably satisfactory to the Indemnitee. The
Indemnitee shall have the right to employ its own counsel in any such
case, but the fees and expenses
<PAGE>
of such counsel shall be borne by the Indemnitor only if either (i) the
employment of such counsel has been authorized by the Indemnitor, or
(ii) the Indemnitor shall not have promptly employed counsel to direct
the defense of such action. If counsel to the Indemnitee shall
reasonably conclude that there are defenses available to it that are
not available to the Indemnitor (in which case the Indemnitor's counsel
shall not be entitled to direct the Indemnitee's defense), such fees
and expenses of separate counsel shall be borne by the Indemnitor.
(b) The Agent (for purposes of this paragraph (b) referred to as
"Indemnitor") does hereby agree to defend, indemnify and hold the Company,
its employees, Affiliates, agents, attorneys at law and in fact, stockholders
and controlling persons, and each of them (for purposes of this paragraph (b)
referred to as "Indemnitee"), harmless from and against any and all losses,
claims, damages or liabilities to which they or any of them may become
subject by reason of any claim, demand or cause of action asserted against
them or any of them, under any Federal, state or local securities law, as
well as under common law or any other law of such jurisdictions, or any
order, rule, regulation or action of any court or regulatory authority
(together with any legal or other expenses incurred by them in connection
with defending, settling or investigating any actions) but only insofar as
such losses, claims, damages, liabilities or expenses arise out of or are
based solely upon (i) any incorrect statement or alleged incorrect statement
of a material or allegedly material fact contained in the Registration
Statement with respect to the Agent relevant to the offering of the Shares,
or the omission or alleged omission to state therein a material or allegedly
material fact with respect to the Agent and required to be stated therein or
necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading, and which statements or omissions
were made in reliance upon and in conformity with information provided by, or
omitted by the Agent
<PAGE>
for use in the Registration Statement or (ii) the breach of any
representation, warranty or covenant of the Agent or its affiliates as stated
herein; provided, however, that the foregoing indemnification is expressly
conditioned upon the Agent being notified, by letter or telegram, of any
action begun against the General Partner, or any other Indemnitee within 30
days after such Indemnitee shall have had actual notice of such action. The
Indemnitor shall be entitled to participate in and direct the defense of such
action, provided it employs counsel reasonably satisfactory to the
Indemnitee. The Indemnitee shall have the right to employ its own counsel in
any such case, but the fees and expenses of such counsel shall be borne by
the Indemnitor only if either (i) the employment of such counsel has been
authorized by the Indemnitor, or (ii) the Indemnitor shall not have promptly
employed counsel to direct the defense of such action. If counsel to the
Indemnitee shall reasonably conclude that there are defenses available to it
that are not available to the Indemnitor (in which case the Indemnitor's
counsel shall not be entitled to direct the Indemnitee's defense), such fees
and expenses of separate counsel shall be borne by the Indemnitor.
10. CONTRIBUTION. If any Indemnitor under Section 9(a) and (b),
respectively, is prevented from carrying out the terms of the indemnity due
to the unenforceability thereof, then the parties hereto agree that as to any
liability that would have been incurred by reason of Section 9, but for the
unenforceability thereof, and only to the extent that an Indemnitor would
have had liability under such Section, each party hereto shall be entitled to
a contribution from the others based on their sharing in the gross offering
proceeds of the Offering described in the Registration Statement (in
computing the amount of offering proceeds received, such sharing shall
include any offering proceeds received by affiliates of such persons).
11. TERMINATION OF THIS AGREEMENT. In addition to the provisions of
Sections l (b), 5 and 6 hereof, this Agreement may be terminated on the basis
of the following:
<PAGE>
(a) This Agreement may be terminated by the Agent at its option by
giving notice to the Company if, in the Agent's sole and absolute judgement:
(i) there shall be any material adverse change, financial or otherwise, in
the Company, any party to a material contract, commitment, or other
agreement, whether or under this Section 10. not arising in the ordinary
course of business, including, but not limited to, a loss by fire, flood,
condemnation, or other calamity, whether or not covered by insurance, which
in the reasonable opinion of the Agent materially adversely affects the value
of the a material contract or commitment or other agreement, or the terms of
the offering of the Shares; or (ii) a general banking moratorium shall have
been declared by Federal or state authorities; or (iii) there shall have been
proposed or adopted any laws, regulations, rules or orders securities or
other matters which, in the reasonable judgment of the Agent, shall render it
inadvisable to proceed with the offering of the Shares on the terms and
conditions as described in this Agreement and the Registration Statement; or
(iv) the Agent shall have discovered that any material representation or
warranty by the Company herein is false or erroneous.
(b) The Company or the Agent may terminate this Agreement at any time
in the event of a material breach by the other parties hereto of their
respective covenants contained herein or if any party shall determine that
the offering of the Shares has not been made in compliance with the
provisions of the Federal or state securities laws of any state in which the
Shares are offered and sold.
(c) In the event of any such termination (as described above), all
funds and documents collected shall be returned to subscribers, without
interest, and none of the parties shall have any further obligations
hereunder, except as expressly provided for in this Agreement.
12. SURVIVAL. All representations, warranties, covenants and other
obligations contained in this Agreement or in certificates submitted pursuant
hereto shall remain operative and in full force and
<PAGE>
effect, regardless of any investigation made by or on behalf of the Agent or
any person who controls or is affiliated with the Agent, or by or on behalf
of the Company or any person who controls the Company and shall survive the
date of the sale of all the Shares pursuant hereto.
13. REMEDIES NOT EXCLUSIVE. Except as otherwise provided in this
Agreement, the remedies enumerated herein are not intended to be exclusive
but shall be cumulative and in addition to any other remedy available at law
or in equity. Any single or partial exercise or waiver of any right or
remedy upon the occurrence of a default hereunder shall not constitute a
waiver of any such right or remedy upon the recurrence or continuance of such
default.
14. NOTICES. All communications under this Agreement shall be mailed,
delivered or telegraphed and confirmed, if to the parties at the addresses
noted on the first page of this Agreement with a copy addressed to Campbell &
Fleming, P.C., 250 Park Avenue, New York, New York 10177, attention: David E.
Fleming, Esq., counsel for the Company.
15. PARTIES. This Agreement shall inure to the benefit of, and be
binding upon, the Agent and its affiliates, the Company and upon their
respective successors; this Agreement and its conditions and provisions being
for the sale and exclusive benefit of such persons and their respective
successors and controlling persons, and for the benefit of no other person.
16. GOVERNING LAW. This Agreement is made under and shall be governed
by and construed in accordance with the laws of the State of New York
applicable to contracts made and to be performed in such state.
17. AMENDMENTS AND WAIVERS. This Agreement may not be changed,
amended, terminated or superseded orally, nor may any of the provisions
hereof be waived orally, but only by an instrument in writing, signed in any
such case by the party against whom enforcement of any change, amendment,
termination, waiver, modification, extension or discharge is sought. This
Agreement
<PAGE>
shall supersede and prevail over any prior agreements entered into by the
parties hereto with respect to the subject matter hereof.
18. DESCRIPTIVE HEADINGS. All descriptive headings contained in this
Agreement are inserted for convenience only and do not constitute a part of
this Agreement.
19. COUNTERPARTS. This Agreement may be executed simultaneously in
two or wore counterparts, each of which shall be deemed an original, and it
shall not be necessary in making performed proof of this Agreement to produce
or account for more than one such counterpart.
20. ENTIRE AGREEMENT. This Agreement contains the entire agreement and
understanding between the Agent and its affiliates and the Company with respect
to the subject matter herein.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the date and year first above written.
VOICENET, INC.,
A Delaware corporation
By:
------------------------------
(title)
----------------
PAN AMERICAN SECURITIES, INC.
By:
------------------------------
(Title)
--------------------------
<PAGE>
CERTIFICATE OF INCORPORATION
OF
VOICENET, INC.
Pursuant to the provisions of the Delaware General Corporation Law, the
undersigned, being the sole incorporator of the Corporation, hereby certifies
and sets forth as follows:
FIRST: The name of the corporation is Voicenet, Inc. (the
"Corporation").
SECOND: The address, including the street, number, city and county, of
the registered office of the Corporation in the State of Delaware is 1209 Orange
Street, in the city of Wilmington, in the County of New Castle; and the name of
the registered agent of the corporation in the State of Delaware at such address
is the Corporation Trust Company.
THIRD: The purpose of the Corporation is to engage in any lawful act or
activity for which corporations may be organized under the General Corporation
Law of the State of Delaware.
FOURTH: The aggregate number of shares of capital stock which the
Corporation shall have authority to issue is THREE THOUSAND (3,000), $.001 par
value per share.
FIFTH: The Corporation is to have perpetual existence.
SIXTH: The Corporation reserves the right to amend, alter, change or
repeal any provision contained in this Certificate of Incorporation, in the
manner now or hereafter prescribed by statute, and all rights conferred upon
stockholders herein are granted subject to this reservation.
SEVENTH: No director of the Corporation shall be liable to the Corporation
or its stockholders for monetary damages for breach of fiduciary duty as a
director, except for liability (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
the law, (iii) under Section 174 if the General Corporation Law of the State of
Delaware, or (iv) for any transaction from which the director derived an
improper personal benefit.
EIGHTH: Every director and officer of the Corporation shall be
indemnified by the Corporation against any and all judgments, fines, amounts
paid in settling or otherwise disposing of actions or threatened actions, and
expenses in connection therewith, incurred by reason of fact that he was a
director or officer of the corporation or any other corporation of any kind,
domestic or foreign, which he served in any capacity at the
<PAGE>
request of the Corporation, to the full extent that such indemnification may be
lawful under the Delaware General Corporation Law. Expenses so incurred by any
such person in defending a civil or criminal action or proceeding shall likewise
at his request be paid by the Corporation in advance of the final disposition of
such action or proceeding to the full extent that such advancement of expenses
may be lawful under said laws.
The Undersigned, being the incorporator, for the purpose of forming a
corporation pursuant to the General Corporation Law of the State of Delaware,
does make this certificate, hereby declaring and certifying that this is my act
and deed and the facts herein stated are true, and accordingly has hereunto set
my hands this 2nd day of April, 1996.
_____________________
Rachele A. David
c/o Campbell & Fleming, P.C.
250 Park Avenue
New York, New York 10177
<PAGE>
STATE OF DELAWARE
OFFICE OF THE SECRETARY OF STATE
I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO HEREBY
CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF AMENDMENT
OF "VOICENET, INC.", FILED IN THIS OFFICE ON THE SIXTEENTH DAY OF SEPTEMBER,
A.D. 1996, AT 4:30 O'CLOCK P.M.
A CERTIFIED COPY OF THIS CERTIFICATE HAS BEEN FORWARDED TO THE NEW CASTLE
COUNTY RECORDER OF DEEDS FOR RECORDING.
AUTHENTICATION: 8107961
DATE: 09-18-96
2609818 8100
960268617
<PAGE>
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF VOICENET, INC.
The undersigned, being the President of Voicenet, Inc., a corporation
organized and existing under and by virtue of the General Corporation of the
State of Delaware (the "Corporation"),
DOES HEREBY CERTIFY:
FIRST: That Article 4 of the Certificate of Incorporation be and is
hereby amended to read as follows:
4. The total number of shares of all classes of stock of which the
Corporation shall have authority to issue is 11,000,000 of which 10,000,000
shall be shares of Common Stock, par value $.01 per share, and 1,000,000 shall
be shares of Preferred Stock, par value $.01 per share. The relative rights,
preferences and limitations of the shares of capital stock shall be as follows:
COMMON STOCK. The Corporation's Common Stock shall be of one class.
PREFERRED STOCK. The Corporation's Preferred Stock shall be of one
class.
SECOND: That a special meeting of the stockholders of the Corporation was
duly called and held, upon notice in accordance with Section 222 of the General
Corporation Law of the state of Delaware at which meeting the necessary number
of shares as required
<PAGE>
by statute were voted in favor of the amendment.
THIRD: That this amendment was duly adopted in accordance with the
provisions of section 242 of the General Corporation Law of the State of
Delaware.
IN WITNESS WHEREOF, I have signed this certificate as of the ___ day
of September, 1996.
-----------------------------
Frank Carr
<PAGE>
BY-LAWS OF
VOICENET, INC.
(A Delaware Corporation)
ARTICLE I
Offices
SECTION 1. REGISTERED OFFICE. The registered office of the
Corporation within the State of Delaware shall be in the City of Dover, County
of Kent.
SECTION 2. OTHER OFFICES. The Corporation may also have any office
or offices other than said registered office at such place or places, either
within or without the State of Delaware, as the Board of Directors shall from
time to time determine or the business of the Corporation may require.
ARTICLE II
Meetings of Stockholders
SECTION 1. PLACE OF MEETINGS. All meetings of the stockholders for
the election of directors or for any other purpose shall be held at any such
place, either within or without the State of Delaware, as shall be designated
from time to time by the Board of Directors and stated in the notice of meeting
or in a duly executed waiver thereof.
SECTION 2. ANNUAL MEETING. The annual meeting of stockholders,
commencing with the year l9__, shall be held at l0:00 A.M. on the second Tuesday
of ____________________, in each year if not a legal holiday, and if a legal
holiday, then on the next succeeding day not a legal holiday, at l0:00 A.M., or
at such other date and time as shall be designated from time to time by the
Board of Directors and stated in the notice of meeting or in a duly executed
waiver thereof. At such annual meeting, the stockholders shall elect, by a
plurality vote, a Board of Directors and transact such other business as may
properly be brought before the meeting.
SECTION 3. SPECIAL MEETINGS. Special meetings of stockholders,
unless otherwise prescribed by statute, may be called at any time by the Board
of Directors or the Chairman of the Board, if one shall have been elected, or
the President.
SECTION 4. NOTICE OF MEETINGS. Except as otherwise expressly
required by statute, written notice of each annual and special meeting of
stockholders stating the date, place and hour of the meeting, and, in the case
of a special meeting, the purpose or purposes for which the meeting is called,
shall be given to each stockholder of record entitled to vote thereat not less
than ten nor more than sixty days before the date of the meeting. Business
transacted at any special meeting of
<PAGE>
stockholders shall be limited to the purposes stated in the notice. Notice
shall be given personally or by mail and, if by mail, shall be sent in a postage
prepaid envelope, addressed to the stockholder at his address as it appears on
the records of the Corporation. Notice by mail shall be deemed given three (3)
days after the same shall be deposited in the United States mail, postage
prepaid. Notice of any meeting shall not be required to be given to any person
who attends such meeting, except when such person attends the meeting in person
or by proxy for the express purpose of objecting, at the beginning of the
meeting, to the transaction of any business because the meeting is not lawfully
called or convened, or who, either before or after the meeting, shall submit a
signed written waiver of notice, in person or by proxy. Neither the business to
be transacted at, nor the purpose of, an annual or special meeting of
stockholders need be specified in any written waiver of notice.
SECTION 5. LIST OF STOCKHOLDERS. The officer who has charge of the
stock ledger of the Corporation shall prepare and make, at least ten days before
each meeting of stockholders, a complete list of the stockholders entitled to
vote at the meeting, arranged in alphabetical order, showing the address of and
the number of shares registered in the name of each stockholder. Such list
shall be open to the examination of any stockholder, for any purpose germane to
the meeting, during ordinary business hours, for a period of at least ten days
prior to the meeting, either at a place within the city, town or village where
the meeting is to be held, which place shall be specified in the notice of
meeting, or, if not specified, at the place where the meeting is to be held.
The list shall be produced and kept at the time and place of the meeting during
the whole time thereof, and may be inspected by any stockholder who is present.
SECTION 6. QUORUM, ADJOURNMENTS. The holders of a majority of the
voting power of the issued and outstanding stock of the Corporation entitled to
vote thereat, present in person or represented by proxy, shall constitute a
quorum for the transaction of business at all meetings of stockholders, except
as otherwise provided by statute or by the Certificate of Incorporation. If,
however, such quorum shall not be present or represented by proxy at any meeting
of stockholders, the stockholders entitled to vote thereat, present in person or
represented by proxy, shall have the power to adjourn the meeting from time to
time, without notice other than announcement at the meeting, until a quorum
shall be present or represented by proxy. At such adjourned meeting at which a
quorum shall be present or represented by proxy, any business may be transacted
which might have been transacted at the meeting as originally called. If the
adjournment is for more than thirty days, or, if after adjournment a new record
date is set, a notice of the adjourned meeting shall be given to each
stockholder of record entitled to vote at the meeting.
