<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 12, 1997
REGISTRATION NO. 333-12979
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------------
AMENDMENT NO. 1
TO
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:
<TABLE>
<S> <C>
DAVID E. FLEMING, ESQ. ANDREW J. BECK, ESQ.
Epstein, Becker & Green, P.C. Haythe & Curley
250 Park Avenue 237 Park Avenue
New York, New York 10177 New York, New York 10017
(212) 351-4925 (212) 880-6010
</TABLE>
--------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
AS SOON AS PRACTICABLE AFTER THE EFFECTIVE DATE OF THIS REGISTRATION STATEMENT.
--------------------------
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, 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
SECURITIES TO BE REGISTERED BE REGISTERED(1) PER UNIT(1) OFFERING PRICE(1)
<S> <C> <C> <C>
Common Stock, $.01 par value................ 1,875,000 $8.00 $15,000,000
Underwriter's Warrants to purchase Shares
(2)....................................... 187,500 $.01 $1,875
Common Stock, $.01 par value (3)............ 187,500 $8.80 $1,650,000
Total....................................... 2,250,000
<CAPTION>
TITLE OF EACH CLASS OF AMOUNT OF
SECURITIES TO BE REGISTERED REGISTRATION FEE
<S> <C>
Common Stock, $.01 par value................ $4,545.46
Underwriter's Warrants to purchase Shares
(2)....................................... $0.57
Common Stock, $.01 par value (3)............ $500.03
Total....................................... $5,046.03*
</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 Underwriter's
Warrants pursuant to Rule 416(a).
(3) Issuable upon exercise of the Underwriter's Warrants.
* Previously paid
------------------------------
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>
SUBJECT TO COMPLETION, DATED MARCH , 1997
THIS PRELIMINARY PROSPECTUS 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 PROSPECTUS IS DELIVERED IN
FINAL FORM. UNDER NO CIRCUMSTANCES SHALL THIS PRELIMINARY PROSPECTUS 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.
A MINIMUM OF 750,000 SHARES UP TO
A MAXIMUM OF 1,875,000 SHARES OF COMMON STOCK
---------------------
Voicenet, Inc., a Delaware corporation (the "Company"), hereby offers a
minimum of 750,000 Shares ("Minimum Offering") up to a maximum of 1,875,000
Shares ("Maximum Offering") (the "Shares") of Common Stock, par value $.01 per
share (the "Common Stock") for a price of $8.00 per Share. Grady and Hatch &
Company, Inc. will act as the underwriter (the "Underwriter") of the selected
dealers (the "Underwriting Syndicate") on a "best efforts", 750,000 Shares 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 Underwriter,
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", 750,000 Shares or none basis by the Company through the Underwriting
Syndicate. In the event that a minimum of 750,000 Shares are not subscribed and
sold by 100 days plus 10 business days following the date of this Prospectus
(the "Offering Period"), then no Shares will be sold. The maximum number of
Shares that may be sold is 1,875,000 Shares. For additional information
regarding the factors considered in determining the initial public offering
price of the Common Stock, see "Risk Factors" and "Underwriting." Upon
completion of this offering, the Company anticipates that the Common Stock will
be quoted on the NASDAQ SmallCap 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 9) 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 PROCEEDS TO
PRICE TO PUBLIC COMMISSIONS(1) COMPANY(2)(3)
<S> <C> <C> <C>
Per Share................................................ $8.00 $0.72 $7.28
Minimum Offering (750,000 Shares)........................ $6,000,000 $540,000 $5,460,000
Maximum Offering (1,875,000 Shares)...................... $15,000,000 $1,350,000 $13,650,000
</TABLE>
(1) Does not include additional compensation to the Underwriter in the form of a
non-accountable expense allowance equal to 2 1/2% of the gross proceeds of
this offering. For indemnification arrangements with the Underwriting
Syndicate and additional compensation payable to the Underwriter, see
"Underwriting."
(2) Before deducting estimated offering expenses, including the Underwriter's
2 1/2% non-accountable expense allowance of $583,315 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 Underwriting Syndicate on a "best
efforts", 750,000 Shares or none basis, subject to prior sale, when, as and if
delivered to and accepted by the Underwriter, 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 sold
by the end of the Offering Period, then none of the Shares will be sold. It is
expected that delivery of certificates will be made at the offices of Grady and
Hatch & Company, Inc., New York, New York on or about , 1997.
------------------------
GRADY AND HATCH & COMPANY, INC.
INTERNATIONAL ADVISORS:
FAI INSURANCES LIMITED
MCDERMID ST. LAWRENCE SECURITIES, INC.
<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 high vocabulary,
continuous speech, voice recognition systems and of digital audio reporting,
transcription, storage, archiving and retrieval systems (collectively, the
"Voice 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 latest version of 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 Southern's latest version of (i) digital audio reporting,
transcription, archiving and retrieval systems known as COURTSMART-TM-,
COURTSCRIPT-TM- and VOICESCRIPT-TM- for the court recording industry
(collectively the "Court Reporting Systems"); (ii) high vocabulary, continuous
speech, voice recognition digital recording, transcription, archiving and
retrieval for voice-to-text recordkeeping in the medical industry known as
RADTALK-TM-, MEDTALK-TM- and PSYCHTALK-TM- (collectively the "Medical
Recordkeeping Systems"); (iii) digital audio products and technologies for the
broadcasting industry; and (iv) Southern's current and future digital
voice-to-text 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 (a) $2,500,000 upon the earlier
of October 31, 1997 or the completion of this Offering by the Company, (b)
$1,000,000 upon the earlier of October 31, 1997 or the installation of the first
COURTSMART-TM- system by the Company in the United States, and (c) $1,000,000 on
October 31, 1997. Southern currently holds a controlling interest and will
continue after this public offering to hold a controlling interest in the
Company. Additionally the Company's President and Chief Executive Officer is
also the Managing Director and Chief Executive of Southern. See
"Business--Technology Transfer Agreement;--Management".
The Technology and products acquired by the Company under the Technology
Transfer Agreement embrace two main voice technologies: (i) digital voice
compression, storage and retrieval, and (ii) speech recognition.
Philips has developed a large vocabulary (i.e., having a 64,000 word
capacity), continuous speech (i.e., unbroken speech) recognition engine (the
"Philips Engine") which can process speech from normal parlance. Southern is the
developer of proprietary continuous digital voice compression, storage and
retrieval systems and speech recognition systems and software which incorporate
the Philips Engine. In April and October, 1996, Southern signed technology
licensing and development agreements with Philips for the product development,
integration, marketing and distribution by Southern of a large vocabulary
continuous speech recognition system using the Philips Engine.
2
<PAGE>
Although there can be no assurance, the advances facilitated by the
amalgamation of the technology developed by Southern utilizing the Philips
Engine 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 by voice activation. The Company
believes using its Technology 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, the Company believes 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 speech recognition technology slow and isolated.
Although management believes that there is great potential for the use of speech
recognition not only as an enhancement for traditional applications such as in
the court reporting and medical recordkeeping context, but also as an enabling
technology for new applications such as immediate transcription of voice to text
for the hearing impaired or for individual personal computer users, these
earlier limitations of the technology severely hindered the feasibility and
effectiveness and, consequently, the market penetration of speech recognition.
Although there can be no assurance, 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.
The Company's objective is to become a leader in the marketing of the Voice
Systems. The Company's strategy is to (i) establish a sales force to market the
Court Reporting Systems to court administrators, (ii) obtain marketing partners
and distributors which already have a significant presence in the field for the
marketing of its Medical Recordkeeping Systems to hospitals, physicians and
physician practice management groups and (iii) obtain marketing partners and
licenses for the sales and distribution of its Voice Systems to other
applications and field of use.
RISK FACTORS
The shares of Common Stock offered hereby involve a high degree of risk,
including but not limited to the Company's lack of operating history, early
stage product commercialization; dependence on new products and technologies;
uncertainty of market acceptance of its products; conflicts of interest between
the Company and Southern, the transferor of the Technology and the payee of the
$4.5 million Promissory Note, and conflicts between Mr. Frank Carr who is the
President of the Company and the Managing Director of Southern whose employment
agreement with the Company having an annual salary of $180,000 will commence
upon the Closing of the offering and does not obligate him to devote his full
time to the Company; dependence on marketing partners; potential adverse effect
of competition and technological change; limited manufacturing experience;
dependence on a sole source supplier; dependence on patents, trade secrets and
proprietary rights; future capital needs and uncertainty of additional
financing; dependence upon key personnel; product liability exposure and
potential unavailability of insurance; control by existing stockholders;
anti-takeover provisions; broad discretion in application of proceeds; no prior
public market for the Common Stock; substantial number of shares eligible for
future sale; potential adverse impact on future market price from sales of
shares; absence of dividends; and dilution to investors. See "Risk Factors" for
a more complete discussion of risk factors which should be considered by
potential investors.
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.
3
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Common Stock being Offered...... A minimum of 750,000 Shares ($6,000,000) and a maximum of
1,875,000 Shares ($15,000,000).
Price Per Share................. $8.00 Per Share.
Common Stock to be Outstanding
after Offering(1)............. 4,375,000 shares of Common Stock if the Maximum Offering
is sold and 3,250,000 Shares of Common Stock if the
Minimum Offering is sold.
Use of Proceeds................. For payment of Promissory Note issued to Southern upon the
Technology acquisition, for working capital, management
consulting services, general corporate purposes and for
sales and marketing. See "Use of Proceeds."
Terms of Offering............... Offering Proceeds will be deposited by the Underwriter and
held in escrow at Chase Manhattan Bank, N.A., until the
earlier of the Closing of the Offering or the termination
of the Offering Period. If a minimum of $6,000,000 of the
Offering is not subscribed during the Offering Period, all
funds received will be promptly be refunded to subscribers
without deduction therefrom and without interest thereon.
See "Underwriting."
Proposed NASDAQ SmallCap Market
System Symbol................. VNET
</TABLE>
- ------------------------
(1) Does not include (a) up to 187,500 Shares issuable upon exercise of the
Underwriter's Warrants for a price of $8.80 per Share, or (b) shares of
Common Stock issuable upon the exercise of director's options issued to each
director to acquire 50,000 shares of Common Stock for a price of $1.00 per
share exercisable over a period ending December 31, 2002.
4
<PAGE>
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 ended December 31.
STATEMENT OF OPERATIONS DATA:
<TABLE>
<CAPTION>
DECEMBER 31, 1996
-----------------
<S> <C>
Revenue.......................................................... --
Income (Loss) from Operations.................................... $(725)
Net Income (Loss)................................................ $(725)
Income (Loss) Per Share.......................................... $.00
Weighted Average Shares Outstanding.............................. 2,500,000
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1996
----------------------------------------------
ACTUAL
------------ AS ADJUSTED (3)
--------------------------------
MAXIMUM (2)
MINIMUM (1) 1,875,000
750,000 SHARES SHARES
<S> <C> <C> <C>
BALANCE SHEET DATA:
Current Assets.................................................. $ 8,970 $ 385,655 $ 8,350,655
Total Assets.................................................... $ 4,623,324 $ 5,000,009 $ 12,965,009
Current Liabilities............................................. $ 4,599,029 $ 99,029 $ 99,029
Stockholders' Equity............................................ $ 24,295 $ 4,900,980 $ 12,865,980
</TABLE>
- ------------------------
(1) Gives effect to the sale of the 750,000 shares of Common Stock offered
hereby at the initial public offering price of $8.00 per share, and initial
application of the estimated net proceeds of $4,876,685.
(2) Gives effect to the sale of the 1,875,000 shares of Common Stock offered
hereby at the initial public offering price of $8.00 per Share, and initial
application of the estimated net proceeds of $12,841,685.
(3) After the payment of all estimated offering expenses, (including the
Representative's 2 1/2% non-accountable expense allowance) 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 Underwriter's Warrants. See
"Underwriting."
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. is a development stage company, incorporated on April 2, 1996
in the State of Delaware. 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. Unless the
Company is able to generate revenues or obtain financing through this Offering
or another means in the near future, the operations of the Company in its
development phase raise substantial doubt about the ability of the Company to
continue as a going concern. There can be no assurance that the operations of
the Company will ever be competitive or profitable.
POSSIBLE NEED FOR ADDITIONAL FINANCING
The Company is dependent on and intends to use the proceeds of this offering
to implement its proposed product introduction and expansion. Based on currently
proposed plans and assumptions relating to its operations, the Company
anticipates that the proceeds of this offering, together with projected cash
flow from operations and available cash resources, will be sufficient to satisfy
its contemplated cash requirements for at least twelve months following the
consummation of this offering. However, if only the Minimum Offering is raised,
after payment of the $4,500,000 Promissory Note, no amount is allocated for
working capital. In the event that the Company's assumptions change or prove to
be inaccurate or if the proceeds of this offering, cash flow and available cash
resources prove to be insufficient to fund operations (due to unanticipated
expenses, difficulties, problems or otherwise), the Company may be required to
seek additional financing or curtail its expansion activities. The Company may
in the future determine, depending upon the opportunities available to it, to
seek additional debt or equity financing to fund the cost of continuing
expansion. To the extent that the Company obtains equity financing or finances
an acquisition with equity securities, any such issuance of equity securities
could result in dilution to the interests of the Company's stockholders.
Additionally, to the extent that the Company incurs additional indebtedness or
issues debt securities in connection with an acquisition, the Company will be
subject to risks associated with incurring substantial additional indebtedness
including the possibility that cash flow may be insufficient to pay principal
and interest on any such indebtedness. There can be no assurance that additional
financing will be available to the Company on acceptable terms, or at all. See
"Use of Proceeds."
6
<PAGE>
SUBSTANTIAL PORTION OF PROCEEDS ALLOCATED FOR REPAYMENT OF INDEBTEDNESS AND
GENERAL CORPORATE AND WORKING CAPITAL PURPOSES
Approximately 30% if the Maximum Offering is sold and 75% if the Minimum
Offering is sold of the estimated proceeds from the sale of the Shares has been
allocated for repayment of $4,500,000 the Promissory Note to Southern of the
Company, and approximately 35% if the Maximum Offering is sold and 0% if the
Minimum Offering is sold, of the estimated net proceeds from the sale of the
Shares has been allocated to general corporate and working capital purposes.
Proceeds allocated to general corporate and working capital purposes may be
utilized at the discretion of the Board of Directors. As a result, investors
will not know in advance how such proceeds will be utilized by the Company. See
"Use of Proceeds."
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 basis. 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 any or significant market
acceptance. See "Business--Industry Comparison of Technology."
DEPENDENCE ON ACCEPTANCE BY COURT ADMINISTRATORS
Sales of the Company's Court Reporting System products on a commercial basis
will be substantially dependent on acceptance by the court community. It is
anticipated that court reporters which are generally unionized government
employees will resist the introduction and implementation of electronic court
reporting systems such as COURTSMART-TM-, COURTSCRIPT-TM- and VOICESCRIPT-TM-.
There can be no assurance that the Company's proposed Court Reporting System
products 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."
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. 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, if ever. 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."
7
<PAGE>
NO ASSURANCE AS TO PROTECTION OF INTELLECTUAL PROPERTY; DEPENDENCE ON
INTELLECTUAL PROPERTY
Patents have been applied for by Southern 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. There can be no assurance that Southern will defend,
or will be in a financial position to defend against third party infringements
on their proprietary rights. 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 which
the Company is not able to undertake because of limited capital. Frank Carr, the
President, Chief Executive Officer and Chief Financial Officer will devote only
a portion of his time to the Company as set forth in his Employment Agreement.
Mr. Carr is also the Managing Director and Chief Executive Officer of Southern,
which is the transferor of the Technology, and the payee of $4,500,000
Promissory Note. Mr. Carr's employment agreement with the Company having an
annual salary of $180,000, will commence upon the Closing of the offering. 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. Mr. Carr may also have conflicts of interest if a dispute wre to arise
under the Technology Transfer Agreement or in connection with the payment of the
Promissory Note. 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 63% of the Company,
causes or provides for the manufacturing of three of the components required for
the operation of the Voice Systems, including the Court Reporting Systems and
Medical Recordkeeping Systems. Further, approximately 30% of the proceeds of the
Maximum Offering and 75% of the Minimum Offering is being paid to 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. See "Business--Technology Transfer Agreement."
8
<PAGE>
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 regarding
its proposed operations in North, Central 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 products such as the Court Reporting Systems or Medical
Recordkeeping Systems, 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
for customer use on a timely basis or within budget, if at all. Any such failure
could materially and adversely affect the Company's technology and its 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. There can be no assurance that
the Company will be able to have such personnel, and if so, on favorable terms.
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 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 being acquired pursuant to the
Technology Transfer Agreement 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 Comparison of
Technology."
9
<PAGE>
PRODUCTS LIABILITY AND OTHER CLAIMS
The Company may be subject to substantial products liability costs if claims
arise out of problems associated with the Company's products. 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; prior to selling its first products. 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
Competition in the continuous speech, voice recognition systems and digital
audio technology market is intense. The Company faces competition from many
companies in the United States and abroad, including a number of large companies
and firms specialized in the development and production of systems. Most of the
Company's competitors have substantially greater resources, greater operating
experience, greater research and development and marketing capabilities and
greater production capabilities than those of the Company. There can be no
assurance that the Company's competitors will not develop voice recognition
technologies and products that are more effective or less expensive than the
Company's or which would render the Company's technology and products obsolete
and noncompetitive.
Although the Company is of the opinion that the speech recognition systems
and Southern's latest revision of the Court Reporting Systems and Medical
Recordkeeping Systems 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 in North America. In particular,
International Business Machines Corp. ("IBM") has recently introduced a voice
recognition system for medical recordkeeping which has continuous voice
recognition abilities and a reported 20,000 word vocabulary. Another such
company, Karri Technologies Corp., is a licensee of Southern of the earlier
version of certain components of COURTSMART-TM- in North America, which also has
the non-exclusive right to use the name COURTSMART-TM- in connection with those
components in North America. Many other competitors and potential competitors,
including AT&T, Apple Computer, Inc., International Business Machines Corp.,
Microsoft Corporation, NEC Corp., Dictaphone, Philips, N.V., Texas Instruments
Incorporated and Lernout and Hauspie, Inc. have substantially greater resources
than the Company. The Company also competes with other smaller companies which
have developed advanced speech technology products. Further, although the
Company will have the exclusive right to the Technology from Southern in the
Company's Territory, the Company does not have the exclusive right to the
Philips Engine in such Territory. Consequently, it is possible that Philips or
another Philips licensee could develop a combined product similar to Southern's
Voice system Technology and market such voice recognition product in the areas
encompassed by the Company's Territory from Southern. In addition, current and
potential competitors have established or may establish cooperative
relationships among themselves or with other 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
10
<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 majority 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. Southern,
who has sold the Technology to the Company and is the payee of the $4.5 million
Promissory Note, owns, and after this offering, will continue to own, a
controlling interest in the Company. Further, Mr. Frank Carr, the Company's
President and Chief Executive Officer is also the Managing Director and Chief
Executive Officer of Southern. Numerous conflicts of interest could arise in the
enforcement of the Technology Transfer Agreement and regarding payment of the
Promissory Note between Southern and the Company in light of Southern's
controlling interest in the common stock of the Company and Mr. Carr's dual
roles as Chief Executive Officer of both companies. 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. The
Company's Certificate of Incorporation authorizes the Board of Directors to
issue up to 1,000,000 shares of so-called "blank check" preferred stock, which,
among other things, could allow the Board of Directors upon issuance to
adversely affect the voting power of the holders of Common Stock. The Company
has no plans, arrangements, understandings or commitments to issue preferred
stock. See "Management"; "Principal Stockholders" and "Description of
Securities."
POSSIBLE DELISTING OF SECURITIES FROM NASDAQ SYSTEM
Upon completion of this offering it is expected that the Company's Common
Stock will be approved for listing on the NASDAQ Small Cap Market. In order to
continue to qualify for listing on the NASDAQ Small Cap Market, however 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. Nasdaq has recently proposed new maintenance criteria which,
if implemented, would eliminate the exception to the $1.00 per share minimum bid
price and require, among other things, $2,000,000 in net tangible assets,
$1,000,000 market value of the public float and adherence to certain corporate
governance provisions. However, upon completion of the offering, 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). If the Common Stock were delisted from the Nasdaq Small Cap Market, and
the Company's stock price should fall below $5.00 per share and no other
exclusion from the definition of "penny stock" under the Securities Exchange Act
of 1934, as amended (the "Exchange Act") is available, then the Company's Common
Stock would be deemed "penny stock" and transactions in the Common Stock would
be subject to the penny stock regulations which impose significant sales
practice requirements on broker dealers, including (a) delivering to customers
the Commission's standardized disclosure statement about "penny stocks", (b)
providing to customers current bid and ask prices for the stock, (c) disclosing
to customers the broker-dealer's and sales representative's compensation with
respect to trades in the stock, and (d) providing to customers monthly
11
<PAGE>
account statements reflecting the stock's then current price. 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 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.
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.
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 affect the voting power and percentage ownership of the holders
of the Common Stock. The Company has no plans, arrangements, understandings or
commitments to issue any preferred stock. However, the ability of the Company to
issue such additional shares and the possible exercise of the Representative's
Warrants may prove to be a hindrance to future financings by the Company since
the holders of such Warrants may be expected to exercise them at a time when the
Company would otherwise be able to obtain additional equity capital on terms
more favorable to the Company. Also, rights granted to future holders of
preferred stock could be used to restrict the Company's ability to merge with,
or sell its assets to, a third party, and the ability of the Board of Directors
to issue preferred stock could discourage, delay or prevent a takeover of the
Company, thereby preserving control of the Company by the current shqreholders.
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"). None of the 2,500,000 outstanding shares will be eligible for resale
until April 1997, unless they are registered before or another exemption from
registration is available. In general, under Rule 144 as recently modified,
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 one year, 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 two
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."
12
<PAGE>
NO ASSURANCE OF PUBLIC MARKET; ARBITRARY DETERMINATION OF OFFERING PRICE; LACK
OF PUBLIC MARKET FOR SECURITIES
Prior to this offering, there has been no public market for the shares of
Common Stock. The initial public offering price of the Shares have been
arbitrarily determined by negotiations between the Company and the Underwriter
and bears no relationship to such established valuation criteria such as assets,
book value or prospective earnings.
IMMEDIATE SUBSTANTIAL DILUTION; DISPARITY OF CONSIDERATION
This offering involves an immediate and substantial dilution of $7.88 per
share if the Minimum Offering is sold and $6.12 if the Maximum Offering is sold,
the respective differences between the pro forma net tangible book value per
share after the offering of $.12 if the Minimum Offering is sold, and $1.88 if
the Maximum Offering is sold 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.
RISKS ASSOCIATED WITH FORWARD-LOOKING STATEMENTS INCLUDED IN THIS PROSPECTUS.
This Prospectus contains certain forward-looking statements regarding the
plans and objectives of management for future operations, including plans and
objectives relating to the development of the Company. The forward-looking
statements included herein are based on current expectations that involve
numerous risks and uncertainties. The Company's plans and objectives are based
on a successful execution of the Company's expansion strategy and assumptions
that the Company will be profitable, that the industry will not change
materially or adversely, and that there will be no unanticipated material
adverse change in the Company's operations or business. Assumptions relating to
the foregoing involve judgments with respect to, among other things, future
economic, competitive and market conditions and future business decisions, all
of which are difficult or impossible to predict accurately and many of which are
beyond the control of the Company. Although the Company believes that its
assumptions underlying the forward-looking statements are reasonable, any of the
assumptions could prove inaccurate and, therefore, there can be no assurance
that the forward-looking statements included in this Prospectus will prove to be
accurate. In light of the significant uncertainties inherent in the
forward-looking statements included herein, particularly in view of the
Company's early stage operations, the inclusion of such information should not
be regarded as a representation by the Company or any other person that the
objectives and plans of the Company will be achieved.
13
<PAGE>
DIVIDENDS
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. Investors who
anticipate the need for dividends on their investments should refrain from
purchasing any of the shares of Common Stock offered hereby.
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 "Underwriting."
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
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 $4,876,685 if the Minimum Offering is subscribed ranging up to
$12,841,685 if the Maximum Offering is subscribed. 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........................................ 200,000 1,980,000
Technical Consultants..................................................... 100,000 450,000
Facilities management and office administrations.......................... 51,685 180,000
Warehouse assembly plant.................................................. 0 100,000
Purchase of components(2)................................................. 0 160,000
Corporate purposes(3)..................................................... 25,000 100,000
Working capital........................................................... 0 5,371,685
------------------ ------------------
Total..................................................................... $ 4,876,685 $ 12,841,685
</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.
- ------------------------
(1) Payment of Promissory Note to Southern under Technology Transfer Agreement.
See "Certain Transactions."
(2) Components for initial inventory of systems.
(3) Includes anticipated audit and legal costs.
DIVIDEND POLICY
To date, the Company has not declared or paid any dividends on its Common
Stock and does not expect to declare or pay any cash dividends in the
foreseeable future. The payment of dividends, if any, in the future is within
the discretion of the Board of Directors and will depend upon the Company's
earnings, if any, its capital requirements and financial condition and other
relevant factors.
14
<PAGE>
CAPITALIZATION
Set forth below is the capitalization of the Company as of December 31, 1996
(i) on an actual basis, and (ii) on an as adjusted basis to give effect on the
net proceeds from the sale of the Minimum Offering and Maximum Offering after
deduction of, the estimated selling commissions and offering expenses payable by
the Company.
<TABLE>
<CAPTION>
AS ADJUSTED
AFTER THIS OFFERING(1)
------------------------------------------------
OUTSTANDING ON MAXIMUM
DECEMBER 31, MINIMUM 1,875,000
1996(1) 750,000 SHARES SHARES
--------------- -------------- ---------------
<S> <C> <C> <C>
Long Term Indebtedness......................................... $ 4,500,000 0 0
Common Stock, $.01 par value(1) 10,000,000 shares authorized
2,500,000 shares issued and outstanding....................... $ 25,000 $ 32,500 $ 43,750
Additional Paid in Capital..................................... $ 20 $ 4,869,205 $ 12,747,955
Deficit accumulated during the development stage............... (725) (725) (725)
--------------- -------------- ---------------
Total Capitalization........................................... $ 24,295 4,900,980 $ 12,865,980
--------------- -------------- ---------------
</TABLE>
- ------------------------
(1) The actual and adjusted information excludes (i) up to 187,500 shares
issuable upon exercise of the Underwriter's Warrants for a price of $8.80
per share and (ii) shares of Common Stock issuable upon the exercise of
director's options issued to each director to acquire 50,000 shares of
Common Stock for a price of $1.00 per share exercisable over a period ending
December 31, 2002.
15
<PAGE>
DILUTION
On June 9, 1996 the Company issued 2,500,000 shares of its Common Stock to
the founders of the Company, Southern, to an affiliate of the Underwriter, and
to others for $.01 per share. See "Principal Shareholders" and "Certain
Transactions."
As of December 31, l996 the net tangible book value of the outstanding
2,500,000 shares of the Company's Common Stock was $(4,590,059) or approximately
($1.84) per share, which negative values are primarily due to the $4,500,000
Promissory Note due to Southern but without any corresponding tangible assets
reflected as patents and intellectual property such as the Technology are
treated as intangible assets. 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 preferred 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 purchasers of Shares 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 December 31,
1996, as adjusted above, would have been $400,980 or $.12 per share if the
Minimum Offering is sold (i.e., $400,980 DIVIDED BY 3,250,000 shares),
$8,251,626 or $1.88 per share if the Maximum Offering is sold (i.e.,
$8,251,626 DIVIDED BY 4,375,000 shares). The following table illustrates this
dilution on a per share basis:
<TABLE>
<CAPTION>
ASSUMING 750,000 MINIMUN OFFERING SOLD
<S> <C> <C>
Price Per Share............................................. $ 8.00
Net Tangible Book Value Per Share Before Offering........... $ (1.84)
Pro forma Net Tangible Book Value After Offering............ $ .12
---------
Dilution of Net Tangible Book Value Per Share to New
Investors.................................................. $ 7.88
---------
---------
</TABLE>
ASSUMING 1,875,000 MAXIMUM OFFERING SOLD
<TABLE>
<S> <C> <C>
Price Per Share............................................... $ 8.00
Net Tangible Book Value Per Share Before Offering............. $ (1.84)
Pro forma Net Tangible Book Value After Offering.............. $ 1.88
---------
Dilution of Net Tangible Book Value Per Share to New
Investors.................................................... $ 6.12
---------
---------
</TABLE>
The following tables summarize, as of December 31, 1996 the number of shares of
Common Stock purchased from the Company by, the total consideration received by
the Company from, and the average price per share of the shares purchased by,
(a) the New Investors of the 750,000 Minimum Offering and, alternately, the
1,875,000 Maximum Offering hereby (without deduction for offering expenes or
selling commissions) and (b) the Initial Holders.
