U.S. Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-KSB
(Mark One)
[x] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For The Fiscal Year Ended: July 31, 1999
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______________ To ______________
Commission file number 0-21961
The Voyager Group, Ltd.
(Name of Small Business Issuer in its charter)
Nevada 76-0487709
(State or other jurisdiction of (I.R.S. Employer
Incorporation or organization) Identification No.)
6354 Corte Del Abeto, Suite F, Carlsbad, California 92009
(Address of principal executive offices) (Zip Code)
Issuer's telephone number, (760)-603-0999
Securities registered under Section 12(b) of the Exchange Act:
Title of each class Name of each exchange on which
to be so registered each class is to be registered
None None
Securities registered under Section 12(g) of the Exchange Act:
Common Stock, $0.001 Par Value
(Title of class)
Convertible Preferred Series AA 1996, $0.001 Par Value
(Title of class)
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Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing required for the past 90 days. Yes X No
Total pages: 52
Exhibit Index Page: 50
Check if there is no disclosure of delinquent filers pursuant to Item 405
of Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this form 10-KSB. [X]
State issuer's revenues for its most recent fiscal year. $ 1,287,419
As of September 16, 1999, there were 13,176,478 (1 vote per share) Common,
236 (10,000 votes per share) Convertible Preferred Series AA, and 100 (220,000
votes per share) Convertible Preferred Series J, for a total 37,536,478 shares
of the Registrant's voting stock, par value $0.001, issued and outstanding. The
aggregate market value of the Registrant's voting stock held by non-affiliates
of the Registrant was approximately $18,140,704 computed at the average bid and
asked price as of October 15, 1999.
(ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDING DURING THE PRECEDING FIVE YEARS)
Check whether the registrant filed all documents and reports required to be
filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of
securities under a plan confirmed by a court. Yes No
(APPLICABLE ONLY TO CORPORATE REGISTRANTS)
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practical date: September 16, 1999 13,176,478
DOCUMENTS INCORPORATED BY REFERENCE
If the following documents are incorporated by reference, briefly describe
them and identify the part of the Form 10-KSB (e.g., Part I, Part II, etc.) Into
which the document is incorporated: (1) any annual report to security holders;
(2) any proxy or information statement; and (3) any prospectus filed pursuant to
Rule 424(b) or (c) of the Securities Act of 1933 ("Securities Act").
None
Transitional Small Business Disclosure Format (check one): Yes ; NO X
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TABLE OF CONTENTS
Item Number and Caption Page
PART I
Item 1. Business............................................................. 4
Item 2. Property............................................................ 25
Item 3. Legal Proceedings................................................... 25
Item 4. Submission of Matters to a Vote of Security Holders................. 26
PART II
Item 5. Market for Common Equity and Related Stockholder Matters............ 27
Item 6. Management's Discussion and Analysis or Plan of Operations.......... 28
Item 7. Financial Statements................................................ 42
Item 8. Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure................................................ 42
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16(a) of the Exchange Act................... 43
Item 10. Executive Compensation............................................. 45
Item 11. Security Ownership of Certain Beneficial Owners and Management..... 47
Item 12. Certain Relationships and Related Transactions..................... 49
Item 13. Exhibits and Reports on form 8-K................................... 50
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PART I
Item 1. Description of Business.
General
Voyager Group, Ltd., ("Voyager" or the "Company") was first incorporated in
the State of Nevada on June 12, 1990 as EEE-Hunter Associates Inc. July 27, 1995
Company changed domicile to the State of Texas with a plan or reorganization and
revival, merged into a Texas Corporation, EEE-Energy Consultants, Inc.
July 2, 1996 the Company changed domicile to Nevada and on July 17, 1996
the Company entered into a plan of reorganization to acquire Voyager, Inc of
Delaware. July 17, 1996 the Company changed its name to Voyager Group U.S.A.
Brazil ltd and on July 21, 1999 changed the corporate name to Voyager Group Ltd.
Voyager from 1996 to 1999 was involved in the distribution and sale of Low
profile nutritional products, which had limited scientific foundation and would
perhaps not sustain the test of time. During 1999 the Company began a program of
restructuring existing products through re-formulation and beginning the
development of proprietary patented applied for novel lines of products. This
novel line of products constitutes major market segments in anti-ageing,
personal care, weight management, and pain relief. These products are doctor
developed and exemplify the Company's mission statement of developing and
distributing its products based on real science. The Company distributes its
products through a network marketing system. As of July 31, 1999, the Company
had approximately 36,000 distributors in the United States. Net sales for fiscal
1999 were forty five percent less than fiscal 1998 by $1,056,883. The Companies
decrease in sales was due to a restructuring of executive management,
independent distributors' compensation plan, repricing products, formulation of
novel, proprietary, patented and patent applied for products, and reformulation
of certain existing products. An executive team with over 18 years experience in
the direct marketing industry replaced vacancies created by resignations of the
former executive officers.
In June, 1999, a majority of disinterested shareholders owning fifty two
percent of the total outstanding stock of the Company, in accordance with
provisions of the Company's By-Laws; Article II, Section 2 and Article IV,
Sections 2 & 6, and Section 78.315 & 78.320 of Nevada Corporate Law unanimous
approved authorization and the creation and issuance of100 shares of Series J
Convertible Preferred Stock in a private placement and Investors Rights
Agreement in exchange for cash proceeds of $50,000 and loans by interested
parties in excess of $250,000 on an if, when and as needed basis. Subsequent to
July 31, 1999 interested parties have loaned in excess of $100,000 to the
Company. (See Item 13 exhibit # 4.1,4.2, and 4.3.)
Voyager's President Mr. John Southerland stated he is "committed to
continuous product innovation and sound scientific research." Voyager's primary
product lines shall consist of modular designed nutritional systems, anti-ageing
systems and weight management products. Modular designed nutritional products
accounted for approximately 81% of net sales in fiscal year 1999. Voyager's
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top-selling products represented approximately fifty five percent (55%) and
thirty percent (30%) respectively, of net sales in fiscal year 1999. Voyager
will begin clinical trails on Modular Designed, anti-aging product late October
1999, which may increase sales by distributors and purchases by preferred
customers. Weight management product systems center around low glycemic shake
which has recipes for low glycemic meal entrees with instructional, how to
information, videos and other products developed to provide a comprehensive
approach to weight management, proper diet and exercise, nutrition and healthy
living. The Company believes bioavailability, safety and quality characterize
its products.
Voyager entered the E commence business July 14, 1999 by incorporating
[email protected] a whole owned subsidiary. [email protected]'s web site when officially
opened, will offer complete entrepreneurial packages for home based business
including replicating web sites with personalized web addresses, discount
communication services, discount office supplies and the like. The Company
assigned [email protected] exclusive rights to present and future distributors list
from July 21, 1999 to July 21, 2050 in exchange for 100 Convertible Preferred
Shares Series J, convertible to 1,000,000 common shares of Earn @ Home. Net.
Business of Voyager
The Company's products are distributed through a network marketing system.
The Company believes that network marketing is an effective way to distribute
its products because network marketing allows person-to-person product
education, which is not readily available through traditional distribution
channels. Network marketing appeals to a broad cross-section of people,
particularly those seeking to supplement family income, start a home-based
business or pursue entrepreneurial opportunities other than conventional full-
time employment. The Company considers its rewarding compensation program and
weekly distributor incentive payments to be attractive components of its network
marketing system. July 31, 1999, the Company has approximately four thousand
(4,000) current distributors in the United States. The company defines a current
distributor as a distributor that has purchased product anytime from the company
in the most recent twelve-month period. North America is the primary market fir
the Company' products. Preferred Customer purchase Voyager products for personal
use, but do not wish to become distributors.
Voyager Distribution Philosophy
Voyagers sales philosophy and distribution system is network marketing.
Products are sold exclusively to or through independent distributors who are not
employees of the Company.
Network marketing is an effective vehicle to distribute the Company's
products because (i) a consumer can be educated about a product in person by a
distributor, which is more direct than the use of television and print
advertisements; (ii) direct sales allow for actual product sampling by a
potential consumer; (iii) the impact of distributor and consumer testimonials is
enhanced; and (iv) as compared to other distribution methods, distributors can
give customers higher levels of service and attention among other things,
educating consumers on product benefits and following up on sales to ensure
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proper product usage and customer satisfaction, and to encourage repeat
purchases. Under the Company's network marketing system, most independent
distributors purchase products either for personal consumption or resale. Direct
selling as a distribution channel has been enhanced in the past decade due to
advancements in communications, including telecommunication, and the
proliferation of the use of videos and fax machines, direct selling companies
can now produce high quality videos for use in product education, demonstrations
and sponsoring sessions that project a desired image for the Company and the
product line. Management believes that high quality sales aids play an important
role in the success of distributor efforts. For this reason the Company will in
the next 12 months, engage in the production of video and audio cassettes, for
the purposes of affecting a more efficient and comprehensive sales tool.
Management is committed to fully utilizing current and future technological
advances that continue to enhance the effectiveness of direct selling.
The Company's network marketing program differs from many other
network-marketing programs in several respects. First, the compensation plan
allows the Company distributors to develop a seamless network of down line
distributors. Second, the Company's order and fulfillment systems eliminate the
need for distributors to carry significant levels of inventory. Third, the
compensation plan is financially rewarding and can result in commissions to
distributors aggregating up to fifty seven percent (57%) of a product's price.
Commissions have averaged fifty one percent (51%) of revenue from commissionable
sales over the past 2 years.
Voyager's Compensation Plan
Management believes that one of the Company's key competitive advantages is
the compensation plan. The compensation plan is seamlessly integrated across all
markets in which company products are sold. This seamless integration means that
the Company's distributor base has total reach and that the knowledge and
experience resident in current distributors can be used to build distributor
leadership in new markets. The compensation plan allows an individual the
opportunity to develop a business, the success of which is based upon that
individual's level of commitment, time spent, personal skills, contacts and
motivation. For many, a distributorship is a very small business, in which
products may be purchased primarily for personal consumption and for resale to
relatively few customers. For others, a distributorship becomes a full time
occupation. The Company believes that the compensation plan is among the most
financially rewarding plans offered to distributors by network marketing
companies. There are two fundamental ways in which distributors can earn money:
(i) through retail markups; and (ii) through a series of commissions on product
sales within the distributor's down line.
Each product carries a specified commission value. Commissions are based on
total personal and group sales volume per month. Commission value is essentially
based upon a product's cost, net of sales tax. As a distributor's retail
business expands and as he or she successfully sponsors other distributors into
the business who in turn expand their own business, he or she may qualify to
receive a higher percentage of commissions.
General, distributors can receive commission bonuses if, on a monthly basis
(I) the distributor achieves a qualifying personal volume, (ii) the distributor
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sells and/or consumes at least 51% of personal sales volume, and (iii) the
distributor is not in default of any material policies or procedures.
Voyager's Distributor Support
The Company is committed to providing a high level of support services to
the needs of its distributors in each market. The Company meets the needs and
builds the loyalty of its distributors with personalized distributor services. A
support staff that assists distributors as they build networks of down line
distributors. Because many distributors have only a limited number of hours each
week to concentrate on their business, management believes that maximizing a
distributor's efforts through effective support of each distributor will
continue to be important to the success of the Company.
Through training meetings, annual conventions, distributor focus groups,
regular telephone conference calls and personal contacts with distributors, the
Company seeks to understand and satisfy the needs of each distributor. The
Company provides walk-in, telephonic and computerized fulfillment and tracking
services that result in user-friendly, and timely product distribution. In
addition, the Company is committed to evaluating new ideas in technology and
services, such as automatic product reordering, that the Company can provide to
distributors. The Company currently utilizes, teleconferencing, fax services,
and Internet. Online Internet access including distributor sign-up, shipment
tracking, ordering, and group and personal sales volume inquiries are
anticipated to be provided to distributors in the future.
Voyager distributors may not use any form of media advertising not approved
by the Company to promote products. Products may be promoted by personal contact
or by literature produced by or approved by the Company. Generic business
opportunity advertisements without using the company name may be placed in
accordance with certain guidelines in certain markets. Distributors may not use
trademarks or other intellectual property of the Company without consent.
Products may not be sold, and the business opportunity may not be promoted,
in traditional retail environments such as food markets, pharmacies and
drugstores. Distributors who own or are employed by a service related business
such as a doctor's office, hair salon, or health club, may make products
available to regular customers as long as products are not displayed visibly to
the general public in such a way as to attract the general public into the
establishment to purchase products.
Voyager's Distributor Payments
Distributors generally pay for products prior to shipment. The Company
carries no account receivable from distributors. Distributors pay for products
in one of several ways: cash, money order, check or credit card.
Voyager Growth Strategy
During the year 2000, Voyager will introduce novel, patented, patent
pending and proprietary products. Management believes the novel products will
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attract participation from additional distributors around the United States.
Voyager's President & C.E.O., Mr. John Southerland Stated " Voyager growth
strategy is to introduce novel proprietary, patented, and patent applied
products which will attract and retain distributors and preferred customers
though "Modular Designs" formulated by Voyager's Scientific and Medical Advisory
Board, which should increase total product sales.
Industry Overview
The nutritional supplements industry includes many small and medium-sized
companies that manufacture and distribute products generally intended to enhance
the body's performance and well-being. Nutritional supplements include vitamins,
minerals, dietary supplements, herbs, botanicals and compounds derived there
from.
According to Packaged Facts, an independent consumer market research firm,
the retail market for nutritional supplements experienced a compound annual
growth rate in the United States of approximately 15% from 1992 to 1998 with
sales totaling an estimated $9.3 billion in 1998.
The Company believes that growth in the nutritional supplement market is
driven by several factors including:
* Increased public's awareness and understanding of the Connection
between diet and health, by way of the Internet.
* The aging baby-boomer generation, which is more likely to consume
nutritional supplements,
* Product and scientific research,
* The adoption of the Dietary Supplement Health and Education Act of
1994 ("DSHEA") in the United States.
Nutritional supplements are sold through mass-market retailers, including
mass merchandisers, drug stores, supermarkets and discount stores, health food
stores and direct sales organizations, including network marketing organizations
and catalog companies. Direct selling, of which network marketing is a
significant segment, has increased in popularity as a distribution channel due
primarily to advances in technology and communications resulting in improved
product distribution and faster dissemination of information. The distribution
of products through network marketing has grown significantly in recent years.
The World Federation of Direct Selling Associations reported that, from 1990
through 1998, worldwide direct distribution of goods and services to consumers
increased approximately 71%, resulting in the sale of approximately $81.3
billion of goods and services in 1998. The Direct Sellers Association ("DSA")
reported total 1998 direct sales at retail of $23.2 billion in the United
States. According to the "Survey of Attitudes toward Direct Selling,"
commissioned by the DSA, and conducted and prepared by Wirthlin Worldwide, among
the three product categories experiencing the greatest gains in the direct
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selling industry since 1976 are food, nutrition and wellness products.
As a developer of novel nutritional supplements with a network marketing
distribution system, the Company believes it is well positioned to capitalize on
the demand for nutritional supplement products and growth trends in direct
sales.