SECTION 7. ORGANIZATION. At each meeting of stockholders, the
Chairman of the Board, if one shall have been elected, or, in his absence or if
one shall not have been elected, the President shall act as chairman of the
meeting. The Secretary or, in his absence or inability to act, the person whom
the chairman of the meeting shall appoint secretary of the meeting shall act as
secretary of the meeting and keep the minutes thereof.
SECTION 8. ORDER OF BUSINESS. The order of business at all meetings
of the stockholders shall be as determined by the chairman of the meeting.
2
<PAGE>
SECTION 9. VOTING. Except as otherwise provided by statute or the
Certificate of Incorporation, each stockholder of the Corporation shall be
entitled at each meeting of stockholders to one vote for each share of capital
stock of the Corporation standing in his name on the record of stockholders of
the Corporation:
(a) on the date fixed pursuant to the provisions of Section 7 of
Article V of these By-Laws as the record date for the determination of the
stockholders who shall be entitled to notice of and to vote at such
meeting; or
(b) if no such record date shall have been so fixed, then at the
close of business on the day next preceding the day on which notice
thereof shall be given, or, if notice is waived, at the close of business
on the date next preceding the day on which the meeting is held.
Each stockholder entitled to vote at any meeting of stockholders may authorize
another person or persons to act for him by a proxy signed by such stockholder
or his attorney-in-fact, but no proxy shall be voted after three years from its
date, unless the proxy provides for a longer period. Any such proxy shall be
delivered to the secretary of the meeting at or prior to the time designated in
the order of business for so delivering such proxies. When a quorum is present
at any meeting, the vote of the holders of a majority of the voting power of the
issued and outstanding stock of the Corporation entitled to vote thereon,
present in person or represented by proxy, shall decide any question brought
before such meeting, unless the question is one upon which by express provision
of statute or of the Certificate of Incorporation or of these By-Laws, a
different vote is required, in which case such express provision shall govern
and control the decision of such question. Unless required by statute, or
determined by the chairman of the meeting to be advisable, the vote on any
question need not be by ballot. On a vote by ballot, each ballot shall be
signed by the stockholder voting, or by his proxy, if there by such proxy, and
shall state the number of shares voted.
SECTION l0. INSPECTORS. The Board of Directors may, in advance of
any meeting of stockholders, appoint one or more inspectors to act at such
meeting or any adjournment thereof. If any of the inspectors so appointed shall
fail to appear or act, the chairman of the meeting shall, or if inspectors shall
not have been appointed, the chairman of the meeting may, appoint one or more
inspectors. Each inspector, before entering upon the discharge of his duties,
shall take and sign an oath faithfully to execute the duties of inspector at
such meeting with strict impartiality and according to the best of his ability.
The inspectors shall determine the number of shares of capital stock of the
Corporation outstanding and the voting power of each, the number of shares
represented at the meeting, the existence of a quorum, the validity and effect
of proxies, and shall receive votes, ballots or consents, hear and determine all
challenges and questions arising in connection with the right to vote, count and
tabulate all votes, ballots or consents, determine the results, and do such acts
as are proper to conduct the election or vote with fairness to all
stockholders. On request of the chairman of the meeting, the inspectors shall
make a report in writing of any challenge, request or matter determined by them
and shall execute a certificate of any fact found by them. No director or
candidate for the office of director shall act as an inspector of an election of
directors. Inspectors need not be stockholders.
3
<PAGE>
SECTION ll. ACTION BY CONSENT. Whenever the vote of stockholders at
a meeting thereof is required or permitted to be taken for or in connection with
any corporate action, by any provision of statute or of the Certificate of
Incorporation or of these By-Laws, the meeting and vote of stockholders may be
dispensed with, and the action taken without such meeting and vote, if a consent
in writing, setting forth the action so taken, shall be signed by the holders of
outstanding stock having not less than the minimum number of votes that would be
necessary to authorize or take such action at a meeting at which all shares of
stock of the Corporation entitled to vote thereon were present and voted.
ARTICLE III
Board of Directors
SECTION l. GENERAL POWERS. The business and affairs of the
Corporation shall be managed by or under the direction of the Board of
Directors. The Board of Directors may exercise all such authority and powers of
the Corporation and do all such lawful acts and things as are not by statute or
the Certificate of Incorporation directed or required to be exercised or done by
the stockholders.
SECTION 2. NUMBER, QUALIFICATIONS, ELECTION AND TERM OF OFFICE. The
number of directors constituting the initial Board of Directors shall be not
less than three (3) nor more than nine (9). Thereafter, the number of directors
may be fixed, from time to time, by the affirmative vote of a majority of the
entire Board of Directors or by action of the stockholders of the Corporation.
Any decrease in the number of directors shall be effective at the time of the
next succeeding annual meeting of stockholders unless there shall be vacancies
in the Board of Directors, in which case such decrease may become effective at
any time prior to the next succeeding annual meeting to the extent of the number
of such vacancies. Directors need not be stockholders. Except as otherwise
provided by statute or these By-Laws, the directors (other than members of the
initial Board of Directors) shall be elected at the annual meeting of
stockholders. Each director shall hold office until his successor shall have
been elected and qualified, or until his death, or until he shall have resigned,
or have been removed, as hereinafter provided in these By-Laws.
SECTION 3. PLACE OF MEETINGS. Meetings of the Board of Directors
shall be held at such place or places, within or without the State of Delaware,
as the Board of Directors may from time to time determine or as shall be
specified in the notice of any such meeting.
SECTION 4. ANNUAL MEETING. The Board of Directors shall meet for the
purpose of organization, the election of officers and the transaction of other
business, as soon as practicable after each annual meeting of stockholders, on
the same day and at the same place where such annual meeting shall be held.
Notice of such meeting need not be given. In the event such annual meeting is
not so held, the annual meeting of the Board of Directors may be held at such
other time or place (within or without the State of Delaware) as shall be
specified in a notice thereof given as hereinafter provided in Section 7 of this
Article III.
4
<PAGE>
SECTION 5. REGULAR MEETINGS. Regular meetings of the Board of
Directors shall be held at such time and place as the Board of Directors may
fix. If any day fixed for a regular meeting shall be a legal holiday at the
place where the meeting is to be held, then the meeting which would otherwise be
held on that day shall be held at the same hour on the next succeeding business
day. Notice of regular meetings of the Board of Directors need not be given
except as otherwise required by statute or these By-Laws.
SECTION 6. SPECIAL MEETINGS. Special meetings of the Board of
Directors may be called by the Chairman of the Board, if one shall have been
elected, or by two or more directors of the Corporation or by the President.
SECTION 7. NOTICE OF MEETINGS. Notice of each special meeting of the
Board of Directors (and of each regular meeting for which notice shall be
required) shall be given by the Secretary as hereinafter provided in this
Section 7, in which notice shall be stated the time and place of the meeting.
Except as otherwise required by these By-Laws, such notice need not state the
purposes of such meeting. Notice of each such meeting shall be mailed, postage
prepaid, to each director, addressed to him at his residence or usual place of
business, by first class mail, at least two days before the day on which such
meeting is to be held, or shall be sent addressed to him at such place by
telegraph, cable, telex, telecopier or other similar means, or be delivered to
him personally or be given to him by telephone or other similar means, at least
twenty-four hours before the time at which such meeting is to be held. Notice
of any such meeting need not be given to any director who shall attend such
meeting, except when he shall attend for the express purpose of objecting, at
the beginning of the meeting, to the transaction of any business because the
meeting is not lawfully called or convened.
SECTION 8. QUORUM AND MANNER OF ACTION. A majority of the entire
Board of Directors shall constitute a quorum for the transaction of business at
any meeting of the Board of Directors, and, except as otherwise expressly
required by statute or the Certificate of Incorporation or these By-Laws, the
act of a majority of the directors present at any meeting at which a quorum is
present shall be the act of the Board of Directors. In the absence of a quorum
at any meeting of the Board of Directors, a majority of the directors present
thereat may adjourn such meeting to another time and place. Notice of the time
and place of any such adjourned meeting shall be given to all of the directors
unless such time and place were announced at the meeting at which the
adjournment was taken, in which case such notice shall only be given to the
directors who were not present thereat. At any adjourned meeting at which a
quorum is present, any business may be transacted which might have been
transacted at the meeting as originally called. The directors shall act only as
a Board and the individual directors shall have no power as such.
SECTION 9. ORGANIZATION. At each meeting of the Board of Directors,
the Chairman of the Board, if one shall have been elected, or, in the absence of
the Chairman of the Board or if one shall not have been elected, the President
(or, in his absence, another director chosen by a majority of the directors
present) shall act as chairman of the meeting and preside thereat. The
Secretary or, in his absence, any person appointed by the chairman shall act as
secretary of the meeting and keep the minutes thereof.
5
<PAGE>
SECTION l0. RESIGNATIONS. Any director of the Corporation may resign
at any time by giving written notice of his resignation to the Corporation. Any
such resignation shall take effect at the time specified therein or, if the time
when it shall become effective shall not be specified therein, immediately upon
its receipt. Unless otherwise specified therein, the acceptance of such
resignation shall not be necessary to make it effective.
SECTION ll. VACANCIES. Any vacancy in the Board of Directors,
whether arising from death, resignation, removal (with or without cause), an
increase in the number of directors or any other cause, may be filled by the
vote of a majority of the directors then in office, though less than a quorum,
or by the sole remaining director or by the stockholders at the next annual
meeting thereof or at a special meeting thereof. Each director so elected shall
hold office until his successor shall have been elected and qualified.
SECTION l2. REMOVAL OF DIRECTORS. Any director may be removed,
either with or without cause, at any time, by the holders of a majority of the
voting power of the issued and outstanding capital stock of the Corporation
entitled to vote at an election of directors.
SECTION l3. COMPENSATION. The Board of Directors shall have
authority to fix the compensation, including fees and reimbursement of expenses,
of directors for services to the Corporation in their capacity as directors or
otherwise.
SECTION l4. COMMITTEES. The Board of Directors may, by resolution
passed by a majority of the entire Board of Directors, designate one or more
committees, including an executive committee, each committee to consist of one
or more of the directors of the Corporation. The Board of Directors may
designate one or more directors as alternate members of any committee, who may
replace any absent or disqualified member at any meeting of the committee. In
addition, in the absence or disqualification of a member of a committee, the
member or members thereof present at any meeting and not disqualified from
voting, whether or not he or they constitute a quorum, may unanimously appoint
another member of the Board of Directors to act at the meeting in the place of
any such absent or disqualified member.
Except to the extent restricted by statute or the Certificate of
Incorporation, each such committee, to the extent provided in the resolution
creating it, shall have and may exercise all the powers and authority of the
Board of Directors and may authorize the seal of the Corporation to be affixed
to all papers which require it. Each such committee shall serve at the
pleasure of the Board of Directors and have such name as may be determined from
time to time by resolution adopted by the Board of Directors. Each committee
shall keep regular minutes of its meetings and report the same to the Board of
Directors.
SECTION l5. ACTION BY CONSENT. Unless restricted by the Certificate
of Incorporation, any action required or permitted to be taken by the Board of
Directors or any committee thereof may be taken without a meeting if all members
of the Board of Directors or such committee, as the case may be, consent
thereto in writing, and the writing or writings are filed with the minutes of
the proceedings of the Board of Directors or such committee, as the case may be.
6
<PAGE>
SECTION l6. TELEPHONIC MEETING. Unless restricted by the Certificate
of Incorporation, any one or more members of the Board of Directors or any
committee thereof may participate in a meeting of the Board of Directors or such
committee by means of a conference telephone or similar communications equipment
by means of which all persons participating in the meeting can hear each other.
Participation by such means shall constitute presence in person at a meeting.
SECTION 17. CONTRACTS AND TRANSACTIONS INVOLVING DIRECTORS. No
contract or transaction between the Corporation and one or more of its directors
or officers, or between the Corporation and any other corporation, partnership,
association, or other organization in which one or more of its directors or
officers are directors or officers, or have a financial interest, shall be void
or voidable solely for this reason, or solely because the director or officer is
present at or participates in the meeting of the Board of Directors or committee
thereof which authorizes the contract or transaction, or solely because his, her
or their votes are counted for such purpose, if: (1) the material facts as to
his or her relationship or interest and as to the contract or transaction are
disclosed or are known to the Board of directors or the committee, and the Board
or committee in good faith authorize the contract or transaction by the
affirmative votes of a majority of the disinterested directors, even though the
disinterested directors be less than a quorum; or (2) the material facts as to
his or her relationship or interest and as to the contract or transaction are
disclosed or are known transaction is specifically approved in good faith by
vote of the stockholders; or (3) the contract or transaction is fair as to their
Corporation as of the time it is authorized, approved or ratified, by the Board
of Directors, a committee thereof, or the stockholders. Common or interested
directors may be counted in determining the presence of a quorum at a meeting of
the Board of Directors or of a committee which authorizes the contract or
transaction.
ARTICLE IV
Officers
SECTION 1. NUMBER AND QUALIFICATIONS. The officers of the
Corporation shall be elected by the Board of Directors or the stockholders and
shall include the President, one or more Vice-Presidents, the Secretary and the
Treasurer. If the Board of Directors or the stockholders wish, either may also
elect as an officer of the Corporation a Chairman of the Board and may elect
other officers (including one or more Assistant Treasurers and one or more
Assistant Secretaries) as may be necessary or desirable for the business of the
Corporation. Any two or more offices may be held by the same person, and no
officer except the Chairman of the Board need be a director. Each officer shall
hold office until his successor shall have been duly elected and shall have
qualified, or until his death, or until he shall have resigned or have been
removed, as hereinafter provided in these By-Laws.
SECTION 2. RESIGNATIONS. Any officer of the Corporation may resign
at any time by giving written notice of his resignation to the Corporation. Any
such resignation shall take effect at the time specified therein or, if the time
when it shall become effective shall not be specified
7
<PAGE>
therein, immediately upon receipt. Unless otherwise specified therein, the
acceptance of any such resignation shall not be necessary to make it effective.
SECTION 3. REMOVAL. Any officer of the Corporation may be removed,
either with or without cause, at any time, by the Board of Directors at any
meeting thereof. Such removal shall be without prejudice to a person's contract
rights, if any, but the election as an officer of the corporation shall not of
itself create contract rights.
SECTION 4. CHAIRMAN OF THE BOARD. The Chairman of the Board, if one
shall have been elected, shall be a member of the Board, an officer of the
Corporation and, if present, shall preside at each meeting of the Board of
Directors or the stockholders. He shall advise and counsel with the President,
and in his absence with other executives of the Corporation, and shall perform
such other duties as may from time to time be assigned to him by the Board of
Directors.
SECTION 5. THE PRESIDENT. The President shall be the chief executive
officer of the Corporation. He shall, in the absence of the Chairman of the
Board or if a Chairman of the Board shall not have been elected, preside at each
meeting of the Board of Directors or the stockholders. He shall perform all
duties incident to the office of President and chief executive officer and such
other duties as may from time to time be assigned to him by the Board of
Directors.
SECTION 6. VICE-PRESIDENT. Each Vice-President shall perform all
such duties as from time to time may be assigned to him by the Board of
Directors or the President. At the request of the President or in his absence
or in the event of his inability or refusal to act, the Vice-President, or if
there shall be more than one, the Vice-Presidents in the order determined by the
Board of Directors (or if there be no such determination, then the
Vice-Presidents in the order of their election), shall perform the duties of the
President, and, when so acting, shall have the powers of and be subject to the
restrictions placed upon the President in respect of the performance of such
duties.
SECTION 7. TREASURER. The Treasurer shall:
(a) have charge and custody of, and be responsible for, all the funds
and securities of the Corporation;
(b) keep full and accurate accounts of receipts and disbursements in
books belonging to the Corporation;
(c) deposit all moneys and other valuables to the credit of the
Corporation in such depositaries as may be designated by the Board of
Directors or pursuant to its direction;
(d) receive, and give receipts for, moneys due and payable to the
Corporation from any source whatsoever;
(e) disburse the funds of the Corporation and supervise the
investments of its funds, taking proper vouchers therefor;
8
<PAGE>
(f) render to the Board of Directors, whenever the Board of Directors
may require, an account of the financial condition of the Corporation; and
(g) in general, perform all duties incident to the office of
Treasurer and such other duties as from time to time may be assigned to him
by the Board of Directors.