ASSUMING SALE OF MINIMUM OFFERING OF SHARES
OF COMMON STOCK*
<TABLE>
<CAPTION>
TOTAL AVERAGE
COMMON SHARES CONSIDERATION PRICE PER
PURCHASED NUMBER PERCENT AMOUNT PERCENT SHARE
---------------- --------- ------------- --------- -----------
<S> <C> <C> <C> <C> <C>
Initial Holders 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%
---------------- --------- ------------- ---------
---------------- --------- ------------- ---------
</TABLE>
ASSUMING SALE OF MAXIMUM OFFERING OF SHARES
OF COMMON STOCK*
<TABLE>
<CAPTION>
TOTAL AVERAGE
COMMON SHARES CONSIDERATION PRICE PER
PURCHASED NUMBER PERCENT AMOUNT PERCENT SHARE
---------------- --------- ------------- --------- -----------
<S> <C> <C> <C> <C> <C>
Initial Holders 2,500,000 57.1 $ 25,000 0.17% $ .01
New Investors 1,875,000 42.9 $ 15,000,000 99.83 $ 8.00
---------------- --------- ------------- ---------
4,375,000 100.0 $ 15,025,000 100.0%
---------------- --------- ------------- ---------
---------------- --------- ------------- ---------
</TABLE>
* No effect is given for the possible exercise of the Underwriter's Warrants.
16
<PAGE>
SELECTED FINANCIAL DATA
Voicenet, Inc. was organized on April 2, 1996. The Company is a development
stage company and has no revenues, income 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 December 31.
<TABLE>
<S> <C> <C>
INCOME STATEMENT DATA:
Revenue
Income (Loss) from Operations......................... ($725)
Net Income (Loss)..................................... ($725)
Income (Loss) Per Share............................... $.00
Weighted Average Shares Outstanding................... 2,500,000
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1996
------------------------------------------
MINIMUM(1) MAXIMUM(2)
750,000 1,875,000
ACTUAL SHARES SHARES
------------ ------------- -------------
<S> <C> <C> <C>
BALANCE SHEET DATA:
Current Assets................................. $ 8,970 $ 385,655 $ 8,350,655
Total Assets................................... $ 4,623,324 $ 5,000,009 $ 12,965,009
Current Liabilities............................ $ 4,599,029 $ 599,029 $ 99,029
Stockholders' Equity........................... $ 24,295 $ 4,900,980 $ 12,865,980
</TABLE>
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BUSINESS
THE COMPANY
Voicenet, Inc., a Delaware corporation, was recently established for the
marketing and distribution of high vocabulary, 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 recently acquired from Southern pursuant to a Technology
Transfer Agreement dated as of August 1, 1996 the exclusive rights for the
Territory to the latest version of 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 Southern's
latest version of (i) digital audio reporting, transcription, archiving and
retrieval systems known as COURTSMART-TM-, COURTSCRIPT-TM- and VOICESCRIPT-TM-
for the court recording industry (collectively, the "Court Reporting Systems");
(ii) high vocabulary, continuous speech voice recognition digital recording,
transaction, archiving and retrieval for the medical industry known as
RADTALK-TM- MEDTALK-TM- AND PSYCHTALK-TM- (collectively the "Medical
Recordkeeping Systems"); (iii) digital audio products and technologies for the
broadcasting industry; and (iv) Southern's current and future 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 (a) $2,500,000 upon the earlier
of October 31, 1997 or the completion of this Offering by the Company, (b)
$1,000,000 upon the earlier of October 31, 1997 or the installation of the first
COURTSMART-TM- system by the Company in the United States, and (c) $1,000,000 on
October 31, 1997. The primary basis for establishing the purchase price under
the Technology Transfer Agreement was the evaluation prepared by Gorey &
Sinclair, Chartered Accountants, of Perth, Australia. See "Business of the
Company--Technology Transfer Agreement". Southern currently holds a controlling
interest and will continue after this initial public offering to hold a
controlling interest in the Company. Additionally the Company's President and
Chief Executive Officer is also the Managing Director and Chief Executive of
Southern. See "Business of the Company--Technology Transfer Agreement."
The Technology and products acquired by the Company under the Technology
Transfer Agreement embrace two main voice technologies: (i) digital voice
compression/transmission and (ii) speech recognition.
Philips has developed a large vocabulary (i.e., having a 64,000 word
capacity), continuous speech (i.e. unbroken speech) recognition engine (the
"Philips Engine") which can process speech from normal parlance. Southern is the
developer of proprietary continuous digital voice compression, storage and
retrieval systems and speech recognition systems and software which incorporates
the Philips Engine. In April and October 1996, Southern signed a technology
licensing and development agreements with Philips for the product development,
integration, marketing and distribution by Southern of a large vocabulary
continuous speech recognition system using the Philips Engine.
Although there can be no assurance, the advances facilitated by the
amalgamation of the technology developed by Southern utilizing the Philips
Engine are expected by the Company to have a significant
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impact on the interactivity aspect of the computer industry, where continuous
large vocabulary speech can be processed and transcribed by voice activation.
The Company believes using its Technology 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 speech
recognition 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 such as in the court
reporting and medical recordkeeping context, but also as an enabling technology
for new applications such as immediate transcription of voice to text for the
hearing impaired; these two earlier limitations severely hindered the
feasibility and effectiveness and, consequently, the market penetration of
speech recognition. Although there can be no assurance, the Company believes
that the implication 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.
Management believes that the market for large vocabulary, continuous speech
technology and systems will grow significantly within the next decade. The
Company's objective is to become a leader in the development and marketing of
large vocabulary, continuous speech technology and systems.
Although there can be no assurance, the Company believes that the latest
version of the Technology has many other applications such as for use in
hospitals, law enforcement agencies, surveillance authorities, conference
services, security agencies, capital markets, universities, schools and banks.
The Company's objective is to become a leader in the marketing of the Voice
Systems.
STRATEGY
- EMPHASIZE HIGH VOCABULARY, CONTINUOUS SPEECH, VOICE RECOGNITION SYSTEMS
PRODUCT LINE. The Company intends to emphasize the continued development
of its state-of-the-art high vocabulary, continuous speech, voice
recognition systems product line, which product line management
anticipates will lead to the development of new products and product
enhancements. Examples of such products are the Company's soon to be
released third generation of Court Reporting System and first generation
of a Medical Recordkeeping System in the Territory, a high vocabulary,
continuous speech, voice recognition digital recording, transcription,
archiving and retrieval for the medical industry which is currently being
tested by medical professionals.
- TARGET AND EXPAND COURT REPORTING MARKET. The Company intends to establish
a sales force to market its Court Reporting Systems featuring large
vocabulary, continuous speech technology to court systems, legislative
bodies and administrative agencies within the Territory. Southern has
tested its Court Reporting Systems in courts within the Territory and has
experienced positive results and inquiries from governments that have
heard about the Court Reporting Systems. Management believes that use of
the Court Reporting Systems will result in lower costs and more efficient
and accurate court reporting.
- PENETRATE MEDICAL RECORDKEEPING MARKET. The Company intends to market its
Medical Recordkeeping Systems to hospitals, medical groups and other
medical and scientific research applications
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within the Territory. Southern is testing its Medical Recordkeeping
Systems in a large hospital in Sydney with positive results, and will be
testing it in a leading New York hospital in mid-1997. Management believes
that use of the Medical Recordkeeping Systems will result in lower costs
and more efficient and accurate medical recordkeeping.
- PURSUE MARKET THROUGH MARKETING PARTNER AND DISTRIBUTOR RELATIONSHIPS. The
Company intends to market some of its products, such as the Medical
Recordkeeping Systems, within the Territory by entering into strategic
distribution agreements. The Company believes that systems like those
developed by the Company have not been previously available to users
distributors may reach.
- FURTHER DEVELOP STRATEGIC ALLIANCES. The Company will support most of its
internal development and marketing efforts with strategic alliances. To
date, the Company has established significant product development
relationships with Southern and indirectly with Philips. The Company
believes that its collaborative relationships with these companies will
expand the breath of opportunities for the Company's technology. The
Company intends to continue to enhance the established strategic alliances
and it believes the relationships will further enhance the Company's
development and marketing efforts.
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. In
1989, Southern developed one of 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.
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 through its subsidiary in the United States, Karri
Technology, Inc., ("KTI") 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 an earlier version of the COURTSMART-TM- Court
Reporting System of digital audio recording and transcription. Earlier versions
of the COURTSMART-TM- system have been sold by Southern to courts in Canberra
(the Australian Capital Territory), Hong Kong, and, by a non-exclusive licensee
in North America, Karri Technologies Corp., in Pennsylvania, California and
Maryland. Newer versions of the Court Reporting System are currently being
marketed by Southern and others in various other countries around the world.
While Karri Technologies Corp. has non-exclusive license rights to use certain
components of the earlier version of the COURTSMART-TM- system and to use the
name COURTSMART-TM- in connection therewith in North America, Southern's
subsidiary KTI ceased operation in 1994 in the United States. The Company
anticipates that its newer version of Court Reporting Systems, some of which
will incorporate continuous, voice-to-text ability, may be also marketed under
the names COURTSCRIPT-TM- and VOICESCRIPT-TM-.
Southern has recently signed technology licensing agreements with Philips
for the product development, marketing and distribution of its continuous
speech, large vocabulary recognition system. Although there can be no assurance,
the advances facilitated by the amalgamation of the large vocabulary continuous
digital voice recognition and 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
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transcribed material can be archived and retrieved on and from the same storage
medium in a synchronous manner.
TECHNICAL SUMMARY OF COURT REPORTING SYSTEM, CONTINUOUS SPEECH RECOGNITION
ENGINE AND MEDICAL RECORDKEEPING SYSTEM
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 Court Reporting
System has been designed, developed and manufactured by Southern and it's
subsidiaries. The main hardware components of the Court Reporting 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 Court Reporting 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 second generation of the Court Reporting System that is being acquired
by the Company 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 area network ("WAN") capability.
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, which along with
proprietary software embodies the Philips Engine. The methodology embraced in
utilizing this continuous speech recognition technology is heavily speech
context orientated. The reason 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 speech recognition rates.
The Philips 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 Medical Recordkeeping System combines the digital voice compression
storage and retrieval technology of Southern with the Philips Engine into a new
product that is capable of continuous high vocabulary voice recognition and
virtually immediate digital conversion of the voice-to-text.
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 latest version of the Technology from Southern under the Technology
Transfer Agreement to the Company, is for its large vocabulary, continuous
speech
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recognition systems. This is to be distinguished from speech technology that has
been available for several years in various limited applications, which have had
two major limitations (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 recognized technology slow and isolated in use. Examples of these speech
recognition systems currently available are (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.
Because there are many voice recognition ("VR") technology providers in the
market today, it is important to compare these other systems to the Company's
technology. The three principal bases typically used in the VR industry are (i)
continuous versus discrete speech; (ii) large versus small vocabulary; and (iii)
speaker dependent versus speaker independent. There is a relationship between
the size of the vocabulary which determines the effectiveness of its recognition
factor, i.e. the smaller the vocabulary, the easier it is for recognition and
conversely, the larger the vocabulary, the more difficult it is to achieve
recognition.
The specific use contexts can also be broken down into three main
categories: (i) dictation, (ii) telephony, and (iii) "command & control". The
Company intends to operate in a dictation context. Each use context needs to be
benchmarked in a manner consistent with the baselines set for the applicable
use, (e.g., the baseline for large vocabulary in the telephony context means
2,000 words). It is not uncommon for telephony or "command & control" VR
developers to provide a "continuous speech" facility because they are used
solely for small vocabularies which address basic telephony application
interaction (i.e. continuous digit recognition for credit card details or
limited phrases for action commands such as phone number retrieval or
progressive information steps).
However, in the dictation context the baseline for "large vocabulary" is
considered to be greater than 20,000 words. Moreover, a continuous and active
large vocabulary dictation context is even more technically challenging. The
speech recognition technology to be marketed by the Company is the only
technology in the dictation context which can process very large active
vocabulary (64,000 words) with continuous voice recognition in a dictation
context. IBM has recently introduced a continuous voice recognition system with
a reported vocabulary of 20,000 words for the medical recordkeeping industry.
From their examinations of the market, Southern and the Company believe that
there are currently no other voice recognition systems close to its 64,000 word
vocabulary level of speech recognition technology.
DEVELOPMENT AND USE OF COURTSMART-TM- COURT REPORTING SYSTEM
The earlier version of the COURTSMART-TM- system was developed and was
installed by Southern's subsidiary, Karri Technology, Inc., 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 the COURTSMART-TM- system was
instrumental in determining the final characteristics of the subsequent versions
of the system.
The COURTSMART-TM- system, and other Court Reporting Systems 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 media
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
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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 its version of the Court Reporting System
introduces three major advances over other currently available systems: the
first 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; and 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 latest version of the Court Reporting 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.
MARKETS
MEDICAL RECORDKEEPING
Medical recordkeeping is the verbatim transcription of the spoken word into
the written word, generally by a doctor or a member of a medical or scientific
research staff, recording such things as the condition of a patient, directions
to assistants and nurses, or the results of an experiment, x-ray or test. The
industry is dividend into many sectors, the largest of which is hospitals. In
most hospitals, there is currently no technology equipped to record all the
different information required, and have it quickly and accurately accessible to
the parties who need it. Many records are kept in the form of handwritten charts
or reports.
The Company believes that the greatest initial demand for its Medical
Recordkeeping System will come from (i) radiologists who are constantly reading
patients x-rays, CAT scans and magnetic resonance imaging ("MRI") scans and must
keep a written record of their findings; (ii) operating room personnel, and
(iii) psychiatrists.
The Company intends to market and distribute the Medical Recordkeeping
Systems to hospitals initially. Tests are currently being conducted in a large
hospital in Sydney, and more will be conducted in a major New York hospital in
mid-1997. Although there can be no assurance, the Company believes that the cost
and benefit of its system in light of the technology currently available to
service the medical community will convince hospital administrators to begin
using its Medical Recordkeeping System.
COURT REPORTING
Court reporting is the verbatim transcription of the spoken word into the
written word, generally from shown 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.
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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 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.
The Company intends to market and distribute the COURTSMART-TM- and,
COURTSCRIPT-TM- systems to courts initially. It can be anticipated, however,
that court reporters, which are generally unionized government employees, may
resist the introduction and implementation of electronic court reporting
systems. Although there can be no assurance, the Company believes, however, that
the cost and benefit of its system in comparison to court reporters will
convince court administrators to begin using its Court Reporting Systems. The
Company also intends to market its Court Reporting Systems to parliamentary and
legislative bodies. The Company may use the name VOICESCRIPT-TM- in connection
with such systems.
MARKETING STRATEGY
The Company plans to seek an ongoing relationship with a distributor or
distributors that have a strong foothold in the medical marketplace to market
the Medical Recordkeeping Systems. The Company's initial focus for the
distributors will be on major hospitals and medical centers within the
Territory.
The Company plans to market the Court Reporting Systems by appointing 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 Court
Reporting System; and (d) how its Court Reporting System functions.
Upon completion of the offering, the Company anticipates hiring the sales
and marketing force of up to 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.
Pursuant to the Company's agreement with Southern, all potential and
executory contracts being negotiated by Southern within North America will be
transferred to the Company upon successful closing of the Offering.
COMPETITION
Competition in the continuous speech, voice recognition systems and digital
audio technology market is intense. The Company believes that its principal
competitors in the field of voice recognition are IBM, AT&T, Microsoft, Kurz
Weil, Philips Electronics, N.V., Dragon Systems, Inc., Kolvox, Fonix, Voice
Control Systems, Inc., Voice Processing Corporation, Lernout & Hauspie, Inc. and
Karri Technologies Corp., one
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of Southern's non-exclusive licensees of the earlier version of certain
components of the COURTSMART-TM- which has the non-exclusive right to also use
the name COURTSMART-TM- in connection with such components in North America. In
particular, IBM has recently introduced a voice recognition system for the
medical industry which has continuous voice recognition abilities and a reported
20,000 word vocabulary. Further, although the Company will have the exclusive
right to the Technology from Southern, the Company does not have the exclusive
right to the Philips Engine in its Territory. Consequently, it is possible that
Philips or another Philips licensee could develop a combined product similar to
Southern's voice system and Technology and market such voice recognition product
in the areas encompassed by the Company's Territory from Southern. Lernout &
Hauspie is 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
believed to be restricted to discrete speech. In the case of 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 into the market
segments or similar technologies will not succeed in developing similar or more
effective competitive products or technologies.
Many of the Company's competitors are large established companies with
greater resources, greater marketing and operating experience, greater research
and development and greater production capabilities than those of the Company.
The Company's competitive position will also depend upon its ability to
attract and retain qualified personnel, obtain patent protection or otherwise
develop proprietary products or processes and secure sufficient resources for
the marketing and servicing of its products. There is no assurance that the
Company will be able to compete successfully.
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 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 the latest
version of digital audio reporting, transcription, archiving and retrieval
systems for the court recording industry; high vocabulary; continuous voice
recognition and digital voice-to-text recording; storage and retrieval for the
medical 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. The note is payable as follows: (a) $2.5 million upon the earlier of
October 31, 1997 or the successful closing of the Company's offering, (b) $1
million upon the earlier of October 31, 1997 or the first signed installation
contract for a COURTSMART-TM- system in the United States of at least $30,000
and (c) $1 million on October 31, 1997. The Company has granted to Southern, as
collateral, a security interest in all assets of the Company.
The Company commissioned Gorey & Sinclair, an independent Australian
chartered accounting firm to prepare a valuation report of the latest version of
the COURTSMART-TM- system in the United States. In the opinion of Gorey &
Sinclair, based upon certain assumptions, the COURTSMART-TM- system for the
United States has a potential value between $23.7 million and $32 million upon
full commercialization. The Company relied on this report as its primarily basis
for determining the purchase price of the Technology from Southern. The report
by Gorey & Sinclair is necessarily based upon a number of
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estimates, assumptions and forecasts that, while they are considered reasonable
by the Company, assuming the Company has adequate financing 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
estimates 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
The Company has no manufacturing facilities and plans to rely upon Southern
and other contract manufacturers to manufacture its proposed products. Except
for one small hardware component and two software components, all of the
remaining components utilized in the latest version of the Court Reporting
Systems and the Medical Recordkeeping Systems, are readily available and can be
purchased from numerous sources in the United States and abroad. The one
hardware component and the two software components that contain the proprietary
technology developed by Southern which incorporates the Philips Engine will be
acquired from Southern. Southern has agreed to manufacture the one 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 Southern sells the components to unaffiliated parties, less a minimum
discount of 10%.
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 latest version of the COURTSMART-TM- system and other
digital voice systems developed by Southern in North, Central and South America
under Southern's trademarks. Southern developed the systems, and has copyrighted
the computer software used in the Court Reporting 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. Philip owns and has
patented the technology comprising the Philips Engine. Southern is a licensee of
the Philips Engine. The Company's composite product which is Southern's patented
and proprietary digital cardio recording, storage, archiving and retrieval
technology integrated with the Philips Engine. The Company does not have an
exclusive right from Philips to the Philips Engine in the Territory. 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 use the Philips Engine to make a similar product, or
that Southern or the Company can meaningfully protect its rights in such
unpatented proprietary technology or know-how.
EMPLOYEES
Upon completion of the offering, the Company will have 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.
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PROPERTY
The Company subleases approximately 500 sq. ft. of office space on a
month-to-month basis from an affiliated landlord, Ridgewood Group International,
Ltd., which is owned by Mr. William Potter, a director, 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.
LEGAL PROCEEDINGS
The Company knows of no litigation or other legal proceedings pending or
threatened to which it is, or may become, a party.
27
<PAGE>
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
Jason Beever.............................. 26 Vice President, Voice Technologies
William J. Potter......................... 47 Director and Secretary
John Gilbert.............................. 69 Director
</TABLE>
JAMES SIM, CHAIRMAN OF THE BOARD
Mr. Sim has been the Company's Chairman of the Board since 1996. 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 in 1996. 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.
JASON BEEVER, VICE PRESIDENT, SPEECH TECHNOLOGIES
Mr. Beever has been Vice President, Speech Technologies of the Company since
1996. 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 Vienna, Austria.
Mr. Beever graduated from Curtin University of Technology in Western Australia
with a Bachelor of Science degree in computer science and marketing.
28
<PAGE>
WILLIAM J. POTTER, SECRETARY AND DIRECTOR
Mr. Potter has been Secretary and a Director of the Company since 1996. Mr.
Potter is president of the Ridgewood Group International, Inc., a New York based
investment bank, and Ridgewood Capital Funding, Inc., a NASD securities
broker-dealer. Prior to establishing and owning the Ridgewood Capital Funding,
Inc. and Ridgewood Partners, Ltd. 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.
Mr. Potter 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 Director of the Company since
1996. 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 Services Ltd.
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.
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 $1.00 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 an employment contract at a fee of $180,000 per year for
a three year term commencing on the completion of this Offering.
29
<PAGE>
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 management 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.
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.
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 consist of
members of the Board, a majority of whom 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."
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.
30
<PAGE>
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.
The Directors have received 50,000 stock options each which have an exercise
price of $1.00 per share, which amount was not less than 85% of the fair market
value of the underlying Common Stock on the date of the grant.
INDEMNIFICATION AND EXCULPATION 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) acts falling under Section 174 of the
General Corporation Law of the State of Delaware, or (iv) 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.
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
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 and Chief Executive Officer is also the Managing Director
and Chief Executive Officer of Southern, the transferor of the Technology to the
Company and the payee of the $4,500,000 Promissory Note from 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
31
<PAGE>
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. Further,
although it is contemplated that upon completion of the Offering they will
become full-time employees of the Company, many of the individuals serving in
management positions with the Company are also currently employed by Southern, a
majority shareholder in the Company and the transferor of the Technology to the
Company. 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.
CERTAIN TRANSACTIONS
All of the existing shareholders acquired the outstanding 2,500,000 shares
of the Company's common stock for $.01 per Share.
In connection with the acquisition of the Technology 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 as follows: (a) $2.5 million upon the earlier of October
31, 1997 or the completion of this Offering, (b) $1 million upon the earlier of
October 31, 1997 or the Company signing its first installation contract for a
COURTSMART-TM- System in the United States, and (c) $1 million on October 31,
1997.
The Company has entered into a one year oral agreement with Ridgewood Group
International, Inc. 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.
32
<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. This table excludes all outstanding
Directors' Stock Options.
<TABLE>
<CAPTION>
SHARES
BENEFICIALLY PERCENT OWNED PERCENT OWNED
NAME AND ADDRESS OWNED PRIOR TO OFFERING AFTER OFFERING
- ------------------------------------------------------------------- ----------- ----------------- ---------------
<S> <C> <C> <C>
Southern Group(1).................................................. 1,580,000 63.2% 42.1%
72 Kings Park Road
West Perth, Australia 6005
Frank Carr(1)...................................................... -0- -0- -0-
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
F.D. Costa(3)...................................................... 290,000 11.6% 7.73%
Ovation Enterprises Ltd............................................ 156,000 6.24% 4.16%
32 Athol Street
Douglas IM1 1JB
Isle of Man
John H. Webster(4)................................................. 156,000 6.24% 4.16%
Karilla of Waterford Ltd........................................... 156,000 6.24% 4.16%
c/o Georgam S.A.M.
17 Ave de la Costa
MC-98000 Monaco
Sylvia H. Goldsmith(5)............................................. 156,000 6.24% 4.16%
All officers and directors as a group (2 persons).................. 305,400 12.2% 8.14%
</TABLE>
- ------------------------
(1) Reflects shares indirectly owned by Mr. Frank Carr who owns a majority of
the shares in a private corporation which owns approximately 13% of
Southern, a publicly owned Australian corporation. Mr. Carr is also Managing
Director and Chief Executive Officer of Southern. Mr. Carr does not directly
own any shares of the Company. 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 of Ridgewood Group International, Inc.,
which directly owns 100,000 shares of the Company's common stock.
(3) Includes 290,000 shares owned by Quartern Holdings, Ltd. Mr. Costa is an
officer, director and principal shareholder of Quartern Holdings, Ltd., and
through such position is an indirect beneficial owner of the designated
shares of the Company.
33
<PAGE>
(4) Includes 156,000 shares owned by Ovation Enterprises, Ltd. Mr. Webster is an
officer, director and principal shareholder of Ovation Enterprises, Inc.,
and through such position is an indirect beneficial owner of the designated
shares of the Company.
(5) Includes 156,000 shares owned by Karilla of Waterford, Ltd. Mrs. Goldsmith
is an officer, director and principal shareholder of Karilla of Waterford,
Ltd., and through such position is an indirect beneficial owner of the
designated shares of the Company.
(6) 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.
(7) Assumes no exercise of the Representative's Warrants. See "Underwriting."
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>
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 seven 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. The Company currently has no plan, arrangement,
understandings or commitments to issue Preferred Stock in the future. 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.
DELAWARE ANTI-TAKEOVER LAW
Certain provisions of the Company's Certificate of Incorporation and Bylaws
may have the effect of preventing, discouraging or delaying any change in the
control of the Company and may maintain the incumbency of the Board of Directors
and management. The authorization of undesignated preferred stock makes it
possible for the Board of Directors to issue preferred stock with voting or
other rights or preferences that could impede the success of any attempt to
change control of the Company.
The Company is subject to the provisions of Section 203 of the Delaware
General Corporation Law (the "Antitakeover Law") regulating corporate takeovers.
The Antitakeover Law prevents certain Delaware corporations, including those
whose securities are authorized for quotation on The NASDAQ Stock Market (which
includes the NASDAQ SmallCap Market System), from engaging, under certain
circumstances, in a "business combination" (which includes a merger or sale or
more than 10% of the corporation's assets) with any "interest stockholder" (a
stockholder who acquired 15% or more of the corporation's outstanding voting
stock without the prior approval of the corporation's Board of Directors) for
three years following the date that such stockholder became an "interested
stockholder." A Delaware corporation may "opt out" of the Antitakeover Law with
an express provision in its original certificate of incorporation or bylaws
resulting from a stockholders' amendment approved by at least a majority of the
outstanding voting shares. The Company has not "opted out" of the application of
the Antitakeover Law.
35
<PAGE>
TRANSFER AGENT, REGISTRAR AND WARRANT AGENT
The transfer and registrar agent for the Common Stock and the Warrant Agent
for the Representative's Warrants is American Stock Transfer & Trust Company.
SHARES ELIGIBLE FOR FUTURE SALE
Upon the consummation of this offering, the Company will have 4,375,000
shares of Common Stock outstanding if the Maximum Offering is sold. Of these
shares, the 1,875,000 Shares sold by the Company in this offering (750,000
Shares if the Minimum Offering is sold) 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 until April 1997.
In general, under Rule 144 as recently amended, 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 one year 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 two 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.
UNDERWRITING
The Company has entered into an underwriting agreement (the "Underwriting
Agreement") with Grady and Hatch & Company, Inc., to act as the underwriter of
this offering. Pursuant to the Underwriting Agreement, the Underwriter will
serve as the exclusive agent for the Company to sell on a "best efforts,"
750,000 Shares all or none basis, a minimum of 750,000 Shares and a maximum of
1,875,000 Shares. The Shares will be offered to the public through the
Underwriter and participating selected dealers at the public offering price of
$8.00 per Share. It has agreed to use its best efforts to find purchasers for
the Shares within the Offering Period.
All proceeds from subscriptions for the first 750,000 Shares will be
deposited promptly into a non-interest bearing account (the "Escrow Account")
with Chase Manhattan Bank, N.A., as Escrow Agent, pursuant to an escrow
agreement among the Company, the Underwriter and Escrow Agent. Funds will be
transmitted to the Escrow Agent for deposit in the Escrow Account no later than
noon of the business day following receipt. All checks must be made payable to
"Chase Manhattan Bank, N.A., as Escrow Agent for Voicenet, Inc." In the event
that 750,000 Units are not sold within the Offering Period and funds are not
cleared within ten business days thereafter, during which time no subscriptions
will be accepted, or the Company and the Underwriter agree to terminate the
offering prior to the end of the Offering Period before the minimum number of
Shares have been sold, funds will be refunded promptly to subscribers in full
without deduction therefrom or interest thereon. During the Offering Period, no
subscriber will be entitled to a refund of any subscription. No funds will be
released from the Escrow Account until the
36
<PAGE>
minimum number of Shares offered hereby are sold and paid for or the offering is
terminated because of failure to sell the minimum number of Shares within the
Offering Period. If 750,000 Shares are sold and paid for prior to the end of the
Offering Period, the additional 1,125,000 Shares will be offered for sale on a
"best efforts" basis until the earlier of the sale of all such securities and
the termination of the offering by agreement between the Company and the
Underwriter. In no event will the offering extend beyond the Offering Period.
The Company and/or its principal stockholders and their associates
anticipate providing the Underwriter with the names of persons whom they believe
may be interested or who may have contacted the Company with interest in
purchasing the Shares. The Underwriter may sell the Shares to such persons if
they reside in a state in which the Shares may be sold and in which the
Underwriter is permitted to sell the Shares. The Underwriter is not obligated to
sell Shares to any such persons.