Operating Strengths and Growth Strategy
Voyagers objective is to be a leading developer, and distributor of novel,
proprietary, patented, patent applied for scientific-based nutritional products
with state of the art of technology in communication, distribution, shipping and
the like.
Voyager's strong Medical Advisory Board has been charting Voyager a new
course. The Company's research and development effort is directed by Dr. Hower
and the members of the Scientific Medical Advisory Board which has access to
teams of scientists and researchers holding various degrees. The Scientific
Medical Advisory Board:
* Investigate in vitro activity of new natural extracts,
* Identify and research combinations of nutrients that may be candidates
for new products,
* Study the metabolic activity of existing and newly identified
nutritional supplements, and
* Enhance existing products as new discoveries in nutrition are made.
The Scientific Medical Advisory Board performs retrospective analyses of
anecdotal information provided by distributors, consumers of its products.
During the Year 2000, the Company will sponsor several double blind,
placebo-controlled clinical studies intended to further investigate the efficacy
of its products.
* The Company is able to control the quality of raw materials and the
purity and potency of its finished products by contracting with F.D.A.
certified manufactures
* The Company can monitor the manufacturing process to reduce the risk
of product contamination, by contracting F.D.A. approved manufactures,
* The Company can ensure accurate product labeling by testing products
at several stages in the manufacturing process, and
* The Company believes it can better insure the safety and control the
underlying costs associated with manufacturing nutritional supplements
by contracting with F.D.A. approved manufactures .
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Voyager's Scientific Medical Advisory Board
The Scientific medical Advisory board herein listed below is committed to
formulating the best scientifically validated health and nutrition products
available. The newly elected president and CEO Mr. John Southeralnd consider
Voyagers Medical Board critical to the success of the company's, product
research, clinical studies and the like. Voyager's Scientific Medical Advisory
Board members through conference call, audio-visual tapes and Voyager special
events in and around the United States will provide diverse yet complete
intellectual resources to Voyager's distributors. The Scientific Medical
Advisory Board members are:
Dr. William Regelson M.D.
Chairman of Voyager's Scientific Medical Advisory Board; Professor of
Internal Medicine, Hematology and Oncology at Virginia Commonwealth
University School of Medicine, and Author of two books, "The Milton
Miracle" and the "Superhormone Promise". Dr. Regelson will share his
insight and knowledge on the importance of hormones and hormonal balance in
the human bodies.
Dr. John Hower, M.D., Ph.D.
Board Certified Practice vascular surgeon. Dr. Hower maintains clinical
faculty positions in the Departments of Surgery at Emory University School
of Medical in Atlanta and Tulane University School of Medicine in New
Orleans. Additionally, Dr. Hower holds a Ph.D degree in physical chemistry.
Dr. Hower's, research into anti-oxidants and their potential to deter and
prevent free radical damage is well documented. In addition, Dr. Hower
coordinates development of product information, product research, clinical
studies, formulation development and dissemination of product information
to Voyager's Board of Director s of which he is a member.
Dr. Richard Fanson, PhD
Was professor of Biochemistry at Virginia Commonwealth University School of
Medicine for over seven years. Dr. Fanson, is the company liaison for
technology transfer between the University and the industrial sector. Dr.
Fanson is an expert in researching potential production processes and
facilitating the manufacture of the final products, through technology
transfer, which is vital to the Company.
Dr. Allan Goldstein, PhD.
Professor and Chairman of the department of Biochemistry and Molecular
Biology at George Washington University School of Medicine. Dr. Goldstein
is a expert on the workings of the human immune system and how immunity and
ageing interplay in our bodies. Dr. Goldstein developed medications that
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have cured immune diseases. With over four hundred medical and scientific
publications to his credit Dr. Goldstein will be able to share his
understanding and knowledge of immunity and aging.
Dr. Lonnie Honeycutt, PhD.
Dr, Honeycutt was appointed to the Board on September 28, 1999. He holds a
Doctor of Philosophy in Orthomolecular Nutrition. Dr. Honeycutt has worked
with labs protocol and the FDA and is an expert in FDA regulations and the
applications required of newly formulated products.
Dr. James E. Fulton, Jr., M.D. PhD
Voyager's newest member of the Scientific and Medical Advisory Board.
Attended Tulane University Medical School receiving an M.D., in addition to
receiving a PhD in Biochemistry form the University of Miami and a Diploma
from both the American Academy of Cosmetic Surgery and American Academy of
Dermatology. Dr. Fulton is Board certified in both specialties. Dr. Fulton
is the founder the Acne research Institute, founded in 1974 to foster
research and increase awareness about complexion problems.
Dr. Fulton was the Co-Developer of RETIN A and has eliminated the use of
systemic antibiotics for the treatment of Acne. Dr. Faulton authored an
internationally know book: "Step-by- Step Program For Clearing Acne."
In the area of corrective surgery, Dr. Fulton has developed Chemical Peels
and Laser Abrasion for the improvement of facial scars and published over
50 medical articles in the new fat transfer techniques which he pioneered.
Dr. Fulton's medical knowledge and experience are vital to the Company.
Distributor Compensation Plan and Benefits.
The Company is committed to providing a highly competitive compensation
plan to attract and retain distributors, who constitute the sales force of the
Company. The Company believes its distributor compensation plan is one of the
most financially rewarding in the direct selling industry. Distributor
incentives were fifty seven percent (57%) of net sales in 1999.
The Company pays distributor incentives on a weekly basis and offers its
distributors several benefits, including telecommunications and is developing
distributor participation in a plan to purchase Company common stock through
commission check deductions. The Company also provides extensive support
services to its distributors by telephone, fax and the Internet. The Company
sponsors events throughout the year, which offer information about the Company's
products and network marketing system. These meetings are designed to assist
distributors in business development and to provide a forum for interaction with
successful distributors and the Company's Scientific Medical Advisory Board.
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Experienced Management and Scientific Medical Advisory Board team includes
individuals with expertise in various scientific and managerial disciplines,
including nutrition, product research and development, marketing, direct sales,
information technology, finance, operations and manufacturing. The current
executive management team has been in place for about nine months and has been
responsible for strengthening the Company's internal controls, financial
condition and infrastructure to support growth and international expansion.
Growth Strategy
The Company intends to increase net sales and profits by implementing the
following growth strategy:
Introduce New Products.
The Company utilizes its research and development capabilities to introduce
novel, proprietary, patented, and patent applied for products and to
continuously enhance existing products. During the year 2000, Voyager will
introduce several new products, including two nutritional supplements, a total
anti-ageing system and weight management systems. The Company plans to introduce
new and novel products annually, usually at Company-sponsored distributor
events. Voyager's year 2000 strategy in the United States will begin with a
video conference, which will be attended by distributors and guests at
approximately 100 locations. The Company will introduce new products for its
United States market including: anti-ageing, weight management and modular
designed nutritional products, which will replace several bottles of vitamins
and the like.
Attract and Retain Distributors and Preferred Customers.
Since its inception, the Company has had a very slow growth in the number
of distributors and the number of Preferred Customers. As of July 31, 1999, the
Company had approximately 4,000 current distributors and 1,000 Preferred
Customers compared to approximately 9,000 current distributors and 2,000
Preferred Customers two year ago. The Company believes it can attract and retain
distributors by offering high-quality products, comprehensive distributor and
customer support services, and a rewarding compensation plan.
Markets.
The Company believes that, significant growth opportunities exist in the
United States markets. The Company's decision to enter new markets is based on
its assessment of several factors, (a) anticipated demand for the Company's
novel patented products, and (b) increased receptivity to direct sales in the
United States for products with real science. The Company has begun the
application process for patents and to register certain of its products with
regulatory and government agencies in order to position it for future market
expansion.
The Company seeks to seamlessly integrate its distributor compensation plan
in markets where the Company's products are sold in order to allow distributors
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to receive commissions through its ability to process distributor and preferred
customer product orders for next day commission on products sales. The Company
intends to accomplish this integration through a credit card processing down
line structure. This credit card processing system will allow distributors to
receive commissions on product orders the next day, and will simplify order
entry. The Company anticipates that this new credit card system will attract new
distributors and customers.
Products
Product names used in this report are, in certain cases, trademarks and are
also the proprietary, patented and patent applied for property of the Company,
including: Tiger Power(TM), Vital 90 Platinum(TM), Vital Minerals(TM), Real
D.H.E.A.(R), Colloidal Cat's Claw(TM), Liquid-PYC(TM), P.Y.C. Plus(R), Colloidal
Silver(TM), Super Soy(TM), Vital Essence(R), Optimal Enzymes(TM), and Vital
Biotic(TM). The Company's primary product lines consist of nutritional,
anti-ageing, weight management and pain relief products. In each of the last
three fiscal years, the nutritional product line constituted 80% or more of the
Company's net sales. The Company's principal product lines are briefly described
below:
Primary Products
Tiger Power(TM) (Liquid & Capsules) is a non-ephedrine weight loss
formula-based preparation. Dr. John Hower a company Director and member of the
Scientific Medical and Advisory Board, using new "Modular Design" technology,
has been able to create a dietary supplement, both safe and effective, that
helps not only promotes significant weight loss but also works to maintain
desirable weight levels over time. Recent scientific advances establish that
weight gain or loss is the result of a complex interplay between emotions,
moods, hormone levels and to an extent the foods we eat. Tiger Power(TM)
contains forty-one (41) ingredients, combined into "Modules", formulated into a
proprietary patented exclusive one-of-a-kind product. Tiger Power(TM) promotes
sugar and insulin stabilization so that fat is used more for energy rather than
for storage as unwanted pounds. The appetite suppressant properties of Tiger
Power(TM) promote more control over food choices. Tiger Power(TM) promotes
neurotransmitter synthesis and function, thus stabilizing moods and eliminating
cravings. By promoting general metabolic wellness and nutrition, Tiger Power(TM)
provides the building blocks naturally for a sound nutritional strategy.
Voyager's Product Research and Development
The Company's Medicinal Board is committed to continuous novel product
innovation and improvement through sound scientific research. The mission of the
Company's research and development team is to develop superior products that
support life-long health. Products are developed and enhanced using a
combination of published research, in vitro testing, in-house clinical studies
and sponsored research. The Company and the Medical Board periodically consults
with additional physicians who advise the Medical board and the Company on
product development. The Scientific medical Advisory Board has limited the
Company cost for research and development activities to a very small amount of
money by absorbing costs themselves. The Voyager Medical Advisory Board intends
to continue to use its resources in the research and development of new products
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and reformulation of existing products of the Company. The Scientific Medical
Advisory Board and the Company maintains a research and development program
based upon established scientific research methodologies. Clinical evaluations
are designed by the Medical Board and sponsored by the Company. Anecdotal
information from customers is reviewed and retrospective analyses are performed
on this data. Contract clinical studies are conducted on selected existing
products for which the retrospective analysis has demonstrated a positive effect
and on new products to investigate efficacy. The Company will sponsor three
double blind, placebo-controlled clinical studies in the very near term.
Product Manufacturing and Quality Assurance
The Company's products are currently manufactured by F.D.A certified
manufactures unaffiliated with the Company. Additionally the company requests
information so listed below in the following steps and additional confidential
information is requested from the F.D.A.
* Identifying and evaluating suppliers of raw materials,
* Acquiring premium-quality raw materials,
* Weighing or otherwise measuring the raw materials,
* Mixing raw materials into batches,
* Forming the mixtures into tablets,
* Coating and sorting the tablets, and
* Bottling and labeling the finished products.
All the Company's products are currently produced by manufactures
unaffiliated with the Company. The Company's profit margins and its ability to
deliver its existing products on a timely basis are dependent upon the ability
of the Company's outside manufactures to continue to supply products in a timely
and cost efficient manner. Furthermore, the Company's ability to enter new
markets and sustain satisfactory levels of sales in each market depends in part
upon the ability of suitable outside manufactures to reformulate existing
products, if necessary to comply with local regulations or market environments,
for introduction into such markets. Finally, the development of additional new
products in the future will likewise be dependent in part on the services of
suitable F.D.A certified outside manufacturers.
The Company currently acquires products or ingredients from suppliers that
are considered by the Company to be the superior suppliers of such ingredients.
The Company believes that, in the event it is unable to purchase any products or
ingredients from its current suppliers, the Company could produce such products,
replace such products, or substitute ingredients without great difficulty or
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prohibitive increases in the cost of goods sold. However, there can be no
assurance that the loss of such a supplier would not have a material adverse
effect on the Company's business and results of operations.
The Company currently relies on three (3) unaffiliated manufacturer to
produce approximately 99% of its products, the Company's agreement with the
primary supplier of the Company's products is limited to a non-disclosure
agreement. The Company believes that in the event that the Company's
relationship with the key manufacturer is terminated, the Company will be able
to find suitable replacement manufacturers. However, there can be no assurance
that the loss of the manufacturer would not have a material adverse effect on
the Company's business and results of operations.
Product Testing Year 2000
The Company will contract independent companies to conduct sample testing
of raw materials and finished products for purity, potency and composition
conforming to the Company's specifications.
The Company's third-party manufacturers and vendors package the Company's
products according to formulations developed by or in conjunction with Voyager's
product development team.
Voyager will conduct product quality assurance testing in laboratories
located in California. The tests will be for biological contamination in raw
materials, finished goods and for chemical contamination, accurate active
ingredient levels of raw materials, finished products and conduct stability
tests on finished products. The Company will ask for assays on vitamins and
mineral constituents under United States Pharmacopoeia and other validated
methods in its analytical chemistry laboratories. Product Available
Most of the raw ingredients used in the manufacture of the Company's
products are available from a number of suppliers. The Company has not generally
experienced difficulty in obtaining necessary quantities of raw ingredients.
When supplies of certain raw materials have tightened, the Company has been able
to find alternative sources of raw materials when needed and believes it will be
able to do so in the future.
Distribution and Marketing
Voyager distributes its products primarily through a network marketing
system. The Company sells directly to its Preferred Customers. Network marketing
is a form of person-to-person direct selling through a network of vertically
organized distributors who purchase products at wholesale prices from the
manufacturer and then make retail sales to consumers. The emergence of readily
available means of mass communication such as personal computers, facsimiles,
low-cost long distance telephone services, satellite conferencing and the
internet have contributed to the rapid growth of direct selling, including
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network marketing. Network marketing is gaining in popularity as a viable
alternative to traditional retail and mail order marketing. The concept of
network marketing is based on the strength of personal recommendations that
frequently come from friends, neighbors, relatives and close acquaintances. The
Company believes that network marketing is an effective way to distribute its
products because it allows person-to-person product education, which is not as
readily available through traditional distribution channels.
Customers who desire to sell the Company's products may become distributors
by being sponsored into the program by another distributor, thereby becoming
part of the sponsoring distributor's down line. The Company believes many of its
distributors are attracted to Voyager because of the quality of its products and
its rewarding compensation plan. New distributors must enter into a written
contract, which obligates them to adhere to Voyager's policies and procedures.