SECTION 8. SECRETARY. The Secretary shall:
(a) keep or cause to be kept in one or more books provided for the
purpose, the minutes of all meetings of the Board of Directors, the
committees of the Board of Directors and the stockholders;
(b) see that all notices are duly given in accordance with the
provisions of these By-Laws and as required by law;
(c) be custodian of the records and the seal of the Corporation and
affix and attest the seal to all certificates for shares of the Corporation
(unless the seal of the Corporation on such certificates shall be a
facsimile, as hereinafter provided) and affix and attest the seal to all
other documents to be executed on behalf of the Corporation under its seal;
(d) see that the books, reports, statements, certificates and other
documents and records required by law to be kept and filed are properly
kept and filed; and
(e) in general, perform all duties incident to the office of
Secretary and such other duties as from time to time may be assigned to him
by the Board of Directors.
SECTION 9. THE ASSISTANT TREASURER. The Assistant Treasurer, or if
there shall be more than one, the Assistant Treasurers in the order determined
by the Board of Directors (or if there be no such determination, then in the
order of their election), shall, in the absence of the Treasurer or in the event
of his inability or refusal to act, perform the duties and exercise the powers
of the Treasurer and shall perform such other duties as from time to time may be
assigned by the Board of Directors.
SECTION l0. THE ASSISTANT SECRETARY. The Assistant Secretary, or if
there be more than one, the Assistant Secretaries in the order determined by
the Board of Directors (or if there be no such determination, then in the order
of their election), shall, in the absence of the Secretary or in the event of
his inability or refusal to act, perform the duties and exercise the powers of
the Secretary and shall perform such other duties as from time to time may be
assigned by the Board of Directors.
SECTION 11. DELEGATION OF DUTIES. In case of the absence of any
officer of the Corporation, or for any other reason that the Board of Directors
may deem sufficient, the Board of Directors may confer for the time being the
powers or duties, or any of them, of such officer upon
9
<PAGE>
any other officer or upon any directors.
SECTION l2. OFFICERS' BONDS OR OTHER SECURITY. If required by the
Board of Directors, any officer of the Corporation shall give a bond or other
security for the faithful performance of his duties, in such amount and with
such surety as the Board of Directors may require.
SECTION l3. COMPENSATION. The compensation of the officers of the
Corporation for their services as such officers shall be fixed from time to time
by the Board of Directors. An officer of the Corporation shall not be
prevented from receiving compensation by reason of the fact that he is also a
director of the Corporation.
SECTION 14. LOANS TO OFFICERS AND EMPLOYEES; GUARANTY OF OBLIGATIONS
OF OFFICERS AND EMPLOYEES. The Corporation may lend money to, or guarantee any
obligation of, or otherwise assist any officer or other employee of the
Corporation or any subsidiary, including any officer or employee who is a
director of the Corporation or any subsidiary, whenever, in the judgment of the
directors, such loan, guaranty or other assistance may reasonably be expected to
benefit the Corporation. The loan, guaranty or other assistance may be with or
without interest, and may be unsecured, or secured in such manner as the Board
of Directors shall approve, including, without limitation, a pledge of shares of
stock of the Corporation.
ARTICLE V
Stock Certificates and Their Transfer
SECTION 1. STOCK CERTIFICATES. Every holder of stock in the
Corporation shall be entitled to have a certificate, signed by, or in the name
of the Corporation by, the Chairman of the Board or the President or a
Vice-President and by the Treasurer or an Assistant Treasurer or the Secretary
or an Assistant Secretary of the Corporation, certifying the number of shares
owned by him in the Corporation. If the Corporation shall be authorized to
issue more than one class of stock or more than one series of any class, the
designations, preferences and relative, participating, optional or other special
rights of each class of stock or series thereof and the qualifications,
limitations or restriction of such preferences and/or rights shall be set forth
in full or summarized on the face or back of the certificate which the
Corporation shall issue to represent such class or series of stock, as well as a
statement that the Corporation will furnish without charge to each stockholder
who so requests the designations, preferences and relative, participating,
optional or other special rights of each class of stock or series thereof and
the qualifications, limitations or restrictions of such preferences and/or
rights.
SECTION 2. FACSIMILE SIGNATURES. Any of or all the signatures on a
certificate may be a facsimile. In case any officer, transfer agent or
registrar who has signed or whose facsimile signature has been placed upon a
certificate shall have ceased to be such officer, transfer agent or registrar
before such certificate is issued, it may be issued by the Corporation with the
same effect
10
<PAGE>
as if he were such officer, transfer agent or registrar at the date of issue.
SECTION 3. LOST CERTIFICATES. The Board of Directors may direct a
new certificate or certificates to be issued in place of any certificate or
certificates theretofore issued by the Corporation alleged to have been lost,
stolen, or destroyed. When authorizing such issue of a new certificate or
certificates, the Board of Directors may, in its discretion and as a condition
precedent to the issuance thereof, require the owner of such lost, stolen, or
destroyed certificate or certificates, or his legal representative, to give the
Corporation a bond in such sum as it may direct sufficient to indemnify it
against any claim that may be made against the Corporation on account of the
alleged loss, theft or destruction of any such certificate or the issuance of
such new certificate.
SECTION 4. TRANSFERS OF STOCK. Upon surrender to the Corporation or
the transfer agent of the Corporation of a certificate for shares duly endorsed
or accompanied by proper evidence of succession, assignment or authority to
transfer, it shall be the duty of the Corporation to issue a new certificate to
the person entitled thereto, cancel the old certificate and record the
transaction upon its records; provided, however, that the Corporation shall be
entitled to recognize and enforce any lawful restriction on transfer. Whenever
any transfer of stock shall be made for collateral security, and not absolutely,
it shall be so expressed in the entry of transfer if, when the certificates are
presented to the Corporation for transfer, both the transfer and the transferee
request the Corporation to do so.
SECTION 5. TRANSFER AGENTS AND REGISTRARS. The Board of Directors
may appoint, or authorize any officer or officers to appoint, one or more
transfer agents and one or more registrars.
SECTION 6. REGULATIONS. The Board of Directors may make such
additional rules and regulations, not inconsistent with these By-Laws, as it may
deem expedient concerning the issue, transfer and registration of certificates
for shares of stock of the Corporation.
SECTION 7. FIXING THE RECORD DATE. In order that the Corporation may
determine the stockholders entitled to notice of or to vote at any meeting of
stockholders or any adjournment thereof, or to express consent to corporate
action in writing without a meeting, or entitled to receive payment of any
dividend or other distribution or allotment of any rights, or entitled to
exercise any rights in respect of any change, conversion or exchange of stock or
for the purpose of any other lawful action, the Board of Directors may fix, in
advance, a record date, which shall not be more than sixty nor less than ten
days before the date of such meeting, nor more than sixty days prior to any
other action. A determination of stockholders of record entitled to notice of
or to vote at a meeting of stockholders shall apply to any adjournment of the
meeting; provided, however, that the Board of Directors may fix a new record
date for the adjourned meeting.
SECTION 8. REGISTERED STOCKHOLDERS. The Corporation shall be
entitled to recognize the exclusive right of a person registered on its records
as the owner of shares of stock to receive dividends and to vote as such owner,
shall be entitled to hold liable for calls and assessments a person registered
on its records as the owner of shares of stock, and shall not be bound to
recognize any equitable or other claim to or interest in such share or shares of
stock on the part of any other
11
<PAGE>
person, whether or not it shall have express or other notice thereof, except as
otherwise provided by the laws of Delaware.
ARTICLE VI
Indemnification of Directors and Officers
SECTION 1. GENERAL. The Corporation shall indemnify any 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 (other than an action by or in the right of the Corporation) by
reason of the fact that he is or was a director, officer, employee or agent of
the Corporation, or is or was serving at the request of the Corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by him in connection with such action, suit or proceeding if he acted
in good faith and in a manner he reasonably believed to be in or not opposed to
the best interests of the Corporation, and, with respect to any criminal action
or proceeding, had no reasonable cause to believe his conduct was unlawful. The
termination of any action, suit or proceeding by judgment, order, settlement,
conviction, or upon a plea of SOLO CONTENDERE or its equivalent, shall not, or
itself, create a presumption that the person did not act in good faith and in a
manner which he reasonably believed to be in or not opposed to the best
interests of the Corporation, and, with respect to any criminal action or
proceeding, had reasonable cause to believe that his conduct was unlawful.
SECTION 2. DERIVATIVE ACTIONS. The Corporation shall indemnify any
person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action or suit by or in the right of the
Corporation to procure a judgment in its favor by reason of the fact that he is
or was a director, officer, employee or agent of the Corporation, or is or was
serving at the request of the Corporation, or is or was serving at the request
of the Corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise against
expenses (including attorneys' fees) actually and reasonably incurred by him in
connection with the defense or settlement of such action or suit if he acted in
good faith and in a manner he reasonably believed to be in or not opposed to
the best interests of the Corporation and except that no indemnification shall
be made in respect of any claim, issue or matter as to which such person shall
have been adjudged to be liable for gross negligence or willful misconduct in
the performance of his duty to the Corporation unless and only to the extent
that the Court of Chancery of the State of Delaware or the court in which such
action or suit was brought shall determine upon application that, despite the
adjudication of liability but in view of all the circumstances of the case, such
person is fairly and reasonably entitled to indemnity for such expenses which
the Court of Chancery or such other court shall deem proper.
SECTION 3. INDEMNIFICATION IN CERTAIN CASES. To the extent that a
director, officer, employee or agent of the Corporation has been successful
on the merits or otherwise in defense of any action, suit or proceeding
referred to in Sections l and 2 of this Article VI, or in defense of any
12
<PAGE>
claim, issue or matter therein, he shall be indemnified against expenses
(including attorneys' fees) actually and reasonably incurred by him in
connection therewith.
SECTION 4. PROCEDURE. Any indemnification under Sections l and 2 of
this Article VI (unless ordered by a court) shall be made by the Corporation
only as authorized in the specific case upon a determination that
indemnification of the director, officer, employee or agent is proper in the
circumstances because he has met the applicable standard of conduct set forth in
such Sections l and 2. Such determination shall be made (a) by the Board of
Directors by a majority vote of a quorum consisting of directors who were not
parties to such action, suit or proceeding, or (b) if such a quorum is not
obtainable, or, even if obtainable a quorum of disinterested directors so
directs, by independent legal counsel in a written opinion, or (c) by the
stockholders.
SECTION 5. ADVANCES FOR EXPENSES. Expenses incurred in defending a
civil or criminal action, suit or proceeding may be paid by the Corporation in
advance of the final disposition of such action, suit or proceeding as
authorized by the Board of Directors in the specific case upon receipt of an
undertaking by or on behalf of the director, officer, employee or agent to repay
such amount unless it shall be ultimately determined that he is entitled to be
indemnified by the Corporation as authorized in this Article VI.
SECTION 6. RIGHTS NOT EXCLUSIVE. The indemnification provided by
this Article VI shall not be deemed exclusive of any other rights to which those
seeking indemnification may be entitled under any by-law, agreement, vote of
stockholders or disinterested directors or otherwise, both as to action in his
official capacity and as to action in another capacity while holding such
office, and shall continue as to a person who has ceased to be a director,
officer, employee or agent and shall insure to the benefit of the heirs,
executors and administrators of such a person.
SECTION 7. INSURANCE. The Corporation shall have power to purchase
and maintain insurance on behalf of any person who is or was a director,
officer, employee or agent of the Corporation, or is or was serving at the
request of the Corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise against any
liability asserted against him and incurred by him in any such capacity, or
arising out of his status as such, whether or not the Corporation would have the
power to indemnify him against such liability under the provisions of this
Article VI.
SECTION 8. DEFINITION OF CORPORATION. For the purposes of this
Article VI, references to "the Corporation" include all constituent corporations
absorbed in a consolidation or merger as well as the resulting or surviving
corporation so that any person who is or was a director, officer, employee or
agent of such a constituent corporation or is or was serving at the request of
such constituent corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise shall
stand in the same position under the provisions of this Article VI with respect
to the resulting or surviving corporation as he would if he had served the
resulting or surviving corporation in the same capacity.
SECTION 9. DEFINITIONS. For purposes of this Article VI, references
to "other
13
<PAGE>
enterprises" shall include employee benefit plans; references to "fines" shall
include any excise taxes assessed on a person with respect to an employee
benefit plan; and references to "serving at the request of the corporation"
shall include any service as a director, officer, employee or agent of the
corporation which imposes duties on, or involves services by, such director,
officer, employee, or agent with respect to an employee benefit plan, its
participants, or beneficiaries; and a person who acted in good faith and in a
manner he reasonably believed to be in the interest of the participants and
beneficiaries of an employee benefit plan shall be deemed to have acted in a
manner "not opposed to the best interests of the corporation" as referred to in
this Article VI.
14
<PAGE>
ARTICLE VII
General Provisions
SECTION 1. DIVIDENDS. Subject to the provisions of statute and the
Certificate of Incorporation, dividends upon the shares of capital stock of the
Corporation may be declared by the Board of Directors at any regular or special
meeting. Dividends may be paid in cash, in property or in shares of stock of
the Corporation, unless otherwise provided by statute or the Certificate of
Incorporation.
SECTION 2. RESERVES. Before payment of any dividend, there may be
set aside out of any funds of the Corporation available for dividends such sum
or sums as the Board of Directors may, from time to time, in its absolute
discretion, think proper as a reserve or reserves to meet contingencies, or for
equalizing dividends, or for repairing or maintaining any property of the
Corporation or for such other purpose as the Board of Directors may think
conducive to the interests of the Corporation. The Board of Directors may
modify or abolish any such reserves in the manner in which it was created.
SECTION 3. SEAL. The seal of the Corporation shall be in such form
as shall be approved by the Board of Directors.
SECTION 4. FISCAL YEAR. The fiscal year of the Corporation shall be
fixed, and once fixed, may thereafter be changed, by resolution of the Board of
Directors.
SECTION 5. CHECKS, NOTES, DRAFTS, ETC. All checks, notes, drafts or
other orders for the payment of money of the Corporation shall be signed,
endorsed or accepted in the name of the Corporation by such officer, officers,
person or persons as from time to time may be designated by the Board of
Directors or by an officer or officers authorized by the Board of Directors to
make such designation.
SECTION 6. EXECUTION OF CONTRACTS, DEEDS, ETC. The Board of
Directors may authorize any officer or officers, agent or agents, in the name
and on behalf of the Corporation, to enter into or execute and deliver any and
all deeds, bonds, mortgages, contracts and other obligations or instruments, and
such authority may be general or confined to specific instances.
SECTION 7. VOTING OF STOCK IN OTHER CORPORATIONS. Unless otherwise
provided by resolution of the Board of Directors, the Chairman of the Board or
the President or the Secretary, from time to time, may (or may appoint one or
more attorneys or agents to) cast the votes which the Corporation may be
entitled to cast as a shareholder or otherwise in any other corporation, any of
whose shares or securities may be held by the Corporation, at meetings of the
holders of the shares or other securities of such other corporation. In the
event one or more attorneys or agents are appointed, the Chairman of the Board
or the President or the Secretary may instruct the person or persons so
appointed as to the manner of casting such votes or giving such consent. The
Chairman
15
<PAGE>
of the Board or the President or the Secretary may, or may instruct the
attorneys or agents appointed to, execute or cause to be executed in the name
and on behalf of the Corporation and under its seal or otherwise, such written
proxies, consents, waivers or other instruments as may be necessary or proper in
the circumstances.
ARTICLE VIII
Amendments
These By-Laws may be amended or repealed or new by-laws adopted (a) by
action of the stockholders entitled to vote thereon at any annual or special
meeting of stockholders or (b) if the Certificate of Incorporation so provides,
by action of the Board of Directors at a regular or special meeting thereof.
Any by-law made by the Board of Directors may be amended or repealed by action
of the stockholders at any annual or special meeting of stockholders.