The Underwriter has advised the Company that it proposes to offer the Shares
to the public at an offering price of $8.00 per Share and that it may allow
certain dealers who are members of the National Association of Securities
Dealers, Inc. (the "NASD"), a concession as it may determine but such concession
shall not exceed 10% of the Share Offering Price. The Underwriter will not use
its discretionary powers to sell any Shares to accounts over which it has
discretion.
In order to facilitate the closing of at least the Minimum Offering, up to
10% of the number of shares which must be purchased to complete the Minimum
Offering (75,000 Shares) may be purchased by officers, directors, principal
shareholders or affiliates of the Company.
The Company has agreed to pay to the Underwriter a non-accountable expense
allowance of 2 1/2% of the total gross proceeds of the offering, and the
Underwriter's Warrants entitling them to purchase an amount of shares of Common
Stock equal to 10% of the number of Shares sold through their efforts up to a
maximum of 187,500 Shares of Common Stock for a period of four years at an
exercise price of $8.80 which will commence one year from the date of this
Prospectus. In addition to the Underwriter's commissions and expense allowance,
the Company is required to pay the costs of qualifying the Shares under federal
and state securities laws, together with legal and accounting fees, printing and
other costs in connection with this offering.
The Underwriter's Warrant will not be transferable prior to its exercise
date except to officers of the Underwriter, and members of the selling group and
officers and partners thereof. It will contain anti-dilution provisions
providing for appropriate adjustment in the event of any recapitalization,
reclassification, stock dividend, stock split or similar transaction. It will
not entitle the holder to any rights as a shareholder of the Company until it is
exercised and Shares are purchased thereunder.
The Underwriter's Warrant and the underlying securities issuable upon the
exercise thereof may not be offered for sale except in compliance with the
applicable provisions of the Securities Act. The Company has included the
Underwriter's Warrant and the underlying securities in the Registration
Statement in order to permit the public sale of these securities which, in any
event, may not be sold prior to one year after the date hereof. It is
anticipated that these securities, when available for sale, may be sold by the
Underwriter at prevailing market prices. The Company has also agreed that in the
event it files another registration statement, or an offering statement under
Regulation A, with the Commission, the Underwriter and/or the holders of the
Underwriter's Warrant and/or the underlying securities shall have the right
during the life of the Underwriter's Warrant to include in such registration
statement or offering statement the Underwriter's Warrant and/or securities
issuable upon its exercise at no expense to the Underwriter. Additionally, the
Company has agreed that, upon written request by the Underwriter or its
specifically duly authorized designee and holders of a 50% interest in the
Underwriter's Warrant, on one occasion, to register the Underwriter's Warrant
and/or any underlying securities, at the Company's expense.
For the exercise period during which the Underwriter's Warrant is
exercisable, the holder or holders will have the opportunity to profit from a
rise in the market value of the Company's Common Stock, with a resulting
dilution in the interests of the other shareholders of the Company. The holder
or holders of the
37
<PAGE>
Underwriter's Warrant can be expected to exercise it at a time when the Company
would, in all likelihood, be able to obtain any needed capital from an offering
of its unissued Common Stock on terms more favorable to the Company than those
provided for in the Underwriter's Warrant. Such facts may adversely effect the
terms on which the Company can obtain additional financing. To the extent that
the Underwriter realizes any gain from the resale of the Underwriter's Warrant
or the securities issuable thereunder, such gain may be deemed additional
underwriting compensation under the Securities Act.
The Underwriting Agreement provides for reciprocal indemnification between
the Company and the Underwriter against certain liabilities in connection with
the Registration Statement, including liabilities under the Securities Act.
The foregoing is a brief summary of certain provisions of the Underwriting
Agreement and does not purport to be a complete statement of its terms and
conditions. A copy of the Underwriting Agreement is on file with the Commission
as an exhibit to the Registration Statement of which this Prospectus is a part.
See "Additional Information."
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 Epstein,
Becker & Green, P.C., 250 Park Avenue, New York, New York. Haythe & Curley, 237
Park Avenue, New York, New York has acted as counsel for the Underwriters in
connection with this offering. Mr. David Fleming, a member of Epstein, Becker &
Green, 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
Marcum & Kliegman LLP, 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. A copy of the Registration Statement may
be inspected without charge at the Commission's principal office in Washington,
D.C., and copies of all or any part of the Registration Statement may be
obtained from the Public Reference Section of the Commission, 450 Fifth Street,
N.W., Washington, D.C. 20549, upon payment of certain fees prescribed by the
Commission. In addition, the Commission maintains a Web site (http://
www.sec.gov) that contains reports, proxy and information statements and other
information regarding registrants that file electronically with the Commission
through the Electronic Data Gathering, Analysis and Retrieval System ("EDGAR").
The Registration Statement of which this Prospectus forms a part has been filed
electronically through EDGAR and may be retrieved through the Commission's Web
site on the Internet. 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.
Upon consummation of this offering, the Company will become subject to the
reporting requirements of the Exchange Act and in accordance therewith will file
reports, proxy statements and other information with the Commission. The Company
intends to furnish its stockholders with annual reports containing audited
financial statements and such other reports as the Company deems appropriate or
as may be required by law.
38
<PAGE>
INDEPENDENT AUDITORS' REPORT
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 December 31, 1996, and the related statements
of operations, changes in stockholders' equity, and cash flows for the period
April 2, 1996 (date of inception) through December 31, 1996. These 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 financial statements referred to above presents fairly,
in all material respects, the financial position of Voicenet, Inc. as of
December 31, 1996, and the results of its operations and its cash flows for the
period April 2, 1996 (inception) through December 31, 1996, in conformity with
generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As 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. Management's plans in
regard to this matter also are described in Note 1. The financial statements do
not include any adjustments that might result from the outcome of this
uncertainty.
Marcum & Kliegman LLP
January 22, 1997, except
for Note 6, as to which the date
is March 7, 1997
F-1
<PAGE>
VOICENET, INC.
BALANCE SHEET
DECEMBER 31, 1996
<TABLE>
<S> <C>
ASSETS
Current assets:
Cash and cash equivalents..................................................... $ 8,970
---------
Total current assets...................................................... 8,970
Deferred offering costs......................................................... 112,654
Organization costs, net......................................................... 1,700
Intangible Asset (Note 3)....................................................... 4,500,000
---------
$4,623,324
---------
---------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.............................................................. $ 74,029
Due to parent company (Note 4)................................................ 25,000
Note Payable, parent company (Note 3)......................................... 4,500,000
Total current liabilities................................................. 4,599,029
Stockholders' equity: (Notes 1,2 and 6)
Preferred stock, $.01 par value, 1,000,000 shares authorized, no shares
outstanding................................................................. -0-
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.............................. (725)
---------
Total Stockholders' Equity 24,295
---------
Total liabilities and stockholders' equity................................ $4,623,324
---------
---------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-2
<PAGE>
VOICENET, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF OPERATIONS
FOR THE PERIOD APRIL 2, 1996
(DATE OF INCEPTION) THROUGH DECEMBER 31, 1996
<TABLE>
<S> <C>
Interest Income................................................................. $ 106
---------
Amortization.................................................................... 300
New York State and City Franchise Tax........................................... 528
Bank Charges.................................................................... 3
---------
Total Expenses.................................................................. 831
Loss from operations............................................................ (725)
---------
Net loss........................................................................ $ (725)
---------
---------
Loss per share.................................................................. $ .00
---------
---------
Weighted average number of shares of Common Stock outstanding during the
period......................................................................... 2,500,000
---------
---------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE>
VOICENET, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE PERIOD APRIL 2, 1996
(DATE OF INCEPTION) THROUGH DECEMBER 31, 1996
<TABLE>
<CAPTION>
DEFICIT
ACCUMULATED
COMMON STOCK ADDITIONAL DURING THE
----------------------- PAID-IN DEVELOPMENT
SHARES AMOUNT CAPITAL STAGE TOTAL
------------ --------- ----------- ------------- ---------
<S> <C> <C> <C> <C> <C>
Initial issuance of shares (Note 2)................. 1,000 $ 1 $ 25,019 $ 25,020
Stock Split (Note 2)................................ 2,499,000 24,999 (24,999) -0-
Net loss for the period ended December 31, 1996..... $ (725) (725)
------------ --------- ----------- ----- ---------
2,500,000 $ 25,000 $ 20 $ (725) $ 24,295
------------ --------- ----------- ----- ---------
------------ --------- ----------- ----- ---------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
VOICENET, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF CASH FLOWS
FOR THE PERIOD APRIL 2, 1996
(DATE OF INCEPTION) THROUGH DECEMBER 31, 1996
<TABLE>
<S> <C>
Cash flows from operating activities:
Net loss.......................................................................... $ (725)
---------
Adjustments to reconcile net loss:
Increase in accounts payable.................................................... 74,029
Amortization expense............................................................ 300
---------
Total adjustments........................................................... 74,329
Net cash provided by operating activities......................................... 73,604
---------
Cash flows from investing activities:
Cash paid for organization costs................................................ (2,000)
---------
Net cash used for investing activities............................................ (2,000)
---------
Cash flows from financing activities:
Proceeds from issuance of stock................................................. 25,000
Additional paid-in-capital...................................................... 20
Advances from parent company.................................................... 25,000
Cash paid for deferred offering costs........................................... (112,654)
---------
Net cash provided by financing activities......................................... (62,634)
---------
Net increase in cash and cash equivalents......................................... 8,970
Cash and cash equivalents, beginning of period.................................... -0-
---------
Cash and cash equivalents, end of period.......................................... $ 8,970
---------
---------
</TABLE>
Supplemental Disclosure of Noncash Financing Activities:
During the period April 2, 1996 (inception) through December 31, 1996, the
Company purchased technology from its parent company and incurred a note payable
of $4,500,000.
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
VOICENET, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO THE FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF 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 and voice recognition systems and of digital audio reporting,
transcription, archiving and retrieval systems in North America, Central America
and South America. The Company has not commenced operations and is considered a
development stage company in accordance with Statement of Financial Accounting
Standards No. 7. The Company is majority-owned (63%) by Southern Group Limited
("Southern"), an Australian company.
GOING CONCERN UNCERTAINTY
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 continue as a going concern. 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 (see Note 6). The
financial statements do not include any adjustments that might be necessary
should the Company be unable to continue as a going concern.
NET LOSS PER SHARE
Net loss per share is computed based on the weighted average number of
shares of common stock outstanding during the period April 2, 1996 (inception)
through December 31, 1996. 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 to offering have been included
in the calculation as if they were outstanding for the entire period 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.
INTANGIBLE ASSET
The intangible asset related to the purchase of technology (see Note 3) will
be amortized using the straight-line method of twenty-five (25) years commencing
when the Company begins generating revenue.
STATEMENT OF CASH FLOWS
For purposes of the statement of cash flows, the Company considers all
highly liquid investments purchased with a maturity of three months or less to
be cash equivalents.
F-6
<PAGE>
VOICENET, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INCOME TAXES
Income taxes are provided for the tax effects of transactions reported in
the financial statements and consist of taxes currently due.
USE OF ESTIMATES IN THE FINANCIAL STATEMENTS
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
NOTE 2 - STOCKHOLDERS' EQUITY
At inception, the Company authorized 3,000 shares of $.001 par value common
stock and issued 1,000 of these shares for $25,000.
On September 15, 1996 the Company increased its number of authorized Common
Shares to 10,000,000 and changed its par value of these shares to $.01 per
share. In addition, the Company authorized 1,000,000 shares of Preferred Stock,
par value $.01 per share.
On September 15, 1996 the board of directors of the Company declared a
2,500-for-1 stock split. The financial statements have been adjusted to reflect
this transaction.
On September 15, 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 all regular employees of the
Company except for directors who are members of the administrative committee are
eligible to participate in the Plan. No options may be granted subsequent to
September 15, 2006. There are no options issued and outstanding at December 31,
1996.
NOTE 3 - PURCHASE OF TECHNOLOGY
On August 1, 1996 the Company entered into a Technology Sales and Purchase
Agreement (the "Technology Agreement") with Southern to acquire certain
exclusive rights and ownership with respect to the development, use, marketing,
sales and distribution of a continuous computer based digital voice compression,
recognition and recording technology. The term of the agreement is for the
longer of twenty-five (25) years or the life of any patents and extensions
granted under the patent applications. The rights acquired are for territories
including North America, Central America and South America. These rights were
purchased for $4,500,000 in the form of a noninterest-bearing promissory note,
further described below.
On August 31, 1996, as amended effective November 1, 1996 and December 31,
1996, the Company executed a $4,500,000 promissory note payable to Southern in
conjunction with the above agreement. The note is noninterest-bearing and
payable as follows: (a) $2.5 million upon the earlier of October 31, 1997 or the
successful closing of the Company's public securities offering, (b) $1 million
upon the earlier of October 31, 1997 or the first signed installation contract
for a COURTSMART-TM- system in the United
F-7
<PAGE>
VOICENET, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
NOTE 3 - PURCHASE OF TECHNOLOGY (CONTINUED)
States of at least $30,000, and (c) $1 million on October 31, 1997. The Company
has granted to Southern, as collateral, a security interest in all assets of the
Company.
NOTE 4 - DUE TO PARENT COMPANY
The Company was advanced $25,000 by Southern in 1996 for start-up purposes.
Such amount is noninterest-bearing and has no definitive repayment terms.
NOTE 5 - INCOME TAXES
The Company has no taxable income to date; therefore, no provision for
federal income taxes has been made. The minimum state and local franchise taxes
have been provided for the accompanying financial statements.
NOTE 6 - SUBSEQUENT EVENT
On March 7, 1997, the Company entered into an underwriting agreement (the
"Agreement") in which the underwriter agreed, on a "best efforts" basis, to sell
and obtain purchasers for a minimum of 750,000 shares and a maximum of 1,875,000
shares of common stock in conjunction with the Company's Initial Public Offering
(the "Offering"). The shares will be offered to the public through the
underwriter and participating selected dealers at the public offering price of
$8.00 per share.
Since the 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 within 90 days of the
effective date of the Offering, all funds received will be promptly refunded
without deductions for commissions and expenses.
The Company has agreed to indemnify the underwriter against certain
liabilities in conjunction with the Offering. The underwriter shall be paid a
nonaccountable expense allowance of 2 1/2% of the total gross proceeds, subject
to conditions set forth in the Agreement. In addition, the underwriter has been
granted warrants to purchase an amount of common stock to equal 10% of the
number of shares sold, up to a maximum of 187,500 shares. These warrants are
exercisable at $8.00 per share for a period of four years, commencing one year
after the effective date of the Offering.
F-8
<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
UNDERWRITERS. 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............................. 2
The Company.................................... 2
Risk Factors................................... 6
Use of Proceeds................................ 14
Dividend Policy................................ 14
Capitalization................................. 15
Dilution....................................... 16
Selected Financial Data........................ 17
Business....................................... 18
Management..................................... 28
Certain Transactions........................... 32
Principal Shareholders......................... 33
Description of Securities...................... 35
Shares Eligible for Future Sale................ 36
Underwriting................................... 36
Legal Matters.................................. 38
Experts........................................ 38
Additional Information......................... 38
Index to Financial Statements.................. F-1
</TABLE>
------------------------
UNTIL 25 DAYS AFTER THE DATE OF THIS PROSPECTUS, ALL DEALERS EFFECTING
TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT PARTICIPATING IN THIS
DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN ADDITION TO
THE OBLIGATIONS OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS
AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
VOICENET, INC.
A MINIMUM OF 750,000 SHARES OF
COMMON STOCK UP TO A MAXIMUM
OF 1,875,000 SHARES OF
COMMON STOCK
---------------------
PROSPECTUS
---------------------
GRADY AND HATCH & COMPANY, INC.
INTERNATIONAL ADVISOR:
FAI INSURANCES LIMITED
MCDERMID ST. LAWRENCE
SECURITIES, INC.
MARCH, 1997
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<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 Underwriting Agreement filed herewith as Exhibit 1.1 contains provisions
by which each Underwriter 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 Underwriter furnished in
writing by or on behalf of such Underwriter 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................. $ 7,315.00
Filing Fee--National Association of Securities Dealers, Inc.... 2,500.00
Fees and Expenses of Accountants............................... 25,000.00
Fees and Expenses of Counsel................................... 250,000.00
Printing and Engraving Expenses................................ 100,000.00
Blue Sky Fees and Expenses..................................... 30,000.00
Transfer and Warrant Agent fees................................ 3,500.00
Miscellaneous Expenses......................................... 15,000.00
----------
Total...................................................... $433,315.00
----------
----------
</TABLE>
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES.
In April 1996, the Company sold to seven separate purchasers 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 $2,500,
II-1
<PAGE>
which was paid in full at the time, in a private placement transaction in which
no commissions were paid. Each of the purchasers represented to the Company that
they were "Accredited Investors" as that term is defined under Regulation D
promulgated by the Commission under the Securities Act. The persons who acquired
the private placement shares are Southern Group Limited, William Potter,
Quartern Holdings, Ltd., David Fleming, Ovation Enterprises, Ltd., and Karilla
of Waterford, Ltd. 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 any of the Underwriting Syndicate,
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 -- Form of Underwriting Agreement, as amended.
1.2 -- Form of International Advisory Agreement
1.3 -- Form of Selected Dealer 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 Underwriter's Warrant Agreement, as amended.
4.3 -- Form of Underwriter's Warrant, as amended (included in Exhibit
4.2).
4.6 -- Form of Subscription Agreement.
* 5.1 -- Opinion of Epstein, Becker & Green, P.C.
5.2 -- Technology Evaluation of Gorey & Sinclair, Chartered Accountants.
** 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.
10.4 -- Amendment to Technology Transfer Agreement and Security Agreement.
10.5 -- Employment Agreement between the Company and Frank Carr.
10.6 -- Management Agreement between the Company and James Sim.
10.7 -- Advisory Agreement between the Company and Ridgewood Group
International.
10.8 -- Second Amendment to Technology Transfer Agreement and Security
Agreement.
23.1 -- Consent of Marcum & Kliegman LLP (Included at page II-8).
23.2 -- Consent of Epstein, Becker & Green, P.C. (Included in Exhibit 5).
23.3 -- Consent of Gorey & Sinclair, Chartered Accountants.
24 -- Power of Attorney (Included at page II-7).
27 -- Financial Data Schedule.
</TABLE>
- ------------------------
** Previously filed.
* 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:
II-2
<PAGE>
(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 the offering.
(d) The undersigned small business issuer hereby undertakes to provide
to the underwriters at the closing specified in the placement agreements,
certificates in such denominations and registered in such names as required
by the underwriters 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 this Amendment to Form SB-2 and has duly caused this
Amendment to the 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 11th day of March 1997.
VOICENET, INC.
By: /s/ FRANK CARR
-----------------------------------------
Frank Carr
PRESIDENT & CHIEF EXECUTIVE OFFICER
II-4
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS that each of James Sim, Frank Carr, William
J. Potter and John Gilbert constitutes and appoints Frank Carr his true and
lawful attorney-in-fact and agent, with full power of substitution and
resubstitution, to act, without the other, for him and in his name, place and
stead, in any and all capacities, to sign any or all amendments (including
post-effective amendments) to this Registration Statement, and to file the same,
with all exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorney-in-fact and
agents full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as full to all
intents and purposes as he might or could be in person, hereby ratifying and
confirming all that said attorney-in-fact and agents, or any of them, their
substitute or substitutes may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this Amendment
to the Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
SIGNATURE TITLE DATE
- ------------------------------ -------------------------- -------------------
/s/ JAMES SIM Chairman of the Board
- ------------------------------ March 11, 1997
James Sim
/s/ FRANK CARR President, Treasurer,
- ------------------------------ Director
Frank Carr Principal Executive March 11, 1997
Officer and Principal
Accounting Officer
/s/ WILLIAM J. POTTER Secretary & Director
- ------------------------------ March 11, 1997
William J. Potter
/s/ JOHN GILBERT Director
- ------------------------------ March 11, 1997
John Gilbert
II-5
<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 January 22, 1997 except for Note 6,
as to which the date is March 7, 1997, 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.
Woodbury, New York
MARCUM & KLIEGMAN LLP
March 12, 1997
II-6
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBITS PAGES
- ----------- ------------------------------------------------------------------------------------------- -------------
<C> <S> <C>
1.1 -- Form of Underwriting Agreement, as amended..............................................
1.2 -- Form of International Advisory Agreement................................................
1.3 -- Form of Selected Dealer 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 Underwriter's Warrant Agreement, as amended.....................................
4.3 -- Form of Underwriter's Warrant, as amended (included in Exhibit 4.2).....................
4.6 -- Form of Subscription Agreement..........................................................
*5.1 -- Opinion of Epstein, Becker & Green, P.C. ...............................................
5.2 -- Technology Evaluation of Gorey & Sinclair, Chartered Accountants........................
**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......
10.4 -- Amendment to Technology Transfer Agreement and Security Agreement.......................
10.5 -- Employment Agreement between the Company and Frak Carr..................................
10.6 -- Management Agreement between the Company and James Sim..................................
10.7 -- Advisory Agreement between the Company and Ridgewood Group International................
10.8 -- Second Amendment to Technology Transfer Agreement and Security Agreement................
23.1 -- Consent of Marcum & Kliegman LLP (Included at page II-8)................................
23.2 -- Consent of Epstein, Becker & Green, P.C. (Included in Exhibit 5)........................
23.3 -- Consent of Gorey & Sinclair, Chartered Accountants......................................
24 -- Power of Attorney (Included at page II-7)...............................................
27 -- Financial Data Schedule.................................................................
</TABLE>
- ------------------------
** Previously filed.
* To be filed by Amendment.
<PAGE>
EXHIBIT 1.1
GRADY AND HATCH & COMPANY, INC.
50 Broad Street
New York, New York 10004
(212) 509-7330
with
VOICENET, INC.
Up to 1,875,000 Shares
UNDERWRITING AGREEMENT
Voicenet, Inc.
380 Lexington Avenue
New York, New York 10168
Dear Sirs:
Voicenet, Inc., a Delaware corporation (the "Company"), with principal
offices located at 380 Lexington Avenue,New York, New York 10168, has an
authorized capitalization of 10,000,000 shares of Common Stock, $.01 par value
per share ("Common Stock") and 1,000,000 shares of Preferrred Stock, $.01 par
Value ("Preferred Stock"), of which 2,500,000 shares of Common Stock and no
shares of Preferred Stock are presently issued and outstanding. In addition,
the Company has adopted a "Non-Qualified Stock Option Plan" which enables the
Company to issue stock options to purchase a total of 500,000 shares of Common
Stock (the "Stock Option Plan") and in which no options are presently
outstanding. The Company proposes to offer and sell to the public at least
750,000 and no more than 1,875,000 Shares of Common Stock at $8.00 per Share.
The Shares are to be sold as more fully set forth in the "Registration
Statement" and "Prospectus" hereinafter mentioned.
1. CERTAIN DEFINITIONS
The following shall constitute the definitions of certain additional terms
used in this Agreement.
(a) "Act" shall refer to the Securities Act of 1933, as amended.
(b) "Closing Date" shall be the time and date set for payment and delivery
of the offered Shares.
(c) "Commission" shall refer to the Securities and Exchange Commission.
<PAGE>
(d) "Common Stock" shall refer to the Common Stock, $.01 par value, of the
Company.
(e) "Company" shall refer to Voicenet, Inc.
(f) "Effective Date" shall be the date upon which the Registration
Statement becomes effective pursuant to notice from the Commission and/or
the passage of time in accordance with the Act.
(g) "Preliminary Prospectus" refers to and means any Prospectus included
in the Registration Statement before the Registration Statement becomes
effective.
(h) "Prospectus" shall refer to the Prospectus filed as part of the
Registration Statement as finally amended and revised prior to the
Effective Date.
(i) "Registration Statement" shall refer to the Registration Statement
filed by the Company, including exhibits and financial statements as
finally amended and revised prior to the Effective Date
(j) "Regulations" shall refer to the rules and regulations of the
Commission.
(k) "Securities Being Offered" shall mean the Shares which the Company
proposes to offer and sell to the public pursuant to this Agreement.
(l) "Shares" shall refer to the 1,875,000 shares of Common Stock, $.01
par value of the Company which the Company proposes to offer and sell
pursuant to this Agreement.
(m) "Termination Date" shall refer to the date upon which this Agreement
shall terminate for whatever reason.
(n) "Underwriter" shall refer to Grady and Hatch & Company, Inc.
(o) "Underwriter's Warrants" shall mean the Warrants referred in Section
2(d) hereof.
2. UNDERWRITER'S COMPENSATION
(a) The Company hereby appoints the Underwriter as its exclusive agent for
a period of ninety (90) days from the Effective Date (unless extended by mutual
written consent for an additional ninety (90) days) to sell and to obtain
purchasers for at least 750,000 Shares and no more than 1,875,000 Shares at a
price of $8.00 per Share (the "Public Offering Price") on a "best efforts,
750,000 Shares or none" basis. Unless 750,000 Shares are sold and paid for
within 90 days from the Effective Date (unless further extended as specified in
Paragraph 4 hereof) no Shares will be sold and in that event the Underwriter
will not receive any of the commissions or expense allowances hereinafter
mentioned unless otherwise hereinafter provided. Moreover, it is understood
2
<PAGE>
that if the required funds relating to the 750,000 Shares or such greater amount
sold are received and deposited within the Escrow Account referred in Paragraph
4 hereof, but not cleared within the time set forth above, then up to an
additional ten (10) business days shall be allowed for the sole purpose of
clearance of such funds and the Closing of the offering. Such exclusive agency
shall be good and irrevocable unless and until terminated as herein and
hereinafter set forth.
(b) Subject to the filing and the becoming effective of a Registration
Statement in compliance with the provisions of the Act and the availability for
sale to the public of the Shares, pursuant to law, and subject to the
fulfillment
of all of the obligations of the Company and compliance with all of the terms
and conditions hereof by the Company and in reliance upon the warranties,
representations and covenants made by the Company herein, the Underwriter
accepts the foregoing exclusive agency and agrees to use its best efforts during
the term of the within Agreement to sell the Shares when and as issuable at the
public offering price set forth above; and to make a public offering of the
Shares as soon as reasonably practicable after the Registration Statement has
become effective and the Shares have become available for public offering.
(c) As compensation for the services of the Underwriter herein, the
Company shall allow the Underwriter subject to the sale and receipt of funds for
at least 750,000 Shares to be offered herein, a sales commission or discount of
nine (9%) percent of the Public Offering Price on all offered Shares to be sold
hereunder. The Underwriter may organize a selling group (the "Selected
Dealers", each of whom shall be a member of the National Association of
Securities Dealers, Inc.), which group may include the Underwriter; in such
event, the Underwriter may allow to such Selected Dealers such part of the
aforementioned commission or discount as it may, in its sole discretion,
determine. The Selected Dealers, other than the Underwriter itself, are not to
be deemed agents of the Company and shall not offer or sell the offered Shares
except at the price of $8.00 per Share. Moreover, the Underwriter acknowledges
and agrees that FAI Insurances Limited of Sidney, Australia ("FAI") and McDermid
St. Lawrence Securities of Toronto, Canada ("SLS") shall act as the
International
Advisors to the proposed offering and shall be allowed 750,000 Shares; and,
shall
receive a seven and one-fifth (7.2%) percent selling commission on each of such
allocated Share sold by them. Furthermore and after 750,000 Shares have been
sold by FAI and SLS, FAI and SLS shall also be entitled to receive an additional
one and four-fifths (1.8%) percent on each Share sold by them above 750,000
Shares (nine (9%) percent in the aggregate).
The Underwriter shall also be paid a non-accountable expense allowance of
$.20 for each Share sold, subject to the conditions set forth in Section 6(m)
hereof. Such commission and expense allowance shall be deductible by the
Underwriter at closing prior to remittance by it to the Company on account of
the Shares sold. Furthermore, the Underwriter will re-allow an amount equal to
one and four-fifths (1.8%) percent non-accountable expense allowance to the
International Advisors as their non-accountable expense allowances on the amount
sold by them over 750,000 Shares sold by them.
(d) At the closing of this offering the Company shall, subject to the sale
3
<PAGE>
and receipt of funds for at least 750,000 Shares to be offered herein, sell and
deliver to the Underwriter for each 10 offered Shares sold herein, 1
Underwriter's Warrant at a purchase price of $.00001 per Underwriter's Warrant,
up to a maximum of 187,500 Underwriter's Warrants.