Distributors order products directly from the Company, subject to certain
limitations and restrictions. For example, a distributor may not purchase more
products during any four-week period than the distributor can reasonably expect
to sell and personally consume during that same period. Distributorships
continue until terminated by the Company or voluntarily canceled by the
distributor. Primarily a distributor's sponsor provides initial training of
distributors about the Company, its products, the distributor compensation plan,
and how to effectively engage in network marketing and others in their up line
organization. In addition, the Company develops and sells a variety of training
materials and sales aids, as well as a detailed policies and procedures manuals
and description of the Company's distributor compensation plan. The Company
sponsors and conducts regional, national and international distributor events
and intensive leadership training seminars. Attendance at these sessions is
voluntary, and the Company undertakes no generalized effort to provide
individualized training to distributors. Distributors may not sell competitive
products to other Voyager distributors or solicit Voyager distributors to
participate in other network marketing opportunities. The Company also restricts
advertising and making representations or claims concerning its products or
compensation plan.
The Distributor Compensation Plan
The compensation plan provides several opportunities for distributors to
earn compensation, provided they are willing to consistently work at building,
training and retaining their down line organizations to maintain sales of the
Company's products to consumers. The Company believes its distributor
compensation plan is distinctive for its equitable distributor payouts, which
are designed to create appropriate incentives for sales of Voyager products.
Each distributor must purchase and sell product in order to earn commissions and
bonuses. Distributors cannot simply recruit others for the purpose of developing
a down line and then earn income passively. Distributors can earn compensation
in three ways:
* Purchasing products at special distributor prices from the Company and
selling them to consumers at higher retail prices,
* Generating sales volume points in their down lines, and
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* Participating in a leadership bonus pool paid to distributors who meet
certain performance requirements.
The Company seeks to seamlessly integrate its distributor compensation plan
across all markets in which its products are sold, in order to allow
distributors to receive commissions for global, rather than merely local,
product sales in the future. This seamless down line structure is being designed
to allow a distributor to build a global network by creating down lines across
national borders in the future.
During the year 2000 the Company will begin a process of reviewing and
established several distributor benefit programs designed to strengthen
distributor loyalty. Among these programs may be (a) the Company's Distributor
Stock Purchase Plan (DSPP), a telecommunications program and an affinity credit
card plan. The DSPP will allow distributors to make open-market purchases of the
Company's common stock through commission check deductions. An Executive
Committee (to be elected) of the Company's Board of Directors will administer
the DSPP and purchases will be made through a registered broker-dealer. Under
the telecommunications program, the Company will view contacts with a long
distance carrier to provide Internet access, long distance, calling card service
and residential toll-free service to distributors at competitive rates. The
Company is reviewing and may offer its distributors a co-branded credit card,
issued by a large credit card processor, with competitive terms. Distributors
who are enrolled in the credit card and telecommunications programs may also
earn commissions on purchases and calls made by members of their down line who
participate in the programs under review. The Company is currently evaluating
the introduction of these benefit programs only in the United States.
Preferred Customer program
Designed for consumers who desire to purchase the Company's products for
their personal use, while choosing not to become independent distributors of the
products. The Company believes this program gives it access to a market that
would otherwise be missed by targeting customers who enjoy Voyager products, but
prefer a mail order type relationship with the Company. Preferred Customers may
not engage in retail sales of products purchased through the program, although
they may enroll as distributors at any time if they desire. Preferred Customers
are not eligible to earn commissions unless they become distributors.
Product Return Policy
The Company's product return policy allows retail customers to return the
unused portion of any product to the distributor and receive a full cash refund.
Any distributor who provides a refund to a customer is reimbursed by the Company
with product or credit in his or her account upon providing proper documentation
and the remainder of the returned product. Return of unused and resalable
products initiated by a distributor will be refunded 100% of the purchase price
to the distributor, less a 10% restocking fee for up to one year from the date
of purchase. Product that was damaged during shipment to the distributor is also
100% refundable. Product returns valued at $100 or more, other than product that
was damaged at the time of receipt by the distributor, may result in termination
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of the distributorship. Returns as a percentage of net sales were less than
.05%in 1999.
Substantially all of the Company's sales are made through independent
distributors. No single distributor accounted for 3% or more of net sales in any
of the last three fiscal years. Distributors submit signed application and
agreement forms to the Company, which obligate the distributors to follow the
Company's policies and procedures. Distributors are independent contractors and
are not agents, employees, or legal representatives of Voyager. Employees and
affiliates of the Company cannot be distributors, although there is no
prohibition on their family members from becoming distributors as long as they
do not reside in the same household. Distributors may sell products only in
markets where the Company has approved the sale of its products.
Policies and Procedures Manual- Distributor misbehavior.
The Company systematically reviews reports of alleged distributor
misbehavior. If Voyager determines that a distributor has violated any of the
distributor policies or procedures, it may take a number of disciplinary
actions. For example, the Company may terminate the distributor's rights
completely or impose sanctions such as warnings, fines, probation, withdraw or
deny awards, suspend privileges, withhold commissions until specific conditions
are satisfied, or take other appropriate injunctions at the Company's
discretion. During the year 2000 an in-house compliance officer and a full-time
commission auditor also will routinely review distributor activities.
Infractions of the policies and procedures reported to an elected compliance
committee by the Board of Directors will determine what disciplinary action may
be warranted in each case.
Information Technology
The Company believes its ability to efficiently manage its distribution,
compensation, manufacturing, inventory control and communications functions
through the use of sophisticated and dependable information processing systems
is critical to its success. The Company's former information technology
infrastructure system has been totally replaced with a new state of the art
technologically designed system selected to facilitate order entry and customer
billing, maintain distributor records, accurately track purchases and
distributor incentive payments, manage accounting, finance and manufacturing
operations, and provide customer service and technical support.
Regulatory Matters
Product Regulation.
Manufacturing, packaging, labeling, advertising, promotion, distribution,
and sale of the Company's products are subject to regulation by numerous
governmental agencies in the United States. In the United States, the FDA
regulates the Company's products under the Food, Drug, and Cosmetic Act ("FDC
Act") and regulations promulgated hereunder. The Company's products are also
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subject to regulation by, among others, the Consumer Product Safety Commission,
the US Department of Agriculture, and the Environmental Protection Agency
("EPA"). Advertising of the Company's products is subject to regulation by the
Federal Trade Commission ("FTC") under the Federal Trade Commission Act ("FTC
Act").
The majority of the Company's products are regulated as dietary supplements
under the FDC Act. Dietary supplements are regulated as foods under the
Nutrition Labeling and Education Act of 1990 ("NLEA"). The LEA establishes
requirements for ingredient and nutritional labeling and labeling claims for
foods. Dietary supplements are also regulated under DSHEA. The Company believes
DSHEA is favorable to the dietary supplement industry. The legislation for the
first time defined "dietary supplement". Under DSHEA, a dietary supplement is a
product intended to supplement the diet that contains one or more of certain
dietary ingredients, such as a vitamin, a mineral, an herb or botanical, amino
acid, a dietary substance for use by humans to supplement the diet by increasing
the total dietary intake, or a concentrate, metabolite, constituent, extract or
combination of the preceding ingredients.
Under the current provisions of the FDC Act, there are four categories of
claims that pertain to the regulation of dietary supplements. Drug claims are
representations that a product is intended to diagnose, mitigate, treat, cure,
or prevent a disease. Drug claims are prohibited from use in the labeling of
dietary supplements. Health claims are claims that describe the relationship
between a nutrient or dietary ingredient and a disease or health-related
condition and can be made on the labeling of dietary supplements if supported by
significant scientific agreement and authorized by the FDA in advance after
notice and comment rulemaking. Nutrient content claims, which describe the
nutritional value of the product, may be made if defined by the FDA through
notice and comment rulemaking and if one serving of the product meets the
definition. Nutrient content claims may also be made for dietary supplements if
a scientific body of the US government with official responsibility for the
public health has made an authoritative statement regarding the claim, the claim
accurately reflects that statement, and the manufacturer, among other things,
provides the FDA with notice of and basis for the claim at least 120 days before
the introduction of the supplement with a label containing the claim into
interstate commerce. Statements of nutritional support or product performance,
which are permitted on labeling of dietary supplements without FDA pre-approval,
are defined to include statements that:
* Claim a benefit related to a classical nutrient deficiency disease and
discloses the prevalence of such disease in the United States,
* Describe the role of a nutrient or dietary ingredient intended to
affect the structure or function in humans,
* Characterize the documented mechanism by which a dietary ingredient
acts to maintain such structure or function, or
* Describe general well being from consumption of a nutrient or dietary
ingredient.
In order to make a nutritional support claim the marketer must possess
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substantiation to demonstrate that the claim is not false or misleading. If the
dietary ingredient does not provide traditional nutritional value, or a
structure/function claim does not derive from an ingredient's nutritional value,
prominent disclosure of the lack of FDA review of the relevant statement and
notification to the FDA of use of the claim is required. The FDA recently issued
a proposed rule on what constitutes permitted structure/function claims as
distinguished from prohibited disease claims. Although the Company believes its
product claims comply with the law, depending on the content of the final
regulation, the Company may need to revise its labeling.
In addition, a dietary supplement that contains a new dietary ingredient
(defined as an ingredient not on the market before October 15, 1994) must have a
history of use or other evidence of safety establishing that it is reasonably
expected to be safe. The manufacturer must notify the FDA at least 75 days
before marketing products containing new dietary ingredients and provide to the
FDA the information upon which the manufacturer based its conclusion that the
product has a reasonable expectation of safety.
The FDA issued final dietary supplement labeling regulations in 1997 that
require a new format for product labels and will necessitate revising dietary
supplement product labels by March 23, 1999. All companies in the dietary
supplement industry are required to comply with these new regulations. The
Company updated its product labels in 1997 in response to these new regulations.
The FDA also announced that it is considering the adoption of new GMP's specific
to dietary supplements. Such GMP's, if promulgated, may be significantly more
rigorous than currently applicable GMP's and contain quality assurance
requirements similar to the FDA's GMP's for drug products. The Company believes
it currently manufactures its dietary supplement products according to the
standards of the drug GMP's. However, the Company may be required to expend
additional capital and resources on manufacturing controls in the future in
order to comply with the law.
Future products marketed by the Company may include over-the-counter
("OTC") drugs, and medical devices. The Company may have future products subject
to premarket approval by the FDA. Future products maybe subject to regulation by
the FDA under the FDC Act's adulteration and misbranding provisions. Future
products may also be subject to specific labeling regulations, including warning
statements if the safety of a cosmetic is not adequately substantiated or if the
product may be hazardous, as well as ingredient statements and other packaging
requirements under the Fair Packaging and Labeling Act. Future Products of the
Company may meet the definition of a drug (e.g., are intended to treat or
prevent disease or affect the structure or function of the body), such as the
Company's anti-aging products, may be regulated as drugs. OTC drug products may
be marketed if they conform to the requirements of any OTC monograph that is
applicable to a drug. Drug products not conforming to monograph requirements for
OTC drug products require an approved New Drug Application ("NDA") before
marketing. An NDA requires, among other things, one or more adequate and
well-controlled clinical trials demonstrating the drug's safety and
effectiveness before approval. The Company in the future if the agency finds
that a product or ingredient of one of the Company's OTC drug products is not
generally recognized as safe and effective or does not include it in a final
monograph applicable to one of the Company's OTC drug products, the Company will
have to reformulate or cease marketing the product until it is the subject of an
approved NDA or until such time, if ever, that the monograph is amended to
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include the Company's product..
The Company's future products will be designed and marketed not to require
premarket approval or clearance by the FDA. The Medical Device Amendments of
1976 to the FDC Act established three regulatory classes for medical devices
depending on the degree of control necessary to provide a reasonable assurance
of safety and effectiveness. Generally, Class I devices present the least risk
to health and Class III devices present the greatest risk to health and the most
complex or novel technologies. Some Class I and most Class II devices currently
require pre-market notification and clearance by the FDA before marketing under
section 510(k) of the FDC Act. Devices for which the FDA has not promulgated a
classification regulation also require premarket notification and clearance.
Class III devices require premarket approval before commercial distribution,
because the FDA either has promulgated a regulation requiring a premarket
application for a pre-amendments type of device, or a post-amendments device was
not found substantially equivalent to a legally marketed device.
The Company's advertising of its products is subject to regulation by the
FTC under the FTC Act. Section 5 of the FTC Act prohibits unfair methods of
competition and unfair or deceptive acts or practices in or affecting commerce.
Section 12 of the FTC Act provides that the dissemination or the causing to be
disseminated of any false advertisement pertaining to drugs or foods, which
would include dietary supplements, is an unfair or deceptive act or practice.
Under the FTC's Substantiation Doctrine, an advertiser is required to have a
"reasonable basis" for all objective product claims before the claims are made.
Failure to adequately substantiate claims may be considered either deceptive or
unfair practices. Pursuant to this FTC requirement, the Company is required to
have adequate substantiation for all material advertising claims made for its
products.
In recent years the FTC has initiated numerous investigations of and
actions against dietary supplement, weight loss, and cosmetic products and
companies. The FTC has recently issued a guidance document to assist these
companies in understanding and complying with the substantiation requirement.
The Company is organizing the documentation to support its advertising and
promotional practices in compliance with the guideline.
The FTC may enforce compliance with the law in a variety of ways, both
administratively and judicially. Means available to the FTC include compulsory
process, cease and desist orders, and injunctions. FTC enforcement can result in
orders requiring, among other things, limits on advertising, corrective
advertising, consumer redress, divestiture of assets, rescission of contracts,
and such other relief as deemed necessary. Violation of such orders could result
in substantial financial or other penalties. Any such action by the FTC could
materially adversely affect the Company's ability to successfully market its
products.
The Company cannot predict the nature of any future laws, regulations,
interpretations, or applications, nor can it determine what effect additional
governmental regulations or administrative orders, when and if promulgated,
would have on its business in the future. They could include, however,
requirements for the reformulation of certain products to meet new standards,
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the recall or discontinuation of certain products that cannot be reformulated,
additional record keeping, expanded documentation of the properties of certain
products, expanded or different labeling, and additional scientific
substantiation. Any or all such requirements could have a material adverse
effect on the Company's business, financial condition and results of operations.
Regulations-Network Marketing.
Other laws and regulations affecting the Company have been enacted to
prevent the use of deceptive or fraudulent practices that have sometimes been
inappropriately associated with legitimate direct selling and network marketing
activities. These include anti-pyramiding, securities, lottery, referral
selling, anti-fraud and business opportunity statutes, regulations and court
cases. Illegal schemes typically referred to as "pyramid," "chain distribution,"
or "endless chain" schemes, compensate participants primarily for the
introduction or enrollment of additional participants into the scheme. Often,
such schemes are characterized by large up-front entry or sign-up fees,
over-priced products of low value, little or no emphasis on the sale or use of
products, high-pressure recruiting tactics and claims of huge and quick
financial rewards with little or no effort. Generally these laws are directed at
ensuring that product sales ultimately are made to consumers and that
advancement within such sales organizations is based on sales of the
enterprise's products, rather than investments in such organizations or other
non-retail sales related criteria. Where required by law, the Company obtains
regulatory approval of its network marketing system, or, where such approval is
not required or available, the favorable opinion of local counsel as to
regulatory compliance.