ARTICLE XI
Emergency By-Laws
SECTION 11.1. EMERGENCY BY-LAWS. The emergency By-Laws provided in
this Section 11.1 shall be operative during any emergency in the conduct of the
business of the corporation resulting form an attack on the United States or on
a locality to which the corporation conducts its business or customarily holds
meeting of its Board of Directors or its stockholders, or during any nuclear or
atomic disaster, or during the existence of any catastrophe, or their similar
emergency condition, as a result of which a quorum of the Board of Directors or
a standing committee thereof cannot readily be convened for action
notwithstanding any different provision in the preceding By-Laws or in the
Certificate of Incorporation or in the law. To the extent not inconsistent with
the provisions of this Section, the By-Laws of the Corporation shall remain in
effect during any emergency and upon its termination the Emergency By-Laws shall
cease to be operative. Any amendments of these Emergency By-Laws may make any
further or different provision that may be practical and necessary for the
circumstances of the emergency.
During any such emergency: (A) A meeting of the Board of Directors
or a committee thereof may be called by any officer or director of the
Corporation. Notice of the time and place or the meeting shall be given by
the person calling the meeting to such of the directors as it may be feasible
to reach by any available means of communication. Such notice shall be given
at such time in advance of the meeting as circumstances permit in the
judgment of the person calling the meeting; (B) The director or directors in
attendance at the meeting shall constitute a quorum; (C) The officers or
other persons designated on a list approved by the Board of Directors before
the emergency, all in such order of priority and subject to such conditions
and for such period of time (not longer than reasonably necessary after the
termination of the emergency) as may be provided in the resolution approving
the list, shall, to the extent required to provide a quorum at any meeting of
the Board of
16
<PAGE>
Directors, be deemed directors for such meeting; (D) The Board of Directors,
either before or during any such emergency, may provide, and from time to time
modify, lines of succession in the event that during such emergency any or all
officers or agents of the corporation shall for any reason be rendered incapable
of discharging their duties; (E) The Board of Directors, either before or
during any such emergency, amy, effective in the emergency, change the head
office or designate several alternative head offices or regional extent required
to constitute a quorum at any meeting of the Board of Directors during such an
emergency, the officers of the corporation who are present shall be deemed, in
order of rank and within the same rank in order of seniority, directors for such
meeting.
No officer, director or employee acting in accordance with any
Emergency By-Laws shall be liable except for willful misconduct.
These Emergency By-Laws shall be subject to repeal or change by
further action of the Board of Directors or by action of the stockholders.
17
<PAGE>
VOICENET, INC.
REPRESENTATIVE'S WARRANT AGREEMENT
REPRESENTATIVE'S WARRANT AGREEMENT dated as of ________ ,1996 by and
among VOICE NET, INC., a Delaware corporation (the "Company") and PAN AMERICAN
SECURITIES, INC. ("Pan American"), as representative of the several placement
agents (the "Representative").
W I T N E S S E T H:
WHEREAS, the Company proposes to issue to the Representative warrants
("Warrants") to purchase up to 75,000 Shares of Common Stock, $.001 par value,
of the Company (the "Shares")
WHEREAS, the placement agents have agreed, pursuant to the placement
agreement (the "Placement Agreement") dated September , 1996, by and between the
Representative and the Company, to act as the placement agents on a "best
efforts, minimum or none" basis in connection with the Company's proposed public
offering of up to 1,250,000 shares of Common Stock; and
WHEREAS, the Warrants to be issued pursuant to this Agreement will be
issued on the Closing Date (as such term is defined in the Placement Agreement)
by the Company to the Representative in consideration for, and as part of the
Representative's compensation in connection with, the placement agents acting as
the placement agents pursuant to the Placement Agreement;
NOW, THEREFORE, in consideration of the foregoing premises which are
incorporated into the terms hereof of and the payment by the Representative to
the Company of $750, the agreements herein set forth and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereto agree as follows:
1. GRANT.
The Representative and their Permitted Transferees, as hereinafter defined
("Holders") are hereby granted the right to purchase, at any time from _______
until 5:00 p.m., New York time, until September __, 2001, up to 75,000 shares
an initial exercise price (subject to adjustment as provided in Article 8 hereof
of per Share), subject to the terms and conditions of this Agreement.
2. WARRANT CERTIFICATES.
The warrant certificates (the "Warrant Certificates") delivered and to be
delivered pursuant to this Agreement shall be in the form set forth in Exhibit
A. Attached hereto and made a part hereof, with such appropriate insertions
omissions, substitutions, and other variations as required or permitted by this
Agreement.
<PAGE>
3. EXERCISE OF WARRANTS.
The Warrants are exercisable during the term set forth in Section 1 hereof
at the Exercise Price (defined below) per Share, as the case may be, set forth
in Section 6 hereof payable by certified or cashier's check or money order
payable in lawful money of the United States, subject to adjustment as provided
in Article 8 hereof. Upon surrender of a Warrant Certificate with the annexed
Form of Election to Purchase duly executed, together with payment of the
Exercise Price (as hereinafter defined) for the Shares, (and such other amounts,
if any, arising pursuant to Section 4 hereof) at the Company's principal office
in New York (380 Lexington Avenue, Suite 517, New York, NY 10168), the
registered holder of a Warrant Certificate ("Holder" or "Holders") shall be
entitled to receive a certificate or certificates for the Shares so purchased.
The purchase rights represented by each Warrant Certificate are exercisable at
the option of the Holder thereof; in whole or in part, (but not as to fractional
Unit Shares or Constituent Warrants). The Warrants may be exercised to purchase
all or part of the Shares. In the case of the purchase of less than all the
Shares, purchasable on the exercise of Warrants represented by a Warrant
Certificate, the Company shall cancel the Warrant Certificate represented
thereby upon the surrender thereof and shall execute and deliver a new Warrant
Certificate of like tenor for the balance of the Shares purchasable thereunder.
4. ISSUANCE OF CERTIFICATES.
Upon the exercise of the Warrants and payment of the Exercise Price
therefor, the issuance of certificates for the Shares, properties or rights
underlying such Warrants, and upon the exercise of the Constituent Warrants, the
issuance of certificates for the Warrant Shares or other securities, properties
or rights underlying such Constituent Warrants, shall be made forthwith (and in
any event within three (3) business days thereafter) without further charge to
the Holder thereof; and such certificates shall (subject to the provisions of
Sections 5 and 7 hereof) be issued in the name of or in such names as may be
directed by, the Holders thereof; provided, however, that the Company shall not
be required to pay any tax which may be payable in respect of any transfer
involved in the issuance and delivery of any such certificates in a name other
than that of the Holders, and the Company shall not be required to issue or
deliver such certificates unless or until the person or persons requesting the
issuance thereof shall have paid to the Company the amount of such tax or shall
have established to the satisfaction of the Company that such tax has been paid.
The Warrant Certificates and the certificates representing the Shares, or other
securities, property or rights (if such property or rights are represented by
certificates) shall be executed on behalf of the Company by the manual or
facsimile signature of the then present Chairman or Vice Chairman of the Board
of Directors or President or Vice President of the Company under its corporate
seal reproduced thereon, attested to by the manual or facsimile signature of the
then present Secretary or Assistant Secretary or Treasurer or Assistant
Treasurer of the Company. Warrant Certificates shall be dated the date of
execution by the Company upon initial issuance, division, exchange, substitution
or transfer.
5. RESTRICTION ON TRANSFER OF WARRANTS.
-2-
<PAGE>
The Holder of a Warrant Certificate (and its Permitted Transferee, as
defined below), by its acceptance thereof covenants and agrees that the Warrants
are being acquired as an investment and not with a view to the distribution
thereof; that the Warrants may be sold, transferred, assigned, hypothecated or
otherwise disposed of; in whole or in part, to any person (a "Permitted
Transferee"), provided such transfer, assignment, hypothecation or other
disposition is made in accordance with the provisions of the Securities Act of
1933 (the "Act"); and provided, further, that until ___________ (one year after
the Effective Date, defined below) [only officers and partners of the
Representative, and any underwriter, placement agent and selling group member
and their respective officers and partners, shall be Permitted Transferees.]
6. EXERCISE PRICE.
a. INITIAL AND ADJUSTED EXERCISE PRICE. Except as otherwise provided in
Section 8 hereof; the initial exercise price of each Warrant to purchase Shares
shall be $ 8.00 per Share. The respective adjusted exercise prices shall be the
prices which shall result from time to time from any and all adjustments of the
initial exercise prices in accordance with the provisions of Section 8 hereof.
b. EXERCISE PRICE. The term "Exercise Price" herein shall mean the
initial exercise price or the adjusted exercise price, depending upon the
context.
7. ADJUSTMENTS TO EXERCISE PRICE AND NUMBER OF SECURITIES: REDEMPTION.
a.(i) Except as hereinafter provided, in the event the Company shall, at
any time or from time to time after the date hereof; issue any shares of Common
Stock as a stock dividend to the holders of Common Stock, or subdivide or
combine the outstanding shares of Common Stock into a greater or lesser number
of shares (any such issuance, subdivision or combination being herein called a
"Change of Shares"), then, and thereafter upon each further Change of Shares,
the applicable Purchase Price for the Warrants (whether or not the same shall be
issued and outstanding) in effect immediately prior to such Change of Shares
shall be changed to a price (including any applicable fraction of a cent to the
nearest cent) determined by dividing (i) the sum of (a) the total number of
shares of Common Stock outstanding immediately prior to such Change of Shares,
multiplied by the applicable Purchase Price in effect immediately prior to such
Change of Shares, and (b) the consideration, if any, received by the Company
upon such issuance, subdivision or combination by (ii) the total number of
shares of Common Stock outstanding immediately after such Change of Shares;
provided, however, that in no event shall the applicable Purchase Price be
adjusted pursuant to this computation to an amount in excess of the applicable
Purchase Price in effect immediately prior to such computation, except in the
case of a combination of outstanding shares of Common Stock.
For the purposes of any adjustment to be made in accordance with this
Section 8(a) the following provisions shall be applicable:
-3-
<PAGE>
(1) Shares or equivalents of Common Stock issuable by way of dividend or
other distribution on any stock of the Company shall be deemed to have
been issued immediately after the opening of business on the day
following the record date for the determination of shareholders
entitled to receive such dividend or other distribution and shall be
deemed to have been issued without consideration.
(2) The reclassification of securities of the Company other than shares of
Common Stock into securities including shares of Common Stock shall be
deemed to involve the issuance of such shares of Common Stock for a
consideration other than cash immediately prior to the close of
business on the date fixed for the determination of security holders
entitled to receive such shares, and the value of the consideration
allocable to such shares of Common Stock shall be determined in good
faith by the Board of Directors of the Company on the basis of a
record of values of similar property or services.
(3) The number of shares of Common Stock at any one time outstanding shall
be deemed to include the aggregate maximum number of shares issuable
(subject to readjustment upon the actual issuance thereof) upon the
exercise of options, rights or warrants and upon the conversion or
exchange of convertible or exchangeable securities.
b. Upon each adjustment of the applicable Purchase Price pursuant to this
Section 8, the number of shares of Common Stock purchaseable upon the exercise
of each Warrant shall be the number derived by multiplying the number of shares
of Common Stock purchasable immediately prior to such adjustment by the
applicable Purchase Price in effect prior to such adjustment and dividing the
product so obtained by the applicable adjusted applicable Purchase Price.
c. In case of any reclassification or change of outstanding shares of
Common Stock issuable upon exercise of the Warrants (other than a change in par
value, or from par value to no par value, or from no par value to par value or
as a result of a subdivision or combination), or in case of any consolidation or
merger of the Company with or into another corporation (other than a merger with
a Subsidiary in which merger the Company is the continuing corporation and which
does not result in any reclassification or change of the then outstanding shares
of Common Stock or other capital stock issuable upon exercise of the Warrants
(other than a change in par value, or from par value to no par value, or from no
par value to par value or as a result of subdivision or combination) or in case
of any sale or conveyance to another corporation of the property of the Company
as an entirety or substantially as an entirety, then, as a condition of such
reclassification, change, consolidation, merger, sale or conveyance, the
Company, or such successor or purchasing corporation, as the case may be, shall
make lawful and adequate provision whereby the Registered Holder of each Warrant
then outstanding shall have the right thereafter to receive on exercise of such
Warrant the kind and amount of securities and property receivable upon such
reclassification, change, consolidation, merger, sale or conveyance by a holder
of the number of securities issuable upon exercise of such Warrant immediately
prior to such reclassification change, consolidation, merger, sale or conveyance
and shall forthwith file at the Corporate Office of the Warrant Agent a
-4-
<PAGE>
statement signed by its President or a Vice President and by its Treasurer or an
Assistant Treasurer or its Secretary or an Assistant Secretary evidencing such
provision. Such provisions shall include provision for adjustments which shall
be as nearly equivalent as may be practicable to the adjustments provided for in
Section 8a. The above provisions of this Section 8c. shall similarly apply to
successive reclassifications and changes of shares of Common Stock and to
successive consolidations, mergers, sales or conveyances.
d. Irrespective of any adjustments or changes in the applicable Purchase
Price or the number of shares of Common Stock purchasable upon exercise of the
Warrants, the Warrant Certificates theretofore and thereafter issued shall,
unless the Company shall exercise its option to issue new Warrant Certificates,
continue to express the applicable Purchase Price per share and the number of
shares purchasable thereunder as the applicable Purchase Price per share and the
number of shares purchasable thereunder were expressed in the Warrant
Certificates when the same were originally issued.
e. After each adjustment of the applicable Purchase Price pursuant to
this Section 8, the Company will promptly prepare a certificate signed by the
Chairman or President, and by the Treasurer or an Assistant Treasurer or the
Secretary or an Assistant Secretary, of the Company setting forth: (i) the
applicable Purchase Price as so adjusted, (ii) the number of shares of Common
Stock purchasable upon exercise of each Warrant, after such adjustment, and
(iii) a brief statement of the facts accounting for such adjustment. The Company
will promptly file such certificate with the Warrant Agent and cause a brief
summary thereof to be sent by ordinary first class mail to each registered
Holder at his last address as it shall appear on the registry books of the
Warrant Agent. No failure to mail such notice nor any defect therein or in the
mailing thereof shall affect the validity thereof except as to the holder to
whom the Company failed to mail such notice, or except as to the holder whose
notice was defective. The affidavit of an officer of the Warrant Agent or the
Secretary or an Assistant Secretary of the Company that such notice has been
mailed shall, in the absence of fraud, be prima facie evidence of the facts
stated therein.
f. No adjustment of the applicable Purchase Price shall be made as a
result of or in connection with the issuance or sale of shares of Common Stock
pursuant to options, warrants, stock purchase agreements and convertible or
exchangeable securities outstanding or in effect on the date hereof or granted
upon the consummation of and in connection with the first Business Combination
(as defined in the Registration Statement). In addition, registered Holders
shall not be entitled to cash dividends paid by the Company prior to the
exercise of any Warrant or Warrants held by them.
g. DEFINITION OF COMMON STOCK. For the purpose of this Agreement, the
term "Common Stock" shall mean (i) the class of stock designated as Common Stock
in the Certificate of Incorporation of the Company as it may be amended as of
the date hereof; or (ii) any other class of stock resulting from successive
changes or reclassification of such Common Stock consisting solely of changes in
par value, or from par value to no par value, or from no par value to par value.
In the event that the Company shall, after the date hereof, issue securities
with greater or superior voting rights than those of the shares of Common Stock
outstanding as of the date hereof; the Holder, at its
-5-
<PAGE>
option, may receive upon exercise of any Warrant either shares of Common Stock
or a like number of such securities with greater or superior voting rights.
h. RECLASSIFICATION. MERGER OR CONSOLIDATION. The Company will not
merge, reorganize or take any other action which would terminate the
Representative' Warrants without first making adequate provision for the
Representative' Warrants. In case of any reclassification or change of the
outstanding shares of Common Stock (other than a change in par value to no par
value, or from no par value to par value, or as a result of a subdivision or
combination), or in case of any consolidation of the Company with, or merger of
the Company with, or merger of the Company into, another corporation (other than
a consolidation or merger in which the Company is the continuing corporation and
which does not result in any reclassification or change of the outstanding
Common Stock except a change as a result of a subdivision or combination of such
shares or a change in par value, as aforesaid), or in the case of a sale or
conveyance to another corporation or other entity of the property of the Company
as an entirety, the Holder of each Warrant then outstanding or to be outstanding
shall have the right thereafter (until the expiration of such Warrant) to
purchase, upon exercise of such Warrant, the kind and number of shares of stock
and other securities and property receivable upon such reclassification, change,
consolidation, merger, sale or conveyance as if the Holder were the owner of the
shares of Common Stock underlying such Warrants and the Constituent Warrants
immediately prior to any such events at a price equal to the product of (x) the
number of shares issuable upon exercise of the Warrants and the Constituent
Warrants and (y) the Exercise Prices in effect immediately prior to the record
date for such reclassification, change, consolidation, merger, sale or
conveyance, as if such Holder has exercised the Warrants and the Constituent
Warrants. In the event of a consolidation, merger, sale or conveyance of
property, the corporation formed by such consolidation or merger, or acquiring
such property, shall execute and deliver to the Holders a supplemental warrant
agreement to such effect. Such supplemental warrant agreement shall provide for
adjustments which shall be identical to the adjustment to those provided in
Section 8. The provisions of this Section 8(h) shall similarly apply to
successive consolidations or mergers.