The said Underwriter's Warrants shall represent the right to purchase one
(1) Share of Common Stock for each Underwriter's Warrant owned and shall be
exercisable only during a term of 4 years commencing 12 months after the
Effective Date, at an exercise price of $8.80 per Share. The sale and delivery
to the Underwriter of the Underwriter's Warrants will take place at the Closing
Date. The Underwriter's Warrants shall contain customary anti-dilution clauses
as more fully set forth within the form of Underwriter's Warrant attached as an
exhibit to the Registration Statement, The Underwriter represents that for a
period of not less than 12 months commencing from the Effective Date of the
offering the Underwriter will not sell, transfer, assign or hypothecate any of
the said Underwriter's Warrants or the securities underlying said Underwriter's
Warrants except to officers or partners of the Underwriter, Selected Dealers or
officers or partners of the Selected Dealers as well as the International
Advisors and that upon the purchase by the Underwriter of the said Underwriter's
Warrants, the Underwriter will not thereafter resell any of the said
Underwriter's Warrants or the underlying securities thereof, except in
conformity with the applicable provisions of the Act and all applicable "Blue
Sky" laws. In regard to the transfer to the International Advisors the amount
so transferred shall be an amount equal to seven (7%) percent of the total
number of shares sold by them.
(e) The Company agrees that upon written request of the holders (including
the Underwriter or its specific authorized designee) of at least forty (40%)
percent of the Underwriter's Warrants and/or the underlying securities, together
with the Underwriter's or its specific authorized designee's consent, made at
any time after 12 months following the Effective Date (and during the
Underwriter's exercise period) but, in any event for a period not to exceed five
(5) years following the Effective Date, the Company will file no more than one
Registration Statement under the Act or Notification under Regulation A (or any
successor thereto) registering or qualifying the Underwriter's Warrants and/or
the securities underlying the Underwriter's Warrants, and the Company agrees to
use its best efforts to cause the above filing to become effective. The
expenses of such registration or qualification, including but not limited to
printing charges (including sufficient number of Prospectuses to permit the sale
of the securities), all legal fees and disbursements of the Company's counsel
and all accounting fees, and all filing and miscellaneous expenses, will be
borne by the Company. The Company agrees that if at any time during the period
when the Underwriter or its specific authorized designee and/or the holders have
the right to exercise their Warrants but in any event for a period not to
exceed seven (7) years following the Effective Date it should file a
Registration Statement or Notification with the Commission pursuant to the
Act regardless of whether the Underwriter or its specific authorized designee
and/or the holders shall have theretofore availed themselves of the right
hereinabove provided, the Company, at its own expense, will offer to the
Underwriter and/or the holders the opportunity to register or qualify the
Underwriter's Warrants and/or securities underlying the Underwriter's Warrants,
limited, in the case of a Regulation A offering, to the amount of any available
4
<PAGE>
exemption, but unless such registration or qualification includes all of the
Underwriter's Warrants and/or underlying securities it will not relieve the
Company of such foregoing obligation to register or qualify the same. In
addition to the rights hereinabove provided, the Company will cooperate with the
Underwriter or its specific authorized designee and/or the holders in preparing
any additional Registration Statement or Notification required to sell or
transfer the underlying securities and will supply information required
therefore, but such additional Registration Statement or Notification shall be
at the expense of the holders of the Warrants and/or securities issuable
thereunder, and not at the expense of the Company.
(f) If at any time any condition of the material obligations of the
Company hereunder shall not have been met or shall cease to be met after five
(5) days written notice of such deficiency by the Underwriter and
the Underwriter shall have given the Company further notice of the desire of the
Underwriter to terminate this Agreement on account of the non-fulfillment of any
such condition or obligation, then upon such notice, the within Agreement shall
terminate, saving all such rights as the respective parties may then by law
possess. Any such notice must be in writing. If the within Agreement shall not
be sooner terminated as provided in the within paragraph, then, and in all
events, the Agreement herein shall terminate at such time as all of the offered
Shares shall have been subscribed for pursuant to the terms of the public
offering herein.
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY
As a material inducement to the Underwriter to enter into this Agreement,
the Company hereby represents and warrants to, and agrees with the Underwriter,
which representations, warranties and agreements shall survive the closing, as
follows:
(a) A Registration Statement with respect to the Shares, copies of which
have heretofore been delivered by the Company to the Underwriter, has been
carefully prepared by the Company in conformity with the requirements of the
Act, and such Registration Statement has been filed with the Commission, and one
or more amendments to said Registration Statement , has or have been filed; and
the
Company may file on or prior to the Effective Date an additional amendment to
said Registration Statement.
(b) The Commission has not issued any order preventing or suspending the
use of any Prospectus with respect to the Shares and each Prospectus has
conformed in all material respects with the requirements of the Act and the
Regulations and has not included any fact required to be stated therein or
necessary to make the statements therein not misleading. When the Registration
Statement becomes effective and on the Closing Date hereinafter mentioned, it
will conform in all material respects with the requirements of the Act and the
applicable Regulations and the Registration Statement and any further amendments
or supplements thereto will contain all statements which are required to be
stated therein or necessary to make the statements therein not misleading;
provided, however the Company does not make any representations or warranties as
5
<PAGE>
to information contained in or omitted from the Registration Statement or
Prospectus in reliance upon written information furnished on behalf of the
Underwriter or by the Underwriter, specifically for use therein or in any
amendments or supplements thereto.
(c) The financial statements of the Company together with the related
schedules and notes as set forth in the Registration Statement and Prospectus,
as reported upon by an independent certified public accountant, fairly present
the financial position of the Company at the respective dates or for the
respective periods to which they apply; such financial statements have been
prepared in accordance with generally accepted principles of accounting
consistently applied throughout the periods concerned except as otherwise stated
therein.
(d) Except as may be reflected in or contemplated by the Registration
Statement or the Prospectus, subsequent to the dates as of which information is
given in the Registration Statement and the Prospectus, and prior to the Closing
Date (i) there shall not be any material adverse change in the condition,
financial or otherwise, or in the results of operations or the general affairs
of the Company or in its business taken as a whole; (ii) there shall not have
been any material transaction entered into by the Company other than
transactions in the ordinary course of business; (iii) the Company shall not
have incurred any material obligations, contingent or otherwise, which are not
disclosed in the Prospectus; and (iv) there shall not have been, nor will there
be any change in the common stock or long term debt (except current payments) of
the Company.
(e) Except as may be set forth in the Registration Statement or
Prospectus, the Company is not in violation of any term or provision of its
Certificate of Incorporation or By-Laws, or of any agreement, instrument,
judgment, decree, order, statute, rule or governmental regulation applicable to
the Company.
(f) The execution and delivery of this Agreement by the Company has been
duly authorized by all necessary corporate action, and this Agreement is the
valid, binding and legally enforceable obligation of the Company; the execution
and delivery of, and compliance with, this Agreement, and the issuance and
delivery of the securities being offered do not conflict with or constitute a
breach of or default under the Certificate of Incorporation or By-Laws of the
Company, any indenture, agreement, or other instrument by which the Company is,
or on the Closing Date will be bound, or any order, rule or regulation
applicable to the Company of any court or any law, administrative regulation or
court decree.
(g) The Company is, and at the Closing Date will be, duly incorporated and
validly existing in good standing as a corporation under the laws of its
jurisdiction of incorporation, with an authorized and outstanding common stock
as set forth in the Registration Statement and the Prospectus, and with full
power and authority (corporate and other) to own its property and conduct its
business, present and proposed, as described in the Registration Statement and
Prospectus; the Company has full power and authority to enter into this
Agreement; the Company has no subsidiaries; and the Company is duly qualified
6
<PAGE>
and in good standing as a foreign corporation in each jurisdiction, other than
its jurisdiction of incorporation, in which such qualification is required by
the laws of such jurisdiction.
(h) The Company has an authorized and outstanding capitalization as set
forth in the Registration Statement and Prospectus; all of the outstanding
securities of the Company have been validly authorized and issued and are fully
paid and nonassessable; no sales of securities have been made by the Company in
violation of the Act; the securities being offered hereunder have been validly
authorized and, upon delivery and payment therefor pursuant to this Agreement,
will have been validly issued and will be fully paid and non-assessable; the
Underwriter's Warrants will represent the binding obligations of
the Company; the holders of the Underwriter's Warrants and or underlying
securities thereof and any of the Shares to be sold by the Company are not and
will not be subject to any liability as shareholders; and except as set forth in
the Prospectus there are no preemptive or other rights to subscribe for or
purchase any of the securities being offered, or any options, warrants,
agreements or similar rights calling for the issuance by the Company of any of
its securities outstanding as of the Closing Date.
(i) The securities being offered conform to the description thereof
contained in the Prospectus.
(j) No consent, approval, authorization or other order of any governmental
authority is required in connection with the execution and delivery by the
Company of this Agreement or the issuance and sale by the Company of the Shares,
except such as may be required under the Act or state securities laws.
(k) Except as set forth in the Registration Statement and Prospectus there
is, and at the Closing Date there will be, no action, suit or proceeding before
any court or governmental agency, authority or body pending or, to the knowledge
of the Company, threatened, which might result in judgments against the Company
not adequately covered by insurance or which collectively might result in any
material adverse change in the condition (financial or otherwise), business or
prospects of the Company or would materially affect its properties or assets.
(l) Upon delivery of any payment for the Underwriter's Warrants to be sold
by the Company as set forth in Paragraph 2(d) of this Agreement, the Underwriter
will receive good and marketable title thereto free and clear of any and all
liens, encumbrances, charges and claims whatsoever; and the Company will have,
on the Effective Date and at the time of delivery of such Underwriter's
Warrants, full legal right and power and all authorization and approval required
by law to sell, transfer and deliver such Underwriter's Warrants in the manner
provided hereunder.
(m) The Company knows of no outstanding claims for services in the nature
of a finder's fee or origination fee with respect to the sale of the Shares
hereunder resulting from its acts for which the Underwriter may be responsible.
(n) Each contract to which the Company is a party and to which reference
is made in the Registration Statement and Prospectus has been duly and validly
executed, is in full force and effect in all material respects in accordance
7
<PAGE>
with its respective terms, and none of such contracts have been assigned by
the Company and the Company knows of no present situation or condition or fact
which would prevent compliance with the terms of such contracts, as amended to
date. The Company has no intention of exercising any right which it may have to
cancel any of its rights or obligations under any of such contracts and has no
knowledge that any other party to any of such contracts has any intention not to
render full performance under such contracts.
(o) The Company has filed all federal and state tax returns which are
required to be filed, and will pay all taxes shown due on such returns and all
assessments received by it to the extent such taxes have become due. All taxes
with respect to which the Company is obligated have been paid or adequate
accruals have been set up to cover any such unpaid taxes.
(p) Except as otherwise set forth in the Prospectus, (i) the Company has
good and marketable title, free and clear of all liens, encumbrances and
defects, except liens for current taxes not due and payable, to all property and
assets which are described in the Registration Statement and the Prospectus as
being owned by the Company, subject only to such exceptions as are not material
and do not adversely affect the present or prospective business of the Company;
and, (ii) the properties, including any equipment, referred to in the
Registration Statement and the Prospectus as being held under lease by the
Company are held under valid, subsisting and enforceable leases with only such
exceptions which collectively are not material and do not adversely affect the
present or prospective business of the Company.
4. ESCROW ACCOUNT
(a) Notwithstanding anything contained herein to the contrary, unless the
Underwriter shall sell at least 750,000 Shares, none of the Units will be sold
to the public and this Agreement shall automatically be terminated. The
Underwriter agrees to open an appropriate escrow account to be maintained at
the Company's expense, if any, for all monies to be received from the sale of
the securities being offered. Such monies shall be deposited in full without
any deductions for commissions and/or expenses. In the event that less than
750,000 Shares are sold and paid for within ninety (90) days from the Effective
Date (unless extended by mutual written consent for an additional Ninety (90)
days) the proposed offering herein will be withdrawn and all monies received on
subscriptions will be promptly refunded in full to each such purchaser, without
interest thereon or deduction therefrom. However, it is understood that if the
required funds relating to the 750,000 Shares or such greater amount sold are
received and deposited within the Escrow Account referred in Paragraph 4 hereof,
but not cleared within the time set forth above, then up to an additional ten
(10) business days shall be allowed for the sole purpose of clearance of such
funds and the Closing of the offering.
(b) Appropriate arrangements will be made by the Underwriter to provide
for the receipt of funds from the subscribers of the securities being offered
and to provide for the disposition thereof, in accordance with the provisions of
this section.
8
<PAGE>
(c) Unless the Underwriter shall have sold at least 750,000 Shares and the
proceeds thereof shall have been received by the Company, it shall not be
entitled to receive any expense allowance or commissions, or be entitled to
purchase any Underwriter's Warrants from the Company (except as otherwise stated
hereinafter).
(d) The "Closing Date" shall take place at the Office of Eptein Becker &
Green, P.C. on such date and at such time as will be fixed by notice in writing
to be given by the Underwriter to the Company, such date to be not less than
five (5) full business days after the date on which such notice shall have been
given and not less than five (5) and not more than ten (10) full business days
after the date on which any of the conditions allowing the release of the
proceeds from the escrow account to the Company, and Underwriter as provided in
the Escrow Agreement shall have occurred. The Closing Date and place may be
changed by agreement of the Underwriter and the Company.
(e) The Underwriter shall comply in all respects with the requirements of
Rule 15c2-4 of the rules and regulations made by the Commission under the
Securities Exchange Act of 1934, as amended. The Underwriter shall deposit by
12 noon of the next business day subsequent to the receipt of funds all funds
received from the sale of the offered Shares, which funds shall be made payable
to the escrow agent, in an escrow account, to be maintained at a bank as escrow
agent for the benefit of the Subscribers, and the same shall be held in such
bank account until the Closing Date, and upon such Closing Date the said funds,
shall be promptly transmitted to the Company, who shall at said time provide
such documents, certificates, receipts and any and all other papers or
instruments as counsel may reasonably deem necessary or appropriate under the
circumstances.
5. Selected Dealers
(a) In selling the securities being offered the Underwriter shall offer
them solely as agent for the Company and such offer shall be made upon the terms
and subject to the conditions set forth in the Registration Statement and
Prospectus. The Underwriter shall commence making such offer as agent for the
Company as soon after the Effective Date as it may deem advisable.
(b) The Underwriter may offer and sell the securities being offered for
the Company's account to Selected Dealers pursuant to a form of Selling
Agreement pursuant to which the Underwriter may allow such concession (out of
its underwriting commission) as it may determine, within the limits set forth in
the Registration Statement and Prospectus. All purchases by selected dealers,
shall be as agents for the accounts of their customers, and the Underwriter
shall have no authority to employ any such dealers as agents for the Company.
(c) On each sale by the Underwriter of any of the securities being offered
to selected dealers, the Underwriter shall require any selected dealer
purchasing any such securities being offered to agree to re-offer the same on
the terms and conditions of offering set forth in the Prospectus and to comply
with all Commission requirements that the Underwriter is required to comply
with.
9
<PAGE>
(d) The Selected Dealer shall comply in all respects with the requirements
of Rule 15c2-4 of the rules and regulations made by the Commission under the
Securities Exchange Act of 1934, as amended. The Selected Dealer shall deposit
by 12 noon of the next business day subsequent to the receipt of funds all funds
received from the sale of the offered Shares, which funds shall be made payable
to the escrow agent, in an escrow account, to be maintained at a bank as escrow
agent for the benefit of the Subscribers, and the same shall be held in such
bank account until the Closing Date, and upon such Closing Date the said funds,
shall be promptly transmitted to the Company, who shall at said time provide
such documents, certificates, receipts and any and all other papers or
instruments as counsel may reasonably deem necessary or appropriate under the
circumstances.
6. COVENANTS OF THE COMPANY
The Company covenants and agrees with the Underwriter as follows:
(a) The Company will use its best efforts to cause the Registration
Statement to become effective and will advise the Underwriter immediately and,
if requested by the Underwriter, will confirm such advice in writing (i) when
the Registration Statement has become effective and when any post-effective
amendment thereto becomes effective, or when any supplement to the Prospectus or
any amended Prospectus has been filed; (ii) of any request by the Commission for
any amendments or supplements to the Registration Statement or the Prospectus or
for additional information; (iii) of the issuance by the Commission of any order
suspending the effectiveness of the Registration Statement for the sale of the
Shares hereunder or of any order preventing or suspending the use of any
Prospectus or the institution of any proceedings for any such purposes; (iv) of
the happening of any event which in the judgment of the Company makes any
statement in the Registration Statement or Prospectus untrue or which requires
the making of any changes in the Registration Statement or the Prospectus in
order to make the statements therein not misleading; and (v) of the refusal to
qualify or the suspension of the qualification of the Shares for offering or
sale in any jurisdiction, or of the institution of any proceedings for any of
such purposes. The Company will use its best efforts to prevent the issuance of
any such order or of any order preventing or suspending such use, to prevent any
such refusal to qualify or any such suspension, and to obtain as soon as
possible a lifting of any such order, the reversal of any such refusal and the
termination of any such suspension.
(b) The Company will not at any time, whether before, after or on the
Effective Date, file any amendment to the Registration Statement or supplement
to the Prospectus of which the Underwriter shall not previously have been
advised and furnished with copies or to which the Underwriter shall have
objected in writing or which is not in compliance with the Act and the
Regulations.
(c) To deliver to the Underwriter, without charge, three (3) signed copies
of the Registration Statement, including all financial statements and exhibits
filed therewith and any amendments or supplements thereto, and to deliver
without charge to the Underwriter three (3) conformed copies of the Registration
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Statement and any amendment or supplement thereto, including such financial
statements and exhibits.
(d) Prior to the Effective Date of the Registration Statement the Company
will have delivered to the Underwriter, without charge, in such quantities as
the Underwriter may reasonably request, copies of each form of Preliminary
Prospectus. The Company consents to the use of each form of Prospectus by the
Underwriter and by dealers prior to the Effective Date of the Registration
Statement, if permitted under the Act.
(e) To deliver to the Underwriter, without charge, as soon as practicable
after the Effective Date of the Registration Statement and thereafter from time
to time as many copies as it may reasonably request of the Prospectus and of any
amended or supplemented Prospectus as the Underwriter may reasonably request.
(f) If, during such period of time as in the opinion of the Underwriter or
its counsel a Prospectus relating to this financing is required to be delivered,
any event occurs as a result of which the Prospectus as then amended or
supplemented would include an untrue statement of a material fact, or omit to
state any material fact necessary to make the statements therein, in the light
of the circumstances under which they were made, not misleading, or if it is
necessary at any time after the Effective Date of the Registration Statement to
amend or supplement the Prospectus to comply with the Act, the Company will
forthwith notify the Underwriter thereof and prepare and file with the
Commission and furnish and deliver to the Underwriter and to others whose names
and addresses are designated by the Underwriter, all at the cost of the Company,
a reasonable number of the amended or supplemented Prospectus which as so
amended or supplemented will not contain any untrue statement of a material fact
or omit to state any material fact necessary in order to make the Prospectus not
misleading in the light of the circumstances when it is delivered to a purchaser
or prospective purchaser, and which will comply in all respects with the Act;
and, in the event the Underwriter is required to deliver a Prospectus 90 days or
more after the Effective Date upon request to prepare promptly such Prospectus
as may be necessary to permit compliance with the requirements of the Act.
(g) For a period of five years after the Closing Date, the Company will,
as soon as practicable and in any event within 120 days after the close of each
fiscal year, deliver (i) to its security holders and to the Underwriter a copy
of the annual report of the Company containing a balance sheet setting forth the
financial condition of the Company as of the end of such fiscal year, together
with statements of income and surplus of the Company for such fiscal year, all
reasonably detailed. Such balance sheet and statements of income and surplus
shall be accompanied by a copy of the accountant's report with respect thereto
of independent public accountants, who may be the regular accountants for the
Company; and (ii) to the Underwriter, (a) a copy of all reports which the
Company shall file with the Commission or with any national securities exchange
promptly after the same have been forwarded to the Commission or exchange and a
copy of all financial statements and other reports which the Company shall send
to its security holders, and (b) from time to time such other information as the
Underwriter may reasonably request. In the event the Company shall have any
subsidiaries the account of which are customarily consolidated with those of the
Company, the financial statements to be furnished in this paragraph shall be the
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consolidated financial statements of the Company and such subsidiaries. In
addition, and for a period of five (5) years after the Closing Date, the Company
shall furnish unaudited quarterly financial statements to the Underwriter on a
timely basis.
(h) The Company will enter into employment contracts no later then the
Effective Date but to begin on the Closing Date with its key personnel, which
agreements shall remain in effect for at least three (3) years and provide that
their compensation shall be subject to the approval of the Underwriter.
(i) The Company will provide the Underwriter, on a monthly basis, at the
Company's expense, with copies of its daily transfer sheets and lists of
shareholders for a period of five (5) years from the Closing Date.
(j) The Company will deliver to the Underwriter true and correct copies of
its Articles of Incorporation and all amendments thereto, such copies to be
certified by the Secretary of the Company; true and correct copies of the
By-Laws of the Company and of the minutes of all meetings of the directors and
stockholders of the Company held prior to the Closing Date; and true and correct
copies of all contracts to which the Company is a party.
(k) Prior to the Effective Date the Company will cooperate with the
Underwriter and its counsel in connection with the registration or qualification
of the securities being offered for offering and sale by the Underwriter and
dealers under the Securities or Blue Sky laws of such states as the Underwriter
may reasonably designate and will file such consents to service of process or
other documents as may be necessary in order to effect such registration or
qualification. The Company shall bear the expenses incurred in qualifying the
securities being offered under the Securities or Blue Sky laws of such states
including the fees and charges of the various states, the cost of a printed
memorandum with respect thereto, and reasonable legal fees and expenses. The
Company shall not be required, however, to sign a general consent to service of
process in any jurisdiction where it is not now subject to such service.
(l) The Company will pay and bear, whether or not the transactions
contemplated hereunder are consummated or this Agreement is prevented from
becoming effective, or is terminated, all costs and expenses incident to the
performance of its obligations under this Agreement, including all expenses
incident to the authorization of the securities being offered and their issue
and delivery to the Subscribers, and any original issue taxes in connection
therewith, the fees and expenses of the Company's counsel and accountants; the
costs and expenses incident to the issuance, sale and delivery of the
Underwriter's Warrants to the Underwriter; the costs and expenses incident to
the preparation, printing and filing under the Act, of the Registration
Statement (including financial statements), any Preliminary Prospectus and the
Prospectus and any amendments or supplements thereto, the reproduction and
distribution of this Agreement, the Agreement Among Underwriters, if any, the
Selected Dealers Agreement, the Underwriter's Questionnaire, the Blue Sky
survey, and the Certificates for the Shares; the filing fees of the Commission
and the National
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Association of Securities Dealers, Inc., and any state regulatory agencies, the
cost of preparing and filing all exhibits to the Registration Statement; the
cost of furnishing the Underwriter copies of the Registration Statement and
Prospectus as herein provided; the cost and fees of qualifying the securities
being offered under the Securities or Blue Sky laws as herein provided, legal
fees of $10,000.00 to the Underwriter's counsel for filing in up to ten (10)
states ($500.00 for each additional state) and disbursements incurred by said
counsel, in connection with the Blue Sky filing of this offering; and, the costs
and fees of any escrow agent referred to in Paragraph 4(a).
In addition, the Company shall also bear the cost of investigative reports
(such as Bishop's Reports) of the Company's principal executive officers,
directors and substantial shareholders which cost shall not exceed a sum of
$5,000.00.
(m) Provided that at least 750,000 Shares are sold during the offering, the
Company will pay to the Underwriter a non-accountable expense allowance of
$.20 for each Share sold, i.e., $150,000 if the minimum Shares are sold and
adjusted proportionately upwards to $375,000 if the maximum Shares are sold
($10,000 of which has been advanced to the Underwriter and shall be credited as
a part payment of this allowance) if all of the securities being offered are
sold for the fees and disbursements of counsel to the Underwriter, the fees due
to the International Advisors and for the actual costs of advertising,
traveling, postage, due diligence expenses, telephone and telegraph expenses and
other miscellaneous expenses incurred by or on behalf of the Underwriter in
preparation for, or in connection with, the offering and sale and distribution
of the securities being offered, and the Underwriter shall not be obligated to
account to the Company for such disbursements and expenses.
(n) If the Underwriter is unable to attempt or complete the proposed
offering and sale of the securities being offered mentioned hereinabove because
of (i) any reason solely within the control of the Company or its stockholders,
(ii) the Company unilaterally withdraws the proposed public offering from the
Underwriter, (iii) the Company does not permit the registration statement to
become effective for any reason whatsoever, (iv) any material discrepancy in any
representation by the Company and/or its officers, directors, shareholders,
agents, advisers or representatives, made in writing, including but not limited
to the Registration Statement, to the Underwriter, then the Company will
reimburse the Underwriter for any actual costs and expenses, on an accountable
basis, incurred by the Underwriter relative to the offering contemplated hereby
(including counsel fees of the Underwriter) up to but not exceeding $30,000
inclusive of the credit of $10,000 referred to in 6(m) hereof.
(o) Prior to the Closing Date, the Company will cooperate with the
Underwriter in such investigation as the Underwriter may make or cause to be
made of the properties, business and operations of the Company in connection
with the purchase and public offering of the securities being offered and will
make available to the Underwriter in connection therewith such information in
its possession as the Underwriter may request, provided the Underwriter agrees
to treat any such information as confidential information.
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(p) The Company has appointed or shall promptly hereafter appoint
Continental Stock Transfer & Trust Company as Transfer and Warrant Agent, which
entity shall agree to provisions of Paragraph 9(b) of the Underwriter's Warrant,
for the securities being offered. Subject to the closing, for a period of five
(5) years following the Closing Date the Company will not change or terminate
any
such appointments without the written consent of the Underwriter, which consent
shall not be unreasonably withheld.
(q) The Company will use all reasonable efforts to comply or cause to be
complied with, the conditions precedent to the several obligations of the
Underwriter specified in this Agreement.
(r) The Company will deliver to the Underwriter and its counsel bound
volumes of copies of all documents and appropriate correspondence filed or
received from the Commission and the NASD and all closing documents.
(s) The Company will use its best efforts promptly to do and perform all
things to be done and performed by it hereunder prior to the Closing Date and to
satisfy all conditions which it is required to satisfy prior to the delivery by
it of the securities being offered.
(t) The Company will use the net proceeds to be received by it from the
sale of the securities being offered in the manner and for the purposes set
forth in the Prospectus and will comply with all reporting and other
requirements of the Act respecting the use of the proceeds.
(u) The Company will comply with the Act and Regulations and the
Securities Exchange Act of 1934 and the rules and regulations of the Commission
thereunder so as to permit the continuance of sales of and dealings in the
securities being offered under the Act and the Securities Exchange Act of 1934,
as and if required under said Act.
(v) Prior to the Closing time the Company will not issue directly or
indirectly without the Underwriter's prior written consent any press release or
other communication or hold any press conference with respect to the Company or
its activities or the offering of the securities.
(w) If at least 750,000 Shares are sold and for a period of five (5) years
commencing from the Closing Date, the Company shall continue to employ the
services of a firm of independent certified public accountants acceptable to the
Underwriter in connection with the preparation of the financial statements to be
included in any Registration Statement to be filed by the Company hereunder, or
any amendment or supplement thereto. For the purposes of the foregoing, Marcum
& Kliegman, LLP and any "Regional" accounting firm shall be deemed to be
acceptable to the Underwriter.
(x) At the Closing Time, the Company shall retain the services of a
financial relations firm reasonably satisfactory to the Underwriter and in that
regard Marston Webb, New York, New York is satisfactory to the Underwriter.
(y) If at least 750,000 Shares are sold and for a period of five (5) years
after the Closing Time, the Company will cause its Board of Directors to meet at
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least quarterly, upon proper notice, and will cause an agenda and minutes of
each prior meeting to be mailed to each Director prior to each meeting and a
copy of such agendas and minutes to be sent to the Underwriter.
(z) The Company will, within thirty (30) days after the Closing Time,
apply for listing in Standard and Poor's Corporation Reports and Moody's
Over-the-Counter Guide, and will use its best efforts to have itself listed in
such reports.
(aa) Prior to the Effective Date, the Company will designate, an audit
committee consisting of a majority of outside directors, which will supervise
the financial affairs of the Company including but not limited to the monitoring
of the application of the funds provided by the contemplated offering.
(bb) Within ten (10) days after the end of the first three (3) month
period following the Effective Date of the Registration Statement, the Company
shall prepare and file with the Commission a report on Form SR as prescribed by
Rule 463 of Regulation C under the Act. Within thirty (30) days after the
Closing Date, the Company shall prepare and file with the Commission a
Registration Statement on Form 8-A with respect to the Securities being offered
pursuant to and as contemplated by Section 12(g) of the Securities Exchange Act
of 1934, as amended (the "34 Act"), regardless of whether the Company would be
required otherwise by the terms of such Section to file such a Registration
Statement, and shall file a request for acceleration of the effective date under
Section 12(g) in connection therewith. The Company shall thereafter comply with
all periodic reporting and proxy solicitation requirements imposed by the
Commission pursuant to the 34 Act, and shall promptly furnish the Underwriter
with copies of all materials filed with the Commission pursuant to the 34 Act or
otherwise furnished to shareholders of the Company.