* In the United States, the FTC and state attorneys general regulate the
network marketing system of the Company.
The Company has never received a request to supply information regarding
its network-marketing plan to certain regulatory agencies. Although the Company
has from time to time modified its network marketing system to comply with
interpretations of various regulatory authorities, it believes that its
network-marketing program presently is in compliance with laws and regulations
relating to direct selling activities. Nevertheless, the Company remains subject
to the risk that, in one or more of its present or future markets, its marketing
system or the conduct of certain of its distributors could be found not to be in
compliance with applicable laws and regulations. Failure by the Company or its
distributors to comply with these laws and regulations could have an adverse
material effect on the Company in a particular market or in general. Any or all
of such factors could adversely affect the way the Company does business and
could affect the Company's ability to attract potential distributors or enter
new markets. In the United States, the FTC has been active in its enforcement
efforts against both pyramid schemes and legitimate network marketing
organizations with certain legally problematic components, having instituted
several enforcement actions resulting in signed settlement agreements and
payment of large fines. Although the Company has not been the target of an FTC
investigation, there can be no assurance that the FTC will not investigate the
Company in the future.
The Company cannot predict the nature of any future law, regulation,
interpretation or application, nor can it predict what effect additional
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governmental legislation or regulations, judicial decisions, or administrative
orders, when and if promulgated, would have on its business in the future. It is
possible that such future developments may require revisions to the Company's
network marketing program. Any or all of such requirements could have a material
adverse effect on the Company's business, results of operations and financial
condition.
Competition
The business of developing and distributing nutritional, anti-ageing,
weight management, and pain relief products such as those offered by the Company
is highly competitive. Numerous manufacturers, distributors and retailers
compete for consumers and, in the case of other network marketing companies, for
distributors. The Company competes directly with other entities that
manufacture, market and distribute products in each of its product lines. The
Company competes with these entities by emphasizing the underlying science,
value and high quality of its products as well as the convenience and financial
benefits afforded by its network marketing system. However, many of the
Company's competitors are substantially larger than the Company and have greater
financial resources and broader name recognition. The Company's markets are
highly sensitive to the introduction of new products that may rapidly capture a
significant share of such markets.
The nutritional supplement market in which the Company's leading products
compete is characterized by:
* Large selections of essentially similar products that are difficult to
differentiate,
* Retail consumer emphasis on value pricing,
* Constantly changing formulations based on evolving scientific
research,
* Low entry barriers resulting from low brand loyalty, rapid change,
widely available manufacturing, low regulatory requirements and ready
access to large distribution channels, and
* A lack of uniform standards regarding product ingredient sources,
potency, purity, absorption rate and form.
Similar factors are also characteristic of products comprising the
Company's other product lines. There can be no assurance that the Company will
be able to effectively compete in this intensely competitive environment. In
addition, nutritional, anti-ageing, weight management and pain relief products
can be purchased in a wide variety of channels of distribution, including retail
stores. The Company's product offerings in each product category are relatively
few compared to the wide variety of products offered by many of its competitors
and are often premium priced. As a result, the Company's ability to remain
competitive depends in part upon the successful introduction of new products and
enhancements of existing products.
The Company is also subject to significant competition from other network
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marketing organizations for the time, attention and commitment of new and
current distributors. The Company's ability to remain competitive depends, in
significant part, on the Company's success in recruiting and retaining
distributors. The Company believes that it offers a rewarding distributor
compensation plan and attractive distributor benefits and services.
Payments of distributor incentives can be made weekly, reducing the time a
distributor must wait between purchase and sale of products and payment of
commissions. There can be no assurance that the Company's programs for
recruiting and retaining distributors will be successful. The Company competes
for the time, attention and commitment of its independent distributor force. The
pool of individuals interested in the business opportunities presented by direct
selling tends to be limited in each market and is reduced to the extent other
network marketing companies successfully recruit these individuals into their
businesses. Although management believes the Company offers an attractive
opportunity for distributors, there can be no assurance that other network
marketing companies will not be able to recruit the Company's existing
distributors or deplete the pool of potential distributors in a given market.
The Company believes that the leading network marketing company in the
world, based on total sales, is Amway Corporation and its affiliates, and that
Avon Products, Inc. is the leading direct seller of beauty and related products
worldwide. Leading competitors in the nutritional products and nutritional
direct selling markets include Herbalife International, Inc., Nature's Sunshine
Products, Inc., Rexall Sundown, Inc. and its direct selling division Rexall
Showcase International, Inc., Twin lab Corporation, Shaklee Corporation and Nu
Skin International, Inc. The Company believes there are other manufacturers of
competing product lines that may or will launch direct selling enterprises,
which will compete with the Company in certain of its product lines and for
distributors. There can be no assurance that the Company will be able to
successfully meet the challenges posed by such increased competition.
Intellectual Property
Trademarks.
The Company uses registered trademarks in its business, particularly
relating to its corporate and product names. The Company owns six trademarks
registered with the United States Patent and Trademark Office. The Company has
also filed applications to register eight additional trademarks. Federal
registration of a trademark enables the registered owner of the mark to bar the
unauthorized use of the registered mark in connection with a similar product in
the same channels of trade by any third party anywhere in the United States,
regardless of whether the registered owner has ever used the trademark in the
area where the unauthorized use occurs. The Company also has filed applications
and owns trademark registrations, and intends to register additional trademarks,
in foreign countries where the Company's products are or may be sold. Protection
afforded registered trademarks in some jurisdictions may not be as extensive as
the protection available in the United States. The Company under common law
claims certain product names, unregistered trademarks and service marks.
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Common law trademark rights do not provide the Company with the same level
of protection afforded by registration of a trademark. In addition, common law
trademark rights are limited to the geographic area in which the trademark is
actually used. The Company believes its trademarks, registered and claimed under
common law, constitute valuable assets of the Company, adding to recognition of
the Company and the marketing of its products. The Company therefore believes
such proprietary rights have been and will continue to be important in enabling
the Company to compete in its industry.
Trade Secrets.
The Company has certain trade secrets that it intends to protect, in part,
through confidentiality agreements with employees and other parties. Certain of
the Company's employees involved in research and development activities have not
entered into such agreements. Even where such agreements exist, there can be no
assurance that these agreements will not be breached, that the Company would
have adequate remedies for any breach or that the Company's trade secrets will
not otherwise become known to or independently developed by competitors.
Patents.
In 1998 the Board of Directors approved the issuance of one million shares
of restricted common stock to Dr. Morris Mann M.D. for full assignment of
product patents of Body-Lite (Low Glycemic) shake, Tiger Power (liquid and
capsule) and in all patents formulated by Dr. Morris Mann jointly for
distribution by the Company. Currently, Dr. Mann is seeking patent protection
for the anti-ageing formula.
To the extent patents may be obtained for nutritional products, the scope
of such patents may not be sufficiently broad to provide meaningful protection
against infringement. Labeling regulations require the Company to disclose
product ingredients and formulations, which makes enforcement of patents in the
nutritional supplements industry difficult. The Company does not believe that
the lack of patents in any way will adversely affect the Company's ability to
compete in the nutritional supplement, anti-ageing, pain relief or weight
management industries.
The Company intends to protect its legal rights concerning its intellectual
property by all appropriate legal action. The Company may become involved from
time to time in litigation to determine the enforceability, scope and validity
of any of the foregoing proprietary rights. Any such litigation could result in
substantial cost to the Company and divert the efforts of its management and
technical personnel.
Product Backlog
The Company typically ships products within 72 hours after the receipt of
the order. As of July 31, 1999, there was no backlog.
Product Inventory Practices
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The Company maintains significant amounts of inventory in stock in order to
provide a high level of service to its independent distributors and Preferred
Customers. Inventories are required to serve the needs of Voyager's role as
distributor.
Environment
The Company presently is not aware of any instance in which it has
contravened federal, state or local provisions enacted for or relating to
protection of the environment or in which it otherwise may be subject under such
laws to liability for environmental conditions that materially could affect the
Company's operations.
Employees
As of July 31, 1999, the Company had approximately seven (7) employees (as
measured by full time equivalency) The Company believes its relationship with
its employees is good.
Item 2. Description of Property
The Company's headquarters are located in Carlsbad, California. The Company
at this time has no properties. The company occupies certain sales offices under
a noncancellable lease. This lease is for office space and expires September 20,
2000. It is expected that in the normal course of business, leases that expire
will be renewed or replaced by leases on other properties. The current lease
requires rental payments of $11,524.00 per year.
Item 3. Legal Proceedings.
The Company is not engaged in any legal proceedings other than the ordinary
routine litigation incidental to its business operations, which the Company does
not believe, in the aggregate, will have a material adverse effect on the
Company, or its operations.
Item 4. Submission of Matters to a Vote of Security Holders.
No matters were submitted to a vote of shareholders.
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PART II
Item 5. Market for Common Equity and Related Shareholder Matters.
The Company's common stock trades over-the-counter on the NASDAQ Bulletin
Board with the trading symbol "VYGP". The following high and low sale prices for
the Company's common stock as reported on the Nasdaq Bulletin Board for the
period indicated:
1998 High Low
First Quarter (10/31/97) $2.250 $1.375
Second Quarter (01/31/98) $1.625 $0.563
Third Quarter (04/30/98) $2.625 $0.438
Fourth Quarter (07/31/98) $4.250 $0.938
1999
First Quarter (10/31/98) $1.063 $0.313
Second Quarter (01/31/99) $0.813 $0.250
Third Quarter (04/30/99) $0.750 $0.250
Fourth Quarter (07/31/99) $1.125 $0.500
Shareholders
The number of shareholders of record of the Company's common stock as of
July 31, 1999 was approximately 210.
Dividends
The Company has never declared or paid cash dividends on its common stock.
The Company currently intends to retain future earnings to fund the development
and growth of its business and does not anticipate paying any cash dividends in
the foreseeable future. Future cash dividends, if any, will be determined by the
Board of Directors and will be based on the Company's earnings, capital,
financial condition and other factors deemed relevant by the Board of Directors.
Recent Sales of Unregistered Securities.
The Company established a Convertible Preferred Stock Series J 1999
consisting of one hundred shares (100) (convertible to 22,000,000 shares common)
par value $.001. The convertible preferred stock series J was purchased by two
"accredited investors" as defined in Regulation D, Rule 501 of the United
Securities and Exchange Act of 1933.
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The Company during the past quarter sold 749,200 shares of Common Stock to
consultants, advisors distributors and officers for cash and/or services at
approximate market value.
Item 6. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The following discussion and analysis of the Company's financial condition
and results of operations should be read in conjunction with the Consolidated
Financial Statements and Notes thereto appearing elsewhere in this report.
Overview
Voyager develops and manufactures high-quality nutritional, anti-ageing,
pain relief and weight management products. The Company distributes its products
through a network marketing system.
Net sales for fiscal 1999 were less than fiscal 1998 by $1,056,883 or
45.1%.
The Company's four primary product lines consist of nutritional,
anti-ageing, pain relief and weight management products. Nutritional products
accounted for approximately 81% of the Company's net sales in 1999.
The Company's top selling products, account for approximately 42%
respectively, of net sales in 1999. No other products accounted for more than
10% of net sales during the year. In addition to its primary product lines, the
Company also sells distributor kits and sales aids, which accounted for
approximately 4% of the Company's net sales in 1999.
Net sales of the Company are primarily dependent upon the efforts of a
network of independent distributors who purchase products and sales materials.
The Company also offers a Preferred Customer program specifically designed for
customers who desire to purchase Voyager's products for personal consumption,
while choosing not to become independent distributors. As of July 31, 1999, the
Company had approximately 1,000 Preferred Customers. The Company recognizes
revenue when products are shipped and title passes to independent distributors
and Preferred Customers. In 1999, sales in the United States represented 100% of
net sales of the Company.
Cost of sales primarily consists of expenses related to raw materials,
labor, and quality assurance and overhead directly associated with the
procurement and production of Voyager's products and sales materials.
Distributor incentives are the Company's most significant expense and
represented 57 % of net sales in 1999. Distributor incentives include
commissions and leadership bonuses, and are paid weekly based on sales volume
points. Each product sold by the Company is assigned a sales volume point value
independent of the product's price. Distributors earn commissions based on sales
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volume points generated in their down line. Generally, distributor kits, sales
aids and logo merchandise, such as items of clothing and luggage, have no sales
volume point value and therefore the Company pays no commissions on the sale of
these items.
The fourth quarter of 1999, the Company introduced a reprising strategy
with certain products lines that created a spread between the price a
distributor pays for the product and the sales volume point value associated
with the product. This new price strategy will have the effect of increasing net
profits during the fiscal year 2000.
Selling, general and administrative expenses include wages and benefits,
depreciation and amortization, rents and utilities, distributor events,
promotion and advertising, and professional fees along with other marketing and
administrative expenses. Wages and benefits represent the largest component of
selling, general and administrative expenses. The Company has added human
resources and associated infrastructure for future expansion of operations.
The President, Chief Executive Officer and Chairman of the Board of
Directors of the Company, Mr. John Southerland does not receive a salary, and
the Company does not anticipate that Mr. Southerland will take a salary for the
foreseeable future. However, if Mr. Southeralnd were to take a salary, selling,
general and administrative expenses would increase. Depreciation and
amortization expense has increased as a result of substantial investments in
computer and systems communications equipment and systems to support domestic
expansion. The Company anticipates that additional capital investments will be
required in future periods to promote and support growth in sales and the
increasing size of the distributor and Preferred Customer base. Research and
development
Expenses if incurred include costs in developing new products, supporting
and enhancing existing products and reformulating products for introduction in
domestic markets. The Company would if incurred capitalize product development
costs after market feasibility is established. These costs are amortized as cost
of sales over an average of 12 months, beginning with the month the products
become available for sale.
Results of Operations
The following table summarizes operating results as a percentage of net
sales, respectively for the periods indicated:
1999 1998
-------- --------
Sales, Net ..................................... 100.0% 100.0%
Cost of Sales .................................. 39.4 30.3
-------- --------
Gross Margin ................................... 60.6 69.7
Operating Expenses ............................. (155.6) (90.9)
-------- --------
Operating Income (Loss) ........................ (95.0) (21.2)
Interest Income, Net ........................... (1.2) 0.3
-------- --------
Income (Loss) Before Income Taxes .............. (96.2) (20.9)
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Net Sales.
Net sales for Fiscal 1999 were less than Fiscal 1998 by $1,056,883 or
45.1%. The Companies decrease in sales was due to a restructuring of independent
distributors compensation plan, Reprising products, formulation of novel,
proprietary, patented and patent applied for products, and reformulation of
certain existing products. Company management also during this period, added an
executive team with over 18 years experience in the direct marketing industry
replacing vacancies created by resignations of former executive officers.
Management believes new product introductions in year 2000 will contributed to
sales growth. Cost of Sales
Cost of sales for Fiscal 1999 decreased $203,775 or 28.6% compared to
Fiscal 1998. As a percentage of sales, cost of sales increased from 30.3% to
39.4%.