[i. NO ADJUSTMENT OF EXERCISE PRICES IN CERTAIN CASES. No adjustment of
the Exercise Prices shall be made:
(1) Upon the issuance or sale of (i) the Warrants, the Constituent
Warrants or the Shares; (ii) the shares of Common Stock and the Public
Warrants pursuant to the Public Offering; (iii) the shares of Common
Stock issuable upon the exercise of the Public Warrants, or the
options, warrants, stock purchase agreements and convertible or
exchangeable securities outstanding or in effect on the date hereof as
described in the prospectus relating to the Public Offering; or (iv)
Common Stock upon the exercise of the Constituent Warrants.
(2) If the amount of said adjustments shall be less than ten ($.10) cents
per Share, provided, however, that in such case any adjustment that
would otherwise be required then to be made shall be carried forward
and shall be made at the time of and together
-6-
<PAGE>
with the next subsequent adjustment which, together with any
adjustment so carried forward, shall amount to at least ten ($.10)
cents per Share.
j. DIVIDENDS AND OTHER DISTRIBUTIONS. In the event that the Company
shall at any time prior to the exercise of all the Warrants declare a dividend
(other than a dividend consisting solely of shares of Common Stock) or otherwise
distribute to its stockholders any assets, property, rights, evidences of
indebtedness, securities (other than shares of Common Stock), whether issued by
the Company or by another, or any other thing of value, the Holders of the
unexercised Warrants shall thereafter be entitled, in addition to the shares of
Common Stock or other securities and property receivable upon the exercise
thereof; to receive, upon the exercise of such Warrants, the same property,
assets, rights, evidences of indebtedness, securities or any other thing of
value that they would have been entitled to receive at the time of such dividend
or distribution as if the Warrants had been exercised immediately prior to such
dividend or distribution. At the time of any such dividend or distribution, the
Company shall make appropriate reserves to ensure the timely performance of the
provisions of this Section 8 (j).
k. ADJUSTMENT OF CONSTITUENT WARRANT EXERCISE PRICE AND SHARES ISSUABLE ON
EXERCISE OF CONSTITUENT WARRANTS. With respect to any of the Constituent
Warrants underlying the Warrants, whether or not the Constituent Warrants have
been exercised and whether or not the Constituent Warrants are issued and
outstanding, the Constituent Warrant exercise price and the number of shares of
Common Stock underlying such Constituent Warrants shall be automatically
adjusted in accordance with Section 8 of the Public Warrant Agreement upon the
occurrence of any of the events described therein. Thereafter, the underlying
Constituent Warrants shall be exercisable at such adjusted exercise price and
for such adjusted number of underlying shares of Common Stock.
l. SUBSCRIPTION RIGHTS FOR SHARES OF COMMON STOCK OF OTHER SECURITIES. In
the event that the Company or an affiliate of the Company shall at any time
after the date hereof and prior to the exercise of all the Warrants, issue any
rights to subscribe for shares of Common Stock or any other securities of the
Company or of such affiliate to all the stockholders of the Company, the Holders
of the unexercised Warrants shall be entitled to receive, in addition to the
Unit Shares and Constituent Warrants or other securities receivable upon the
exercise of the Warrants, such rights at the time such rights are distributed to
the other stockholders of the Company.
m. REDEMPTION OF CONSTITUENT WARRANTS. Notwithstanding anything to the
contrary contained in the Public Warrant Agreement or elsewhere, the Constituent
Warrants underlying the Warrants cannot, under any circumstances, be redeemed by
the Company without the prior written consent of the Holders of the Warrants and
shall remain exercisable upon the same terms and provisions of the Public
Warrant Agreement (other than the exercise period, which shall be as set forth
in Section 1 hereof) irrespective of whether the Company has called the
Redeemable Warrants for redemption.
8. EXCHANGE AND REPLACEMENT OF WARRANT CERTIFICATES.
-7-
<PAGE>
Each Warrant Certificate is exchangeable without expense, upon the
surrender thereof by the registered Holder at the principal executive office of
the Company, for a new Warrant Certificate of like tenor and date representing
in the aggregate the right to purchase the same number of Units in such
denominations as shall be designated by the Holder thereof at the time of such
surrender.
Upon receipt by the Company of evidence reasonably satisfactory to it of
the loss, theft, destruction or mutilation of any Warrant Certificate, and, in
case of loss, theft or destruction, of indemnity or security reasonably
satisfactory to it, and reimbursement to the Company of all reasonable expenses
incidental thereto, and upon surrender and cancellation of the Warrants, if
mutilated, the Company will make and deliver a new Warrant Certificate of like
tenor, in lieu thereof.
9. ELIMINATION OF FRACTIONAL INTERESTS.
The Company shall not be required to issue certificates representing
fractions of Shares or of Constituent Warrants upon the exercise of the
Warrants, nor shall it be required to issue scrip or pay cash in lieu of
fractional interests, provided, however, that if a Holder exercises all Warrants
or Constituents Warrants (as the case may be) held of record by such Holder the
fractional interests shall be eliminated by rounding any fraction up to the
nearest whole number of Shares, or other securities, properties or rights.
10. RESERVATION AND LISTING OF SECURITIES.
The Company shall at all times reserve and keep available out of its
authorized shares of Common Stock, solely for the purpose of issuance upon the
exercise of the Warrants and the Constituent Warrants, such number of shares of
Common Stock or other securities, properties or rights as shall be issuable upon
the exercise thereof. The Company covenants and agrees that, upon exercise of
the Warrants and payment of the Exercise Price therefor, all the Shares and
other securities issuable upon such exercise shall be duly and validly issued,
fully paid, nonassessable and not subject to the preemptive rights of any
stockholder. As long as the Warrants shall be outstanding, the Company shall
use its best efforts to cause the Common Stock to be listed (subject to official
notice of issuance) on all securities exchanges on which the Common Stock issued
to the public in connection herewith may then be listed or quoted.
11. NOTICES TO WARRANT HOLDERS.
Nothing contained in this Agreement shall be construed as conferring upon
the Holders the right to vote or to consent or to receive notice as a
stockholder in respect of any meetings of stockholders for the election of
directors or any other matter, or as having any rights whatsoever as a
stockholder of the Company. If, however, at any time prior to the expiration of
the Warrants and their exercise, any of the following events shall occur:
a. the Company shall take a record of the holders of its shares of Common
Stock for the purpose of entitling them to receive a dividend or distribution
payable otherwise than in cash, or a
-8-
<PAGE>
cash dividend or distribution payable otherwise than out of current or retained
earnings, as indicated by the accounting treatment of such dividend or
distribution on the books of the Company; or
b. the Company shall offer to all the holders of its Common Stock any
additional shares of capital stock of the Company or securities convertible into
or exchangeable for shares of capital stock of the Company, or any option, right
or warrant to subscribe therefor; or
c. a dissolution, liquidation or winding up of the Company (other than in
connection with a consolidation or merger) or a sale of all or substantially all
of its property, assets and business as an entirety shall be proposed; then, in
any one or more of said events, the Company shall give written notice of such
event at least fifteen (15) days prior to the date fixed as a record date or the
date of closing the transfer books for the determination of the stockholders
entitled to such dividend, distribution, convertible or exchangeable securities
or subscription rights, or entitled to vote on such proposed dissolution,
liquidation, winding up or sale. Such notice shall specify such record date or
the date of closing the transfer books, as the case may be. Failure to give such
notice or any defect therein shall not affect the validity of any action taken
in connection with the declaration or payment of any such dividend, or the
issuance of any convertible or exchangeable securities, or subscription rights,
options or warrants, or any proposed dissolution, liquidation, winding up or
sale.
12. COMMON STOCK WARRANTS.
The form of the certificates representing the Warrants and the form of
election to purchase shares of Common Stock upon the exercise of the Warrants
and the form of assignment printed on the reverse thereof shall be substantially
as set forth in Exhibit A.
13. NOTICES.
All notices, requests, consents and other communications hereunder shall be
in writing and shall be deemed to have been duly made when delivered, or mailed
by registered or certified mail, return receipt requested:
a. If to the registered Holder of the Warrants, to the address of such
Holder as shown on the books of the Company; or
b. If to the Company to the address set forth in Section 3 hereof or to
such other address as the Company may designate by notice to the Holders.
14. SUPPLEMENTS AND AMENDMENTS.
The Company and the Representative may from time to time supplement or
amend this Agreement without the approval of any Holders of Warrant Certificates
(other than the Representative) in order to cure any ambiguity, to correct or
supplement any provision contained herein which may be defective or inconsistent
with any provisions herein, or to make any other provisions in regard to matters
or questions arising hereunder which the Company and the
-9-
<PAGE>
Representative may deem necessary or desirable and which the Company and the
Representative deem shall not adversely affect the interests of the Holders of
Warrant Certificates.
15. SUCCESSORS
All the covenants and provisions of this Agreement shall be binding upon
and inure to the benefit of the Company, the Underwriters, the Holders and their
respective successors and assigns hereunder.
16. TERMINATION.
This Agreement shall terminate at the close of business on _______________.
Notwithstanding the foregoing, the indemnification provisions of Section 7 shall
survive such termination until the close of business on the expiration of any
applicable statute of limitations.
18. GOVERNING LAW: SUBMISSION TO JURISDICTION.
This Agreement and each Warrant Certificate issued hereunder shall be
deemed to be a contract made under the laws of the State of New York and for all
purposes shall be construed in accordance with the laws of said State without
giving effect to the rules of said State governing the conflicts of laws, except
that matters concerning the validity of the issuance of securities shall be
determined and construed in accordance with the laws of Delaware. The Company,
the Representative and the Holders hereby agree that any action, proceeding or
claim against it arising out of, or relating in any way to, this Agreement shall
be brought and enforced in the courts of the State of New York or of the United
States of America for the Southern District of New York, and irrevocably submits
to such jurisdiction, which jurisdiction shall be exclusive. The Company, the
Representative and the Holders hereby irrevocably waive any objection to such
exclusive jurisdiction or inconvenient forum. Any such process or summons to be
served upon any of the Company, the Representative and the Holders (at the
option of the party bringing such action, proceeding or claim) may be served by
transmitting a copy thereof; by registered or certified mail, return receipt
requested, postage prepaid, addressed to it at the address set forth in Section
14 hereof. Such mailing shall be deemed personal service and shall be legal and
binding upon the party so served in any action, proceeding or claim.
19. ENTIRE AGREEMENT: MODIFICATION.
This Agreement contains the entire understanding between the parties hereto
with respect to the subject matter hereof. Subject to Section 15, this
Agreement may not be modified or amended except by a writing duly signed by the
party against whom enforcement of the modification or amendment is sought.
20. SEVERABILITY.
-10-
<PAGE>
If any provision of this Agreement shall be held to be invalid or
unenforceable, such invalidity or unenforceability shall not affect any other
provision of this Agreement.
21. CAPTIONS.
The caption headings of the Sections of this Agreement are for convenience
of reference only and are not intended, nor should they be construed as, a part
of this Agreement and shall be given no substantive effect.
22. BENEFITS OF THIS AGREEMENT.
Nothing in this Agreement shall be construed to give to any person or
corporation other than the Company and the Representative and any other
registered Holder(s) of the Warrant Certificates or Warrant Securities any legal
or equitable right, remedy or claim under this Agreement; and this Agreement
shall be for the sole and exclusive benefit of the Company and the
Representative and any other Holder(s) of the Warrant Certificates or Warrant
Securities.
23. COUNTERPARTS.
This Agreement may be executed in any number of counterparts and each of
such counterparts shall for all purposes be deemed to be an original, and such
counterparts shall together constitute but one and the same instrument.
24. BINDING EFFECT.
This Agreement shall be binding upon and inure to the benefit of the
Company, the Representative and their respective successors and assigns and the
Holders from time to time of the Warrant Certificate(s) or any of them.
-11-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed, as of the day and year first above written.
VOICENET, INC.
By:________________________________
Frank Carr, President & Chief
Executive Officer
PAN AMERICAN SECURITIES, INC.
By:________________________________
Authorized Agent
-12-
<PAGE>
EXHIBIT A
VOICENET, INC.
WARRANT CERTIFICATE
THE SECURITIES ISSUABLE UPON EXERCISE OF THE WARRANT REPRESENTED BY THIS
CERTIFICATE MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO (i) AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933, (ii) TO THE EXTENT
APPLICABLE, RULE 144 UNDER SUCH ACT (OR ANY SIMILAR RULE UNDER SUCH ACT RELATING
TO THE DISPOSITION OF SECURITIES), OR (iii) AN OPINION OF COUNSEL, IF SUCH
OPINION SHALL BE REASONABLY SATISFACTORY TO COUNSEL FOR THE ISSUER, THAT AN
EXEMPTION FROM REGISTRATION UNDER SUCH ACT IS AVAILABLE.
The securities represented by this certificate have not been registered under
the Securities Act of 1933, as amended (the "Act"), and may not be offered for
sale or sold except pursuant to (i) an effective registration statement under
the Act, or (ii) an opinion of counsel, if such opinion shall be reasonably
satisfactory to counsel to the issuer, that an exemption from registration under
such Act is available.
THE TRANSFER OR EXCHANGE OF THE WARRANT REPRESENTED BY THIS CERTIFICATE IS
RESTRICTED IN ACCORDANCE WITH THE WARRANT AGREEMENT REFERRED TO HEREIN.
EXERCISABLE COMMENCING _________ THROUGH 5:00 P.M., NEW YORK TIME ___________.
No. _______________Warrants
This Warrant Certificate certifies that ______________________ or
registered assigns, is the registered holder of __________ warrants (the
"Warrants") to purchase initially, at any time from September , 1996, until
5:00 p.m., New York time on September , 2001 (the "Expiration Date"), up to
________ fully paid and nonassessable share (the "Shares"), of Common Stock,
$.01 par value (the "Common Stock"), of VOICENET, INC., a Delaware corporation
(the "Company"), at the exercise price of $8.00 per Share (the "Exercise
Price"), upon the surrender of this Warrant Certificate and payment of the
Exercise Price at an office or agency of the Company, but subject to the
conditions set forth herein and in the warrant agreement dated as of September
, 1996 (the "Warrant Agreement") by and among the Company and Pan American
Securities, Inc., as Representative of the several underwriters (the
"Representative"). Payment of the Exercise Price shall be made by certified or
cashier's check or money order payable to the order of the Company. No Warrant
may be exercised after 5:00 P.M, New York time, on the Expiration Date, at which
time all Warrants evidenced hereby, unless exercised prior thereto, shall
thereafter be void.
The Warrants evidenced by this Warrant Certificate are part of a duly
authorized issue of Warrants issued pursuant to the Warrant Agreement, which
Warrant Agreement is hereby
<PAGE>
incorporated by reference in and made a part of this instrument and is hereby
referred to for a description of the rights, limitation of rights, obligations,
duties and immunities thereunder of the Company and the holders (the words
"holders" or "holder" meaning the registered holders or registered holder) of
the Warrants.
The Warrant Agreement provides that upon the occurrence of certain events
the Exercise Price and the type and/or number of the Company's securities
issuable thereupon may, subject to certain conditions, be adjusted. In such
event, the Company will, at the request of the holder issue a new Warrant
Certificate evidencing the adjustment in the Exercise Price and the number
and/or type of securities issuable upon the exercise of the Warrants; provided,
however, that the failure of the Company to issue such new Warrant Certificates
shall not in any way change, alter, or otherwise impair, the rights of the
holder as set forth in the Warrant Agreement.
Upon due presentment for registration of transfer of this Warrant
Certificate at an office or agency of the Company, a new Warrant Certificate or
Warrant Certificates of like tenor and evidencing in the aggregate a like number
of Warrants shall be issued to the transferee(s) in exchange as provided herein,
without any charge except for any tax or other governmental charge imposed in
connection with such transfer.