(cc) For a period of five (5) years following the Effective Date or until
such time as the securities of the Company are listed on the New York Stock
Exchange or the American Stock Exchange, the Company shall cause its legal
counsel to provide the Underwriter with a list, to be updated at least annually,
of those states in which the securities of the Company may be traded in
non-issuer transactions under the Blue Sky laws of the states and the basis for
such authority with the first list to be given at the time of Closing.
(dd) For a period of five (5) years following the Closing Date, the
Company, at its expense, shall cause its regularly engaged independent certified
public accountants to review (but not audit) the Company's financial statements
for each of the first three (3) fiscal quarters prior to the announcement of
quarterly financial information, the filing of the Company's 10-Q quarterly
report and the mailing of quarterly financial information to security holders.
(ee) For a period of five (5) years following the Closing Date, if the
Company shall enter into any agreement or understanding introduced by the
Underwriter involving (i) the sale of all or substantially all of the assets and
properties of the Company, (ii) the merger or consolidation of the Company
(other than a merger or consolidation effected for the purpose of changing the
Company's domicile) or (iii) the acquisition by the Company of the assets or
stock of another business entity, which agreement or understanding is thereafter
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consummated, whether or not during such five (5) year period, the Company, upon
such consummation, shall pay to the Underwriter an amount equal to the following
percentages of the consideration paid by the Company in connection with such
transaction:
5% of the first $1,000,000, or portion thereof, of such consideration;
4% of the second $1,000,000, or portion thereof, of such
consideration;
1% of such consideration in excess of the first $2,000,000 of such
consideration.
The fee payable to the Underwriter will be in the same form of
consideration as that paid by or to the Company, as the case may be, in such
transaction.
7. CONDITIONS OF UNDERWRITER'S OBLIGATIONS
The Underwriter's obligation to act as Agent of the Company hereunder and
to find purchasers for the securities being offered and to make payment to the
Company on the Closing Date is subject to the accuracy of and compliance with
the representations and warranties on the part of the Company herein as of the
date hereof and as of the Closing Date, to the performance by the Company of its
obligations and covenants hereunder, to the accuracy of certificates of the
Company and officers of the Company to be delivered pursuant to this Agreement,
all as to the Closing Date, and to the following further conditions:
(a) The Registration Statement shall become effective on or at such
reasonable date as the Underwriter may agree to. No stop order or order
suspending the effectiveness of the Registration Statement for the sale of the
securities being offered shall have been issued at or before the Closing Date
and no proceedings for that purpose shall have been instituted or shall be
pending or, to the knowledge of the Company, contemplated by the Commission, and
any request for additional information on the part of the Commission to be
included in the Registration Statement or the Prospectus or otherwise shall have
been complied with, and no amendments to the Registration Statement or
Prospectus shall have been filed to which the Underwriter and its counsel have
not given their consent in writing.
(b) All corporate action taken and all legal opinions and proceedings
relating to the securities being offered and the Underwriter's Warrants, the
Registration Statement and Prospectus and all other matters incident thereto and
to the transaction to which this Agreement relates shall be satisfactory in all
respects to Haythe & Curley, counsel for the Underwriter and they shall have
been furnished with such certificates, documents and information as they may
request in this connection.
(c) On the Closing Date, (i) the Registration Statement and Prospectus and
any amendments or supplements thereto shall contain all statements which are
required to be stated therein in accordance with the Act and shall in all
material respects conform to the requirements of the Act and neither the
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Registration Statement nor the Prospectus nor any amendment or supplement
thereto shall contain any untrue statement of a material fact or omit to state
any material fact required to be stated therein or necessary to make the
statements therein not misleading, (ii) since the respective dates as of which
information is given in the Registration Statement and Prospectus there shall
have been no material adverse change in the business, properties or financial
condition of the Company from that set forth in the Registration Statement and
Prospectus and there shall not have been any material transaction, contract or
agreement entered into by the Company which is not referred to in the
Registration Statement, (iii) no action, suit or proceeding at law or in equity
shall be pending or, to the knowledge of the Company, threatened against the
Company which would be required to be set forth in the Registration Statement
other than as set forth therein, and no proceedings shall be pending or, to the
knowledge of the Company, threatened against the Company before or by any
federal, state or other commission, board or administrative agency wherein an
unfavorable decision, ruling or finding would have a material adverse effect
upon the business, property, financial condition or income of the Company, and
(iv) the Company shall not have declared dividends or made any payments or made
any acquisitions of capital stock or made any other distribution on outstanding
shares of capital stock other than as set forth in the Registration Statement.
(d) Prior to the Closing Date the Company shall not have sustained a loss
on account of fire, flood, accident or other calamity which, in the judgment of
the Underwriter materially and adversely affects the Company, regardless of
whether or not such loss shall have been insured.
(e) The Underwriter shall receive on and as of the Closing Date an opinion
of Epstein Becker & Green, P.C., counsel for the Company, to the effect that
(i) the Company is a corporation in good standing, duly organized and validly
existing under the laws of the state of incorporation, and is authorized by its
Certificate of Incorporation to own its properties and to conduct its business,
present and proposed, as set forth in the Prospectus; (ii) the Company is duly
qualified to transact the business in which it is engaged and is in good
standing in each jurisdiction in which its ownership of property or its conduct
of business requires such qualification or registration (naming such
jurisdiction); the Company does not own or control any subsidiaries; (iii) the
Company has an authorized and outstanding capitalization as set forth in the
Prospectus; all of the outstanding securities of the Company have been validly
authorized and issued, and are fully paid and non-assessable; the securities
being offered to be sold by the Company have been validly authorized and when
issued will be fully paid and non-assessable; the securities issuable upon
exercise of the Underwriter's Warrants has been validly authorized and reserved
for issuance and when issued, will be validly issued and will be fully paid and
nonassessable; there are no preemptive or other rights to subscribe for or
purchase the securities being offered; there are no options, warrants,
agreements or similar rights calling for the issuance by the Company of any of
its securities except as described in the Registration Statement; (iv) the
securities being offered by the Company conform as to their legality with the
description thereof contained in the Registration Statement; (v) this Agreement
has been duly authorized, executed and delivered by the Company and is a valid
and binding agreement of the Company in accordance with its terms; the Company
has the legal power to sell and deliver the securities being offered pursuant to
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the provisions of this Agreement and will deliver to the purchasers valid
marketable title thereto, free and clear of any claims, liens and encumbrances;
(1) the execution, performance and delivery of this Agreement and the
consummation of the transactions contemplated hereby will not result in any
breach or violation (a) of any of the terms or provisions of, or constitute a
default under, any statute, indenture, mortgage, deed of trust, note agreement
or other agreement or instrument known to counsel to which the Company is a
party or by which it is bound or of which any of its property is the subject,
and (b) the Company's Articles of Incorporation, as amended, or By-Laws, or any
order, rule or regulation known to counsel of any court or governmental agency
or body having jurisdiction over the Company or any of their activities or
properties, and, (2) no consent, approval, authorization or order of any court
or governmental agency or body is required for the consummation of the
transaction contemplated hereby except such as have been obtained under the Act
or Regulations or under state securities laws; (vi) the sale of the Company's
securities (other than the securities being offered) prior to the Closing Date
was made pursuant to exemptions from the registration requirements of the Act;
(vii) the Registration Statement has become effective under the Act and the
public offering and sale of the securities being offered is made pursuant to
such effective Registration Statement and, to the best knowledge of such
counsel, no order suspending the effectiveness of such Registration Statement
for the sale of securities being offered has been issued and no proceedings for
such purposes have been instituted or are pending or contemplated by the
Commission and to such counsel's knowledge and belief no grounds exist for the
suspension of such Registration Statement; the Registration Statement and
Prospectus and any supplement or amendment thereto (except as to the financial
statements and schedules included therein as to which counsel need not express
opinion) comply as to form in all material respects with the Act and such
counsel has received no information which would indicate that the Registration
Statement or Prospectus or any supplement or amendment thereto contains any
untrue statement of a material fact or omits to state a material fact required
to be stated therein or necessary in order to make the statements therein not
misleading; (viii) such counsel does not know of any legal or government
proceedings required to be described in the Registration Statement or Prospectus
or of any contract or document of a character required to be described in the
Registration Statement or Prospectus or required to be filed as an exhibit to
the Registration Statement which is not described or filed as required; (ix) the
Company has good marketable title in fee simple, except as stated in the
Registration Statement or Prospectus to all of the real property described
therein as being owned by it, free and clear of all liens and encumbrances,
except liens and encumbrances, if any, which in the opinion of such counsel, are
not material and do not interfere with the use made and proposed to be made of
such property, and holds such valid leases, property rights and easements as are
set forth in the Registration Statement or the Prospectus are necessary to the
operations and proposed operations of the Company (such counsel being entitled
to rely with respect to the opinions called for by this subdivision (ix) on
certificates of the Company as to the use or proposed use of properties and as
to the materiality and non-interference of liens and encumbrances and on
opinions of local counsel or on abstracts of title and certificates; reports or
title policies of title insurance companies); (x) no holders of securities of
the Company have rights to the registration of such securities under the
Registration Statement, except for any such rights which have been effectively
waived; and (xi) the Underwriter's Warrants to be sold by
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the Company have been duly authorized and constitute valid and binding
obligations of the Company; the Company had at the date of this Agreement and
has at the Closing Date full legal right and authority to sell and deliver in
the manner provided in this Agreement, the Underwriter's Warrants sold by it
hereunder; and the delivery by the Company as described in the Registration
Statement of certificates for the Underwriter's Warrants sold hereunder, will
pass good and marketable title to such Underwriter's Warrants, free and clear of
all liens, encumbrances, charges and claims whatsoever, except as may be
provided by federal and state securities laws. The opinion referred to in this
subsection shall also cover such other legal matters relating to this Agreement
and the transactions contemplated hereby as the Underwriter or their counsel may
reasonably request.
In expressing their opinion on the matters set forth in this Paragraph
7(e), said counsel shall be entitled to rely, as to any questions of fact upon
which such opinion is predicated, on the representations of the officers of the
Company or opinions of other counsel.
(f) The Underwriter shall have received on the Closing Date certificates,
dated as of the Closing Date, signed by the President, Treasurer and Secretary
of the Company certifying that:
(i) No Order suspending the effectiveness of the Registration Statement or
stop order regarding the sale of the securities being offered is in effect and
no proceedings for such purpose are pending or are, to their knowledge,
threatened by the Commission;
(ii) They do not know of any litigation instituted or threatened against
the Company of a character required to be disclosed in the Registration
Statement which is not disclosed therein; they do not know of any contracts
which are required to be summarized in the Prospectus which are not so
summarized; and they do not know of any material contracts required to be filed
as exhibits to the Registration Statement which are not so filed;
(iii) They have each carefully examined the Registration Statement and the
Prospectus and, to the best of their knowledge, neither the Registration
Statement nor the Prospectus nor any amendment or supplement to either of the
foregoing contains an untrue statement of any material fact or omits to state
any material fact required to be stated therein or necessary to make the
statements therein not misleading; and since the Effective Date, to the best of
their knowledge, there has occurred no event required to be set forth in an
amended or supplemented Prospectus which has not been so set forth;
(iv) Since the respective dates as of which information is given in the
Registration Statement and the Prospectus there has not been any material
adverse change in the condition of the Company, financial or otherwise, or in
the results of its operations, except as reflected in or contemplated by the
Registration Statement and the Prospectus, and except as so reflected or
contemplated since such date there has not been any material transaction entered
into by the Company;
(v) The representations and warranties set forth in this Agreement are
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true and correct and the Company has complied with all of its agreements
herein contained;
(vi) The Company is not delinquent in the filing of any federal, state and
municipal tax return or the payment of any federal, state or municipal taxes;
they know of no proposed redetermination or re-assessment of taxes, adverse to
the Company, and the Company has paid or provided by adequate reserves for all
known tax liabilities;
(vii) They know of no material obligation or liability of the Company,
contingent or otherwise, not disclosed in the Registration Statement and
Prospectus;
(viii) This Agreement, the consummation of the transactions herein
contemplated, and the fulfillment of the terms hereof, will not result in a
breach by the Company of any terms of, or constitute a default under, its
Certificate of Incorporation or By-Laws, any indenture, mortgage, lease, deed of
trust, bank loan or credit agreement or any other agreement or undertaking of
the Company including, by way of specification but not by way of limitation, any
agreement or instrument to which the Company is now a party or pursuant to which
the Company has acquired any right and/or obligations by succession or
otherwise;
(ix) The financial statements and schedules filed with and as part of the
Registration Statement present fairly the financial position of the Company as
of the dates thereof all in conformity with generally accepted principles of
accounting applied on a consistent basis throughout the periods involved. Since
the respective dates of such financial statements there has been no material
adverse change in the condition or general affairs of the Company, financial or
otherwise, other than as referred to in the Prospectus; and,
(x) Subsequent to the respective dates as of which information is given in
the Registration Statement and Prospectus, except as may otherwise be indicated
therein, the Company has not prior to the Closing Date, either (i) issued any
securities or incurred any liability or obligation, direct or contingent, for
borrowed money, or (ii) entered into any material transaction other than in the
ordinary course of business. The Company has not declared, paid or made any
dividend or distribution of any kind on its capital stock.
(g) The Company shall have performed all agreements herein contained to be
performed on its part at or before the Closing Date and all other covenants and
conditions set forth in Paragraph 6 shall have been performed.
(h) At the time that this Agreement is executed by the Company and at the
Closing Date, the Underwriter shall have received a letter from Marcum &
Kliegman, dated as of the date this Agreement is executed by the Company and as
of the Closing Date confirming that it is an independent public accountant
within the meaning of the Act and the published Rules and Regulations and
that the answer to Item 22 of the Registration Statement is correct insofar as
it related to it and stating in effect (a) that in its opinion the financial
statements and schedules examined by it and included or incorporated by
reference in the Registration Statement and Prospectus comply as to form in all
20
<PAGE>
material respects with the applicable accounting requirements of the Act and the
published Rules and Regulations, and (b) that on the basis of a
reading of the unaudited financial statements and the schedules included in the
Registration Statement and of the latest available unaudited interim financial
statement prepared by the Company, consultations with and inquiries of officials
of the Company, responsible for financial and accounting matters, a reading of
the Minute Book of the Company, and such other procedures and inquiries (if any)
as may be specified in such letter, nothing has come to its attention which gave
it reason to believe that (i) the unaudited financial statements and schedules
included in the Registration Statement and Prospectus do not comply as to form
in all material respects with the applicable accounting requirements of the
Act and the published Rules and Regulations or were not prepared in
accordance with generally accepted accounting principles and practices applied
on a basis consistent with those followed in the preparation of such audited
financial statements or that (ii) during the period from a specified date not
more than five days prior to the date of such letter there was any change in the
capital stock or long term debt of the Company as compared with corresponding
amounts shown in the Balance Sheet included in the Registration Statement or
(iii) during the period from the date of the Company's most recent financial
statement there was any decreases in net current assets or net assets as
compared with corresponding amounts shown in the Balance Sheet included in the
Registration Statement or any decreases in net sales or in the total or per
share amounts of income before extraordinary items or of net income of the
Company compared with the corresponding period of the preceding year, except as
set forth in or contemplated by the Registration Statement or Prospectus.
(i) All of the securities being offered by the Company shall be tendered
for delivery in accordance with the terms and provisions of this Agreement.
(j) The securities being offered shall be qualified in such states as the
Underwriter may reasonably request and each such qualification shall be in
effect and not subject to any stop order or other proceeding on the Effective
Date, and Closing Date.
(k) The Company shall have furnished to the Underwriter such other and
further certificates, documents, and opinions as the Underwriter may reasonably
request or its counsel may request (including certificates of officers) as to
the accuracy, at and as of the Closing Date, of the representations and
warranties of the Company herein, as to the performance by the Company of its
obligations hereunder, and as to other conditions concurrent and precedent to
its obligations hereunder.
All the opinions, affidavits, letters, evidence and certificates specified
in this Paragraph 7 or elsewhere in this Agreement shall be deemed to be in
compliance with the provisions hereof only if they are in form reasonably
satisfactory to the Underwriter and its counsel.
Any certification signed by an officer of the Company and delivered to the
Underwriter or to its counsel will be deemed a representation and warranty by
the Company to the Underwriter as to the statements made therein.
In the event that any of the conditions specified in this Paragraph 7 shall
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<PAGE>
not have been fulfilled, the Underwriter shall have the right, upon written
notice to the Company, and upon the Company's failure to cure the condition
within ten (10) days from the date of such notice, to terminate the obligations
of the Underwriter under this Agreement.
8. INDEMNIFICATION
(a) The Company will indemnify and hold harmless the Underwriter and each
person who controls the Underwriter within the meaning of Section 15 of the Act
from and against any and all losses, claims, damages, expenses or liabilities,
joint or several to which they or any of them may become subject under the
Act or under any other statute or at common law or otherwise and will reimburse
the Underwriter and each such person specified as above for any legal or other
expenses (including the cost of any investigation and preparation) reasonably
incurred by them or any one them in connection with investigating or defending
any litigation or claim whether or not resulting in any liability, only insofar
as such losses, claims, damages, expenses, liabilities or actions arise out of
or are based upon any untrue statement or alleged untrue statement of a material
fact contained in the Registration Statement or any post-effective amendment
thereto or in any Blue Sky application or arise out of or are based upon the
omission or alleged omission to state therein a material fact required to be
stated therein necessary to make the statements therein not misleading, all as
of the date when the Registration Statement or such post-effective amendment,
the filing of any such Blue Sky application as the case may be, becomes
effective or any untrue statement or alleged untrue statement of a material fact
contained in the Preliminary Prospectus or Prospectus (as amended or as
supplemented thereto), or arise out of or are based upon the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary in order to make the statements therein, not misleading; provided,
however, that the indemnity agreement contained in this subsection (a) shall not
apply to amounts paid in settlement of any such litigation if such settlement is
effected without the consent of the Company, nor shall it extend to any
Underwriter or any person controlling any Underwriter in respect of any such
losses, claims, damages, expenses, liabilities, or actions arising out of, or
based upon any such untrue statement or alleged untrue statement, or any such
omission, if such statement or omission was made in reliance upon and in
conformity with, written information furnished to the Company by the Underwriter
on behalf of such Underwriter specifically for use in connection with the
preparation of the Registration Statement, the Prospectus, or any such amendment
thereof or supplement thereto or Blue Sky Application.
The Underwriter and each controlling person of the Underwriter agree after
their receipt of written notice of the commencement of any action against such
Underwriter or against any such person controlling the Underwriter as aforesaid,
in respect of which indemnity may be sought from the Company on account of the
indemnity agreement contained in this subsection (a), to notify the Company
within ten (10) days in writing of the commencement thereof and to supply a copy
of any legal documents served upon such Underwriter or such controlling person
in connection with such action. The omission of such Underwriter or such
controlling person of such Underwriter to so notify the Company of any such
action shall relieve the Company from any liability which it may have to such
22
<PAGE>
Underwriter or such controlling persons as to any such action on account of the
indemnity agreement contained in this subsection (a), but shall not relieve the
Company from any other liability which it may have to such Underwriter, to such
controlling person or to any other underwriter or controlling person. In case
any such action shall be brought against any Underwriter or any controlling
person, such Underwriter or controlling person of such Underwriter shall
promptly notify the Company of the commencement thereof and the Company shall be
entitled to participate in (and, to the extent it shall wish, to direct) the
defense thereof at its own expense but such defense shall be conducted by
counsel of recognized standing and reasonably satisfactory to such Underwriter
and to such controlling person or persons who are defendant or defendants in
such litigation. The Underwriter or any such controlling person shall have the
right to employ separate counsel in any such action and to participate in the
defense thereof subject to the Company's reasonable right to approve such
counsel which will not be unreasonably withheld, but the fees and expenses of
such counsel shall not be at the expense of the Company unless (i) the
employment of such counsel has been specifically authorized by the Company, or
(ii) the Company shall not have employed counsel to have charge of the defense
of such action, or (iii) there is a conflict of interest which would prevent
counsel for the Company from representing both the Company and the Underwriter
or such controlling person, in any of which cases the Company shall not have
the right to direct the defense of such action on behalf of the Underwriter or
such controlling person. It is understood that, regardless of whether such
counsel is representing all of the parties entitled to indemnification under
this subsection (a), the Company shall not be liable, under clause (iii) above,
for the fees and expenses of more than one separate counsel (other than local
counsel) who shall be approved by the Underwriter. The Company agrees to notify
the Underwriter promptly of the commencement of any litigation or proceeding
against it or against any of the officers or directors of the Company of which
it may be advised, in connection with the issue and sale of any of its
securities, and to furnish the Underwriter, at the Underwriter's request, with
copies of all pleadings therein and to permit the Underwriter to be an observer
therein and to apprise it of all of the developments therein, all at the
Company's expense.
The provisions of this paragraph 8(a) shall also apply to the subsequent
registration of the Underwriter's Warrants and/or the securities underlying the
Underwriter's Warrants.
(b) The Underwriter will indemnify and hold harmless the Company, the
directors of the Company, the officers of the Company who shall have signed the
Registration Statement and each person, if any, who controls the Company within
the meaning of Section 15 of the Act, from and against any and all losses,
claims, damages, expenses or liabilities, joint or several, to which they or any
of them may become subject under the Act or under any other statute or at common
law or otherwise and, except as hereinafter provided, will reimburse the Company
and such officers or controlling persons indemnified for as above for any legal
or other expenses (including the cost of any investigation and preparation)
reasonably incurred by them or any of them in connection with investigating or
defending any litigation or claims whether or not resulting in any liability,
23
<PAGE>
only insofar as such losses, claims, damages, expenses, liabilities or actions
arise out of or are based upon any untrue statement or alleged untrue statement
of a material fact contained in the Registration Statement or any post-effective
amendment thereto or in any Blue Sky application or arise out of or are based
upon the omission or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein not misleading,
all as of the date when the Registration Statement or such post-effective
amendment, or the date the filing of any such Blue Sky application as the case
may be, becomes effective, or any untrue statement or alleged untrue statement
of a material fact contained in the Preliminary Prospectus or the Prospectus (as
amended or as supplemented if the Company shall have filed with the Commission
any amendments thereof or supplements thereto), or the omission or alleged
omission to state therein a material fact necessary in order to make the
statements therein, in the light of the circumstances under which they were
made, not misleading, but only if insofar as such statement or omission was made
in reliance upon information furnished in writing to the Company by the
Underwriter specifically for use in connection with the preparation of the
Registration Statement, the Preliminary Prospectus or the Prospectus, or any
such amendment thereof or supplement thereto or Blue Sky application. This
indemnity agreement is in addition to any other liability which the Underwriter
may have to the Company. The Underwriter shall not be liable for amounts paid
in settlement of any such litigation, if such settlement was effected without
its consent. In case of the commencement of any action, in respect of which
indemnity may be sought from such Underwriter on account of its indemnity
agreement contained in this subsection (b), the Company and each person agreed
to be indemnified by such Underwriter shall have the same obligation to notify
such Underwriter and such Underwriter shall have the same right to participate
in (and, to the extent that it shall wish, to direct), as set forth in
subsection (a) above, the defense of such action at its own expense but such
defense shall be conducted by counsel of recognized standing and reasonably
satisfactory to the Company or such other person agreed to be indemnified by
such Underwriter. The Underwriter agrees to notify the Company promptly of the
commencement of any litigation or proceeding against it or against any such
controlling person of which it may be advised in connection with the issue or
sale of any of the securities of the Company. The provisions of this
subparagraph shall also apply to the subsequent registration of the
Underwriter's Warrants and/or securities underlying the Underwriter's Warrants.
(c) The respective indemnity agreements of the Company, and the
Underwriter contained in subsections (a) and (b) above, and the representations
and warranties of the Company set forth in this Agreement, shall remain
operative and in full force and effect, regardless of any investigation made by
or on behalf of the Underwriter or the Company or any such officer or
controlling person of the Underwriter or the Company, and shall survive the
delivery of the Shares, and any successor of the Underwriter, or of any
controlling person of the Underwriter or of any controlling person of the
Company, as the case may be, shall be entitled to the benefit of these
respective indemnity agreements.
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<PAGE>
9. CONTRIBUTION.
In order to provide for just and equitable contribution under the Act in
any case in which (i) the Underwriter makes claims for indemnification pursuant
to Section 8 hereto but it is judicially determined (by the entry of a final
judgment or decree by a court of competent jurisdiction and the expiration of
time to appeal or the denial of the last right of appeal) that such
indemnification may not be enforced in such case, notwithstanding the fact that
the express provisions of Section 8 provide for indemnification in such case, or
(ii) contribution under the Act may be required on the part of the Underwriter,
then the Company and each person who controls the Company, in the aggregate, and
the Underwriter shall contribute to the aggregate losses, claims, damages or
liabilities to which they may be subject (which shall, for all purposes of this
Agreement, include, but not be limited to, all reasonable costs of defense and
investigation and all reasonable attorneys' fees) in either such case (after
contribution from others) in such proportions that the Underwriter is
responsible in the aggregate for that portion of such losses, claims, damages or
liabilities represented by the percentage that the underwriting commission per
Share appearing on the cover page of the Prospectus bears to the public offering
price appearing thereon, and the Company shall be responsible for the remaining
portion, provided, however, that (a) if such allocation is not permitted by
applicable law, then the relative fault of the Company and the Underwriter and
controlling persons, in the aggregate, in connection with the statements or
omissions which resulted in such damages and other relevant equitable
considerations shall also be considered. The relative fault shall be determined
by reference to, among other things, whether in the case of an untrue statement
of a material fact or the omission to state a material fact, such statement or
omission relates to information supplied by the Company or the Underwriter, and
the parties' relative intent, knowledge, access to information and opportunity
to correct or prevent such untrue statement or omission. The Company and the
Underwriter agree that it would not be just and equitable if the respective
obligations of the Company and the Underwriter to contribute pursuant to this
Section 9 were to be determined by pro rata or per capita allocation of the
aggregate damages or by any other method of allocation that does not take
account of the equitable considerations referred to in the first sentence of
this Section 9; and, (b) the contribution of the Underwriter shall not be in
excess of its proportionate share of the portion of such losses, claims, damages
or liabilities for which the Underwriter is responsible. No person guilty of a
fraudulent misrepresentation (within the meaning of Section 11(f) of the Act)
shall be entitled to contribution from any person who is not guilty of such
fraudulent misrepresentation. As used in this paragraph, the word "Company"
includes any officer, director, or person who controls the Company within the
meaning of Section 15 of the Act. If the full amount of the contribution
specified in this paragraph is not permitted by law, then the Underwriter and
each person who controls the Underwriter shall be entitled to contribution from
the Company to the full extent permitted by law. The foregoing contribution
agreement shall in no way affect the contribution liabilities of any persons
having liability under Section 11 of the Act other than the Company and the
Underwriter. No contribution shall be requested with regard to the settlement
of any matter from any party who did not consent to the settlement; provided,
however, that such consent not be unreasonably withheld in light of all factors
of importance to such party.
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<PAGE>
10. TERMINATION
This Agreement shall be terminated (a) in the event that minimum number of
750,000 Shares are not sold as provided in sections 2 and 4 above; (b) at any
time prior to the Closing Date by the Underwriter by written notice to the
Company if in the sole and absolute judgment of the Underwriter it is
impracticable to offer the Securities Being Offered for sale, by reason of (i)
an outbreak of major hostilities or other national or international calamity
having occurred; (ii) any loss of whatsoever nature, whether or not insured,
which, in the sole and absolute opinion of the Underwriter, substantially
affects the value of the property of the Company or materially interferes with
the operation of the business of the Company; (iii) any material adverse change
in the business, property or financial condition of the Company; (iv) any
action, suit or proceeding at law or in equity against the Company, or by any
Federal, State or other commission, board or agency wherein any unfavorable
decision would materially adversely effect the business, property, financial
condition or income of the Company; (v) adverse market conditions including but
not limited to the suspension and\or limitations of trading in securities on the
New York Stock Exchange, Inc., or the American Stock Exchange, Inc. and\or
minimum prices having been established on either such Exchange; (vi) any action
having been taken by any government in respect of its monetary affairs which, in
the sole and absolute opinion of the Underwriter, has a material adverse effect
on the United States securities markets, or (vii) based upon conditions arising
subsequent to the execution hereof, the Underwriter believes no favorable public
market exists for the sale of the Securities Being Offered.