The increase in cost of sales as a percentage of net sales is attributable
to the total reorganization of executive management team. Newly elected
executives have completely overhauling the Company's human resources,
technological communications, product order processing of customers, and
increase in volume based efficiencies in production and procurement activities.
The introduction of new products during the year 2000, in the opinion of
management, will promote long-term growth, with a high distributor enrolment.
Operating Expenses
Operating expenses during Fiscal 1999 decreased $127,609 or 6.0% compared
to Fiscal 1998 from $2,130,156 to $2,002,547.
Liquidity and Capital Resources
The President, C.E.O. and shareholders have committed to funding required
working capital necessary for the Company. Funding subsequent to July 31, 1999
was for infrastructure such as communication and computer systems. There are no
formal contractual commitments between the Company and these parties for
capital, lines of credit or similar short-term borrowings.
It is anticipated that the year 2000 should expand current sales and
increased distributors membership through the introduction of new products and
distributor services which should exceed the Company's working capital
requirements for the next fiscal year.
The increase in liquidity during the year was primarily from cash provided
by financing activities. The Company generates and uses cash flows through three
activities: operating, investing, and financing. During 1999, operating
activities used cash of $118,000 as compared to net cash used of $446,000 for
1998.
Cash flows used in investing activities is primarily due to the acquisition
of $1,000 of computer equipment and office furniture for 1998 compared to $0 for
1999.
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Financing activities provided $134,000 for 1999 compared to $28,000 for
1998. The increase in cash flow from financing activities was primarily from the
sale of restricted common and preferred stock to consultants, advisors,
distributors, officers, and employees. Subsequent to July 31, 1999, an officers
and a shareholder of the Company loaned an additional $107,000 to the Company in
the form of promissory notes.
The President, C.E.O. believes that its current cash balances, the
available line of credit and cash provided by operations is sufficient to cover
its needs in the ordinary course of business for the next 12 months. If the
Company experiences unusual capital requirements to completely the new infra
structure and communication systems, additional financing may be required.
However, no assurance can be given that additional financing, if required, would
be available on favorable terms. The Company may attempt to raise additional
financing through the sale of its equity securities in the form of preferred
stock or loans to finance future growth of the Company. Any financing, which
involves the sale of equity securities and loans in the form of short-term
instruments convertible into such securities, could result in immediate dilution
to existing shareholders. Inflation
The Company does not believe that inflation has had or will have a material
effect on its historical operations or profitability.
Regulation
The Company is not of aware of any recently enacted, presently pending or
proposed state or federal legislation, which would have a material adverse
effect on its results of operations.
Outlook -Forward Looking Statements
Management of Voyager believes net sales will grow at a double-digit rate
in the Year 2000. With the release of new products and a completely new
infrastructure, the Company will be able to increase sales and distributor base
over many years. Increases in net sales will be driven by continued growth in
existing United States markets.
According to the Nutrition Business Journal, the nutritional industry in
the United States will grow at an annual rate of approximately 10% over the next
three years. This does represent a slower rate of industry growth than in prior
years. Management believes the Company's new products offer opportunities for
rapid United States expansion.
The Company's new products, when released in the year 2000, management
believes Double-digit sales growth in 2000 will not dependent upon a strong
nutritional industry. If the Company's new products fail consumer demand, the
Company would experience downward pressure on its net sales.
Management believes that cost of sales as a percentage of net sales will
Increase in year 2000 when compared to 1999 levels. Management believes that
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increases in production efficiencies will offset the negative impact of
increased taxes by using exiting NOL. These increase will results from a higher
initial demand in new markets for distributor kits, which have a significantly
lower gross profit margin than other products sold by the Company. The Company
may experience capacity constraints in its production operations if sales grow
at a greater rate than in prior years, which would result in higher cost of
sales.
Management believes distributor incentives, as a percentage of net sales
will be approximately 51% in 2000. The Company closely monitors the amount of
distributor incentives paid as a percentage of net sales and may from time to
time adjust its distributor compensation plan to prevent distributor incentives
from having a significant adverse affect on earnings, while continuing to
maintain an appropriate incentive for its distributors. The Company continues
pricing its products to achieve a desired contribution margin (sales less cost
of sales less distributor incentives) and will make necessary changes to operate
in this range.
Management believes that selling, general and administrative expenditures
will increase modestly as a percentage of net sales during 2000 when compared to
1999 levels. This increase can be attributed to several factors:
* Increased depreciation and amortization levels resulting from
strategic investments in computers and telecommunications equipment,
and additional
* Increased costs associated with building an infrastructure to achieve
the Company's strategic objectives.
Certain Risks Affecting the Company
The Company relies on non-employee, independent distributors to purchase,
market and sell its products.
The Company distributes its products through distributors.
These distributors are independent contractors who purchase products
directly from the Company for their own use or for resale. Distributors
typically work at the distribution of the Company's products on a part-time
basis, may, and likely will engage in other business activities, some of which
may compete with the Company. The Company has a large number of distributors and
a relatively small corporate staff to implement its marketing programs and
provide motivational support to its distributors. The Company undertakes no
effort to provide individual training to its distributors. Distributors may
voluntarily terminate their agreements with the Company at any time. There is
typically significant turnover in distributors from year to year. Because of
this high turnover, the Company must continually recruit new distributors. The
Company's net sales are directly dependent upon the efforts of these
non-employee, independent distributors and future growth in sales volume will
depend in large part upon the Company's success in increasing the number of new
distributors and improving productivity of its distributors. Consequently, the
loss of a key distributor or group of distributors, large turnovers or decreases
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in the size of the distributor force, seasonal or other decreases in purchase
volume, sales volume reduction and the costs associated with training new
distributors and other related expenses may adversely affect the Company's
business, financial condition and results of operations. Moreover, the Company's
ability to continue to attract and retain distributors can be affected by a
number of factors, some of which are beyond the control of the Company,
including:
* General business and economic conditions,
* Public perceptions about network marketing programs,
* High-visibility investigations or legal proceeding against network
marketing companies by federal or state authorities or private
citizens, and
* Public perceptions about the value and efficacy of nutritional, pain
relief, weight management or anti ageing products generally.
There can be no assurance that the Company will be able to continue to
attract and retain distributors in numbers sufficient to sustain the Company's
future growth or to maintain present growth levels, which could have a material
adverse effect on the Company's business, financial condition and results of
operations.
The Company does not directly control the independent acts of its
distributors. The Company's distributors are required to sign and adhere to the
Company's Distributor Application and Agreement, which obligates them to abide
by Voyager's policies and procedures. Although these policies and procedures
prohibit distributors from making certain claims regarding the Company's
products or income potential from the distribution of those products,
distributors may from time to time create promotional materials or otherwise
provide information that does not accurately describe the Company's marketing
program. They also may make statements regarding potential earnings, product
claims or other matters in violation of the Company's policies or applicable
laws and regulations concerning these matters. Such violations may result in
legal action by regulatory agencies. Future legal actions against distributors
or others associated with the Company could lead to increased regulatory
scrutiny of the Company and its network marketing system. The Company takes what
it believes to be commercially reasonable steps to monitor distributor
activities to guard against misrepresentation and other illegal or unethical
conduct by distributors and to assure that the terms of its compensation plan
are observed. There can be no assurance, however, that the Company's efforts in
this regard will be sufficient to accomplish this objective. Publicity resulting
from such distributor activities can also make it more difficult for the Company
to attract and retain distributors and may have an adverse effect on the
Company's business, financial condition and results of operations.
Network marketing is subject to intense government scrutiny and regulation.
Network marketing systems such as the Company's are frequently subject to laws
and regulations directed at ensuring that product sales are made to consumers of
the products and that compensation, recognition and advancement within the
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marketing organization are based on the sale of products rather than investment
in the sponsoring company. In the United States, these laws and regulations
include the federal and state securities laws, the regulation of the offer and
sale of franchises and business opportunities, regulations and statutes
administered by the FTC and various state anti-pyramid and business opportunity
laws that target direct selling businesses that promise quick rewards for little
or no effort, require high entry costs, use high pressure recruiting methods or
do not involve legitimate products. Similar laws govern the Company's activities
in foreign countries where it presently has operations or may have operations in
the future. The Company is subject to the risk that, in one or more of its
present or future markets, its marketing system could be found not to comply
with these laws and regulations or may be prohibited. Failure by the Company to
comply with these laws and regulations or such a prohibition could have a
material adverse effect on the Company's business, financial condition and
results of operations. Further, the Company may simply be prohibited from
distributing its products through a network-marketing channel in some foreign
countries.
The Company's business is subject to the effects of adverse publicity and
negative public perception. The Company's ability to attract and retain
distributors and to sustain and enhance sales through its distributors can be
affected by adverse publicity or negative public perception regarding the
Company or its competitors. This negative public perception may include
publicity regarding the legality of network marketing, the quality or efficacy
of nutritional supplement products or ingredients in general or the Company's
products or ingredients specifically, and regulatory investigations of the
Company or its competitors or other network marketing companies and their
products, or distributor actions. There can be no assurance that the Company
will not be subject to adverse publicity or negative public perception in the
future or that such adverse publicity will not have a material adverse effect on
the Company's business, financial condition and results of operations.
The Company relies heavily on its key management personnel.
The Company depends on the services Mr. John Southerland, who serves as
President, Chief Executive Officer and Chairman of the Board. Mr. John
Southerland is a highly visible spokesman for the Company and its products, and
the Company believes its success depends in large part on the continued
visibility and reputation of Mr. John Southerland, which helps distinguish the
Company from its competitors.
The loss or limitation of Mr. John Southerland services as the lead
spokesman for the Company and its products, as an executive officer of the
Company could have a material adverse effect upon the Company's business,
financial condition and results of operations.
Mr. John Southerland is primarily responsible for the Company's day-to-day
operations, and the Company believes its success depends in part on its ability
to retain Mr. John Southeland and to continue to attract additional qualified
individuals to its management team. The Company does not maintain a key man life
insurance policy on Mr. John Southerland or any of its other officers, nor does
it have an employment agreement with any of its officers. The loss or limitation
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of the services of any of the Company's executive officers or the inability of
the Company to attract additional qualified management personnel could have a
material adverse effect on the Company's business, financial condition and
results of operations.
The products and manufacturing activities of the Company are subject to
extensive government regulation. The manufacture, packaging, labeling,
advertising, promotion, distribution and sale of the Company's products are
subject to regulation by numerous national and local governmental agencies in
the United States and other countries. In the United States, the FDA regulates
the Company's products under the FDC Act and regulations promulgated hereunder.
The Company's products also are subject to regulation by, among others, the
Consumer Product Safety Commission, the United States Department of Agriculture
and the EPA. Advertising and other forms of promotion and methods of marketing
of the Company's products under the FTC Act are regulated by the FTC. Various
state and local agencies as well as those of each foreign country in which the
Company distributes products also regulate the manufacture, labeling and
advertising of the Company's products.
Most of the Company's products generally are regulated as dietary
supplements under the FDC Act and therefore are not subject to pre market
approval by the FDA. However, these products are subject to extensive regulation
by the FDA, including regulation under the FDC Act's adulteration and
misbranding provisions. For instance, the Company is responsible for ensuring
that all dietary ingredients in a supplement are safe. The Company must notify
the FDA in advance of placing on the market a product containing a new dietary
ingredient (defined as an ingredient not marketed for use as a supplement before
October 15, 1994) and must furnish adequate information to provide reasonable
assurance of the ingredient's safety. Further, if the Company makes statements
about a supplement's effects on the structure or function of the body, the
Company must, among other things, have substantiation that the statements are
truthful and not misleading. In addition, the Company must ensure that its
product labels bear proper ingredient and nutritional labeling and the Company
must manufacture its dietary supplements in accordance with current GMP's for
foods. The FDA has issued an advance notice of proposed rulemaking to consider
whether to develop specific GMP's for dietary supplements and dietary supplement
ingredients. Such regulations, if promulgated, may be significantly more
rigorous than current requirements and contain quality assurance requirements
similar to GMP's for drug products. The FDA may remove a product from the market
if it poses a significant or unreasonable risk of illness or injury. Moreover,
if the FDA determines that the intended use of any of the Company's products is
for the diagnosis, cure, mitigation, treatment or prevention of disease, the
agency would consider the product a drug and would require pre market approval
of safety and effectiveness prior to its manufacture and distribution. To the
extent that the intended use is a function of the claims made by the Company
regarding a dietary supplement, re labeling of the product to remove the
offending claims may be sufficient to avoid new drug status and/or compliance
action by the FDA.
New Products Manufactured by the Company may be regulated.
In general, the Company's new products are not subject to pre market
approval. However, the FDA does regulate the company's new products perhaps
under the FDC Act's adulteration and misbranding provisions. Voyager's new
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product is also subject to specific labeling regulations, including warning
statements if the safety of new products is not adequately substantiated or if
the product may be hazardous, as well as ingredient statements and other
packaging requirements under the Fair Packaging and Labeling Act. Voyagers' new
products that meet the definition of a drug (e.g., are intended to treat or
prevent disease or affect the structure or function of the body) are regulated
as drugs. OTC drug products may be marketed if they conform to the requirements
of any OTC monograph that is applicable to a drug. Drug products not conforming
to the monograph requirements for OTC drugs require an approved NDA before
marketing. An NDA requires, among other things, one or more adequate and
well-controlled clinical trials demonstrating the drug's safety and
effectiveness before approval. The agency has not yet promulgated final
monographs for some of the Company's products. If the agency finds that an OTC
drug or ingredient of an OTC drug marketed by the Company is not generally
recognized as safe and effective or does not include it in a final monograph
applicable to an OTC drug, the Company would have to reformulate or cease
marketing such a product until it is the subject of an approved NDA, or until
such time, if ever, that the monograph is amended to include the Company's
product. Whether or not an OTC drug conforms to a monograph or is subject to an
approved NDA, such a drug must comply with other requirements under the FDC Act,
including GMP's, labeling, and the FDC Act's misbranding and adulteration
provisions.
Failure of the Company to comply with applicable FDA regulatory
requirements may result in, among other things, injunctions, product
withdrawals, recalls, product seizures, fines, and criminal prosecutions. Any
such action by the FDA could materially adversely affect the Company's ability
to successfully market its products.
The FTC regulates the advertising of the Company's products under the FTC
Act. Section 5 of the FTC Act prohibits unfair methods of competition and unfair
or deceptive acts or practices in or affecting commerce. Section 12 of the FTC
Act provides that the dissemination or the causing to be disseminated of any
false advertisement pertaining to, among other things, drugs, cosmetics, devices
or foods, which include dietary supplements, is an unfair or deceptive act or
practice. Under the FTC's Substantiation Doctrine, an advertiser is required to
have a "reasonable basis" for all product claims at the time the claims are
first used in advertising or other promotions. Failure to adequately
substantiate claims may be considered either as a deceptive or unfair practice.
Pursuant to this FTC requirement, the Company is required to have adequate
substantiation for all advertising claims made about its products. The type of
substantiation will be dependent upon the product claims made. For example, a
health claim normally would require competent and reliable scientific evidence,
while a taste claim would require only survey evidence.