Upon the exercise of less than all of the Warrants evidenced by this
Certificate, the Company shall forthwith issue to the holder hereof a new
Warrant Certificate representing such number of unexercised Warrants.
The Company may deem and treat the registered holder(s) hereof as the
absolute owner(s) of this Warrant Certificate (notwithstanding any notation of
ownership or other writing hereon made by anyone), for the purpose of any
exercise hereof; and of any distribution to the holder(s) hereof; and for all
other purposes, and the Company shall not be affected by any notice to the
contrary.
All terms used in this Warrant Certificate which are defined in the Warrant
Agreement shall have the meanings assigned to them in the Warrant Agreement.
IN WITNESS WHEREOF, the undersigned has executed this certificate this
_____ day of _________, 199__.
[SEAL]
VOICENET, INC.
By:_______________________
Frank Carr,
President
ATTEST:
By:_____________________________
William Potter, Secretary
<PAGE>
FORM OF ASSIGNMENT
(To be executed by the registered holder if such holder desires to transfer
the Warrant Certificate.)
FOR VALUE RECEIVED________________
hereby sells, assigns and transfers unto _______________________
(Please print name and address of transferee)
this Warrant Certificate, together with all right, title and interest
therein, and does hereby irrevocably constitute and appoint
______________________ Attorney, to transfer the within Warrant Certificate
on the books of Voicenet, Inc., with full power of substitution.
Dated:_____________________
Signature___________________________________
(Signature must conform in all respects to the name of
holder as specified on the face of the Warrant
Certificate.)
(Insert Social Security or Other
Identifying Number of Holder)
<PAGE>
FORM OF ELECTION TO PURCHASE
The undersigned hereby irrevocably elects to exercise the right, represented by
this Warrant Certificate, to purchase:
________ Shares
and herewith tenders in payment for such securities a certified or cashier's
check or money order payable to the order of Voicenet, Inc., in the amount of
$___________, all in accordance with the terms hereof. The undersigned requests
that a certificate for such securities be registered in the name of
__________________ whose address is _____________________________ and that such
Certificate be delivered to _______________________ whose address is
Dated:___________________
Signature___________________________________
(Signature must conform in all respects to the name of
holder as specified on the face of
the Warrant Certificate.)
(Insert Social Security or Other
Identifying Number of Holder)
<PAGE>
ESCROW AGREEMENT
AGREEMENT made this __ day of September, 1996, by and among VOICENET,
INC., a Delaware corporation (the "Issuer"); PAN AMERICAN SECURITIES, INC.,
(the "Underwriter") and CHASE MANHATTAN, BANK, with its principal office at
270 Park Avenue, New York, New York 10017 (the "Escrow Agent").
W I T N E S S E T H :
WHEREAS, the Issuer has filed with the Securities and Exchange
Commission (the "Commission") a registration statement (the "Registration
Statement") covering a proposed public offering of its securities
(collectively, the "Securities," and individually, a "Share") as described on
the Information Sheet; and
WHEREAS, the Underwriter proposes to offer the Securities, as agent for
the Issuer, for sale to the public on a "best efforts, all or none" basis
with respect to the minimum offering amount of $6,000,000 (the "Minimum
Dollar Amount") and at the price of $8.00 per Share of Common Stock
representing a minimum offering of 750,000 Shares (the "Minimum Offering")
all as set forth on the Information Sheet; and
WHEREAS, the Issuer and the Underwriter propose to establish an escrow
account with the Escrow Agent in connection with such public offering and the
Escrow Agent is willing to establish such escrow account on the terms and
subject to the conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the premises and mutual covenants
herein contained, the parties hereto hereby agree as follows:
1. ESTABLISHMENT OF THE ESCROW ACCOUNT.
1.1 The parties hereto shall establish an escrow account at the
principal office of the Escrow Agent, and bearing the designation "Voicenet,
Inc. Escrow Account."
1.2 On or before the date of the initial deposit in the Escrow Account
pursuant to this Agreement, the Underwriter shall notify the Escrow Agent of
that date before which and after which, respectively, no deposits may be
accepted into the Escrow Account. Such dates may be changed by written
notice from the underwriter to the Escrow Agent.
2. DEPOSITS IN THE ESCROW ACCOUNT.
1
<PAGE>
2.1 All amounts received by the Escrow Agent pursuant to this Agreement
shall be deposited in the Escrow Account, which amounts shall be in the form
of checks, cash, or wire transfers representing the payment of money. All
checks deposited into the Escrow Account shall be made payable to "Voicenet
Escrow Account." Any check payable other than to the Escrow Agent as required
hereby shall be returned to the prospective purchaser, or if the Escrow Agent
has insufficient information to do so, then as soon as is practical to the
Underwriter the Escrow Agent, and such check shall be deemed not to have been
delivered to the Escrow Agent pursuant to the terms of this Agreement.
2.2 Simultaneously with each deposit into the Escrow Account, the
Underwriter (or the Issuer, if such deposit is made by the Issuer) shall
inform the Escrow Agent in writing of the name and address of the prospective
purchaser, the number of Securities subscribed for by such purchaser, and the
aggregate dollar amount of such subscription (collectively, the "Subscription
Information").
2.3 The Escrow Agent shall not be required to accept for deposit into
the Escrow Account checks which are not accompanied by the appropriate
Subscription Information. Wire transfers and cash representing payments by
prospective purchasers shall not be deemed deposited in the Escrow Account
until the Escrow Agent has received in writing the Subscription Information
required with respect to such payments.
2.4 The Escrow Agent shall not be required to accept any amounts
representing payments by prospective purchasers, whether by check, cash or
wire transfer, except during the Escrow Agent's regular banking hours.
2.5 Amounts deposited in the Escrow Account which have cleared the
banking system and have been collected by the Escrow Agent are herein
referred to as the "Fund."
2.6 The Escrow Agent shall refund any portion of the Fund prior to
disbursement of the Fund in accordance with Section 3 hereof upon
instructions in writing signed by both the Issuer and the Underwriter.
2.7 The Escrow Agent shall invest the Funds in any one or more of the
following: (a) funds guaranteed by the United States; (b) United States
Government Obligations; or (c) interest bearing sweep accounts.
3. DISBURSEMENT FROM THE ESCROW ACCOUNT.
3.1 Upon receiving instructions in writing signed by both the Issuer
and Underwriter, the Escrow Agent shall either (a) promptly refund to each
prospective purchaser the amount of payment received from such purchaser
which is then held in the Fund or which thereafter clears the banking system,
without interest thereon or deduction therefrom (any interest being
distributable pursuant to said instructions); or (b) distribute the Fund as
otherwise provided in said instruction.row Agent shall promptly refund to
each prospective purchaser the amount of
2
<PAGE>
payment received from such purchaser which is then held in the Fund or which
thereafter clears the banking system, without interest thereon or deduction
therefrom, and the Escrow Agent shall notify the Issuer and the Underwriter
of its distribution of the Fund.
3.2. Upon disbursement of the Fund pursuant to the terms of this
Section 3, the Escrow Agent shall be relieved of all further liabilities or
responsibility whatsoever and released from all liability under this
Agreement. It is expressly agreed and understood that in no event shall the
aggregate amount of payments made by the Escrow Agent exceed the amount of
the Fund.
4. RIGHTS, DUTIES AND RESPONSIBILITIES OF ESCROW AGENT.
It is understood and agreed that the duties of the Escrow Agent are
purely ministerial in nature, and that:
4.1 The Escrow Agent shall not be responsible for or be required to
enforce any of the terms or conditions of any agreement between the
Underwriter and the Issuer nor shall the Escrow Agent be responsible for the
performance by the Underwriter or the Issuer of their respective obligations
under this Agreement.
4.2 The Escrow Agent shall not be required to accept from the
Underwriter (or the Issuer) any Subscription Information pertaining to
prospective purchasers unless such Subscription Information is accompanied by
checks, cash, or wire transfers representing the payment of money, nor shall
the Escrow Agent be required to keep records of any information with respect
to payments deposited by the Underwriter (or the Issuer) except as to the
amount of such payments; however, the Escrow Agent shall notify the
Underwriter within a reasonable time of any discrepancy between the amount
set forth in any Subscription Information and the amount delivered to the
Escrow Agent therewith. Such amount need not be accepted for deposit in the
Escrow Account until such discrepancy has been resolved.
4.3 The Escrow Agent shall be under no duty or responsibility to enforce
collection of any check delivered to it hereunder. The Escrow Agent, within
a reasonable time, shall return to the Underwriter any check received which
is dishonored, together with the Subscription Information, if any, which
accompanied such check.
4.4 The Escrow Agent shall be entitled to rely upon the accuracy, act in
reliance upon the contents, and assume the genuineness, of any notice,
instruction, certificate, signature, instrument or other document which is
given to the Escrow Agent pursuant to this Agreement without the necessity of
the Escrow Agent verifying the truth or accuracy thereof. The Escrow Agent
shall not be obligated to make any inquiry as to the authority, capacity,
existence or identity of any person purporting to give any such notice or
instructions or to execute any such certificate, instrument or other
document.
4.5 In the event that the Escrow Agent shall be uncertain as to its
duties or rights
3
<PAGE>
hereunder or shall receive instructions with respect to the Escrow Account or
the Fund which, in its sole determination, are in conflict either with other
instructions received by it or with any provision of this Agreement, it shall
be entitled to hold the Fund, or a portion thereof, in the Escrow Account
pending the resolution of such uncertainty to the Escrow Agent's sole
satisfaction, by final judgment of a court or courts of competent
jurisdiction or otherwise; or the Escrow Agent, at its sole option, may
deposit the Fund (and any other amounts that thereafter become part of the
Fund) with the Clerk of a court of competent jurisdiction in a proceeding to
which all parties in interest are joined. Upon the deposit by the Escrow
Agent of the Fund with the Clerk of any court, the Escrow Agent shall be
relieved of all further obligations and released from all liability hereunder.
4.6 The Escrow Agent shall not be liable for any action taken or omitted
hereunder, or for the misconduct of any employee, agent or attorney appointed
by it, except in the case of willful misconduct. The Escrow Agent shall be
entitled to consult with counsel of its own choosing and shall not be liable
for any action taken, suffered or omitted by it in accordance with the advice
of such counsel.
4.7 The Escrow Agent shall have no responsibility at any time to
ascertain whether or not any security interest exists in the Fund or any part
thereof or to file any financing statement under the Uniform Commercial Code
with respect to the Fund or any part thereof.
5. AMENDMENT; RESIGNATION. This Agreement may be altered or amended
only with the written consent of the Issuer, the Underwriter and the Escrow
Agent. The Escrow Agent may resign for any reason upon three (3) business
days' prior written notice to the Issuer and the Underwriter. Should the
Escrow Agent resign as herein provided, it shall not be required to accept
any deposit, make any disbursement or otherwise dispose of the Fund, but its
only duty shall be to hold the Fund for a period of not more than five (5)
business days following the effective date of such resignation, at which time
(a) if a successor escrow agent shall have been appointed and written notice
thereof (including the name and address of such successor escrow agent) shall
have been given to the resigning Escrow Agent by the Issuer, the Underwriter
and such successor escrow agent, then the resigning Escrow Agent shall pay
over to the successor escrow agent the Fund, less any portion thereof
previously paid out in accordance with this Agreement; or (b) if the
resigning Escrow Agent shall not have received written notice signed by the
Issuer, the Underwriter and a successor escrow agent, then the resigning
Escrow Agent shall promptly refund the amount in the Fund to each prospective
purchaser, without interest thereon or deduction herefrom, and the resigning
Escrow Agent shall notify the Issuer and the Underwriter in writing of its
liquidation and distribution of the Fund; whereupon, in either case, the
Escrow Agent shall be relieved of all further obligations and released from
all liability under this Agreement. Without limiting the provisions of
Section 7 hereof, the resigning Escrow Agent shall be entitled to be
reimbursed by the Issuer and the Underwriter for any expenses incurred in
connection with its resignation, transfer of the Fund to a successor escrow
agent or distribution of the Fund pursuant to this Section 5.
4
<PAGE>
6. REPRESENTATIONS AND WARRANTIES. The Issuer and the Underwriter
hereby jointly and severally represent and warrant to the Escrow Agent that:
6.1 No party other than the parties hereto and the prospective
purchasers have, or shall have, any lien, claim or security interest in the
Fund or any part thereof.
6.2 No financing statement under the Uniform Commercial Code is on file
in any jurisdiction claiming a security interest in or describing (whether
specifically or generally) the Fund or any part thereof.
6.3 The Subscription Information submitted with each deposit shall, at
the time of submission and at the time of the disbursement of the Fund, be
deemed a representation and warranty that such deposit represents a bona fide
sale to the purchaser described therein of the amount of Securities set forth
in such Subscription Information.
6.4 All of the information contained in the Information Sheet is, as of
the date hereof, and will be, at the time of any disbursement of the Fund,
true and correct.
7. FEES AND EXPENSES. The Escrow Agent shall be entitled to the
Escrow Agent Fee set forth on the attached Schedule A, payable upon execution
of this Agreement. In addition, the Issuer and the Underwriter jointly and
severally agree to reimburse the Escrow Agent for any reasonable expenses
incurred in connection with this Agreement, including, but not limited to,
reasonable counsel fees.
8. INDEMNIFICATION AND CONTRIBUTION.
8.1 The Issuer and the Underwriter (collectively referred to as the
"Indemnitors") jointly and severally agree to indemnify the Escrow Agent and
its officers, directors, employees, agents and shareholders (jointly and
severally the "Indemnitees") against, and hold them harmless of and from, any
and all loss, liability, cost, damage and expense, including, without
limitation, reasonable counsel fees, which the Indemnitees may suffer or
incur by reason of any action, claim or proceeding brought against the
Indemnitees arising out of or relating in any way to this Agreement or any
transaction to which this Agreement relates, unless such action, claim or
proceeding is the result of the willful misconduct of the Indemnitees
8.2 If the indemnification provided for in this Section 8 is
applicable, but for any reason is held to be unavailable, the Indemnitors
shall contribute such amounts as are just and equitable to pay, or to
reimburse the Indemnitees for, the aggregate of any and all losses,
liabilities, costs, damages and expenses, including counsel fees, actually
incurred by the Indemnitees as a result of or in connection with, and any
amount paid in settlement of, any action, claim or proceeding arising out of
or relating in any way to any actions or omissions of the Indemnitors.
5
<PAGE>
8.3 The provisions of this Section 8 shall survive any termination of
this Agreement, whether by disbursement of the Fund, resignation of the
Escrow Agent or otherwise.
9. GOVERNING LAW AND ASSIGNMENT. This Agreement shall be construed in
accordance with and governed by the laws of the State of New York and shall
be binding upon the parties hereto and their respective successors and
assigns; provided, however, that any assignment or transfer by any party of
its rights under this Agreement or with respect to the Fund shall be void as
against the Escrow Agent unless:
(a) written notice thereof shall be given to the Escrow Agent; and
(b) the Escrow Agent shall have consented in writing to such
assignment or transfer.
10. NOTICES. All notices required to be given in connection with his
Agreement shall be sent by registered or certified mail, return receipt
requested, or by hand delivery with receipt acknowledged, or by the Express
Mail service offered by the United States Post Office, and addressed, as
follows:
Issurer: Voicenet, Inc.
380 Lexington Avenue, Suite 517
New York, NY 10168
Attention: Mr. William J. Potter, Secretary
(212) (Telephone)
(212) (Fax)
Underwriter: Pan American Securities, Inc.
380 Lexington Avenue, Suite 517
New York, NY 10168
Attention: Michael Hines, President
(212) (Telephone)
(212) (Fax)
Chase Manhattan Bank
270 Park Avenue, 20th Floor
New York, NY 10017
Attention: Ms. Barbara Stroheimer, Vice President
(212) 275-4755 (Telephone)
(212) 275- (Telecopier)
11. SEVERABILITY. If any provision of this Agreement or the
application thereof to any person or circumstance shall be determined to be
invalid or unenforceable, the remaining provisions of this Agreement or the
application of such provision to persons or circumstances
6
<PAGE>
other than those to which it is held invalid or unenforceable shall not be
affected thereby and shall be valid and enforceable to the fullest extent
permitted by law.
12. EXECUTION IN SEVERAL COUNTERPARTS. This Agreement may be executed
in several counterparts o by separate instruments and all of such
counterparts and instruments shall constitute one agreement, binding on all
of the parties hereto.