If this Agreement shall be terminated pursuant to section 7 or this section
10, or if the transaction provided for herein is not consummated because of any
refusal, inability or failure on the part of the Company to comply with any of
the terms or to fulfill any of the conditions of this Agreement, or if for any
reason the Company shall be unable to perform all of its obligations under this
Agreement, the Company shall not be liable to the Underwriter for liability of
any character on account of loss of anticipated profits arising out of the
transactions covered by this Agreement, but the Company shall remain liable to
the extent provided in Paragraphs 6(l), 6(m), 6(n) and 8(a) hereof, and except
where termination occurs pursuant to clauses (i), (v), (vi) or (vii) of
this Section 10, the Company shall pay in addition thereto all out-of-pocket
expenses incurred by the Underwriter, on an accountable basis, in contemplation
of the performance by it of its obligations hereunder, including fees and
disbursements of counsel and printing and traveling expenses and postage, due
diligence expenses, and other charges of the Underwriter which charges shall not
exceed the sum of $30,000; and, if termination should occur pursuant to clauses
(i), (v), (vi) or (vii) of this section 10, the Company shall reimburse the
Underwriter for the aforesaid expenses incurred by it, on an accountable basis,
in the sum of not more than $30,000
Any notice under this section 10 may be given by telephone or telegraph,
but shall be subsequently confirmed by letter within three (3) days of such
notification. Moreover, nothing in this section 10 shall be construed so to
permit the Underwriter to be reimbursed for expenses by it in excess of its
actual expenses as described above.
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11. FINDERS
(a) The Company knows of no claims for services in the nature of a
finder's fee or origination fee with respect to this financing resulting from
the respective acts of its officers, directors or employees, for which the
Underwriter may be responsible, and the Company agrees to indemnify and hold the
Underwriter free and harmless from any claims for any services of such nature
arising from any act of the Company or its employees,
and will reimburse the Underwriter for any counsel fees, legal or other expenses
reasonably incurred by the Underwriter in investigating or defending against any
such claim.
(b) The Underwriter knows of no claims for services in the nature of a
finder's fee or origination fee with respect to this financing resulting from
the respective acts of its officers, directors, or employees, for which the
Company may be responsible, and the Underwriter agrees to indemnify and hold the
Company free and harmless from any claims for any services of such nature
arising from any act of such Underwriter or its employees or agents, and will
reimburse the Company for any legal or other expenses reasonably incurred by the
Company in investigating or defending against any such claim.
12. UNDERWRITER'S COVENANT
The Underwriter covenants and agrees with the Company as follows:
(a) By the Closing Date the Underwriter will supply the Company with all
information requested by the Company with regard to the names and addresses of
all subscribers to the securities being offered.
(b) The Underwriter and all Selected Dealers are registered as
broker-dealers with the Commission and are members in good standing with the
National Association of Securities Dealers, Inc. ("NASD") and the Underwriter
and all Selected Dealers will be registered as broker-dealers with the
Commission and members in good standing of the NASD and duly licensed and
authorized as broker-dealers in each state where securities are sold by them.
(c) There is not now pending or threatened or to the best knowledge of the
Underwriter or its counsel, contemplated against the Underwriter any action or
proceeding, either in any court of competent jurisdiction or before the
Commission or any state securities commission, or administrative body or
tribunal, except as fully disclosed or required to be disclosed in the
Prospectus.
(d) In the event any action or proceeding of the type referred to in
subparagraph (c) above shall be instituted or threatened against the Underwriter
at any time prior to the Effective Date, or in the event that the Underwriter
shall cease to be a member in good standing of the NASD, or in the event there
shall be filed by or against the Underwriter in any court pursuant to any
federal, state, local or municipal statute, a petition in bankruptcy or
insolvency or for reorganization or for the appointment of a receiver or trustee
of its assets or if the
27
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Underwriter makes an assignment for the benefit of creditors, the Underwriter
shall give written notice of the occurrence of such event or events to the
Company, and the Company shall have the right on three (3) days' written notice
to the Underwriter to terminate this Agreement without any liability to the
Underwriter of any kind.
(e) The Company agrees that, upon the closing and immediately upon the
request of the Underwriter it will give instructions to its Transfer Agent to
issue Share Certificates in the names and denominations submitted to
it by the Underwriter. The Underwriter agrees that when funds in sufficient
amount as required by this Agreement are in liquid form it will submit, within
three (3) days thereafter, to the Transfer Agent a list of the names and
addresses of the subscribers and the denominations of the certificates to be
issued to them. The Transfer Agent shall be required by the Company to issue
said certificates within seven (7) days after receipt of the aforesaid list from
the Underwriter and the delivery of the certificates shall be made to the
Underwriter within seven (7) days thereafter against receipt of payments as
provided in this Agreement.
(f) Whether or not the transactions contemplated hereunder are consummated
or this Agreement is prevented from becoming effective, the Underwriter will pay
and bear all costs and expenses incident to the performance of its obligations
of this Agreement except as otherwise specified herein.
13. SURVIVAL OF REPRESENTATIONS, WARRANTIES AND AGREEMENTS
The respective indemnities, agreements, representations, warranties and
other statements of the Company or its officers as set forth in or made
pursuant to this Agreement and the respective indemnities, agreements,
representations, warranties, covenants and other statements of the
Underwriter or its officers as set forth in or made pursuant to this
Agreement shall remain operative and in full force and effect, regardless of
any investigation made by or on behalf of the Company or the Underwriter or
any controlling person, and will survive termination of this Agreement and
the delivery of any payment for the securities being offered, on the Closing
Date.
14. BENEFIT
This Agreement has been made solely for the benefit of and shall be binding
upon the Underwriter, the Company and, to the extent expressed, any person
controlling the Company or the Underwriter and the officers and directors of the
Company, and their respective legal representatives, successors and assigns, all
as and to the extent provided herein, and no other person shall acquire or have
any right under or by virtue of this Agreement. The term "legal
representatives, successors and assigns" shall not include any purchaser of any
of the securities being offered from the Underwriter merely because of such
purchase.
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15. NEW YORK LAW
This Agreement shall be construed in accordance with the laws of the State
of New York and subject to the exclusive jurisdiction of the courts of said
state.
16. NOTICES
All communications hereunder shall be in writing and, if to the
Underwriter, shall be mailed by certified mail or delivered to the Underwriter
at its address appearing on Page 1 hereof, or if to the Company, shall be mailed
by certified mail or delivered to it at its address appearing on Page 1 hereof,
or sent to Counsel to such parties named in the Prospectus at the respective
addresses indicated therein.
If the foregoing correctly states and sets forth in full the Agreement
between us, please indicate by signing this letter in the space provided below
for that purpose. The within Agreement may be executed simultaneously in two
or
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<PAGE>
more counterparts, each of which shall be deemed the original, but all of which
together shall constitute one and the same instrument and shall be valid and
binding between us.
Very truly yours,
GRADY AND HATCH & COMPANY, INC.
BY
---------------------------
RAYMOND HATCH, PRESIDENT
DATED: NEW YORK, NEW YORK
MARCH 7, 1997
ACCEPTED AND AGREED:
VOICENET, INC.
BY
------------------------
FRANK CARR, PRESIDENT
ACCEPTED AND AGREED AS IT PERTAINS TO THEM AND FUTHER
THEY AGREE TO ABIDE BY THE APPROPRIATE RULES OF THE NASD
AND WILL NOT EFFECT DIRECTLY OR INDIRECTLY ANY SALES TO
AMERICAN CITIZENS:
INTERNATIONAL ADVISORS
FAI INSURANCES, LTD
BY
-----------------------
McDERMID ST. LAWRENCE SECURITIES, LTD
BY
-----------------------
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VOICENET, INC.
380 Lexington Avenue
New York, New York 10168
January , 1997
FAI Insurances Limited
FAI Insurance House
185 Macquarie Street
Sydney, New South Wales
Dear Sirs:
Voicenet, Inc., a Delaware corporation (the "Company"), proposes to
issue and sell to you (the "International Advisor"), an aggregate of up to
337,500 investment units, which total amount shall be set forth on the signature
page hereto (the "Firm Units"), each Firm Unit shall have a price of $8.00 and
consist of (a) one Share of common stock, par value $.001 per share (the "Common
Stock"), of the Company and (b) one Common Stock Purchase Warrant ("Warrants")
entitling the registered holder thereof to purchase one share of Common Stock at
a purchase price of US$12.50 per share, subject to adjustment under certain
circumstances, during the period commencing on the date of the Prospectus and
terminating two years from the date of the Registration Statement. The Company
will have the right to redeem the Warrants at $.05 per Warrant upon thirty days'
written notice at any time prior to expiration, commencing upon issuance when
the closing bid price or closing price of the Common Stock on each of ten
consecutive trading days shall have exceeded $18.75 per share. Pursuant to the
Registration Statement, the Company is offering a minimum of 750,000 Units
(US$6,000,000) and a maximum of 1,250,000 Units (US$10,000,000).The Firm Units
being purchased by the International Advisor hereunder are included within and
part the total offering described in the Registration Statement.
On the basis of, and subject to, the terms and conditions herein set
forth, the International Advisor is hereby appointed the exclusive International
Advisor of the Company during the offering period, as described the Registration
Statement (the "Offering Period"). This is to confirm the arrangement with
respect to the purchase of the Units as follows:
1. OFFERING BY THE REGISTRATION STATEMENT. The Company has prepared and
filed with the Securities and Exchange Commission (the "Commission") a
registration statement on Form SB-2, including the related preliminary
prospectus, for registration under the Securities Act of 1933, as amended (the
"Act"), of the Units, and may have prepared and filed one or more amendments
thereof. Such registration statement, including the prospectus, financial
statements, exhibits and all other documents filed as a part thereof or
incorporated therein by reference, as from time to time amended or supplemented
pursuant to the Act, the Securities Exchange Act of 1934, as amended (the "1934
Act"), or otherwise, when it shall become effective, is herein referred to as
the "Registration Statement."
2. FIRM PURCHASE OBLIGATION. Subject to the terms and conditions of this
Agreement and the Registration Statement, the Company agrees to issue and sell
to the International Advisor, and the International Advisor agrees to buy from
the Company, on a "firm commitment" basis, at the place and time hereinafter
specified, the Firm Units, at a purchase price of $8.00 per Firm Unit.
3. COMPENSATION. As compensation for its services, the International
Advisor shall be entitled to payment of an aggregate discount equal to eight
(8%) percent of the aggregate gross proceeds from the sale of the Firm Units.
Tthe International Advisor shall also be entitled to a reimbursement for
nonaccountable in an amount equal to one (1%) percent of the aggregate gross
proceeds from the sale of the Firm Units.
4. DELIVERY AND PAYMENT. The closing of the minimum offering of 750,000
Units, including those being subscribed by the International Advisor, is a
condition to the obligations of the Company to close and accept the subscription
of the up to 337,500 Firm Units being purchased hereunder. Pending the closing
on the Closing Date, the International Advisor shall deposit into the separate
special subscription bank escrow account maintained at Chase Manhattan Bank NA,
all subscription monies with respect to the Units purchased or placed by the
International Advisor.
<PAGE>
4. OFFERING OUTSIDE UNITED STATES. It is understood that, as soon on
or after the effective date of the Registration Statement as it deems advisable,
the International Advisor may offer the Units for sale to the public as set
forth in the Registration Statement. The International Advisor represents and
agrees that (a) it is not purchasing the Units for the account of any U.S.
Person (as defined below) and (b) it has not offered or sold, and will not offer
or sell, directly or indirectly, any of such Units or distribute such Units
within the United States or to any U.S. Person. As used herein, "U.S. Person"
means any citizen or resident of the United States, any corporation, pension,
profit sharing or other trust or other entity organized under or governed by the
laws of the United States or any political subdivision thereof (other than the
foreign branch of any United States person), any estate or trust the income of
which is subject to United States federal income taxation, and any United States
branch of a person other than a United States person.
5. INDEMNIFICATION. In addition to any liability which the Company
may have under this Agreement or as a matter of law and subject to the
conditions set forth below, the Company agrees to indemnify and hold harmless
the International Advisor, its officers, directors, employees and agents and
each person, if any, who controls the International Advisor within the meaning
of Section 15 of the Act or Section 20(a) of the 1934 Act, against any and all
losses, claims, damages or liabilities, joint or several, by which they or any
one of them may become subject under the Act, the 1934 Act or any other federal
or state statutory law or regulation, at common law or otherwise, (i) arising
out of, based upon or in connection with any untrue or alleged untrue statement
of a material fact contained in the Registration Statement, as originally filed,
or any amendment thereof, or any preliminary prospectus or the Prospectus or in
any amendment thereof or supplement thereto or in any application or any other
document (in this Section collectively called an "Application") executed by or
on behalf of the Company or based upon written information furnished by or on
behalf of the Company filed in any jurisdiction in order to qualify the Units,
the Shares or the Warrants under the "blue sky" or securities laws thereof or
filed with the Commission or any securities exchange, or (ii) arising out of,
based upon or in connection with, the omission or alleged omission therefrom of
a material fact required to be stated therein or necessary to make the
statements therein not misleading, and agrees to reimburse each such indemnified
party for any legal or other expenses reasonably incurred by them in connection
with investigating or defending any such loss, claim, damage or liability (or
actions in respect thereof); PROVIDED, HOWEVER, that the Company will not be
liable to the extent such statement or omission was made in reliance upon and in
conformity with information furnished in writing to the Company as stated herein
by or on behalf of and with respect to the International Advisor specifically
for use in the preparation thereof. This indemnity will be in addition to any
liability which the Company may otherwise have.
6. Notices. All communications hereunder will be in writing and
effective only on receipt at the appropriate address set forth at the beginning
of this Agreement by certified or registered mailed, express deliverly or
telecopied or telegraphed.If a communication is to be sent to the Company , a
copy shall also be sent to Epstein, Becker & Green, P.C., 250 Park Avenue, New
York, New York 10177, attention: David E. Fleming, Esq.
7. APPLICABLE LAW. This Agreement will be governed by, and construed
in accordance with, the laws of the State of New York, United States of America,
without giving effect to any principles of conflicts of law.
If the foregoing is in accordance with your understanding of our
agreement, please sign and return to us the enclosed duplicate hereof.
Very truly yours,
VOICENET, INC.
By:________________________________________
Frank Carr
President & Chief Executive Officer
Agreed and accepted as of
the date first above written.
AMOUNT SUBSCRIBED:
________ Units at $8.00 per Unit
FAI INSURANCES LIMITED
<PAGE>
By:________________________________
<PAGE>
EXHIBIT 1.3
GRADY AND HATCH & COMPANY, INC.
50 Broad Street
New York, New York 10004
______
VOICENET, INC.
(a Delaware corporation)
750,000 Shares or None Offering
Up to 1,875,000 Shares
SELECTED DEALER'S AGREEMENT
GRADY AND HATCH & COMPANY, INC., as Underwriter for VOICENET, INC., a
Delaware corporation (the "Company"), invites your participation as a Selected
Dealer ("Selected Dealer") in an offering of up to 1,875,000 Shares at $8.00 per
Share, par value $.01 per share. The Underwriter is offering the Shares
pursuant to a Registration Statement filed under the Securities Act of1933, as
amended ("the 33 Act"), subject to the terms of (a) its Underwriting Agreement
with the Company, (b) this Agreement and (c) the Underwriter's instructions
which may be forwarded to the Selected Dealers from time to time. This
invitation is made by the Underwriter only if the Shares may be lawfully offered
by dealers in your state. The terms and conditions of this invitation are as
follows:
1. ACCEPTANCE OF ORDERS. Orders received from the Selected Dealers will be
accepted only at the price, in the amounts and on the terms which are set forth
in the Company's current Prospectus.
2. SELLING CONCESSION. All Selected Dealers will be allowed on all Shares
sold by them, a commission of of the total sales price ( of the
full 9% commission or per Share) as shown in the Company's current
Prospectus.
3. SELECTED DEALERS SALES. The Selected Dealer shall purchase the Shares
for its customers only through the Underwriter, and all such purchases shall be
made only upon orders already received by the Selected Dealer from its
customers. No Shares may be purchased for the account of the Selected Dealer or
its principals. In all sales of the Shares to the public, the Selected Dealer
shall confirm as agent for another.
4. DELIVERY OF FUNDS. The Selected Dealer shall promptly transmit to the
escrow agent no later than 12 noon of the day subsequent to the receipt of funds
all funds received from
<PAGE>
purchasers and a confirmation or a record of each sale which shall set forth the
name, address and social security number of each individual purchaser, the
number of Shares purchased, and, if there is more than one registered owner,
whether the certificate or certificates evidencing the
securities purchased are to be issued to the purchaser in joint tenancy or
otherwise. Also, each Selected Dealer shall report, in writing, to the
Underwriter the number of persons in each such state who purchase the Shares
from Selected Dealers. Each sale may be rejected by the Underwriter; and if
rejected, the escrow agent will return to the purchaser all funds paid by the
purchaser which have been received by the escrow agent.
5. PAYMENT FOR SALES. Payment for the Company's Shares shall accompany all
confirmations and applications and shall be in clearing house funds. All checks
and other orders for the payment of money shall be made payable to the escrow
agent for deposit into an escrow account maintained at and
entitled "Escrow Account for the Benefit of Subscribers to Voicenet, Inc's
Securities." Shares sold by the Selected Dealer will be available for delivery
at Continental Stock Transfer & Trust Company, unless other arrangements are
made with the Underwriter for delivery.
6. DEPOSIT OF SALES PROCEEDS. The proceeds from the sale of all of the
Shares sold in the offering (the "offering proceeds") will be deposited in the
escrow account mentioned in Paragraph 5 hereof. In the event that offering
proceeds in an amount of $6,000,000 have not been deposited and cleared within
ninety (90) days from the date the Company's Registration Statement is declared
effective (unless extended by mutual written consent for an additional ninety
(90) days) by the Securities and Exchange Commission, the full amount paid will
be refunded to the purchasers. No certificates evidencing the Shares will be
issued unless and until offering proceeds in an amount of $6,000,000 have been
cleared and such funds have been released and the net proceeds thereof delivered
to the Company. If offering proceeds in an amount of $6,000,000 are cleared
within the time period provided above, all amounts so deposited will be
delivered to the Company, except that the Underwriter may deduct its
underwriting commissions from the proceeds of the offering prior to the delivery
of such proceeds to the Company. No commissions will be paid by the Company or
concessions allowed by the Underwriter unless and until offering proceeds in a
minimum amount of $6,000,000 have been cleared and such funds have been released
and the net proceeds thereof delivered to the Company. However, it is
understood that if the required funds relating to the 750,000 Shares are
received and deposited within the Escrow Account referred to in Paragraph 4
hereof, but not cleared within the time set forth above, then up to an
additional ten (10) business days shall be allowed for the sole purpose of
clearance of such funds and the Closing of the offering.
7. FAILURE OF ORDER. If an order is rejected or if a payment is received
which proves insufficient, any compensation paid to the Selected Dealer shall be
returned either by the Selected Dealer in cash or by a charge against the
account of the Selected Dealer, as the Underwriter may elect.
8. CONDITIONS OF OFFERING. All sales will be subject to delivery by the
Company of
2
<PAGE>
certificates evidencing the securities.
9. SELECTED DEALER'S UNDERTAKINGS. No person is authorized to make any
representations concerning the Company's Shares except those contained in the
Company's then current Prospectus. The Selected Dealer will not sell the
Company's Shares pursuant to this Agreement unless the Prospectus is furnished
to the purchaser at least forty-eight (48) hours prior to the mailing of the
confirmation of sale, or is sent to such persons under such circumstances that
it would be received by him 48 hours prior to his receipt of a confirmation of
the sale. The Selected Dealer agrees not to use any supplemental sales
literature of any kind without prior written approval of the Underwriter unless
it is furnished by the Underwriter for such purpose. In offering and selling
the Company's Shares, the Selected Dealer will rely solely on the
representations contained in the Company's then current Prospectus. Additional
copies of the then current Prospectus will be supplied by the Underwriter in
reasonable quantities upon request.
The Selected Dealer understands that during the ninety (90) day period
after the first date upon which the Company's Shares are bona fide offered to
the public, all dealers effecting transactions in the Company's Shares may be
required to deliver the Company's current Prospectus to any purchaser thereof
prior to or concurrent with the receipt of the confirmation of sale. Additional
copies of the then current Prospectus will be supplied by the Underwriter in
reasonable quantities upon request.
10. REPRESENTATIONS AND AGREEMENTS OF SELECTED DEALERS. By accepting this
Agreement, the Selected Dealer represents that either (a) it is registered as a
broker-dealer under the Securities Exchange Act of 1934, as amended; is
qualified to act as a dealer in the states or other jurisdictions in which it
offers the Company's Shares; is a member in good standing with the National
Association of Securities Dealers, Inc. ("NASD"), and will maintain such
registrations, qualifications and memberships throughout the term of this
Agreement, or (b) is a foreign bank, dealer or institution not eligible for
membership in the NASD which agrees to make no sales in the United States, its
territories or possessions or to persons who are citizens thereof or residents
therein, and in making other sales to comply with the NASD's interpretation with
respect to free-riding and withholding. Further, the Selected Dealer agrees to
comply with all applicable Federal laws, the laws of the states or other
jurisdictions concerned and the Rules and Regulations of the NASD, and in
particular the Selected Dealer agrees that in connection with any purchase or
sale of the Company's Shares wherein a selling concession, discount or other
allowance is received or granted (1) that it will comply with the decisions of
Conduct Rule 2740 of the NASD or (2) if a non-NASD member, broker or dealer in a
foreign country, it will also comply with the provisions of Conduct Rules 2730
and 2750 thereof as though it were a NASD member and with the provisions of
Conduct Rule 2420 as such Conduct Rule 2420 applies to a non-NASD member, broker
or dealer in a foreign country. Further, the Selected Dealer agrees that it
will not offer to sell the Company's Shares in any state or jurisdiction except
the states in which it is licensed as a broker-dealer under the laws of such
states. The Selected Dealer shall not be entitled to any compensation during
any period in which it has been suspended or expelled from membership in the
NASD.
3
<PAGE>
11. SELECTED DEALER'S EMPLOYEES. By accepting this Agreement, the Selected
Dealer has assumed full responsibility for proper training and instruction of
its representatives concerning the selling methods to be used in connection with
the offer and sale of the Company's Shares, giving special emphasis to the
principles of suitability and full disclosure to prospective investors and
prohibitions against "free-riding and withholding."
12. INDEMNIFICATION. The Company has agreed in the Underwriting Agreement
to indemnify and hold harmless the Underwriter (including within the definition
of Underwriter, any member of the Selected Dealer group) and each person, if
any, who controls the Underwriter within the meaning of Section 15 of the 33 Act
or under any other statute or at common law and will reimburse the Underwriter
and each such person specified as above for any legal or other expenses
(including the cost of any investigation and preparation) reasonably incurred by
them or any of them in connection with any litigation or claim whether or not
resulting in any liability, but only insofar as such losses, claims, damages,
liabilities or actions arise out of or are based upon any untrue statement or
alleged untrue statement of a material fact contained in the Registration
Statement or any post-effective amendment thereto or in any Blue Sky application
or arise out of or are based upon the omission or alleged omission to state
therein a material fact required to be stated therein necessary to make the
statements therein not misleading, all as of the date when the Registration
Statement or such post-effective amendment, or the filing of any such Blue Sky
application as the case may be, becomes effective or any untrue statement or
alleged untrue statement of a material fact contained in any preliminary
prospectus or final prospectus (as amended or as supplemented thereto), or arise
out of or are based upon the omission to state therein a material fact required
to be stated therein or necessary in order to make the statements therein, not
misleading; provided however, that the indemnity agreement contained in this
paragraph 12 shall not apply to amounts paid in settlement of any such
litigation if such settlement is effected without the consent of the Company nor
shall it extend to the Underwriter or any person controlling the Underwriter in
respect of any such losses, claims, damages, liabilities or actions arising out
of, or based upon any such untrue statement or alleged untrue statement, or any
such omission, if such statement or omission was made in reliance upon and in
conformity with written information furnished to the Company by the Underwriter
on behalf of such Underwriter specifically for use in connection with the
preparation of the Registration Statement, the Prospectus or any such amendment
thereof or supplement thereto or Blue Sky application.
13. SELECTED DEALER'S INDEMNIFICATION. The Selected Dealer agrees to
indemnify and hold harmless the Company, the Underwriter, each of the Company's
officers and directors who signed the Registration Statement, and each person,
if any, who controls the Company and the Underwriter within the meaning of
Section 15 of the 33 Act, against any and all loss, liability, claim, damage
and expense (a) described in the indemnity contained in Paragraph 12 of this
Agreement, but only with respect to untrue statements or omissions or alleged
untrue statements or omissions, made in the Registration Statement or the
Prospectus or any amendment or supplement thereto in reliance upon and in
conformity with written information furnished to the
4
<PAGE>
Company by such Selected Dealer expressly for use in the Registration Statement
(or any amendment thereto) or the Prospectus (or any amendment or supplement
thereto) or (b) based upon alleged misrepresentations or omissions to state
material facts in connection with statements made by the Selected Dealer or the
Selected Dealer's salesmen orally or by other means; and the Selected Dealer
will reimburse the Company, the Underwriter, each of the Company's officers and
directors who signed the Registration Statement and each person, if any, who
controls the Company and the Underwriter within the meaning of Section 15 of the
33 Act, for any legal or other expenses reasonably incurred in connection with
the investigation of or the defending of any such action or claim.
14. REQUIRED NOTICES AND CLAIMS. Each indemnified party is required to
give prompt notice to each indemnifying party of any action commenced against it
in respect of which indemnity may be sought hereunder, but failure to so notify
an indemnifying party shall not relieve it from any liability which it may
otherwise have on account of the indemnification provisions hereof. Any
indemnifying party may participate at its own expense in the defense of such
action. If it so elects within a reasonable time after receipt of such notice,
an indemnifying party, jointly with any other indemnifying parties receiving
such notice, may assume the defense of such action with counsel chosen by it and
approved by the indemnified parties defendant in such action, unless such
indemnified parties reasonably object to such assumption on the ground that
there may be legal defenses available to them which are different from or in
addition to those available to such indemnifying parties and shall not be liable
for any fees and expenses of counsel for the indemnified parties incurred
thereafter in connection with such action. In no event shall the indemnifying
parties be liable for the fees and expenses of more than one counsel for all
indemnified parties in connection with any one action or separate but similar or
related actions in the same jurisdiction arising out of the same general
allegations or circumstances.
15. EXPENSES. No expenses will be charged to Selected Dealers. A
single transfer tax, if any, on the sale of the Shares by the Selected Dealer to
its customers will be paid when such Shares are delivered to the Selected Dealer
for delivery to its customers. However, the Selected Dealer will pay its
proportionate share of any transfer tax or any other tax (other than the single
transfer tax described above) if any such tax shall be from time to time
assessed against the Underwriter and other Selected Dealers.
16. COMMUNICATIONS. All communications to the Underwriter should be sent
to the address shown in the first page of this Agreement. Any notice to the
Selected Dealer shall be properly given if mailed or telephoned to the Selected
Dealer at the address given below. This Agreement shall be construed according
to the laws of the State of New York.
5
<PAGE>
17. ASSIGNMENT AND TERMINATION. This Agreement may not be assigned by the
Selected Dealer without the Underwriter's written consent. This Agreement will
terminate upon the termination of the offering of the Shares except that either
party may terminate this Agreement at any time by giving written notice to the
other.
GRADY AND HATCH & COMPANY, INC.
By:
----------------------
Date of Acceptance:
--------------------
Dealer Name:
---------------------------
Address:
-------------------------------
------------------------------
-----------------------------------
Accepted:
------------------------------
Telephone No.
--------------------------
IRS Employer I.D. No.:
-----------------
Share Allocation:
-----------------------
6
<PAGE>
Exhibit 4.1
VOICENET, INC.
Common Stock
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
C- SEE REVERSE SIDE FOR [Shares]
- ---------------- CERTAIN DEFINITIONS ---------
CUSIP
---------------------
This is to Certify that
is the owner of
FULLY PAID AND NON-ASSESSABLE SHARES OF THE COMMON STOCK, PAR VALUE $0.01, OF
VOICENET, INC.
a corporation incorporated under the laws of the State of Delaware. The shares
evidenced by this certificate are transferable only on the stock transfer books
of VOICENET, INC. by the holder hereof, in person or by attorney, upon surrender
of this certificate properly endorsed.
IN WITNESS WHEREOF VOICENET, INC. has caused this certificate to be executed by
the signatures of its duly authorized officers and has caused its facsimile seal
to be hereunto affixed.
Dated:
Frank Carr
President
Countersigned and Registered:
American Stock Transfer & Trust Company
By Transfer Agent
and Registrar
<PAGE>
VOICENET, INC.
The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM - as tenants in common UNIF GIFT MIN ACT....Custodian....
(Cust) (Minor)
TEN ENT - as tenants by the entireties under Uniform Gift to Minors
JT TEN - as joint tenants with right Act...................
of survivorship and not as (State)
tenants in common
Additional abbreviations may also be used though not in the above list.
For value received, _______________ hereby sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
__________________________________________________________________________
__________________________________________________________________________
PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS INCLUDING ZIP CODE OF ASSIGNEE.
__________________________________________________________________________
_____________________________________________________________________
____________________________________________________________________ Shares
represented by the within Certificate, and so hereby irrevocably constitute and
appoint _____________________________________________________________________
Attorney to transfer the said Shares on the books of the within named
corporation with full power of substitution in the premises.