In recent years, the FTC has initiated numerous investigations of and
actions against dietary supplement, weight loss, and cosmetic products and
companies. If the FTC has reason to believe the law is being violated (e.g., the
Company does not possess adequate substantiation for product claims), it can
initiate an enforcement action. The FTC has a variety of processes and remedies
available to it for enforcement, both administratively and judicially, including
compulsory process authority, cease and desist orders and injunctions. FTC
enforcement could result in orders requiring, among other things, limits on
advertising, consumer redress, divestiture of assets, rescission of contracts,
and such other relief as may be deemed necessary. Violation of such orders could
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result in substantial financial or other penalties. Any such action by the FTC
could materially adversely affect the Company's ability to successfully market
its products.
Growth of the Company's business subjects it to risks relating to expansion of
facilities.
The Company believes its long-term competitive position depends in part on
its ability to increase its manufacturing capacity. The Company expects it will
be necessary to expand its manufacturing capacity, administrative offices and
warehouse facilities in 2000. The failure of the Company to complete the
expansion on schedule and under budget could have a material adverse effect on
its business, financial condition and results of operations.
The Company's business may be affected by risks associated with the Year
2000. Since its inception, the Company has attempted to leverage technology,
including increasingly sophisticated computer hardware and software, in managing
its business and operations. The Company also relies on third parties to
facilitate its business. For example, these vendors include:
* Telecommunications providers on whom the Company must rely for its
call center operations,
* Public utilities that provide electrical power and other utilities
needed in the Company's operations,
* Major credit card companies that process the vast majority of payments
for the Company's products,
* Major shipping companies located in the United States,
* Financial institutions that provide commercial banking and other
financial services to the Company, and
* The Nasdaq OTC Bulletin Board, on which the Company's common stock is
traded.
Many existing computer programs use only two digits to identify a year in
the date field and were designed, developed and modified without considering the
impact of the upcoming change in the century. If not corrected, such computer
applications could fail or create erroneous results by or at the Year 2000 by
erroneously identifying the year "00" as 1900, rather than 2000. Correcting the
Year 2000 problem on a large mainframe or network application can be difficult
and expensive.
The Company is in the process of insuring that all of its internal computer
systems are Year 2000 compliant. Independent of those efforts, the Company
determined in late 1999 that the purchase and installation of an integrated
enterprise resource planning ("ERP ") system could achieve overall efficiencies.
The ERP system will replace all of the Company's existing resource planning
systems except for the Company's Distributor System. The Company has commenced
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installation of the ERP system through a third-party provider of software and
consulting services, and expects the installation to be complete no later than
the first quarter of fiscal 2000.
The third-party vendor of the ERP system has represented to the Company
that the Information Technology Association of America certifies the ERP system
as Year 2000 compliant. Therefore, assuming the successful installation of the
ERP system, the Company does not expect any material Year 2000 compliance issues
to arise related to its primary internal business information systems. While the
Company believes its current Distributor System is Year 2000 compliant, it
expects to replace the Distributor System with two new applications in 2000.
These applications are also expected to be Year 2000 compliant as certified by
the vendors of the systems. There can be no assurance that the transition to
these new software systems will be accomplished in a timely manner or that they
will in fact be Year 2000 compliant.
With respect to third-party providers whose services are critical to the
Company, the Company intends to monitor the efforts of such providers, as they
become Year 2000 compliant. The Company is not aware of any Year 2000 issues
that have been encountered by any such third party, which it believes could
materially affect the Company's operations. However, there can be no assurance
that the Company will not experience operational difficulties as a result of
Year 2000 issues, either arising out of internal operations, or caused by third-
party service providers, which individually or collectively could have a
material adverse effect on the Company's business, financial condition or
results of operations.
The Company depends on outside suppliers for raw materials. The Company
acquires all of its raw materials for the manufacture of its products from
third-party suppliers. Normally, materials used in manufacturing the Company's
products are purchased on account or by purchase order. The Company has very few
long-term agreements for the supply of such materials. There is a risk that any
of the Company's suppliers or manufacturers could discontinue selling their
products to the Company. Although the Company believes that it could establish
alternate sources for most of its products, any delay in locating and
establishing relationships with other sources could result in product shortages
and back orders for the products, with a resulting loss of net sales. There can
be no assurance that suppliers will provide the raw materials needed by the
Company in the quantities requested or at a price the Company is willing to pay.
Because the Company does not control the actual production of these raw
materials, it is also subject to delays caused by interruption in production of
materials based on conditions not within its control, including weather, crop
conditions, transportation interruptions, strikes by supplier employees and
natural disasters or other catastrophic events. The inability of the Company to
obtain adequate supplies of raw materials for its products at favorable prices,
or at all, could have a material adverse effect on the Company's business,
financial condition and results of operations.
Future acquisitions, if any, by the Company would be subject to certain
risks. The Company has not completed any acquisitions to date, but it may pursue
acquisitions in the future as a part of its business strategy. Acquisitions
involve numerous risks, including the risk that the acquired business will not
perform in accordance with expectations, difficulties in the integration of the
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operations and products of the acquired businesses with those of the Company,
the diversion of the Company's management attention from other aspects of the
Company's business, the risks associated with entering geographic and product
markets where the Company has limited or no direct prior experience and the
potential loss of key employees of the acquired business. The acquisition of
another business can also subject the Company to liabilities and claims arising
out of such business. Future acquisitions would likely require the Company to
obtain additional financing, which would likely result in an increase in the
Company's indebtedness or the issuance of additional capital stock, which may
dilute to the Company's stockholders. In addition, to the extent the Company has
outstanding indebtedness under the Company's credit facility or is required to
incur indebtedness hereunder to consummate an acquisition, the consent of the
lender under the credit facility may be required prior to such acquisition.
Additionally, the Company faces significant competition for acquisition
opportunities from numerous companies, many of which have greater financial
resources than the Company. Accordingly, there can be no assurance that
attractive acquisition opportunities will be available to the Company or that
the Company will be able to obtain financing or otherwise consummate any future
acquisitions.
Nutritional supplement products may be supported by only limited availability of
conclusive clinical studies.
The Company's products include nutritional supplements that are made from
vitamins, minerals, herbs and other substances for which there is a long history
of human consumption. Some of the Company's products contain innovative
ingredients or combinations of ingredients. Although the Company believes all of
its products to be safe when taken as directed, there is little long-term
experience with human consumption of certain of these product ingredients or
combinations of ingredients in concentrated form. The Company conducts research
and tests the formulation and production of its products, but the Company has
performed or sponsored only limited clinical studies. Furthermore, because the
Company is highly dependent on consumers' perception of the efficacy, safety and
quality of its products, as well as similar products distributed by other
companies, the Company could be adversely affected in the event such products
should prove or be asserted to be ineffective or harmful to consumers or in the
event of adverse publicity associated with illness or other adverse effects
resulting from consumers' use or misuse of the Company's products or similar
products.
Company Product Manufacturers may be subject to product liability claims.
As a manufacturer and distributor of products for human consumption and
topical application, the Company could become exposed to product liability
claims and litigation to prosecute such claims. Additionally, the manufacture
and sale of such products involves the risk of injury to consumers as a result
of tampering by unauthorized third parties or product contamination. To date,
the Company has not been party to any product liability litigation, although
certain individuals have asserted that they have suffered adverse consequences
as a result of using the Company's nutritional products. These matters
historically have been settled to the satisfaction of the Company and have not
to date resulted in material payments by the Company. The Company is aware of no
instance in which any of its products are or have been defective in any way that
could give rise to material losses or expenditures related to product liability
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<PAGE>
claims. Although the Company maintains product liability insurance, which it
believes to be adequate for its needs, there can be no assurance that the
Company will not be subject to claims in the future, that its insurance coverage
will be adequate, or that it will be able to maintain adequate insurance
coverage.
The Company is subject to risks associated with general economic conditions.
Voyager's products are priced at a premium compared to most nutritional,
anit-ageing, pain relief and weight management products that are readily
available at retail outlets. A recession in the general economy or a decline in
consumer spending could have a material adverse effect on the Company's
business, financial condition and results of operations.
There is no assurance of future industry growth.
Market data referred to in this Report regarding the size and projected
growth rates of the market for nutritional supplements generally indicate that
this market is large and growing. However, there can be no assurance that such
market is as large as reported or that such projected growth will occur or
continue. Market data and projections such as those presented in this Report are
inherently uncertain, subject to change and generally not available for 1997 and
1998. In addition, the underlying market conditions are subject to change based
on economic conditions, consumer preferences and other factors that are beyond
the Company's control. An adverse change in size or growth rate of the market
for nutritional supplements is likely to have a material adverse effect on the
Company's business, financial condition and results of operations.
The Company's business is subject to particular intellectual property risks.
The labeling regulations governing the Company's nutritional supplements
require that the ingredients of such products be precisely and accurately
indicated on product containers. Accordingly, patent protection for nutritional
supplements often is impractical, if not impossible, given the large number of
manufacturers who produce nutritional supplements having many active ingredients
in common. Additionally, the nutritional supplement industry is characterized by
rapid change and frequent reformulations of products as the body of scientific
research and literature refines current understanding of the application and
efficacy of certain substances and interactions among various substances. In
this respect, the Company maintains an active research and development program
that is devoted to developing better, purer and more effective formulations of
its nutritional products. The Company protects its investment in research, as
well as the techniques it uses to improve the purity and effectiveness of its
products by relying on trade secret laws, although it has not to date entered
into confidentiality agreements with certain of its employees involved in
research and development activities. Additionally, the Company endeavors to
seek, to the fullest extent permitted by applicable law, trademark and trade
dress protection for its products, which protection has been sought in the
United States, Canada and many of the other countries in which the Company is
either presently operating or plans to commence operations in the near future.
The Company's research and development efforts may at some future time result in
patentable products, in which case patents would be sought; however, no
40
<PAGE>
assurance can be given that patents would be obtained. Notwithstanding the
Company's efforts as described above, there can be no assurance that such
efforts to protect its trade secrets and trademarks will be successful. Nor can
there be any assurance that third parties will not assert claims against the
Company for infringement of the proprietary rights of others. If an infringement
claim is asserted, the Company may be required to obtain a license of such
rights, pay royalties on a retrospective or prospective basis or terminate its
manufacturing and marketing of its products alleged to have infringed.
Litigation with respect to such matters could result in substantial costs and
diversion of management and other resources and could have a material adverse
effect on the Company's business, financial condition and operating results.
The Company's three Manufacturers of product is subject to certain risks.
The Company's results of operations are dependent upon the continued
operation of its manufacturing facilities. The operation of a nutritional
supplement manufacturing facility involves many risks, including power failures,
the breakdown, failure or substandard performance of equipment, the improper
installation or operation of equipment, natural or other disasters and the need
to comply with the requirements or directives of government agencies, including
the FDA. There can be no assurance that the occurrence of these or any other
operational problems at the Company's facility would not have a material adverse
effect on the Company's business, financial condition and results of operations.
The manufacture's of Company Products is subject to a variety of environmental
laws relating to the storage, discharge, handling, emission, generation,
manufacture, use and disposal of chemicals, solid and hazardous waste and other
toxic and hazardous materials. The Product Manufacturing operations presently do
not result in the generation of material amounts of hazardous or toxic
substances. Nevertheless, complying with new or more stringent laws or
regulations, or more vigorous enforcement of current or future policies of
regulatory agencies, could require substantial expenditures by the Company and
could have a material adverse effect on its business, financial condition and
results of operations. Environmental laws and regulations require the Company to
maintain and comply with a number of permits, authorizations and approvals and
to maintain and update training programs and safety data regarding materials
used in its processes. Violations of those requirements could result in
financial penalties and other enforcement actions, and could require the Company
to find other manufacturers of the Company products. The combined costs of
curing incidents of non-compliance, resolving enforcement actions that might be
initiated by government authorities or satisfying business requirements
following any period affected by the need to take such actions could have a
material adverse effect on the Company's business, financial condition and
results of operations.
The Company's stock price is subject to volatility.
The trading price of the common stock has been and is likely to continue to
be subject to wide fluctuations in response to the quarter-to-quarter variations
in the Company's operating results, material announcements by the Company or its
competitors, governmental regulatory action, conditions in the nutritional
supplement industry or other events or factors, many of which are beyond the
Company's control. The Company's operating results in future quarters may be
below the expectations of securities analysts and investors. In such event, the
price of the common stock would likely decline, perhaps substantially. In
41
<PAGE>
addition, the stock market has historically experienced extreme price and volume
fluctuations which have particularly affected the market prices of many
nutritional supplement companies and network marketing companies and which often
have been unrelated to the operating performance of such companies. Moreover,
the Company's common stock may be even more prone to volatility than the
securities of other businesses in similar industries in light of the relatively
small number of shares of common stock not held by affiliates. Given such a
relatively small "public float," there can be no assurance that the prevailing
market prices of common stock will not be artificially inflated or deflated by
trading even on relatively small amounts of common stock.
Forward looking statements under the meaning of Section 21 E of the
Securities Exchange Act are only contained in Management's Discussion and
Analysis of Financial Condition and Results of Operations regarding the
Company's financial performance, revenue and expense levels in the future and
the sufficiency of its existing assets to fund future operations and capital
spending needs. Actual results could differ materially from the anticipated
results or other expectations expressed in such forward- looking statements or
for the reasons discussed below. The fact that some of the risk factors may be
the same or similar to the Company's past reports filed with the Securities and
Exchange Commission means only that the risks are present in multiple periods.
The Company believes that many of the risks detailed here are part of doing
business in the industry in which the Company operates and competes and will
likely be present in all periods reported. The fact that certain risks are
endemic to the industry does not lessen their significance. The forward-looking
statements contained in this report are made as of the date of this report and
the Company assumes no obligation to update them or to update the reasons why
actual results could differ from those projected in such forward-looking
statements.
Item 7. Financial Statements and Supplementary Data
The Financial Statements and Supplementary Data of the Company required by
this Item is set forth immediately following the signature page to this report.
See Item 13 for a list of the financial statements and financial statements
schedules included.
Item 8. Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure
There are not and have not been any disagreements between the Company and
its accountants on any matter of accounting principles, practices or financial
statements disclosure.
42
<PAGE>
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons; Compliance
with Section 16(a) of the Exchange Act.
The executive officers of Voyager and subsidiaries are as follows:
<TABLE>
<CAPTION>
Name Position Term of Office
- --------------------------------------------------------------------------------------
<S> <C> <C> <C>
John Southerland 54 President, Chief Executive Officer, June 14, 1999 to present
and Chairman of the Board
Michael Johnson 34 Vice President, Secretary June 14, 1999 to present
Director July 17, 1996 to present
Susan Honeycutt 37 Director of Operations, June 30,1999 to present
and Interim Director
Dr. John Hower 55 Director August 8, 1999 to present
</TABLE>
The term of office of each director and executive officer ends at, or
immediately after, the next annual meeting of shareholders of the Company.
June 14, 1999 The Company's Board of Directors accepted Mr. William Clapham
resignation as President and Director and also accepting Mrs. Thaisa Branco
Clapham resignation as Vice President, Secretary and Director.