13. ENTIRE AGREEMENT. This Agreement constitutes the entire agreement
between the parties hereto with respect to the subject matter hereof and
supersedes all prior agreements and understandings (written or oral) of the
parties in connection herewith.
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of
the day and year first above written.
THE ISSUER:
VOICENET, INC.
By:
--------------------------------
Frank Carr,
Chief Executive Officer
THE UNDERWRITER:
PAN AMERICAN SECURITIES, INC.
By:
--------------------------------
Michael Hines,
President
ESCROW AGENT:
CHASE MANHATTAN BANK
By:
--------------------------------
Vice President
7
<PAGE>
CHASE BANK, N.A.
ESCROW AGREEMENT INFORMATION SHEET
1. THE ISSUER
Name VOICENET, INC.
Address SUITE 517, 380 LEXINGTON AVENUE, NEW YORK, NEW YORK 10168,
ATTENTION MR. WILLIAM J. POTTER, SECRETARY
State of incorporation or organization DELAWARE
2. THE UNDERWRITER
Name PAN AMERICAN SECURITIES, INC.
Address SUITE 517, 380 LEXINGTON AVENUE, NEW YORK, NEW YORK 10168,
ATTENTION MR. MICHAEL HINES, PRESIDENT
State of incorporation or organization NEW YORK
3. THE SECURITIES
Description of the Securities to be offered: Shares of Common Stock of
Voicenet, Inc. Par value, if any: $.001 par value per Share
Offering price per Share: $8.00
4. MINIMUM AMOUNTS REQUIRED FOR DISBURSEMENT OF THE ESCROW ACCOUNT
Aggregate dollar amount which must be collected before the Escrow Account
may be disbursed to the Issuer ("Minimum Dollar Amount") $6,000,000.
Total number of Shares which must be subscribed for before the Escrow
Account may be disbursed to the Issuer ("Minimum Unit Amount"): 750,000
Shares.
5. PLAN OF DISTRIBUTION OF THE SECURITIES
Offering Period:ending on January 31, 1997.
Extension Period, if any:By mutual written agreement of Issuer and
Underwriter.
Collection Period, if any: 0 business days
6. THE ESCROW ACCOUNT
Title of the Escrow Account: "VOICENET, INC. ESCROW ACCOUNT."
Branch address where the Escrow Account is to be established
270 PARK AVENUE, NEW YORK, NEW YORK, NY 10017
7. ESCROW AGENT FEE
Amount due on execution of the Escrow Agreement: $5,000.00
<PAGE>
TECHNOLOGY SALES AND PURCHASE AGREEMENT
THIS AGREEMENT, made as of this 1st day of August, 1996 by and between
VOICENET, INC., a Delaware corporation, having offices located at Suite 517,
380 Lexington Avenue, New York, New York 10168 (herein referred to as
"Purchaser" or "Voicenet"), and SOUTHERN GROUP LIMITED, a West Australia
public company, having offices at 72 Kings Park Road, West Perth, Western
Australia 6005 (herein referred to as "Seller" or "Southern").
W I T N E S S E T H
WHEREAS, Purchaser desires to acquire certain exclusive rightsand
ownership respecting the development, use, marketing, sales and distribution
of a a continuous computer based digital voice compression, recognition and
recording technology for the Territory, as hereafter defined, developed and
exclusively owned by Seller as more particularly described on Exhibit A
attached hereto and made a part hereof (the "Technology"), including all
related tangible and intangible property rights, including know-how, trade
secrets and confidential information concerning the research, development,
technology, inventions, products, designs, methods, techniques, systems,
processes, software programs, and works of authorship (collectively, the
"Technology").
WHEREAS, patent applications have been filed respecting the Technology
by Southern and additional patent applications may be filed which are further
derivations and improvements of the Technology by Southern which patent
applications are intended to be included and transferred under this Agreement
(with the above-defined Patent Applications collectively hereinafter the
"Patent Applications");
WHEREAS, Southern is a corporation, duly organized, validly existing,
and in good stnding under the laws of Western Australia with the corporate
power to own property and carry on its business as now being conducted and
entering into this Agreement will not cause a default under any agreement to
which Southern is a party.
NOW, THEREFORE, in consideration of the mutual covenants herein
contained, such covenants being deemed fair and adequate consideration by the
parties hereto, it is agreed by and between the parties as follows:
1. TRANSFER OF RIGHTS TO VOICENET
a) Southern hereby absolutely sells, transfers, grants and conveys to
Voicenet, free of any liens, mortgages or encumberances, the exclusive
ownership and right to the Technology, including all intellectual property
rights and rights to the Patent Applications, for North America, Central
America and South America (the "Territory"), with the right to further right
to sell and assign absolutely or to grant licenses to third parties, to
manufacture and have manufactured, use, market and have marketed, sell and
have sold, and otherwise exploit all form and manner of Technology products
1
<PAGE>
and applications as Voicenet shall determine in its sole discretion within
the Territory, subject to the terms and conditions hereinafter provided. The
transfer and sale of all rights herein conveyed and granted shall apply,
without limitation, to all inventions, improvements, trademark, trademark
applications, patent applications and letters patent which the Seller now
owns, or hereafter may develop, own or control and which relate to the
Technology, to all information and documents which the Seller now owns or
controls, or hereafter may own or control which relate to the Technology, and
to all applications of the Technology developed by Seller. Purchaser shall
have the rights in the Territory to use any tradenames developed by Southern
as applied to the Technology.
2. AUTHORITY AND RIGHT TO SELL AND CONVEY THE TECHNOLOGY
Southern represents that it has the authority and right to sell and
convey the Technology provided in this Agreement, free and clear of any
liens, mortgages or encumberances, without the consent of any third party or
authority, and it has not sold, conveyed, licensed or transferred in any
manner to any other party any rights related to the Technology in the
Territory.
3. WARRANTY AND INDEMNIFICATION
(a) Seller warrants to Purchaser that the Technology is its own and
Seller shall indemnify and hold the Purchaser harmless against claims brought
by others alleging infringement upon any patents or other rights or
entitlements as to the Technology brought by any party. This indemnity shall
survive the termination of this Agreement. Seller knows of no facts which
would lead them to believe that any other party has any rights to claim the
Technology or any of its applications in the Territory.
4. PAYMENTS TO SELLER
(a) In consideration of the transfer of the Technology, Purchaser agrees
to pay to Seller, its Promissory Note in the amount of $4,500,000, which
shall not bear interest, with the full principal amount of the Promissory
Note due on the earlier of (a) August 31, 1997, or (b) upon completion of the
raising of a minimum of $6 million of capital by Purchaser (such payment to
be made in its sole discretion from such sources as Purchaser deems
appropriate).
5. CONTACT WITH VOICENET
During the term of the Agreement, Southern agrees to maintain
routine contact with Voicenet to keep Voicenet abreast of developments
regarding Southern's further research and development projects relating to
the Technology and to provide Voicenet with reasonable advance notice of all
proposed applications and new products relating to the Technology.
6. QUALITY CONTROL
Southern shall be responsible to control the quality and formulation
of the Technology
2
<PAGE>
product manufactured by or for Voicenet. Southern shall also be responsible
for qualifying and training the manufacturers of Technology products.
7. ACTIONS FOR INFRINGEMENT
In the event that Southern learns of any infringement or possible
infringement by a third party of the Technology or related products, patents
or other proprietary rights transferred to Voicenet hereunder, they shall
promptly notify Voicenet in writing and provide Voicenet with any available
evidence thereof. Upon notification of any infringement, or upon Voicenet
learning of infringement from any source whatsoever, Voicenet may institute
proper action to protect the Technology and/or Voicenet from the
infringement. The cost of such suit, including reasonable attorney's fees,
shall be the obligation of Seller. In any such suit which Voicenet shall
institute, Seller shall cooperate with it in all respects.
8. MAINTENANCE OF, AND IMPROVEMENTS, TO TECHNOLOGY AND RIGHTS
Southern shall promptly prepare, file, and prosecute, as is
practicable, in the name of the Southern, and at Southern's expense,
applications for letters patent throughout the world for all improvements
made by Southern during the term of this Agreement or hereafter made.
Southern shall, without further consideration , at the reasonable request of
Voicenet, do all acts necessary for improving, obtaining, sustaining,
reissuing, extending, defending and enforcing the Technology rights conveyed
herein and to be conveyed to Voicenet in the future hereunder, including any
Patents thereon and any letters patent based on improvements to the
Technology in North, Central and South America and shall give testimony and
otherwise provide evidence as may be deemed necessary by Voicenet.
9. TERM OF THIS AGREEMENT
The rights conveyed to Purchaser by Seller under this Agreement are
absolute and unconditional. The continuing obligations of Seller under this
Agreement shall remain in full force and effect for the longer (i) of any
patents granted under any Patent Applications and any extensions thereof or
(ii) twenty-five years, unless terminated as provided herein.
10. TERMINATION
Termination of this Agreement shall result on the occurrence of the
following conditions:
(a) Material default under the terms and conditions of this Agreement by
any party hereto provided written notice of said default is sent by certified
or registered mail, return receipt requested to the defaulting party and said
default remains uncured for ninety (90) days following receipt of said notice
of default.
(b) Purchaser has the right to terminate this Agreement if the
Technology fails to meet
3
<PAGE>
specifications as mutually agreed upon in writing and which failure remains
uncured for one hundred twenty (120) days following written notice to Seller.
(c) Seller may terminate this Agreement, if Purchaser has not made the
payment required pursuant to Section 4 by the close of business on December 31,
1996. Upon termination pursuant to this subsection 10(c) this Agreement shall
be of no further force or effect. The parties hereto further agree that the
sole remedy of Seller for nonpayment by Purchaser of the amounts required
pursuant to Section 4 shall be the termination of this Agreement as provided
above, and thereupon neither party shall have any further obligations to or
claims against the other.
11. EXCLUSIVE RIGHTS; NON-COMPETITION
During the term of this Agreement, Seller has not reserved any
rights and agrees not to sell, market or develop the Technology or any
related or competitive products with the Technology, directly or indirectly,
into the the Territory without first obtaining the written consent of
Purchaser. Seller shall take all reasonable measures necessary to assure that
third parties who have rights to the Technology in areas other than the
Territory do not export the Technology or any related products from such
other areas into the Territory.
12. BINDING EFFECT
This Agreement shall be binding upon and inure to the benefit of the
parties, their legal representatives, successors, and assigns, provided that
Seller shall not have the right to assign any of its obligations hereunder.
13. ENTIRE AGREEMENT
This Agreement constitutes the entire Agreement between Seller and
Purchaser pertaining to the subject matter contained in it, and supersedes
all prior and contemporaneous agreements, representations, warranties and
understandings of the parties respecting such subject matter.
14. MODIFICATIONS AND AMENDMENTS
No supplement, modification or amendment of this Agreement shall be
binding unless in writing and signed by all parties hereto.
15. COSTS AND FEES FOR BREACH
If any legal action, arbitration or other proceeding is brought for
the enforcement of this Agreement, or because of an alleged dispute, breach,
default or misrepresentation in connection with any of the provisions of this
Agreement, the successful prevailing party or parties shall be entitled to
recover reasonable counsel fees and other costs incurred in connection with
that action, arbitration or
4
<PAGE>
proceeding in addition to any other relief to which such party or parties may
be entitled.
16. NOTICES
All notices, requests, demands and other communication under this
Agreement shall be in writing by certified or registered mail, return receipt
requested, addressed to the parties as follows:
If to Seller:
Southern Group Limited
72 Kings Park Road
West Perth, Western Australia 6005
If to Purchaser:
Voicenet, Inc.
Suite 517
380 Lexington Avenue
New York, New York 10168
Attn: Mr. William Potter
With a copy to:
Campbell & Fleming, P.C.
Suite 1200
250 Park Avenue
New York, NY 10177
Attn: David E. Fleming, Esq.
17. SEVERABILITY
Should any term, condition or provision of this Agreement be found
to be invalid or unenforceable, such finding shall in no way affect the
validity or enforceability of any of the other terms, conditions and
provisions hereof, and such terms, conditions and provisions shall be valid
and enforceable as if the invalid or unenforceable term, condition or
provision was never a part hereof.
18. BINDING ARBITRATION
(a) Any controversy arising out of or relating to this Agreement shall
be resolved by binding arbitration in the State of New York pursuant to the
Rules then obtaining of the American Association. This Agreement shall be
enforceable and judgment upon any reward rendered may be entered in any court
having jurisdiction thereof.
(b) The arbitrators shall have no power or jurisdiction to alter or
modify any express provision of this Agreement or to make any award which by
its terms effect any such alteration or
5
<PAGE>
modification.
(c) The parties both consent to the jurisdiction of the courts of New
York for enforcement of the arbitrators' award, and further consent that any
demand for binding arbitration or any process or notice of motion or other
application to the court or a judge thereof in connection with the same may
be served in or out of the State of New York by registered mail, return
receipt requested, (and the parties hereby waive personal service) provided a
reasonable time for appearance is allowed.
(d) The provision for binding arbitration herein shall not be deemed a
waiver of the right of either party to any provisional remedy provided under
New York law. It is agreed that in the event of any violation hereof, the
other party shall have the right to obtain injunctive relief, enjoining any
further violation of this Agreement or further infringement pending a hearing.
19. APPLICABLE LAW
The validity, performance, construction and effect of this Agreement
shall be governed by the Laws of the State of New York.
20. COUNTERPARTS
This Agreement may be executed in two or more counterparts, each of
which shall be deemed an original, but all of which shall constitute one and
the same agreement.
21. CONTRACTUAL ARRANGEMENT
The terms of this Agreement are in no way intended to establish any
principal/agent relationship or joint venture relationship as between or
among the parties.
IN WITNESS WHEREOF, the parties have set their hands and seals the day
and year first above written.
VOICENET, INC
By:
-------------------------
Attest:
------------------------
, Secretary
SOUTHERN GROUP LIMITED
By:
--------------------------------
Frank Carr, Chief Executive Officer
Attest:
-----------------------------
, Secretary
6
<PAGE>
7
<PAGE>
SECURITY AGREEMENT
THIS SECURITY AGREEMENT (this "Agreement") is made and entered into as
of August 1, 1996, by and between VOICENET, INC., a Delaware corporation
("Debtor"), and SOUTHERN GROUP LIMITED, a West Australia corporation
("Secured Party").
RECITALS
A. Secured Party and Debtor are simultaneously entering into that
certain Technology Transfer Agreement, of even date herewith (the "Transfer
Agreement") wherein the Debtor has purchased from Secured Party the assets
described in Transfer Agreement (the "Assets") for the sum of $4,500,000 U.S.
evidenced by a Promissory Note in the amount of $4,500,000 from Debtor to the
order of the Secured Party (herein the "Note"). All capitalized terms not
otherwise defined in this Agreement are as defined in the Note.
C. As a material inducement for Secured Party to enter into the
Transfer Agreement, Debtor wishes to, among other things, secure its
obligations under the Note by a collateral pledge of the Assets to the
Secured Party.
NOW, THEREFORE, in consideration of the premises, covenants and promises
contained herein and for other good and valuable consideration, the receipt
and sufficiency of which are hereby acknowledged, the parties hereto hereby
agree as follows:
1. SECURITY INTEREST. As security for the due and punctual payment of
all debts, obligations and liabilities of Debtor to Secured Party whether now
existing or hereafter incurred pursuant to this Agreement, and under the Note
(collectively, the "Obligations") Debtor hereby mortgages, pledges, assigns,
transfers, sets over, conveys and delivers to Secured Party and grants to
Secured Party a continuing first priority security interest in the Assets
(herein called the "Collateral").
2. DEBTOR TO HOLD IN TRUST, ETC. Upon the occurrence of an Event of
Default (as hereinafter defined), if required by Secured Party, Debtor agrees
that upon receipt by it of any revenue, income, profits or other sums in
which a security interest is granted by this Agreement, payable pursuant to
any agreement or otherwise, or of any check, draft, note, trade acceptance or
other instrument evidencing an obligation to pay any such sum, to hold the
same in trust for Secured Party, and to forthwith, without any notice or
demand whatsoever (all notices, demands or other actions on the part of
Secured Party being expressly waived), endorse, transfer and deliver any such
sums or instruments, or both, to Secured Party to be applied to the repayment
of the Obligations.