Dated: __________________________________________
In the presence of _____________________________________________________
Signature
_________________________________________________
Signature
NOTE: THE ABOVE SIGNATURE SHOULD CORRESPOND EXACTLY
WITH THE NAME ON THE FACE OF THIS CERTIFICATE
AND MUST BE GUARANTEED BY AN ELIGIBLE
GUARANTOR INSTITUTION WITH MEMBERSHIP IN AN APPROVED
SIGNATURE MEDALLION PROGRAM.
<PAGE>
VOICENET, INC.
UNDERWRITER'S WARRANT AGREEMENT
UNDERWRITER'S WARRANT AGREEMENT dated as of ________ ,1997 by and
among VOICENET, INC., a Delaware corporation (the "Company") and GRADY AND HATCH
& COMPANY, INC., as representative of the underwriting syndicate (the
"Underwriter").
W I T N E S S E T H:
WHEREAS, the Company proposes to issue to the Underwriter warrants
("Warrants") to purchase up to 187,500 Shares of Common Stock, $.01 par value,
of the Company (the "Shares").
WHEREAS, the Underwriter has agreed, pursuant to the Underwriting Agreement
(the "Underwriting Agreement") dated March __, 1997 by and between the
Underwriter and the Company, to act as the Underwriter on a "best
efforts, 750,000 shares of Common Stock minimum or none" basis in connection
with the Company's proposed public offering of up to a maximum of 1,875,000
shares of Common Stock (the "Initial Public Offering"); and
WHEREAS, the Warrants to be issued pursuant to this Agreement will be
issued on the Closing Date of the Company's Initial Public Offering to the
Underwriter in consideration for, and as part of the Underwriter's compensation
in connection with, the Underwriter acting as the Underwriter pursuant to the
Underwriting Agreement;
NOW, THEREFORE, in consideration of the foregoing premises which are
incorporated into the terms hereof and the payment by the Underwriter to the
Company of $10, 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 Underwriter and its Permitted Transferees, as hereinafter defined
("Holders") are hereby granted the right to purchase, at any time from March __,
1998, 5:00 p.m., New York time, until March __, 2002, up to 187,500 shares at an
initial exercise price (subject to adjustment as provided in Section 7 hereof)
of $8.80 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 Section 7 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 already defined in Section 1
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. 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 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.
2
<PAGE>
5. RESTRICTION ON TRANSFER OF WARRANTS.
A Holder, 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 March __, 1998, only
officers and partners of the Underwriter, 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 7 hereof; the initial exercise price of each Warrant to purchase Shares
shall be $ 8.80 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 price in accordance with the provisions of Section 7 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 Exercise 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 Exercise 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 Exercise Price be
adjusted pursuant to this computation to an amount in excess of the applicable
Exercise 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 7(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 Exercise Price pursuant to this
Section 7, 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 Exercise Price in effect prior to such adjustment and dividing the
product so obtained by the applicable adjusted Exercise 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 a 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,
4
<PAGE>
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 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 7a. The above provisions
of this Section 7c. 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 Exercise
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 Exercise Price per share and the number of
shares purchasable thereunder as the applicable Exercise 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 Exercise Price pursuant to
this Section 7, 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 Exercise 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 Exercise 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. 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
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<PAGE>
the shares of Common Stock outstanding as of the date hereof; the Holder, at its
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 Warrants
without first making adequate provision for the 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 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 (y) the Exercise Price 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. 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 7. The provisions of
this Section 7(h) shall similarly apply to successive consolidations or mergers.
i. NO ADJUSTMENT OF EXERCISE PRICES IN CERTAIN CASES. No adjustment of
the Exercise Price shall be made:
(1) Upon the issuance or sale of the shares of Common Stock pursuant to
the Initial Public Offering; 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 Initial Public Offering.
(2) If the amount of said adjustments shall be less than one ($.01) cent
per Share, provided, however, that in such case any adjustment that
would otherwise be required then to be made shall be carried forward
and shall be made at the time of and together with the next subsequent
adjustment which, together with any adjustment so carried forward,
shall amount to at least one ($.01) cent per Share.
6
<PAGE>
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 7 (j).
k. SUBSCRIPTION RIGHTS FOR SHARES OR 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
Shares and 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.
l. EXCHANGE AND REPLACEMENT OF WARRANT CERTIFICATES. 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 Shares 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.
8. ELIMINATION OF FRACTIONAL INTERESTS.
The Company shall not be required to issue certificates representing
fractions of Shares, 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 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.
9. RESERVATION AND LISTING OF SECURITIES.
The Company shall at all times reserve and keep available out of its
7
<PAGE>
authorized shares of Common Stock, solely for the purpose of issuance upon the
exercise of the 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.
10. 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 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.
8
<PAGE>
11. 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.
12. 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.
13. SUPPLEMENTS AND AMENDMENTS.
The Company and the Underwriter may from time to time supplement or
amend this Agreement without the approval of any Holders of Warrant Certificates
(other than the Underwriter) 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
Underwriter may deem necessary or desirable and which the Company and the
Underwriter deem shall not adversely affect the interests of the Holders of
Warrant Certificates.
14. SUCCESSORS
All the covenants and provisions of this Agreement shall be binding upon
and inure to the benefit of the Company, the Underwriter, the Holders and their
respective successors and assigns hereunder.
15. TERMINATION.
This Agreement shall terminate at the close of business on March __, 2002.
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.
16. 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 Underwriter or other Holders hereby agree that any
9
<PAGE>
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 submit to such jurisdiction, which jurisdiction shall be
exclusive. The Company, the Underwriter or other 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 Underwriter or
other 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 12 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.
17. 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.
18. SEVERABILITY.
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.
19. 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.
20. BENEFITS OF THIS AGREEMENT.
Nothing in this Agreement shall be construed to give to any person or
corporation other than the Company and the Underwriter and any other
registered Holder(s) of the Warrant Certificates 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 Underwriter and any other Holder(s)
of the Warrant Certificates.
21. 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.
22. BINDING EFFECT.
This Agreement shall be binding upon and inure to the benefit of the
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<PAGE>
Company, the Underwriter and their respective successors and assigns and the
Holders from time to time of the Warrant Certificate(s) or any of them.
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
GRADY AND HATCH & COMPANY, INC.
By:________________________________
Raymond Hatch
11
<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 MARCH __, 1998 THROUGH 5:00 P.M., NEW YORK TIME MARCH __,
2002.
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 March , 1998, until
5:00 p.m., New York time on March , 2002 (the "Expiration Date"), up to
________ fully paid and nonassessable shares (the "Shares"), of Common Stock,
$.01 par value (the "Common Stock"), of VOICENET, INC., a Delaware corporation
(the "Company"), at the exercise price of $8.80 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 March ,
1997 (the "Warrant Agreement") by and among the Company and Grady and Hatch &
Company, Inc., as Underwriter of the several underwriters (the "Underwriter").
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 incorporated by reference in and made a part of this
instrument and is hereby referred to for a description of the rights,
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<PAGE>
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
13
<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)
_____________________ warrants registered by 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)
14
<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)
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<PAGE>
SUBSCRIPTION AGREEMENT
----------------------
VOICENET, INC.
Suite 517
380 Lexington Avenue
New York, New York 10168
Dear Sir:
The undersigned hereby acknowledges receipt of the Prospectus of Voicenet, Inc.
(The "Company"). The undersigned is over 18 years of age.
The undersigned subscriber represents and warrants that the Units of the Company
being purchased are for his/her own account and not for redistribution on behalf
of the Company.
I hereby subscribe to the following number of Units
A. Number of Units subscribed for________________.
B. Price per Unit $8.00
C. Total subscription price (Line A x Line B) $______________________.
Enclosed is my check, bank draft or postal or express money order for the full
subscription price stated on Line C above, which has been made payable to
"Voicenet, Inc. Escrow Account."
It is understood that this subscription is subject to allotment. The Company
reserves the right to reject all or any portion of this subscription in its sole
discretion for any reason whatsoever by refunding all monies paid without
interest thereon. The cashing of any check, bank draft or postal or express
money order will not be deemed to be an acceptance in whole or in part of any
subscription. In the event that less than 750,000 Units are sold within the time
allotted for such sale in the Prospectus, then the funds deposited in escrow
will be promptly refunded in full without interest to the subscriber by the
Company.
Date:______________ Very truly yours,
(Name in which Units _____________________________________________
Should be issued, if Signature
other that mine alone:
_____________________________________________
_________________________) Print Name
_____________________________________________
___________________________ _____________________________________________
Social Security Number or Address
Tax ID Number
<PAGE>
Exhibit 5.2
GOREY SINCLAIR
Chartered Accountants
T.M. Gorey F.C.A. B.D. Sinclair A.C.A.
10 Ord Street, West Perth WA 6005
PO Box 105, West Perth WA 6872
Phone (09) 321 4470 Fax (09) 321 4664
September 11, 1996
The Directors
VoiceNet Inc.
Campbell & Fleming Pty Ltd
250 Park Avenue
New York, NY 10177
UNITED STATES OF AMERICA
Dear Sirs:
VALUATION OF VOICENET, INC.
As requested we have prepared this valuation of the application of the
CourtSmart systems in the United States of America for inclusion in a prospectus
for a share issue of VoiceNet, Inc.
1. BACKGROUND
CourtSmart Pty Ltd a wholly owned subsidiary of Southern Group Limited
in Australia registered company (ACN 004 701 062) has developed an advanced
court reporting system using computer digital recording technology.
The system has recently been installed free of charge in a court
located in Los Angeles as a demonstration unit and is now undergoing a trial
period.
A Utilities Patent has also been registered in the USA and a separate
report has been included in the prospectus on this matter.
2. PURPOSE OF THE REPORT
This report has been prepared as an Exhibit to the Registration
Statement for a prospectus for a share issue to be made by VoiceNet, Inc.
3. VALUATION METHOD ADOPTED
I have considered the method of valuation and believe that the
Discounted Cash Flow Method to be the most appropriate in the circumstances
because:
<PAGE>
- This is a start up business where no history exists as to
earnings potential
- The business is in a high growth phase
- The life of the venture is unknown despite the Utilities Patent
which it holds over its systems.
4. CASH FLOWS
4.1. UNIT SALES
CourtSmart has developed cash flow projections based upon a market and
propagation study and pricing strategy for use in a courtroom situation which
has been subject to a report by Dr. F. Frost M.Sc(Eng),Ph.D,M.B.L.,
GradDipEng,CEng,M/M,F.A.I.M. dated December, 1993.
The project market penetration for sale of units for the five calendar
years to December 31, 2001 are as follows:
CourtSmart VoiceNet
UNITS UNITS
---------- --------
1997 648 252
1998 3,684 328
1999 4,416 426
2000 4,416 575
2001 4,416 776
------- ------
17,580 2,357
------- ------
------- ------
The company's research indicates that there are some 36,611 court
rooms in USA and the sales projections would indicate a 48% penetration of that
market for CourtSmart units.
For the purposes of the report I have applied an estimation of the
confidence level of achieving the projected sales.
The estimations of the confidence level take into account the
following factors:
- The product is still in the stages of customer trailing.
- The product represents new technology which is substantially
advanced over conventional technology.
- There is likely to be good market penetration in early years
which may decline as competition enters the market.
- Projections for the early years are likely to be more accurately
forecast than projections for later years.
<PAGE>
The confidence levels I have selected are:
1997 90%
1998 70%
1999 40%
2000 15%
2001 5%
To explain further I have assessed that there is a 90% chance of
achieving the projected sales in 1994 and a 5% chance of achieving the 1998
targets.
When applied to the projected unit sales the following annual sales
emerge:
CourtSmart VoiceNet
Units Confidence Units Confidence
PROJECTED LEVEL RESULTS PROJECTED LEVEL RESULTS
--------- --------------- ------- --------- --------------- -------
1997 648 90% 583 252 90% 227
1998 3,684 70% 2,579 328 70% 229
1999 4,416 40% 1,766 426 40% 170
2000 4,416 15% 662 575 15% 86
2001 4,416 5% 221 776 5% 39
------- ----- ----- ----
17,580 5,811 2,357 752
------- ----- ----- ----
------- ----- ----- ----
In applying the total adjusted unit sales to the estimated market of
36,611 courtrooms the penetration level calculates to be 15.88%.
4.2. SELLING PRICE
The nominated selling price for each CourtSmart unit is $24,700 US and
each VoiceNet unit is $7,600 US.
4.3. SALES REVENUE
Applying the selling price to the adjusted unit sales the sales
revenues which would be generated from the USA are:
CourtSmart VoiceNet
UNITS $ MILLION UNITS $ MILLION
-------------------- -----------------
1997 583 15.980 227 1.724
1998 2,579 70.659 229 1.743
1999 1,766 48.399 170 1.295
2000 662 18.150 86 0.655
2001 221 6.050 39 0.295
<PAGE>
4.4. COST OF SALES
The cost of sales represent fixed and variable cost elements which
average 26% of sales over a five year period.
4.5. EXPENSES
An explanation of major expenditure items is as follows:
4.5.1. AMORTISATION OF TECHNOLOGY AGREEMENT COSTS
The $4.5 million technology agreement cost has been amortised over the
five year period on a basis proportionate to the sales forecasts.
4.5.2. AMORTISATION - PRE INCORPORATION COSTS
Pre incorporation expenses are also amortized over the first five
years of operations in equal amounts.
4.5.3. SALARIES AND WAGES
The estimates for salaries and wages and on costs are based on the
proposed management structure of the company's operations in administration,
marketing and engineering.
4.5.4. COMMISSION
The allowed commission is based on a total commission cost of 3.0%
which provides a sales person and sales supervisor commission.
4.5.5. FIXED AND VARIABLE COSTS
A review of all costs based on the proposed structure indicates that
particularly marketing
and engineering costs are subject to variation comparable with unit sales
turnover, however, for the sake of this report only commissions and freight have
been treated as variable. This is a conservation approach in terms of the cash
flow projections.
4.5.6. NON CASH EXPENDITURE
An adjustment to the operating profit has been made to reflect the non cash
expenditure of amortisation and depreciation and to recognize the net effect of
movements in working capital requirements, particularly accounts receivable,
accounts payable and inventories.
<PAGE>
4.5.7. CAPITAL EXPENDITURE
Capital expenditure in the form of plant and equipment requirements
and in the technology agreement and pre incorporation and pre operating expenses
have been recognized as cash outflow requirements.
4.5.8. SUMMARY
A summary of the components included in the calculation of the future
cash flow for the five years ending December 31, 2001 is included in this report
as Attachment I.
The resultant cash flow in each of the subject years is:
US MILLIONS
-----------
1997 (1.191)
1998 49.851
1999 18.491
2000 3.447
2001 0.178
5. DISCOUNT RATES
The discount rates adopted in considering the valuation take into
account the following factors:
- The start up nature of the business
- The unknown life expectancy
- The uncertainty of market acceptance of the product
As a result it is anticipated that an intending investor would require
a high rate of return to compensate for the risk element.
The range of discount rates used in this appraisal are: 40%, 50% and
60%.
6. PRESENT DAY VALUES
The application of the discount rates to the adjusted cash flow figures
provides the following present day values:
40% US $32.252 million
50% US $27.545 million
60% US $23.786 million
<PAGE>
7. VALUATION
In my opinion Digital Reporting Inc. has a value of between $23.786
million and $32.252 million.
8. DISCLAIMER
Compilation and preparation of this document involved making judgments
which may be effected by unforeseen future events. In addition reliance has
been made on market penetration projections and although allowances have been
made to reflect a confidence level in such projections the valuation provided is
subject to the achievement of the projected sales. Further reliance has been
placed on the company's estimates of expenditures and although they have been
checked for reasonableness no responsibility can be accepted by Gorey Sinclair
for any discrepancy which may arise as a result of variations in such estimates.
9. THE AUTHOR
Details of the author are provided on Attachment II.
Yours truly,
T.M. GOREY
Partner
<PAGE>
EXHIBIT 1
VOICENET INC.
DISCOUNTED CASH FLOW ANALYSIS
<TABLE>
<CAPTION>
1997 1998 1999 2000 2001 TOTAL
---- ---- ---- ---- ---- -----
<S> <C> <C> <C> <C> <C> <C>
PROJECTED UNIT SALES
(Per calendar year)
CourtSmart - Sales 360 468 562 562 562 2,514
CourtSmart - Sales
through lease arrangements 288 3,216 3,854 3,854 3,854 15,066
VoiceNet 252 328 426 575 776 2,357
CONFIDENCE LEVEL IN ACHIEVING
THE PROJECTED SALES 90% 70% 40% 15% 5% 44%
DEEMED ACHIEVABLE UNIT SALES
CourtSmart - Sales 324 328 225 84 28 989
CourtSmart - Sales
through lease arrangements 259 2,251 1,578 578 193 4,823
VoiceNet 227 229 170 86 39 752
SALE PRICE PER UNIT $000'S
CourtSmart - Sales 27.40 27.40 27.40 27.40 27.40
CourtSmart - Sales
through lease arrangements 27.40 27.40 27.40 27.40 27.40
VoiceNet 7.60 7.60 7.60 7.60 7.60
DEEMED ACHIEVABLE SALES $000'S
CourtSmart - Sales 8,878 8,976 6160 2,310 770 27,093
CourtSmart - Sales
through lease arrangements 7,102 61,683 42,240 15,840 5,280 132,145
------- ------- ------- ------ --------
VoiceNet 1,724 1,743 1,295 655 295 5,711
------ ------- ------- ------- ------ --------
------ ------- ------- ------- ------ --------
17,703 72,402 49,694 18,805 6,345 164,949
COST OF SALES
Fixed 386 455 546 546 546 2,490
Variable 4,968 17,746 11,194 3,906 1,170 38,984
------- ------- ------ --------
5,364 18,201 11,741 4,452 1,716 41,474
------ ------- ------- ------- ------ --------
------ ------- ------- ------- ------ --------
GROSS PROFIT 12,340 54,200 37,953 14,353 4,629 123,475
Gross profit % 69.70% 74.86% 76.37% 76.33% 72.95% 74.86%
EXPENSES
Sales and marketing 1,044 1,148 788 298 101 3379.535
Research and development 741 815 815 815 815 4001.1
General and administration 654 719 806 806 806 3791.4
Amortisation of license fee 483 1975 1356 513 173 4500
Amortisation of offering costs 201 201 201 201 201 1007
------ ------- ------- ------- ------ --------
Total operating expenses 3,123 4,860 3,966 2,634 2,096 16,679
------ ------- ------- ------- ------ --------
------ ------- ------- ------- ------ --------
OPERATING PROFIT BEFORE
INCOME TAX 9,216 49,341 33,987 11,720 2,533 106,796
ADD NON CASH EXPENDITURE
Depreciation 19 31 32 32 32 146
Amortisation of license fee 483 1975 1356 513 173 4,500
Amortisation of offering costs 201 201 201 201 201 1,007
LESS CAPITAL EXPENDITURE
Capitalization of rented CourtSmart units
Plant and equipment (125) (105) (230)
License fee (4,500) (4,500)
Offering costs (1,007) (1,007)
Working capital changes (5,479) 1,449 (802) 2,196 1,106 (1,530)
Income tax at 33% - (3,041) (16,282) (11,216) (3,868) (34,407)
------ ------- ------- ------- ------ --------
NET CASH FLOW (1,191) 49,851 18,491 3,447 178 70,775
------ ------- ------- ------- ------ --------
------ ------- ------- ------- ------ --------
</TABLE>
<PAGE>
ATTACHMENT II
THE AUTHOR
NAME: Trevor Michael Gorey
BUSINESS ADDRESS: Gorey Sinclair
10 Ord Street
West Perth
Western Australia
DATE OF BIRTH: July 27, 1942
QUALIFICATIONS: Fellow of the Institute of Chartered Accountants in
Australia
Certified Practicing Accountant
Registered Tax Auditor (Australia)
Registered Tax Agent (Australia)
EXPERIENCE: Nineteen years with Arthur Andersen & Co. in Australia and
Managing Partner of the Perth Office of that firm at the
time of leaving in 1979 to establish own practice.
He has specialized in business valuations since 1979 and has
acted as an expert witness in numerous corporate litigation
cases in Australia.
PRESENT POSITION
HELD: - Partner in Gorey Sinclair
- Pro Chancellor of Curtin University of Technology
- Chairman of the Resources and Finance Committee of
Curtin University
- Chairman of Curtin Consultancy Services Pty Ltd
- Chairman Curtin Business School Advisory Council
- Member of the Institute of Chartered Accountants
Disciplinary Committee (National)
<PAGE>
AMENDMENT TO TECHNOLOGY TRANSFER AGREEMENT AND SECURITY AGREEMENT DATED AUGUST
1, 1996 BETWEEN VOICENET, INC. ("VOICENET") AND SOUTHERN GROUP LIMITED
("SOUTHERN")
1. The parties desire to amend and modify Section 4 of the Technology Transfer
Agreement and recital A of the Security Agreement dated as of August 1, 1996 to
reflect certain modifications to the Promissory Note made by Voicenet to the
order of Southern, representing consideration for the transfer of the
Technology, as defined in the Technology Transfer Agreement, which Technology
was pledged as collateral security for the repayment of the Promissory Note
under the Security Agreement, as follows:
(A) The Note shall be payable by Voicenet to Southern as follows: (i) $2.5
million upon the successful closing of Voicenet, Inc.'s public securities
offering, (ii) $1 million upon the "first installation", as hereafter
defined, of a COURTSMART system in the United States by Voicenet, and (iii)
$1 million on October 31, 1997.
(B) "First installation" shall mean when Voicenet signs its first
installation contract which is not subject to revocation by the customer
for an amount of at least $30,000.
2. In all other respects, the Technology Transfer Agreement and Security
Agreement are hereby ratified and confirmed as of the date they were originally
written.
Date: Effective as of November 1, 1996
VOICENET, INC.
By:__________________________
SOUTHERN GROUP LIMITED
By:__________________________
<PAGE>
EMPLOYMENT AGREEMENT
--------------------
THIS AGREEMENT, (the "Agreement") effective as of the _____of ________,
1996 between VOICENET, Inc., a Delaware corporation ( the "Company") and FRANK
CARR, an individual currently residing at ______________________("Employee").
WHEREAS, Employee has been serving as President and Chief Executive Officer
of the Company.
WHEREAS, the Board of Directors of the Company (the "Board") desires to
continue employing Employee as President and Chief Executive Officer of the
Company and the parties desire to provide greater detail to his employment
arrangements with the Company which the Board has determined will encourage the
continued attention and dedication to the Company of Employee as a senior member
of the Company's management, and is in the best interest of the Company and its
shareholders.
WHEREAS, Employee is willing to continuing serving in the capacity as
President and Chief Executive Officer of the Company.
WHEREAS, in order to effect the foregoing, the Company and Employee wish to
enter into an employment agreement on the terms and conditions set forth herein.
NOW, THEREFORE, in consideration of the premises and the respective
covenants and agreements of the parties herein contained, the parties hereto
agree as follows:
ARTICLE I
---------
EFFECTIVE TIME
--------------
1.00 EFFECTIVE TIME. This Agreement shall be effective as of the date
hereof.
ARTICLE II
----------
EMPLOYMENT
----------
2.00 EMPLOYMENT. The Company hereby employs Employee and Employee hereby
agrees to continue to serve the Company on the terms and conditions set forth
herein. Employee shall hold the office of President and Chief Executive Officer
of the Company.
<PAGE>
ARTICLE III
-----------
TERM
----
3.00 TERM. The term of employment of Employee by the Company pursuant to
this agreement shall commence on the date hereof and end three years from the
date hereof.
ARTICLE IV
----------
DUTIES OF EMPLOYMENT
--------------------
4.00 DUTIES. Subject to the authority of the Board of Directors of the
Company, Employee shall perform such duties and functions as the Board shall
from time to time determine and as customarily assigned to the President and
Chief Executive Officer of a corporation. Employee shall be elected or
appointed as a Director of the Company during the term of this Agreement.
Employee shall devote his full time and effort to the business and affairs of
the Company. Employee further agrees to serve, if elected or appointed thereto,
as a director of the Company's subsidiaries and affiliated entities (if any) and
in one or more executive offices of any of the Company's subsidiaries (if any),
provided that Employee is indemnified for serving in any and all such capacities
on a basis no less favorable than is currently provided by the Company's
Certificate of Incorporation or By-laws.
ARTICLE V
---------
COMPENSATION AND RELATED MATTERS
--------------------------------
5.01 SALARY. As compensation for the employment services to be rendered
by Employee hereunder, the Company shall pay to Employee a salary at a rate of
$180,000 per annum, payable in equal monthly installments, subject to increase
by the Board of Directors. If the salary is so increased, it shall not
thereafter during the term of this Agreement be decreased. Compensation of
Employee by salary payments shall not be deemed exclusive and shall not prevent
Employee from participating in any other compensation or benefit plan of the
Company. The salary payments (including any increased salary payments)
hereunder shall not in any way limit or reduce any other obligation of the
Company hereunder, and no other compensation, benefit or payment hereunder shall
in any way limit or reduce the obligation of the Company to pay Employee's
salary hereunder.
5.02 EXPENSES. During the term of Employee's employment hereunder,
Employee shall be entitled to receive prompt reimbursement for all reasonable
expenses incurred by Employee in performing the services hereunder, including,
but not limited to, automobile expense reimbursement as well as all expenses for
travel and living expenses while away from home on business or at the
2
<PAGE>
request of and in the service of the Company, its subsidiaries or affiliated
companies, provided that such expenses are incurred and accounted for in
accordance with the policies and procedures established by the Company.
Notwithstanding, Employee shall not incur an expense for in excess of $5,000
without the prior consent of the Company.
5.03 OTHER BENEFITS.
--------------
(a) CONTINUED PARTICIPATION. Employee shall be entitled to participate in
all of the Company's employee benefit plans, if any, in effect on the date
hereof and any other plans made available by the Company in the future to its
executives and key management employees.
(b) CHANGES TO PLANS. The Company shall not make any changes in such
plans which would adversely affect Employee's rights or benefits thereunder,
unless such change occurs pursuant to a program applicable to all executives of
the Company and does not result in a proportionately greater reduction in the
rights of or benefits to Employee as compared with any other executive of the
Company.
(c) PRO-RATION. Nothing paid to Employee under any plan presently in
effect or made available in the future shall be deemed to be in lieu of the
salary payable to Employee pursuant to paragraph 5.01 of this Article. Any
payments or benefits payable to Employee hereunder in respect of any calendar
year during which Employee is employed by the Company for less than the entire
such year shall, unless otherwise provided in the applicable plan or
arrangement, be prorated in accordance with the number of days in such calendar
year during which he is so employed.
5.04 BONUS. The Company shall pay Employee during the term of his
employment hereunder, in addition to the annual salary set forth in paragraph
5.01 of this Article, an annual bonus in an amount to be determined in the sole
discretion of the Board of Directors.
ARTICLE VI
----------
TERMINATION
-----------
6.01 TERMINATION. Employee's employment hereunder may be terminated
without any breach of this Agreement upon written notice from the Company to
Employee only as set forth in this Article.
6.02 DEATH. Employee's employment hereunder shall terminate upon his
death.
6.03 DISABILITY. If, as a result of Employee's incapacity due to physical
or mental illness, Employee shall have been absent from his duties on a
full-time basis for the entire period of five consecutive months or for a total
of six months (whether or not consecutive), in any twelve (12) month period
during the term of this Agreement, and within sixty (60) days after written
notice of
3
<PAGE>
termination is given (which may occur before or after the end of such six month
period) shall not have returned to the performance of his duties hereunder on a
full-time basis, the Company may terminate Employee's employment hereunder.
6.04 CAUSE. The Company may terminate Employee's employment hereunder at
any time for cause, which shall be deemed to include but not be limited to the
following:
(a) Employee's engaging in fraud, misappropriation of funds, embezzlement
or like conduct committed against the Company.
(b) Employee's conviction of a felony.
(c) Employee's material violation of a generally recognized policy of the
Company.
(d) Employee's material violation of any provision of this Agreement.
6.05 TERMINATION BY EMPLOYEE.
------------------------
(a) REASONS FOR TERMINATION. Employee may terminate his employment
hereunder (i) at any time during the life of this Agreement after the occurrence
of any of the events which constitute Good Reason (as defined below) or (ii) if
his health should become impaired to an extent that makes his continued
performance of his duties hereunder hazardous to his physical or mental health
or his life, provided that Employee shall furnish the Company with a written
statement from a qualified doctor to such effect and provided further, that at
the Company's request, Employee shall submit to an examination by a doctor
selected by the Company's Board, and such doctor shall have concurred in the
conclusion of Employee's doctor.
(b) GOOD REASON. For purposes of this Agreement, "Good Reason" shall mean
(i) a change in control of the Company (as defined below), (ii) a failure by the
Company to comply with any material provision of this Agreement which has not
been cured within sixty (60) days after notice of such noncompliance has been
given by Employee to the Company or (iii) any attempted termination of
Employee's employment which is not effected by a Notice of Termination
satisfying the requirements of paragraph 6.06 hereof (and for purposes of this
Agreement no such attempted termination shall be effective).