June 14, 1999 Mr. John Southerland was appointed President and Chair of the
Board of Directors, and Mr. Michael Johnson was asked to accept the office
of Vice President, Secretary and Director
June 30, 1999 Mrs. Susan Honeycutt was appointed Interim Director and Director
of Voyager Operations. Dr. Lonnie Honeycutt was appointed Interim Director
and Director Of Research
Sept.28, 1999 Dr. Lonnie Honeycutt tendered his resignation as interim
Director.
Mr. John Southerland. President, C. E.O. and Chairman of the Board of Directors.
Mr. John Southland has been President, C.E.O. and Chairman of the Board of
Directors of Voyager Group Ltd., since June 1999.
43
<PAGE>
Mr. Southerland, from 1989-1993, served as Executive Vice President of a
network marketing company. Due to confidentiality agreements with the network
marketing companies, disclosure of additional information is prohibited. From
1996-1998 he worked as a self employed consultant. Prior to entering the network
marketing industry, Mr. Southerland was the founder and President of General
Electronics Corporation, Huntsville, Alabama, a O.E.M. manufacturer
Mr. Michael Johnson Vice president, Secretary and Director.
Mr. Michael Johnson has been a Director since July 17,1996 and Vice
President and Secretary form June 14, 1999 to the present.
Mr. Johnson received a certificate of graduation from Berkshire School and
attended Lake Forest College, Lake Forest, Chicago, University of Utah, Salt
Lake City, Utah, New York Institute of Finance, N.Y., N.Y. and New York
University, N.Y., N.Y. From 1987 to 1989 Mr. Johnson was employed by Mel Schnel
and Company, N.Y., N.Y. as a clerk, New York-Comex Commodities. During 1989 to
1990 Mr. Johnson was employed by New Mercantile Exchange, N.Y., N.Y. as a
commodity futures trader, arbitrage futures contracts and energy markets: oil,
gas, etc. For the past five years Mr. Johnson has been self-employed buying and
selling contracts.
Mrs. Susan Honeycutt Interim Director, Director of Operations
Mrs. Susan Honeycutt has been a Director since June 30, 1999 to the
present.
Mrs. Honeycutt attended Portland Community College. From 1980 to 1984 Mrs.
Honeycutt was employed by the law firm of Schwabe, Williamson, Wyatt, More &
Roberts as a research technician in the field of Workmen's Compensation. From
1985 to 1987 Mrs. Honeycutt was employed by State Federal Mortgage Company as
assistant to the Vice President of the Loan Division. From 1987 to 1992 Mrs.
Honeycutt was employed as Chief executive officer of Olympus Resort Hotel and
Spa. From 1992 to 1995 Mrs. Honeycutt was employed by Mailing Service Inc. to
oversee outbound direct response advertising. Since 1995 Mrs. Honeycutt was
employed by Voyager as Vice President of Operation and elected in June of 1999,
by the Board of Director as an Interim Director thereof and accepting
Directorship of Voyager's present Operations.
Dr. John Hower Director.
Dr. Hower has been a Director since August 8, 1999 to present.
Dr. Hower, is a vascular surgeon, and has been employed as such since 1994
to present.
Item 10. Executive Compensation.
The following table summarizes the compensation of the Chief Executive
Officer of the Company and the Company's four most highly paid executive
44
<PAGE>
officers other than the Chief Executive Officer (collectively the "Named
Executive Officers") and the amounts earned by each of them during the past
three fiscal years:
None of the executive officers of the company earn in excess of $100,000.
The President, Chief Executive Officer and Chairman of the Board of Directors of
the Company, Mr. John Southerland does not receive a salary, and the Company
does not anticipate that Mr. Southerland will take a salary for the foreseeable
future.
Long-Term Incentive Plans ("LTIP's") in the year 2000
The Company intends on asking for shareholders approval of a Long term
Incentive Plan(s).
Compensation Plans
Voyager year 2000 will seek approval of shareholders of a Long-term Stock
Investment(s) and Incentive Plan(s) and Directors' Plan(s). The total number of
shares of common stock that may be issued upon exercise of awards granted under
the plan is not know at this time. Upon shareholder approval of ("LTIP's")
employees, officers and directors of the Company and its subsidiaries, as well
as consultants and other persons who contribute to the business of the Company
may participate as selected at the discretion of a company committee
administering the plan ("Committee"). The Committee if and when elected would
have broad authority to select persons to receive awards under the plan and to
establish the terms and conditions applicable to the exercise of such awards and
the duration of the awards.
Employment Contracts and Other Arrangements
As of July 31, 1999 the Company has no employment agreement or
arrangements.
Compensation Report on Executive Compensation
This Compensation Report discusses the Company's compensation policies and
the basis for the compensation paid to its executive officers (including the
Named Executive Officers), during the year ended July 31,1999.
Compensation Policy
The Company's policy with respect to executive compensation has been
designed to:
Adequately and fairly compensate executive officers in relation to there
Responsibilities, capabilities and contributions to the Company and in a
manner that is commensurate with compensation paid by companies of
comparable size or within the Company's industry;
45
<PAGE>
Reward executive officers for the achievement of key operating objectives
and for the enhancement of the long-term value of the Company; and
Align the interests of the executive officers with those of the Company's
shareholders.
The components of compensation paid to executive officers consist of: (a)
base salary, and (b) certain other benefits.
Year 2000, Voyager will approve a cash bonus program as an additional
component of executive compensation.
Voyager will form an Executive Committee of the Board of Directors whose
function is reviewing and approving all compensation paid by the Company to its
executive officers and members of the Company's senior management team.
Components of Compensation
The primary components of compensation paid by the Company to its executive
officers and senior management personnel and the relationship of such components
of compensation to the Company's performance, are discussed below:
Base Salary. The Board of Directors periodically reviews and approves the
base salary paid by the Company to its executive officers and members of
the senior management team. Adjustments to base salaries are determined
based upon a number of factors, including the Company's performance (to the
extent such performance can fairly be attributed or related to each
executive's performance), as well as the nature of each executive's
responsibilities, capabilities and contributions. In addition, the Board of
Directors periodically reviews the base salaries of its senior management
personnel in an attempt to ascertain whether those salaries fairly reflect
job responsibilities and prevailing market conditions and rates of pay. The
Board of Directors believes that base salaries for the Company's executive
officers have historically been reasonable, when considered together with
other elements of compensation in relation to the Company's size and
performance and in comparison with the compensation paid by similarly sized
companies or companies within the Company's industry.
Incentive Compensation. In the year 2000, a substantial portion of each
executive officer's compensation package will be in the form of incentive
compensation designed to reward the achievement of key operating objectives
and long-term increases in shareholder value. Year 2000 the Company's Board
of Directors will ask for shareholder approval of a Stock Option Plan which
will reward executive officers only to the extent that shareholders have
benefited from increases in the value of the Company's common stock.
46
<PAGE>
Other Benefits. In year 2000 the Company will approve plans and
arrangements for the benefit of its executive officers and members of
senior management. The Company believes these benefits will be reasonable
in relation to the executive compensation practices of other similarly
sized companies or companies within the Company's industry.
Company's Board of Directors Conclusion -
The Voyager management believes the policies so stated above when approved
by shareholders, would encourage responsible management of Voyager Long and
Short-term goals and further shareholders interests.
Item 11. Security Ownership of Certain Beneficial Owners and Management
Voting Securities and Principal Holders Thereof
The following table sets forth, as of July 31, 1999 the number of shares of
the Company's voting securities owned by (1) each person known to the Company to
be the beneficial owner of more than five percent of the Company's outstanding
voting securities, (2) the executive officers and directors of the Company
individually, and (3) the executive officers and directors of the Company as a
group. Except as indicated in the footnotes below, each of the persons listed
exercises sole voting and investment power over the shares of the Company's
voting securities listed for such person in the table.
Class
Name/Address Number of Shares Percent of Class
Common Stock
Dr. Morris Mann 1,825,000 14%
(WestRim Holdings) (5% Diluted)
California
Convertible preferred Series AA
Thaisa Branco ** 270 (Convertible 94%
Moved no forwarding to 2,700,000 shares (7% Diluted)
address Common)
Convertible Preferred Series J
Marlen Johnson ** 50 (Convertible 50%
Box 8029 to 11,000,000 Share (29% Diluted)
La Jolla, Ca 92038 Common)
47
<PAGE>
Directors and Executive Officers
Common Stock
Mrs. Susan Honeycutt 50,000 Less than 1%
6354 Corte Del Abeto, Suite F
Carlsbad, California 92009
Mr. Michael Johnson 100,000 Less than 1%
6354 Corte Del Abeto, Suite F
Carlsbad, California 92009
Convertible Preferred Series J
John Southerland, ** 50 (Convertible 50%
President and to 11,000,000 Shares (29% Diluted)
Chairman of the Board Common)
6354 Corte Del Abeto, Suite F
Carlsbad, California 92009
Officers and Directors as a group (11,150,000 Diluted) (30% Diluted)
Percentages rounded to nearest one percent.
** Controling Stockholders:
As of July 31, 1999, Mr. John Southerland, President and C.E.O., and Mr.
Marlen Johnson, shareholder, collectively own 100% of the outstanding shares of
the Convertible Preferred Stock Series J, representing approximately 58% of the
combined voting power of the outstanding shares of common stock. Accordingly, as
of such date, the Convertible Preferred Series J stockholders, acting fully or
partially in concert are able to control the election of the Board of Directors
of the Company and thus the direction and future operations of the Company
without supporting vote of any other of the company's common shareholders,
including decisions regarding acquisitions and other business opportunities, the
declaration of dividends and the issuance of different class of securities. Also
see Item 13 exhibit # 4.1, 4.2, and 4.3.
Item 12. Certain Relationships and Related Transactions.
There are no agreements or understandings between the Company and any of
the Board of Directors families members pursuant to which anything more than the
ordinary compensation otherwise payable under the distributor compensation plan
is paid to these distributors or pursuant to which any other treatment is
48
<PAGE>
offered them. The Board of Directors does not receive any position of the
distributor incentives paid to these family members or their affiliates and has
no beneficial ownership interest in any of their business'.
Former executive officers on June 12, 1999 returned three million five
hundred thousand of common stock to the company treasure under Nevada corporate
law, Section 78.283 and a shareholder subsequent to July 31, 1999 returned three
hundred thousand common shares to the company treasure.
Purchase and Loans by Executive Officer and Shareholder.
Mr. John Southerland, President and C.E.O. and Shareholder Mr. Marlen
Johnson committed to a majority shareholders meeting on June 13 1999 to loan (if
when and as needed) up to two hundred thousand dollars in the form of promissory
notes. Also, on June 13, 1999 the parties agreed to purchase 100 shares of the
Convertible Preferred Stock Series J for fifty thousand dollars. Subsequent to
July 31, 1999, Mr. John Southerland President and Mr. Marlen Johnson purchased
preferred stock series J for fifty thousand dollars and have loaned $107,387 to
the Company in the form of promissory notes bearing interest at 7.5%. The notes
mature on dates ranging from November 23, 1999 through January 17, 2000.
Interest on these notes accrue but are not paid until maturity. In the event of
default, the notes will bear interest at an alternative rate equal to an
additional 2%. Also See Item 13 exhibit # 4.1,4.2, and 4.3.
The Company Board of Directors authorized and organized the incorporation
of a whole owned subsidiary call Earn @ Home. Net. The Interim Officers and
Directors of whole owned subsidiary are Mr. John Southerland currently acting as
Interim President Director and Mr. Michael Johnson acting as Interim Vice
President, Secretary and Director in behalf of the Voyager. Voyager's Board of
Directors in the near term will appoint officers and Directors to replace
Interim officers and Directors of Earn @ Home. Net Voyagers whole owned
subsidiary Earn @ Home.Net was granted exclusive rights to present and future
distributors list from July 21, 1999 to July 21, 2050 in exchange for 100
convertible preferred shares series J, convertible to 1,000,000 common shares of
Earn @ Home. Net. As of July 31, 1999 Earn @ Home.Net has no other outstanding
stock or commitments to issue stock.
July 31, 1999 Voyager terminated a Agreement here stated below with former
President Mr. William Clapham, "The Former President of the Company, provided
the Company with the marketing distribution plans (uni-level and matrix network
compensation program, commission payout structure, operations, and automated
monthly ordering system), and proprietary formulas for dietary supplements
(complex liquid essential vitamins, minerals, essential fatty acids, amino acid
complex, suspension base of vegetable glycerin, purified water and aloe, liquid
herbal extracts antioxidant formulas, encapsulated antioxidant formula), weight
management formula, and natural hair care product formula. In exchange for the
use of the formulas and marketing plans Mr. Clapham receives minimum royalties
of $20,000 per year with provisions for royalties of $6,000 per month when sales
volume is greater than $2,000,000 per year and $10,000 per month when sales
volume is greater than $6,000,000 per year".
49
<PAGE>
Item 13. Exhibits and Reports on Form 8-K.
(a) The following documents are filed as part of this report.
1. Financial Statements PAGE
Independent Auditor's Report F-1
Consolidated Balance Sheet,
July 31, 1999 and 1997 F-2
Consolidated Statements of Income,
For the Years Ended July 31, 1999 and 1997 F-4
Consolidated Statements of Cash Flows,
For the Years Ended July 31, 1999 and 1997 F-5
Consolidated Statements of Changes in Stockholders' Equity,
For the Years Ended July 31, 1999 and 1997 F-7
Notes to Consolidated Financial Statements F-8
2. Financial Statement Schedules
The following financial statement schedules required by Regulation S-X are
included herein.
All Schedules are omitted because they are not applicable or the required
information is shown in the financial statements or notes thereto.
3. Exhibits
The following exhibits are included as part of this report:
Exhibit
Number Exhibit
2.1 Articles of Incorporation and By-Laws of EEE-Energy Consultants, Inc.
(Formerly EEE-Hunter Associates, Inc.)(1)
4.1 Purchase Agreement --Convertible Preferred Stock Series J
4.2 Convertible Preferred Series J - Designation of Rights
4.3 Investor Rights Agreement
23.1 Consent of Robison, Hill & Co.(1)
27.1 Financial Data Schedule
50
<PAGE>
(1) Incorporated by reference to the Registrant's registration statement
on Form 10-SB/A Amendment #2 filed on November 20, 1997.
(b) No reports on Form 8-K were filed.
(c) The exhibits listed in Item 14(a)(3) are incorporated by
reference.
(d) No financial statement schedules required by this paragraph are
required to be filed as a part of this form.
51
<PAGE>
SIGNATURES
In accordance with Section 12 of the Securities Exchange Act of 1934, the
registrant caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized.
Voyager Group, Ltd.
DATE: November 12, 1999
By: /S/ John Southerland
-----------------------------
John Southerland, President
(Principal Financial and
Accounting Officer)
52
<PAGE>
Independent Auditor's Report
To the Stockholders of The Voyager Group, Ltd. (formerly Voyager Group
USA-Brazil, Ltd.), and Subsidiaries
We have audited the consolidated balance sheet of The Voyager Group, Ltd.