3. COLLECTIONS, ETC. Upon the occurrence of an Event of Default,
Secured Party may, in its sole discretion and on behalf of Secured Party, in
its name or in the name of Debtor, or otherwise, demand, sue for, collect or
receive any money or property at any time payable or
<PAGE>
receivable on account of or in exchange for, or make any compromise or
settlement deemed desirable with respect to, any of the Collateral, but shall
be under no obligation so to do, and/or Secured Party may extend the time of
payment, arrange for payment in installments or otherwise modify the term of,
or release, any of the Collateral, without thereby incurring responsibility
to, or discharging or otherwise affecting, any liability of Debtor. Secured
Party will not be required to take any steps to preserve any rights against
prior parties to the Collateral. If Debtor fails to make any payment or take
any action required herein, Secured Party may make such payments and take all
such actions as Secured Party deems necessary to protect Secured Party's
security interests in the Collateral and/or the value thereof, and Secured
Party is hereby authorized (without limiting the general nature of the
authority hereinabove conferred) to pay, purchase, contest or compromise any
encumbrances, charges or liens which in the judgment of Secured Party appear
to be equal to, prior to or superior to the security interests of Secured
Party in the Collateral and any encumbrances, charges or liens not expressly
permitted by this Agreement or the Note.
4. POSSESSION, SALE OF COLLATERAL, ETC. Upon the occurrence of an Event
of Default, Secured Party may enter upon the premises of Debtor, or wherever
the Collateral may be, and take possession of the Collateral, and may demand
and receive such possession from any person who has possession thereof, and
Secured Party may take such measures as it may deem necessary or proper for
the care or protection thereof, including the right to remove all or any
portion of the Collateral and with or without taking such possession may sell
or cause to be sold whenever Secured Party shall decide, in one or more sales
or parcels, at such prices as Secured Party may deem best, and for cash or on
credit or for future delivery, without assumption of any credit risk, all or
any portion of the Collateral, at any broker's board or at public or private
sale, without demand of performance or notice of intention to sell or of time
or place of sale (except for written notice to the Debtor of the time and
place of such sale or sales and such other notices as may be required by
applicable statute and which cannot be waived), and Secured Party or any
other person may be the purchaser of all or any portion of the Collateral so
sold and thereafter hold the same absolutely free from any claim or right of
whatever kind, including any equity of redemption of Debtor, any such demand,
notice, claim, right or equity being hereby expressly waived and released.
In any action hereunder, Secured Party shall be entitled to the appointment
of a receiver, without notice, to take possession of all or any portion of
the Collateral and to exercise such powers with respect to the Collateral as
the court shall confer upon the receiver. Notwithstanding the foregoing, upon
the occurrence of an Event of Default or the nonperformance by Debtor of the
Obligations, Secured Party shall be entitled to apply, without notice to
Debtor, any cash or cash items constituting Collateral in the possession of
Secured Party to payment of the Obligations.
5. APPLICATION OF PROCEEDS. After the occurrence of an Event of
Default, if required by Secured Party, Debtor agrees to take all steps
necessary to cause all sums, monies, royalties, fees, commissions, charges,
payments, advances, income, profits and other proceeds, if any, paid to or
derived by or payable to Debtor on account of any item of the Collateral to
be paid directly by the obligor thereof to Secured Party to be applied to the
repayment of the Obligations. All such amounts received by Secured Party
shall be applied in such order as Secured Party shall, in its
2
<PAGE>
sole discretion determine. Any amounts remaining after such applications
shall be remitted to Debtor except as otherwise directed by a court of
competent jurisdiction.
6. POWERS OF ATTORNEY. Upon the occurrence of an Event of Default: (a)
Debtor does hereby irrevocably make, constitute and appoint Secured Party or
any of its officers or designees its true and lawful attorney-in-fact with
full power in the name of Secured Party or Debtor to receive, open and
dispose of all mail (other than such mail from counsel for Debtor or from
Debtor to said counsel, if the same is, and is marked, privileged and
confidential) addressed to Debtor (provided that Secured Party shall, as soon
as practicable, send a copy of all such mail to Debtor), and to endorse any
notes, checks, drafts, money orders or other evidences of payment that may
come into the possession of Secured Party with full power and right to cause
Debtor's mail to be transferred to Secured Party's own offices or otherwise,
and to do any and all other acts necessary or proper to carry out the intent
of the Note and this Agreement, and Debtor hereby ratifies and confirms all
that Secured Party or its substitutes shall properly do by virtue hereof; and
(b) Debtor does hereby further irrevocably make, constitute and appoint
Secured Party or any of its officers or designees its true and lawful
attorney-in-fact in the name of Secured Party or Debtor (i) to enforce all of
Debtor's rights under and pursuant to all agreements with respect to the
Collateral, all for the sole benefit of Secured Party, (ii) to enter into and
perform such agreements as may be necessary in order to carry out the terms,
covenants and conditions of the Note and this Agreement (including, but not
limited to, the covenants and agreements of Debtor herein set forth) which
are required to be observed or performed by Debtor, (iii) to execute such
other and further mortgages, financing statements, pledges and assignments of
the Collateral as Secured Party may reasonably require for the purpose of
protecting, maintaining or enforcing the security interest granted to Secured
Party by this Agreement and (iv) to do any and all other things necessary or
proper to carry out the intention of the Note and this Agreement, and Debtor
ratifies and confirms all that Secured Party or its substitutes, as such
attorney-in-fact shall properly do by virtue of this power of attorney.
Debtor agrees that the foregoing power of attorney constitutes a power
coupled with an interest which shall survive until all of the Obligations are
paid in full.
7. FINANCING STATEMENTS AND PAYMENT DIRECTIVES. Debtor hereby
authorizes Secured Party to file financing statements, copyright assignments
and any amendments thereto or continuations thereof with regard to the
Collateral without the signature of the Debtor. Upon the occurrence of an
Event of Default, Debtor further authorizes Secured Party to notify any
account debtor that all sums payable to Debtor relating to the Collateral
shall be paid directly to Secured Party. In addition, Debtor authorizes
Secured Party, at any time and from time to time, to confirm directly with
account debtors the amounts and terms of any sums payable to Debtor with
respect to the Collateral; provided, however, that Secured Party shall have
first made a good faith effort to agree with Debtor on the text of a
communication to be sent jointly by Secured Party and Debtor to the account
debtors. Promptly after the Obligations are paid in full, Secured Party
shall provide Debtor with executed termination statements and releases of
copyright assignments for filing in all jurisdictions in which it has
previously filed financing statements or such assignments pursuant to this
Agreement.
3
<PAGE>
8. REPRESENTATIONS AND WARRANTIES OF DEBTOR. Debtor, in addition to its
representations and warranties in the CreditAgreement, represents and
warrants to the Secured Party that:
(a) its books and records (including, but not limited to, the books,
records and documents relating to the Collateral) are and during the term of
the Note will be genuine and, in all respects, what they purport to be, and
are located at the address indicated in the Note as the principal place of
business of Debtor;
(b) Debtor has good and marketable title to its properties and
assets free and clear of all security interests, encumbrances, liens or
rights of others, except as heretofore disclosed to Secured Party in writing,
and no person has, or will have during the term of this Agreement, any right,
title or interest in or to the Collateral, except the Secured Party;
(c) except for the due filing or recording of any financing
statement (and except for the delivery to Secured Party of any Collateral as
to which possession is the only method of perfecting a security interest in
or lien on such Collateral), no further action is necessary in order to
establish and perfect Secured Party's prior security interest in or first
lien on all Collateral;
(d) Debtor has the unlimited right to (i) assign any or all rights
acquired by Debtor in respect to the Transfer Agreement to Secured Party for
security purposes, and (ii) to assign or grant to Secured Party or any
assignee of Secured Party the right to further assign any or all rights
acquired by Debtor in respect thereof;
(e) with respect to the Collateral, Secured Party shall not be under
any duty to send notices, perform services, exercise any rights of
collection, enforcement, conversion or exchange, vote, pay for insurance,
taxes or other charges or take any action of any kind in connection with the
management thereof, and Secured Party's only duty with respect thereto shall
be to use reasonable care in the custody and preservation of the Collateral
in its actual possession, which shall not include any steps necessary to
preserve rights against prior or third parties;
(f) Debtor is a corporation duly organized, validly existing and in
good standing under the laws of the State of Delaware, is qualified to do
business and is in good standing in each jurisdiction, domestic or foreign,
in which the conduct of its business or the ownership of its properties and
assets requires such qualification (including, without limitation, statutes
with respect to fictitious business names) and has all requisite power and
authority to conduct its business as presently conducted, to own its
properties and assets and to execute, deliver and perform its obligations
under this Agreement and all agreements and instruments and other documents
entered into or executed by it pursuant hereto;
(g) the execution, delivery and performance by Debtor of this
Agreement and the
4
<PAGE>
Note, all agreements and instruments and other documents entered into or
executed by it pursuant hereto or thereto and all transactions contemplated
thereby do not and will not: (i) violate any provision of its Certificate of
Incorporation or its Bylaws; (ii) violate any provision of any law, rule,
regulation, order, writ, judgment, injunction, decree or the like affecting
it or by which it or its properties or assets are subject; (iii) be in
conflict with or result in a breach of or constitute a default under any
indenture or loan or credit agreement or any other agreement, lease or
instrument to which it is a party or by which it or its properties or assets
may be bound or affected; or (iv) in any way, materially and adversely affect
the rights of Secured Party; and
(h) this Agreement and the other agreements and instruments entered
into or executed by Debtor pursuant hereto or thereto constitute its legal,
valid and binding obligations enforceable against it in accordance with their
respective terms, except as may be limited by applicable bankruptcy,
insolvency, reorganization, arrangement, moratorium or similar laws affecting
the rights of creditors generally and by the application of general
principles of equity (whether considered in a proceeding in equity or at law).
9. COVENANTS AND AGREEMENTS OF DEBTOR. Debtor covenants and agrees with
Secured Party that from the date hereof and until payment in full of the
Obligations, unless Secured Party shall otherwise consent in writing, Debtor
will:
(a) duly observe and perform all of the terms and conditions of all
agreements with respect to the Collateral and diligently protect and enforce
its rights with respect to the Collateral;
(b) give Secured Party thirty (30) Business Days prior written
notice before (i) changing or modifying its name in any manner or (ii)
opening a place of business in the United States or moving its books and
records to a location other than the address of its principal place of
business set forth in the Note;
(c) furnish to Secured Party such information concerning the
Collateral as Secured Party may from time to time reasonably request, allow
Secured Party and its designees to inspect all books and documents relating
to the Collateral, at all reasonable times and wherever located, and allow
Secured Party to inspect and copy all records reasonably requested by Secured
Party;
(d) at any time and from time to time, upon the request of Secured
Party and at the sole expense of Debtor, promptly execute and deliver any and
all such further instruments and documents and will cause such opinions of
counsel to be delivered and will take such further action as may be deemed
necessary or desirable in the judgment of Secured Party (i) to obtain,
maintain and perfect the security interest granted hereby, including, without
limitation, the filing of any financing or continuation statements under the
Uniform Commercial Code in effect in any jurisdiction with respect to the
security interest granted hereby and (ii) to assist Secured Party in
complying with the Federal Assignment of Claims Act, where necessary to
enable Secured Party
5
<PAGE>
to become an assignee under such Act;
(e) take all necessary steps to preserve the liability of account
debtors, obligors and secondary parties to the Obligations which are part of
the Collateral. Secured Party shall have no duty to preserve such liability
but may do so. Debtor agrees to reimburse on demand any expenses incurred
by Secured Party in connection with such matters and, until such
reimbursement, such expenses shall be a part of the Obligations;
(f) Debtor will not, without the prior written consent of Secured
Party, sign, file or authorize the signing or filing of any financing
statement or any other document, assignment, mortgage or instrument creating
or perfecting any lien or other encumbrance on all or any part of the
Collateral except in favor of Secured Party as required hereby;
(g) furnish to Secured Party from time to time statements and
schedules further identifying and describing the Collateral and such other
reports in connection with the Collateral as Secured Party may reasonably
request;
(h) maintain, with financially sound and reputable insurers,
insurance (in form and substance acceptable to Secured Party) against hazards
and risks and liability to persons and properly to the extent and in the
manner customary for companies in similar businesses, and will name Secured
Party as a loss payee and to the extent Secured Party shall not be liable for
premium or calls, name Secured Party as an additional insured; keep (or cause
to be kept) all Collateral in good repair and condition, and from time to
time, make necessary repairs, renewals and replacements thereto so that the
Collateral shall be fully and efficiently preserved and maintained;
(i) not permit or suffer (i) the material loss or impairment, unless
fully covered by insurance, of any Collateral, (ii) fail to conform any
Collateral at any time in any material respect to its description in this
Agreement or in any other agreement, instrument or other document executed or
delivered in favor of Secured Party or (iii) interfere with or impair any of
Secured Party's rights or remedies under this Agreement or any other contract
or instrument executed or delivered by Debtor in favor of Secured Party; and
(j) with respect to the Collateral, Secured Party shall not be under
any duty to send notices, perform services, exercise any rights of
collection, enforcement, conversion or exchange, vote, pay for insurance,
taxes or other charges, or take any action of any kind in connection with the
management thereof, and Secured Party's only duty with respect thereto shall
be to use reasonable care in the custody and preservation of the Collateral
in its actual possession, which shall not include any steps necessary to
preserve rights against prior or third parties.
10. SEVERABILITY. In case any one or more of the provisions contained
in this Agreement should be invalid, illegal or unenforceable in any respect,
the validity, legality and enforceability of the remaining provisions
contained herein shall not in any way be affected or
6
<PAGE>
impaired thereby.
11. EVENT OF DEFAULT. An "Event of Default" hereunder shall mean (i)
any Event of Default, as defined in the Note, (ii) failureof Debtor to pay
when due any Obligations, (iii) the breach by Debtor of any term or condition
contained herein, or (iv) any representation, warranty or covenant herein or
in any agreement, instrument or certificate executed pursuant hereto or in
connection with any transaction contemplated hereby shall prove to have been
false or misleading in any material respect when made or deemed made.
12. TERMINATION. This Agreement shall terminate when all Obligations
have been fully paid and performed.
13. REIMBURSEMENT OF SECURED PARTY. Debtor agrees to indemnify and
hold harmless Secured Party (to the full extent permitted by law) from and
against any and all claims, demands, losses, judgments and liabilities
(including liabilities for penalties) of whatsoever nature, and to reimburse
Secured Party for costs and expenses, all as provided in the Note.
14. MODIFICATION AND WAIVER. No modification or waiver of any
provision of the Note or this Agreement and no consent by Secured Party or
Debtor to any departure therefrom by Debtor or Secured Party shall be
effective unless such modification or waiver shall be in writing and signed
by a duly authorized officer of Secured Party and Debtor and the same shall
then be effective only for the period and on the conditions and for the
specific instances and purposes specified in such writing. No notice to or
demand on Debtor in any case shall entitle Debtor to any other further notice
or demand in similar or other circumstances.
15. GOVERNING LAW. This Agreement shall be construed in accordance
with and governed by the laws of the State of New York, applicable to
agreements made and to be performed entirely in New York and without
reference to its choice of law provisions.
16. NOTICES. All notices, requests, demands or other communications
provided for herein shall be in writing and shall be deemed to have been
given when sent in the manner and to the addresses provided in the Note.
17. CAPTIONS. The captions of the various sections and paragraphs of
this Agreement have been inserted only for the purpose of convenience; such
captions are not a part of this Agreement and shall not be deemed in any
manner to modify, explain, enlarge or restrict any of the provisions of this
Agreement.
18. BENEFIT OF AGREEMENT. This Agreement shall be binding upon and
inure to the benefit of Debtor, Secured Party and their respective successors
and assigns, and all subsequent participants of or with Secured Party.
19. COUNTERPARTS. This Agreement may be executed by the parties hereto
individually or in any combination, in one or more counterparts, each of
which shall be an original and all of
7
<PAGE>
which shall together constitute one and the same agreement.
IN WITNESS WHEREOF, the parties hereby have caused this Agreement to be
duly executed by their authorized officers, all as of the day and year first
above written.
DEBTOR:
VOICENET, INC.,
a Delaware corporation
By
-----------------------------
Title
-----------------
SECURED PARTY:
SOUTHERN GROUP LIMITED,
a West Australia corporation
By
-----------------------------
Title
-----------------
8
<PAGE>
9