(c) CHANGE IN CONTROL. For purposes of this Agreement, a "change in
control of the Company", shall mean a change in control of such a nature that
would be required to be reported in response to Item 6(e) of Schedule 14A of
Regulation 14A promulgated under the Securities and Exchange Act of 1934 (the
"Exchange Act") as if the Company was a reporting Company; provided that,
without limitation, such a change in control shall be deemed to have occurred if
(i) any "person" (as such term is used in Section 13(d) and 14(d) of the
Exchange Act), other than the Company or any "person" who on the date hereof is
a director or officer of the Company, or any employer of such person or any
affiliate (as defined by the Act) of such person or any affiliate (as defined by
the Act)
4
<PAGE>
of such person or employer, is or becomes the "beneficial owner" (as defined in
Rule 13(d)-3 under the Exchange Act), directly or indirectly, of securities of
the Company representing 50% or more of the combined voting power of the
Company's then outstanding securities; or (ii) the Board of the Company fails
to reelect Employee as President and/or as a director of the Company or removes
Employee from such offices and/or from such directorship or if at any time
during the term of employment, Employee fails to be vested by the Company with
the powers and authority of the President of the Company or if the Company in
any substantive way diminishes Employee's responsibilities, duties, power or
authority as set forth under this Agreement, other than pursuant to the
provision of section 7.01. Notwithstanding anything herein to the contrary, no
Change in Control shall be deemed to have occurred for purposes of this
Agreement by virtue of any transaction which results in Employee or a group of
persons which includes Employee, acquiring directly or indirectly, 50% or more
of the combined voting power of the Company's securities.
6.06 NOTICE OF TERMINATION. Any termination of Employee's employment by
the Company or by Employee (other than termination pursuant to paragraph 6.02
above) shall be communicated by sixty (60) days written notice of termination to
the other party hereto. For purposes of this Agreement, "Notice of Termination"
shall mean a notice which shall indicate the specific termination provision in
this Agreement relied upon and shall set forth in reasonable detail the facts
and circumstances claimed to provide a basis for the termination of Employee's
employment under the provision so indicated.
6.07 DATE OF TERMINATION. "Date of Termination" shall mean (i) if
Employee's employment is terminated by his death, the date of his death, (ii) if
Employee's employment is terminated pursuant to paragraph 6.03 above, sixty (60)
days after Notice of Termination is given (provided that Employee shall not have
returned to the performance of his duties on a full-time basis during such sixty
(60) day period), (iii) if Employee's employment is terminated pursuant to
paragraph 6.04 above, the date specified in the Notice of Termination and (iv)
if Employee's employment is terminated for any other reason, the date on which a
Notice of Termination is given; provided that, in the case of this clause (iv),
if within sixty (60) days after any Notice of Termination is given the party
receiving such notice notifies the other party that a dispute exists concerning
the termination, the Date of Termination shall be the date on which the dispute
is finally determined, either by mutual or written agreement of the parties or
by a binding and final arbitration aware in accordance with paragraph 13.01
hereof.
6.08 COMPENSATION UPON TERMINATION BY EMPLOYEE FOR GOOD CAUSE OR WRONGFUL
TERMINATION. In the event that Employee elects to terminate this Agreement for
Good Cause as defined above or is wrongfully terminated (i.e., not terminated
for cause by the Company as described above), then by way of a final severance
payment under this Agreement, Employee shall receive a sum equal to his annual
base salary then in effect. Upon such payment by the Company, it shall have no
further liabilities or obligations to the Employee in any manner.
ARTICLE VII
-----------
5
<PAGE>
SUCCESSORS, BINDING AGREEMENT
-----------------------------
7.01 SUCCESSORS. The Company will require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company, by agreement in
form and substance reasonably satisfactory to Employee, to expressly assume and
agree to perform this Agreement in the same manner and to the same extent that
the Company would be required to perform it if no such succession had taken
place. Failure of the Company to obtain such agreement prior to the
effectiveness of any such succession shall be a breach of this Agreement and
shall entitle Employee to exercise in his discretion any and all rights arising
from such a breach as provided in this Agreement. As used in this Agreement,
"Company" shall mean the Company as hereinbefore defined and any successor to
its business and/or assets as aforesaid which executes and delivers the
agreement provided for in this Article or which otherwise becomes bound by all
terms and provisions of this Agreement by operation of law.
7.02 BINDING AGREEMENT. This Agreement and all rights of Employee
hereunder shall inure to the benefit of and be enforceable by Employee's
personal or legal representatives, executors, administrators, successors, heirs,
distributees, devisees and legatees. If Employee should die while any amounts
would still be payable to him hereunder if he had continued to live, all such
amounts, unless otherwise provided herein, shall be paid in accordance with the
terms of this Agreement to Employee's devisee, legatee, designee or, if there is
no such designee, to Employee's estate.
ARTICLE VIII
------------
REPRESENTATIONS AND AGREEMENTS OF EMPLOYEE
------------------------------------------
8.01 ABILITY TO PERFORM. Employee represents and warrants that he is free
to enter into this Agreement and to perform the duties required hereunder, and
that there are no employment contracts or understandings, restrictive covenants
or other restrictions, whether written or oral, preventing the performance of
his duties hereunder.
ARTICLE IX
----------
EMPLOYEE COVENANTS
------------------
9.01 NON-COMPETITION. Employee agrees that for a period of eighteen
months (the "Non-Competitive Period"), from his voluntary resignation from
employment with the Company or termination for Cause before the end of this
Agreement (but not for termination by Employee for Good Reason), Employee shall
not, directly or indirectly, as owner, partner, joint venturer,
6
<PAGE>
stockholder, employee, broker, agent, principal, trustee, corporate officer,
director, licensor or in any capacity whatsoever engage in, become financially
interested in, be employed by, render any consultation or business advice with
respect to, or have any connection with, any business engaged in speech
recognition technology or related products or any other material business being
conducted by the Company, in any geographic area where, at the time of the
termination of his employment hereunder, the business of the Company was being
conducted in any material respect; provided, however, that Employee may own any
securities of any corporation which is engaged in such business and is (i)
publicly owned and traded but in an amount not to exceed at any one time five
percent (5%) of any class of stock or securities of such corporation or (ii) a
non-public start-up company.
9.02 NO HIRING. During the Non-Competitive Period, Employee will not
knowingly (i) hire or attempt to hire any employee of the Company or
subsidiaries (if any); (ii) assist in such hiring by any other person; or (iii)
encourage any such employee to terminate his employment with the Company.
9.03 SEVERABILITY. If any portion of the restrictions set forth in this
section 9 should, for any reason whatsoever, be declared invalid by a court of
competent jurisdiction, the validity of enforceability of the remainder or such
restrictions shall not thereby be adversely affected.
9.04 REASONABLENESS. Employee agrees that the territorial and time
limitations set forth in this section 9 are reasonable and properly required for
the adequate protection of the business of the Company. In the event any such
territorial or time limitation is deemed to be unreasonable by a court of
competent jurisdiction, Employee agrees to the reduction of the territorial or
time limitation to the area or period which such court shall have deemed
reasonable.
ARTICLE X
---------
NON-DISCLOSURE OF CONFIDENTIAL INFORMATION
------------------------------------------
10.01 NON-DISCLOSURE.
Employee will not at any time, whether during or after the termination of
my employment, reveal to any person or entity any of the know-how, trade secrets
or confidential information concerning the research, development, technology,
business or finances of the Company or of any third party which the Company is
under an obligation to keep confidential (including but not limited to trade
secrets or confidential information respecting research, inventions, products,
designs, methods, know-how, techniques, systems, processes, software programs,
works of authorship, customer lists, projects, loans and proposals), except as
may be required in the ordinary course of performing his duties as an employee
of the Company, and he shall keep secret all matters entrusted to me and shall
not use or attempt to use any such information in any manner which may injure or
7
<PAGE>
cause loss or may be calculated to injure or cause loss whether directly or
indirectly to the Company.
Further, Employee agree that during his employment he shall not make, use
or permit to be used any notes, memoranda, reports, lists, records, drawings,
sketches, specifications, software programs, data, documentation or other
materials of any nature relating to any matter within the scope of the business
of the Company or concerning any of its dealings or affairs otherwise than for
the benefit of the Company. He further agree that he shall not, after the
termination of his employment, use or permit to be used any such notes,
memoranda, reports, lists, records, drawings, sketches, specification, software
programs, data, documentation or other materials, it being agreed that all of
the foregoing shall be and remain the sole and exclusive property of the Company
and that immediately upon the termination of his employment, he shall deliver
all of the foregoing, and all copies thereof, to the Company, at its main
office.
10.02 RETURN OF DOCUMENTS. Upon termination of Employee's employment with
the Company, all documents, records, reports, writings and other similar
documents containing confidential information, including copies thereof, then in
Employee's possession or control shall be returned and left with the Company.
ARTICLE XI
----------
EQUITABLE RELIEF
----------------
11.01 RIGHT TO INJUNCTION. Employee recognizes that the services to be
rendered by him hereunder are of a special unique, unusual, extraordinary and
intellectual character involving skill of the highest order and giving them
peculiar value, the loss of which cannot be adequately compensated for in
damages. In the event of a breach of this Agreement by Employee, the Company
shall be entitled to injunctive relief or any other legal or equitable
remedies. Employee agrees that the Company may recover by appropriate action
the amount of the actual damages caused the Company by any failure, refusal
or neglect of Employee to perform his agreements, representations and
warranties herein contained. The remedies provided in this Agreement shall
be deemed cumulative and the exercise of one shall not preclude the exercise
of any other remedy, at law or in equity, for the same event or any other
event.
ARTICLE XII
-----------
MISCELLANEOUS
-------------
12.01 ARBITRATION. Should any dispute arise between the parties
concerning the performance
8
<PAGE>
of this Agreement, the parties agree to mediation and, if not resolved through
such mediation within thirty days, final and binding arbitration in New York,
New York in accordance with the rules of the American Arbitration Association
subject to Article XI in the case of alleged breach of Articles IX or X.
The decision rendered in any arbitration proceedings shall be in writing
and shall set forth the basis therefor. The parties shall abide by the award
rendered in the arbitration proceedings, and such award may be entered as a
final, nonappealable judgment, and may be enforced and executed upon, in any
court having jurisdiction over the party against whom enforcement of such award
is sought. Each of the parties agrees (in connection with any action brought to
enforce the arbitration provisions of this paragraph) not to assert in any such
action, any claim that it is not subject to the personal jurisdiction of such
court, that the action is brought in an inconvenient forum, that the venue of
the action is improper, or that such mediation or arbitration may not be
enforced by such courts. Each party agrees that service of process may be made
upon it by any method authorized by the laws of the State of New York.
12.02 NOTICE. For the purposes of this Agreement, notices, demands and
all other communications provided for in the Agreement shall be in writing,
shall be deemed to have been duly given when delivered or unless otherwise
specified mailed by U.S. registered mail, return receipt requested, postage
prepaid, addressed as follows:
If to Employee: Frank Carr
If to the Company: VOICENET, INC.
Suite 517
380 Lexington Avenue
New York, NY 10168
Attention: Chairman of the Board
and
Campbell & Fleming, P.C.
250 Park Avenue
New York, NY 10177
Attn: David E. Fleming, Esq.
or to such other address as any party may have furnished to the others in
writing in accordance herewith, except that notices of change of address shall
be effective only upon receipt.
12.03 AMENDMENT OR ALTERATION. No amendment or alteration of the terms of
this
9
<PAGE>
Agreement shall be valid unless made in writing and signed by both of the
parties hereto.
12.04 GOVERNING LAW. This Agreement shall be governed by the laws of the
State of New York.
12.05 SEVERABILITY. The holding of any provision of this Agreement to be
invalid or unenforceable by a court of competent jurisdiction shall not affect
any other provision of this Agreement, which shall remain in full force and
effect.
12.06 WAIVER OR BREACH. No waiver of or failure to enforce any provisions
of this Agreement shall be deemed, or shall constitute, a waiver of any other
provision of this Agreement, nor shall such waiver or failure to enforce
constitute a continuing waiver.
12.07 ASSIGNMENT. This Agreement may not be transferred or assigned by
either party without the prior written consent of the other party.
12.08 FURTHER ASSURANCES. The parties agree to execute and deliver all
such further documents, agreements and instruments and take such other and
further action as may be necessary or appropriate to carry out the purposes and
intent of this Agreement.
12.09 ENTIRE AGREEMENT. This Agreement constitutes the entire understanding
between the parties with respect to the subject matter hereof and supercedes any
and all prior understandings and agreements, oral and written, relating hereto.
12.10 HEADINGS. The section headings appearing in this Agreement are for
purposes of each reference and shall not be considered a part of this Agreement
or in any way modify, amend or affect its provisions.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first above written.
EMPLOYER:
VOICENET, INC.
By:____________________________________
Title:_________________________________
EMPLOYEE: Frank Carr
10
<PAGE>
MANAGEMENT AGREEMENT
--------------------
THIS AGREEMENT ("Agreement") is made and entered into this 25th day of
September, 1996 by and between JAMES SIM ("Sim") and VOICENET, INC., a Delaware
corporation (the "Company").
W I T N E S S E T H :
WHEREAS, Sim desires to render management and related general and
administrative services to the Company of the nature hereinafter described; and
WHEREAS, the Company is willing to have Sim render such services, all upon
the terms and subject to the conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the mutual premises and covenants
herein contained, the parties hereto intending to be bound hereby, it is
mutually agreed as follows:
1. THE SERVICES.
(a) Sim hereby agrees to provide to the Company such management and
related general and administrative support services as the board of directors of
the Company or its stockholders may, from time to time, request (the
"Services"). Such Services shall include, without limitation:
(i) serviving upon, if elected by the shareholders of the
Company, and advising the board of directors of the Company in connection with
the management of the business of the Company, including the setting of
corporate policies, new product and new business development, financing,
acquisitions and divestitures of assets and related matters;
(ii) assistance with relations with banks, finance companies and
other lenders to the Company;
(iii) assistance with the retention and supervision of sales and
management employees and professionals rendering services, from time to time, to
the company, including attorneys and accountants;
(iv) assistance with the negotiation of and obtaining additional
or alternative debt and/or equity financings for the Company and its affiliates;
(v) assisting the management of the company in connection with
credit, collection and accounting functions.
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(b) In connection with the rendering of the Services, Sim shall make
available to the Company as Sim shall determine to be necessary and advisable
assist the Company.
2. COMPENSATION.
(a) In consideration for the Services, throughout the term of this
Agreement, the Company shall pay to Sim an annual management fee (the
"Management Fee") of Thirty Thousand ($30,000) Dollars per annum. Such
Management Fee shall be payable in equal quarter-annual installments of $7,500
each, commencing on the first month of the successful completion of a public
offering of securities by the Company.
(b) Such annual Management Fee may be increased by the board of
directors of the Company.
(c) Voicenet will reimburse Sim for any and all expenses incurred by
Sim, in good faith, in the performance of his duties hereunder and, Sim shall
account for such expenses to Voicenet, except that for each expenditure
exceeding $500, Sim shall obtain the prior approval of Voicenet, which approval
may be oral. Such reimbursement shall cumulate and be paid with the monthly
compensation due hereunder.
3. CARE AND CONFIDENTIALITY.
In the performance of his services, Sim shall be obligated to act only in
good faith, and shall only be obligated to meet the ordinary standards of care
of a management consultant advising a company; provided, however, that so long
as Sim is a member of the Board of Directors of the Company he shall exercise
the duties incumbent on a corporate director under Delaware law. Sim shall
devote such time and effort to the performance of his duties hereunder as Sim
shall determine is reasonably necessary for such performance. Sim may look to
such others for such factual information,business and investment
recommendations, economic advice and/or research, upon which to base his advice
to Voicenet hereunder, as he shall in good faith deem appropriate. Voicenet
shall furnish to Sim all information relevant to Sim's performance of this
Agreement and his duties as a director of the Company, or particular projects as
to which Sim is acting as advisor, which will permit Sim to know all facts
material to the advice to be rendered, and all material or information
reasonably requested by Sim ("Evaluation Material"). In the event that Voicenet
fails or refuses to furnish Evaluation Material reasonably requested by Sim, and
thus prevents or impedes Sim's performance hereunder, any inability of Sim to
perform shall not be a breach of his obligations hereunder.
3. TERM. This Agreement shall become effective on the date of successful
completion of the public offering of the securities of the Company and shall
continue thereafter for three years, unless earlier terminated by mutual
agreement of Sim and the Company.
4. MISCELLANEOUS.
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(a) This Agreement shall be governed and construed pursuant to the
substantive laws of the State of New York.
(b) This Agreement shall inure to the benefit of and be binding upon
the parties hereto and their respective successors in interest and assigns,
including any successor to the assets, securities or business of a party hereto,
whether pursuant to a sale of securities, assets, merger, consolidation or like
combination.
(c) Any notices required to be given pursuant to this Agreement shall
be deemed to be given three (3) days after mailing by certified or registered
mail, return receipt .requested, or upon receipt when hand-delivered or
submitted by facsimile transmission as follows:
If to Sim:
If to the Company: Suite 517
380 Lexington Avenue
New York, New York 10168
Attention: Mr. Frank Carr
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date and year first above written.
VOICENET., INC.
By:
______________________________________________
Frank Carr, President & CEO
___________________________________________________
James Sim
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<PAGE>
AGREEMENT FOR ADVISORY SERVICES
THIS AGREEMENT FOR ADVISORY SERVICES is made as of the25th day of
September, 1996 between RIDGEWOOD GROUP INTERNATIONAL, INC., a Delaware
corporation having a principal place of business at 380 Lexington Avenue, New
York, New York 10168 ("Ridgewood") and VOICENET, INC., a Delaware corporation
having a principal place of business at Suite 517, 380 Lexington Avenue, New
York, New York 10168 (the "Company" or "Voicenet").
W I T N E S S E T H :
WHEREAS, Voicenet has been organized to engage primarily in the business
of marketing and distributing digital speech recognition and recording
technology for use in court and legislative proceedings currently called
"COURTSMART" by the Company; and
WHEREAS, in connection with its business, the Company will need to
prepare financial plans and operating budgets, may seek access to sources of
equity and debt financing, and may develop, negotiate and/or analyze
proposals for short-term and long-term financing, vertical or horizontal
expansion, acquisitions or general development; and
WHEREAS, Ridgewood is willing to furnish financial and business advice
and services to Voicenet on the terms and conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the premises and mutual covenants
herein contained, it is agreed as follows:
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1. Ridgewood agrees to furnish, to Voicenet, advice and recommendations
with respect to such aspects of the business and affairs of Voicenet as
Voicenet shall, from time to time, request upon reasonable notice. Such
services of Ridgewood may include the following: advising Voicenet in he
preparation of financial plans and budgets, advising Voicenet in connection
with possible acquisition opportunities; assisting in shareholder relations,
including the preparation of annual reports and other releases; assisting in
long-term financial planning; advising Voicenet regarding corporate
reorganization, expansion and capital structure; and, such other matters as
to which Ridgewood may, from time to time, be asked to consult by Voicenet.
Nothing contained herein shall impose any obligation on Voicenet to accept or
adopt any proposal recommended by Ridgewood.
2. In addition, Ridgewood shall hold itself ready to assist Voicenet
in negotiating particular contracts or transactions, if requested to do so by
Voicenet, upon reasonable notice, and will undertake such negotiations upon
prior written agreement as to additional compensation to be paid by Voicenet to
Ridgewood with respect to such negotiations.
3. As compensation for the services described in paragraph "1" and "2"
above, Voicenet shall pay to Ridgewood a fee of $8,000 per month for the
duration of this Agreement, subject to Ridgewood's rights to additional
compensation under paragraph 2. Payment of the foregoing shall be made on the
first day of each month. Nothing contained herein shall prohibit Ridgewood
from receiving a finder's fee or brokerage commission or other rights,
property or profit in connection with any transaction it arranges for
Voicenet or in which it performs services beyond those identified herein,
provided that any such fee, commission or other right is payable pursuant to
a separate written agreement and is permitted by law. In addition to its
compensation
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hereunder, Voicenet will reimburse Ridgewood for any and all expenses incurred
by Ridgewood, in good faith, in the performance of its duties hereunder and,
Ridgewood shall account for such expenses to Voicenet, except that for each
expenditure exceeding $500, Ridgewood shall obtain the prior approval of
Voicenet, which approval may be oral. Such reimbursement shall cumulate and be
paid with the monthly compensation due hereunder.
4. In the performance of its services, Ridgewood shall be obligated to
act only in good faith, and shall only be obligated to meet the ordinary
standards of care of an investment advisor or investment banker. Ridgewood
shall devote such time and effort to the performance of its duties hereunder
as Ridgewood shall determine is reasonably necessary for such performance.
Ridgewood may look to such others for such factual information, investment
recommendations, economic advice and/or research, upon which to base its
advice to Voicenet hereunder, as it shall in good faith deem appropriate.
Voicenet shall furnish to Ridgewood all information relevant to Ridgewood's
performance of this Agreement, or particular projects as to which Ridgewood
is acting as advisor, which will permit Ridgewood to know all facts material
to the advice to be rendered, and all material or information reasonably
requested by Ridgewood ("Evaluation Material"). In the event that Voicenet
fails or refuses to furnish Evaluation Material reasonably requested by
Ridgewood, and thus prevents or impedes Ridgewood's performance hereunder,
any inability of Ridgewood to perform shall not be a breach of its
obligations hereunder.
5. This Agreement shall become effective upon the effective date of
apublic offering of its securities by Voicenet and shall continue for 36
consecutive months.
6. Except as provided in Section 7 hereof, nothing contained in this
Agreement shall limit or restrict the right of Ridgewood or of any
shareholder, director, officer or employee of
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Ridgewood, to be a partner, director, officer, or employee of, to engage in any
other business, whether of a similar nature or not, nor to limit or restrict the
right of Ridgewood to engage in any other business or to render services of any
kind to any other corporation, firm, individual or association, except that
during the term hereof Ridgewood shall not serve as a consultant to any other
business substantially similar to or competitive with the business of Voicenet,
without having first received the written consent of Voicenet, which consent
shall not be unreasonably withheld. All obligations of Ridgewood contained
herein shall be subject to Ridgewood's reasonable availability for such
performance, in view of the nature of the requested service and the amount of
notice received. Ridgewood shall advise Voicenet whenever it or its officers,
directors, employees or shareholders shall have any interest in, or perform
services for an actual or potential competitor, supplier, or customer of
Voicenet and shall provide Voicenet with a complete description of such
services.
7. Ridgewood will hold the existence and contents of the Evaluation
Materials, the Evaluation Materials themselves, and trade secrets, if any,
contained in or disclosed by, or ascertainable from any of the foregoing
materials, in confidence, and will use the same only to perform its
obligations under this Agreement. Ridgewood confirms that it will not
utilize any non-public material information concerning Voicenet to purchase
or sell Voicenet's securities to others. Ridgewood will not use the
information in ways detrimental to Voicenet. No presumption or inference of
detrimental use shall be drawn from the retention of, or interest of,
Ridgewood or its officers, directors, shareholders or employees, by or in an
actual or potential supplier, customer, or competitor of Voicenet.
8. Ridgewood shall not be required to maintain confidentiality with
respect to (a)
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<PAGE>
information which is in the public domain, or of which it had independent
knowledge, (b) the portion of the Evaluation Material or any information
disclosed therein which (i) is obvious to those of ordinary skill in the art
without research or development; or (ii) is obvious by reason of its prior
disclosure in sales literature which has been given to more than three parties
in any country; or (iii) comes into the possession of Ridgewood in the normal
and routine course of its own business from and through independent
non-confidential sources; or (iv) is disclosed in any patent of any country; or
(v) is subsequently published by any person in a printed newsletter, journal or
other publication of which copies have been disseminated publicly to more than
fifty people.
9. If Ridgewood is requested or required (by oral questions,
interrogatories, requests for information or document subpoenas, civil
investigative demands, or similar process) to disclose any information
supplied to it, or the existence of other negotiations in the course of its
dealings with Voicenet or its representatives, Ridgewood shall, unless
prohibited by law, promptly notify Voicenet of such request(s) so that
Voicenet may seek an appropriate protective order and/or waive Ridgewood's
compliance herewith.
10. It is understood that Ridgewood will appoint Mr. William J. Potter,
its employee, to perform its obligations hereunder. Voicenet accepts such
appointment. Such employee shall agree to be bound by the provisions hereof
respecting confidentiality.
11. This Agreement may not be transferred, assigned, delegated, sold or
in any manner hypothecated or pledged by any of the parties hereto without
the prior written consent of the parties hereto, and the employees identified
in "10" above.
12. The failure or neglect of the parties hereto to insist, in any one
or more instances,
5
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upon the strict performance of any of the terms or conditions of this Agreement,
or their waiver of strict performance of any of the terms or conditions of this
Agreement, shall not be construed as a waiver or relinquishment in the future of
such term or condition, but the same shall continue in full force and effect.
13. Any notice given or required to be given hereunder shall be in
writing and shall be sent by United States registered or certified mail,
return receipt requested, postage prepaid, to the party to be affected
thereby, at the address of such party first above written. Such notice shall
be deemed to have been given when placed in the United States mail. Either
party hereto may, by like notice, designate a different address to which
notice shall be thereafter sent.
14. This Agreement has been made in and shall be construed and enforced
in accordance with the laws of the State of New York and shall become
effective only upon and simultaneously with the closing of the closing of the
Company's public offering of its securities described above.
15. This Agreement constitutes the entire understanding between the
parties hereto with respect to the subject matter hereof and cannot be
changed, modified or terminated, or any provisions hereof permanently waived,
except by an instrument in writing signed by both parties. This Agreement
shall bind the parties hereto and their respective successors and assigns.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed the day and year first above written at New York, New York.
VOICENET, INC.
By:
-----------------------------------------
Frank Carr
President & Chief Executive Officer
RIDGEWOOD GROUP
INTERNATIONAL, INC.
By:
-----------------------------------------
William J. Potter
President
CONFIDENTIALITY PROVISIONS AGREED TO:
- --------------------------------------
William J. Potter, individually
7
<PAGE>
SECOND AMENDMENT TO TECHNOLOGY TRANSFER AGREEMENT
AND SECURITY AGREEMENT ORIGINALLY DATED AUGUST 1, 1996
BETWEEN VOICENET, INC. ("VOICENET") AND SOUTHERN
GROUP LIMITED("SOUTHERN"), AS AMENDED ON NOVEMBER 1, 1996
1. The parties desire to further amend and modify Section 4 of the Technology
Transfer Agreement and recital A of the Security Agreement originally dated
as of August 1, 1996, as amended on November 1, 1996, to reflect certain
additional modifications to the Promissory Note made by Voicenet to the
order of Southern, representing consideration for the transfer of the
Technology, as defined in the Technology Transfer Agreement, which
Technology was pledged as collateral security for the repayment of the
Promissory Note under the Security Agreement, as follows:
(A) The Note shall be payable by Voicenet to Southern as follows: (i)
$2.5 million upon the earlier of (a) October 31, 1997, or (b)
successful closing of Voicenet, Inc.'s public securities offering;
(ii) $1 million upon the earlier of (a) October 31, 1997, or (b)
"first installation," as hereafter defined, of a COURTSMART system in
the United States by Voicenet, and (iii) $1 million on October 31,
1997. If not earlier paid, the full outstanding principal under the
Note shall be due in full on October 31, 1997.
(B) "First installation" shall mean when Voicenet signs its first
installation contract which is not subject to revocation by the
customer for an amount of at least $30,000.
2. This amendment shall supersede any and all prior agreements of Southern and
Voicenet with respect to the specific subject matter hereof, including the
Technology Transfer Agreement, the Note and the Security Agreement
originally dated August 1, 1996, the Amendment to such documents dated
November 1, 1996, and the letter between the parties dated January 21,
1997. In all other respects, the Technology Agreement and Security
Agreement are hereby ratified and confirmed as of the date they were
originally written.
Date: Effective as of December 31, 1996
VOICENET, INC.
By: ___________________________
Name:
Title:
SOUTHERN GROUP LIMITED
By: ___________________________
Name:
Title:
<PAGE>
Exhibit 23.3
GOREY SINCLAIR
Chartered Accountants
T.M. Gorey F.C.A. B.D. Sinclair A.C.A.
10 Ord Street, West Perth WA 6005
PO Box 105, West Perth WA 6872
Phone (09) 321 4470 Fax (09) 321 4664
The Directors
VoiceNet Inc.
Campbell & Fleming Pty Ltd
250 Park Avenue
New York, NY 10177
UNITED STATES OF AMERICA
CONSENT OF INDEPENDENT CONSULTANT
We hereby consent to the reference to our firm under the caption "Business" and
"Experts" appearing in the Prospectus which is part of this Registration
Statement and to the use of our opinion dated September 11, 1996 as an Exhibit
to the Registration Statement.
- -------------------------------------------
T.M. GOREY
Partner
November 7, 1996
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