(formerly Voyager Group USA-Brazil, Ltd.), and Subsidiaries as of July 31, 1999
and 1998, and the related consolidated statements of income, stockholders'
equity, and cash flows for the years then ended. 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 statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects the financial position of The Voyager
Group, Ltd. (formerly Voyager Group USA-Brazil, Ltd.), and Subsidiaries as of
July 31, 1999 and 1998 and the results of its operations and its cash flows for
the years then ended in conformity with generally accepted accounting
principles.
Respectfully submitted
/S/ Robison, Hill & Co.
-----------------------------
Certified Public Accountants
Salt Lake City, Utah
October 8, 1999
F - 1
<PAGE>
THE VOYAGER GROUP, LTD
(Formerly VOYAGER GROUP USA-BRAZIL, LTD.),
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
July 31,
----------------------------
1999 1998
--------- ---------
ASSETS
Current Assets:
Cash ................................... $ 16,539 $ --
Inventory .............................. 113,504 173,130
Prepaid Expenses ....................... 1,575 800
Accounts Receivable .................... 6,536 28,872
--------- ---------
Total Current Assets ................ 138,154 202,802
--------- ---------
Fixed Assets, at Cost:
Furniture and Equipment ................ 140,135 140,135
Leasehold Improvements ................. 6,741 6,741
Less - Accumulated
Depreciation ....................... (89,716) (62,443)
--------- ---------
57,160 84,433
--------- ---------
Other Assets:
Deferred Tax Benefit ................... -- 172,301
Deposits ............................... 5,327 10,327
Intangible Assets, Net ................. 25,000
--------- ---------
Total Other Assets .................. 30,327 182,628
--------- ---------
Total Assets ........................ $ 225,641 $ 469,863
========= =========
F - 2
<PAGE>
THE VOYAGER GROUP, LTD
(Formerly VOYAGER GROUP USA-BRAZIL, LTD.),
AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
(Continued)
July 31,
----------------------------
1999 1998
----------- -----------
LIABILITIES AND STOCKHOLDERS
EQUITY
Current Liabilities:
Accounts Payable ........................... $ 80,630 $ 31,782
Accrued Liabilities ........................ 142,107 204,189
Accrued Commissions ........................ 30,934 48,451
Shareholder Loans ......................... 3,087 4,500
----------- -----------
Total Current Liabilities ............... 256,758 288,922
----------- -----------
Stockholders' Equity
Preferred Stock, $.001 par value;
Series J; 100 shares authorized,
100 and 0 shares issued and
outstanding ............................ -- --
Series AA 1996; 1,000 shares
authorized, 286 and 421 shares
issued and outstanding ................. -- --
Premium on Preferred Stock ................. 205,332 155,332
Common Stock; $.001 par value;
50,000,000 shares authorized;
12,534,478 and 5,837,010 shares
issued and outstanding July 31, 1999
and 1998, respectively ................... 12,534 5,837
Additional Paid-in Capital ................. 2,114,329 971,902
Retained Earnings (Deficit) ................ (2,363,312) (952,130)
----------- -----------
Total Stockholders' Equity .............. (31,117) 180,941
----------- -----------
Total Liabilities, and
Stockholders' Equity .................. $ 225,641 $ 469,863
=========== ===========
The accompanying notes are an integral part of these consolidated financial
statements.
F - 3
<PAGE>
THE VOYAGER GROUP, LTD
(Formerly VOYAGER GROUP USA-BRAZIL, LTD.),
AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF INCOME
For the Year Ended
July 31,
----------------------------
1999 1998
----------- -----------
Sales, net of allowances
of $13,594 and $22,902 ....................... $ 1,287,419 $ 2,344,302
Cost of Sales ................................ 507,496 711,271
----------- -----------
Gross Margin ............................ 779,923 1,633,031
Selling & Marketing .......................... 620,274 1,607,917
Research & Development ....................... 50,000 2,919
General & Administrative ..................... 1,332,273 519,320
----------- -----------
Net Income (Loss) from
Operations ............................... (1,222,624) (497,125)
Other Income (Expense)
Interest ................................... (15,459) 7,500
----------- -----------
Income (Loss) Before Income
Taxes ...................................... (1,238,083) (489,625)
Income Tax Benefit (Expense) ................. 173,099 78,340
----------- -----------
Net Income (Loss) ............................ $(1,411,182) $ (411,285)
=========== ===========
Earnings (Loss) Per Common Share:
Basic & Diluted ............................ $ (0.17) $ (0.09)
=========== ===========
Weighted Average Shares Outstanding:
Basic & Diluted ............................ 8,208,625 4,638,884
=========== ===========
The accompanying notes are an integral part of these consolidated financial
statements.
F - 4
<PAGE>
THE VOYAGER GROUP, LTD
(Formerly VOYAGER GROUP USA-BRAZIL, LTD.),
AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS
Increase (Decrease) in Cash and Cash Equivalents
For the Year Ended
July 31,
----------------------------
1999 1998
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income (Loss) .......................... $(1,411,182) $ (411,285)
Adjustments to Reconcile Net
Income (Loss) to Net Cash
Used in Operating Activities:
Depreciation and Amortization ............ 27,273 18,967
Common Stock in exchange for Services .... 1,038,256 30,060
Changes in Assets and
Liabilities-
Increase in Accounts Receivable ...... 22,336 (12,083)
Increase in Prepaid Expenses ......... (775) 55,518
Increase in Inventory ................ 59,626 (7,918)
Increase in Other Assets ............. 172,301 (80,509)
Increase in Accounts Payable ......... 48,848 (98,893)
Increase in Accrued Liabilities ...... (57,083) 157,922
Increase in Accrued Commissions ...... (17,517) (97,576)
----------- -----------
Net Cash Provided by Operating
Activities ............................ (117,917) (445,797)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase Furniture and Equipment ........... -- (1,375)
----------- -----------
F - 5
<PAGE>
THE VOYAGER GROUP, LTD
(Formerly VOYAGER GROUP USA-BRAZIL, LTD.),
AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS
(Continued)
Increase (Decrease) in Cash and Cash Equivalents
For the Year Ended
July 31,
-----------------------
1999 1998
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Preferred Stock .................................. $ 50,000 $ --
Proceeds from Issuance of
Common Stock .................................... 50,000 23,340
Proceeds from Shareholder Loans .................. 34,456 4,500
--------- ---------
Net Cash Provided by
Financing Activities ......................... 134,456 27,840
--------- ---------
NET INCREASE IN CASH AND CASH EQUIVALENTS ........ 16,539 (419,332)
CASH AND CASH EQUIVALENTS AT
BEGINNING OF YEAR ............................... -- 419,332
--------- ---------
CASH AND CASH EQUIVALENTS AT END OF YEAR ........ $ 16,539 $ --
========= =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash Paid During the Year For:
Interest $ 15,459 $ 34
Income Taxes $ 800 $ 800
During February and April 1998, pursuant to a top up provision of the
agreement an additional 300,000 and 125,000 shares, respectively, were issued.
During January 1999, 1,000,000 shares common stock were exchanged for
patents.
During 1998, 300,000 shares of common stock were issued pursuant to a
settlement agreement.
During June 1999, $35,869 in shareholder loans were converted to paid in
capital.
The accompanying notes are an integral part of these consolidated financial
statements.
F - 6
<PAGE>
THE VOYAGER GROUP, LTD
(Formerly VOYAGER GROUP USA-BRAZIL, LTD.),
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Preferred Stock Common Additional
------------------------------------
AA J Stock To Common Stock Paid-in Retained
----------------------
Shares Shares Amount Premium Be Issued Shares Amount Capital Earnings
------ ------ ------ --------- --------- ----------- -------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance July 31, 1997 ... 431 -- -- $ 155,332 300 3,578,010 $ 3,578 $ 920,461 $ (540,845)
Shares Issued For:
Conversion of Series A
Preferred .............. (10) -- -- -- -- 100,000 100 (100) --
Employees ............... -- -- -- -- -- 434,000 434 42,966 --
Legal Settlement ........ -- -- -- -- (300) 300,000 300 -- --
Top-up agreement ........ -- -- -- -- -- 425,000 425 (425) --
Warrant Exercises ....... -- -- -- -- -- 1,000,000 1,000 9,000 --
Net Loss Year Ended
July 31, 1998 .......... -- -- -- -- -- -- -- -- (411,285)
------ ------ ------ --------- --------- ----------- -------- ----------- -----------
Balance July 31, 1998 ... 421 -- -- 155,332 -- 5,837,010 5,837 971,902 (952,130)
Shares Issued For:
Cash .................... -- 100 -- 50,000 -- 800,000 800 49,200 --
Consulting .............. -- -- -- -- -- 2,170,000 2,170 823,580 --
Conversion of Series AA . --
Preferred .............. (135) -- -- -- -- 1,350,000 1,350 (1,350)
Conversion of Shareholder
Loans .................. -- -- -- -- -- -- -- 35,868 --
Directors Fees .......... -- -- -- -- -- 1,100,000 1,100 108,900 --
Investor Relations ...... -- -- -- -- -- 24,000 24 22,476 --
Medical Advisory Board .. -- -- -- -- -- 25,000 25 21,069 --
Promotion ............... -- -- -- -- -- 28,468 28 8,884 --
Research & Development .. -- -- -- -- -- 200,000 200 49,800 --
Patents ................. -- -- -- -- -- 1,000,000 1,000 24,000 --
Net Loss Year Ended
July 31, 1999 .......... -- -- -- -- -- -- -- -- (1,411,182)
------ ------ ------ --------- --------- ----------- -------- ----------- -----------
Balance July 31, 1999 ... 286 100 $ -- $ 205,332 $ -- 12,534,478 $ 12,534 $ 2,114,329 $(2,363,312)
====== ====== ====== ========= ========= =========== ======== =========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F - 7
<PAGE>
THE VOYAGER GROUP, LTD
(Formerly VOYAGER GROUP USA-BRAZIL, LTD.),
AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JULY 31, 1999, AND 1998
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Company was first incorporated in the State of Nevada on June 12, 1990
as EEE-Hunter Associates, Inc. On July 27, 1995 the Company changed its domicile
to the State of Texas and merged into a Texas Corporation EEE-Energy
Consultants, Inc. Neither company had any operating activity. On July 2, 1996
the Company changed domicile to Nevada and on July 17, 1996 changed the name of
the Company to Voyager Group USA-Brazil, Ltd. On July 21, 1999 the Company
changed its name to The Voyager Group, Ltd.
Also on July 17, 1996 the Company entered into an agreement with Voyager
Group, Inc. (a Delaware Corporation) whereby the Company acquired 100% of the
issued and outstanding stock of Voyager Group, Inc. in a tax-free corporate
reorganization in exchange for the issuance of 375 shares of preferred series AA
1996 stock (convertible into 3,750,000 common shares) and 300,000 common shares.
This transaction has been accounted for as a reverse purchase. Income and
expense have been presented since the inception of the Delaware Company.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiaries, The Voyager Group, Inc. and [email protected].
All significant inter-company accounts and transactions have been eliminated.
Nature of Business
The Company's independent distributors distribute dietary supplements and
personal care products through a multi-level marketing network. The products are
formulated to appeal to the general public and address overall health
considerations.
Inventories
Inventories consist of dietary and personal care products and related
materials and are stated at the lower of cost (first-in, first-out method) or
market, or net realizable value.
Revenue Recognition
The Company recognizes revenue from product sales at the time of shipment.
F - 8
<PAGE>
THE VOYAGER GROUP, LTD
(Formerly VOYAGER GROUP USA-BRAZIL, LTD.),
AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JULY 31, 1999, AND 1998
(Continued)
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Income Taxes
The Company accounts for income taxes under the provisions of SFAS No. 109,
"Accounting for Income Taxes." SFAS No. 109 requires recognition of deferred
income tax assets and liabilities for the expected future income tax
consequences, based on enacted tax laws, of temporary differences between the
financial reporting and tax bases of assets and liabilities.
Depreciation
Depreciation is provided at rates based on estimated useful service lives
(five to seven years for office furniture and fixtures), using accelerated
methods.
Maintenance and repairs are charged to operations; betterments are
capitalized. The cost of property sold or otherwise disposed of and the
accumulated depreciation thereon are eliminated from the property and related
accumulated depreciation accounts, and any resulting gain or loss is credited or
charged to income.
Amortization
Intangible assets are amortized over useful life.
Cash Equivalents
For the purpose of reporting cash flows, the Company considers all highly
liquid debt instruments purchased with maturity of three months or less to be
cash equivalents to the extent the funds are not being held for investment
purposes.
Earnings (Loss) Per Share
The effect of outstanding common stock equivalents, including Convertible
Preferred Stock Series AA and Series J are anti-dilutive for the years ended
July 31, 1999 and 1998 and are thus not considered.
F - 9
<PAGE>
THE VOYAGER GROUP, LTD
(Formerly VOYAGER GROUP USA-BRAZIL, LTD.),
AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JULY 31, 1999, AND 1998
(Continued)
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
The reconciliations of the numerators and denominators of the basic
earnings per share computations are as follows:
1999 1998
----------- -----------
NUMERATOR
Net Loss ....................................... $(1,411,182) $ (411,285)
Net Loss To Common Stockholders ................ $(1,411,182) $ (411,285)
=========== ===========
DENOMINATOR
Weighted Average Number of Common Shares ....... 8,208,625 4,638,884
=========== ===========
Concentration of Credit Risk
The Company performs ongoing credit evaluations of its customers' financial
condition and generally does not require collateral. The Company maintains
reserves for estimated credit losses. Its accounts receivable balances are
primarily domestic. No customer accounts for more than 10% of sales.
The Company has no significant off-balance-sheet concentrations of credit
risk such as foreign exchange contracts, options contracts or other foreign
hedging arrangements.
Pervasiveness of Estimates
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.
F - 10
<PAGE>
THE VOYAGER GROUP, LTD
(Formerly VOYAGER GROUP USA-BRAZIL, LTD.),
AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JULY 31, 1999, AND 1998
(Continued)
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Reclassifications
Certain reclassifications have been made in the 1998 financial statements
to conform with the 1999 presentation.
NOTE 2 - PREFERRED STOCK
On July 17, 1996 the Company created convertible Preferred Stock Series AA
1996, authorizing the issuance of 1,000 shares of convertible preferred stock to
be sold, with a par value of $.001. The preferred stock are convertible at a
ratio of 10,000 shares of common stock per preferred share converted.
On July 21, 1999 the Company created convertible Preferred Stock Series
J-1999, authorizing the issuance of 100 shares of convertible preferred stock to
be sold, with a par value of $.001. The preferred stock are convertible at a
ratio of 220,000 shares of common stock per preferred share converted. In the
event of any voluntary or involuntary liquidation, the holders of Series J
preferred stock are entitled to an amount equal to the net book value of the
corporation plus all unpaid dividends, before any distributions to holders of
Common Stock, Convertible Preferred Stock Series AA 1996 or any other series of
preferred stock of the corporation by reason of any voluntary or involuntary
liquidation, dissolution or winding up of the corporation unless each holder of
series J will have received all amounts to which such series J holders are
entitled. The preferred stock is entitled to vote 220,000 votes per preferred
share.
Convertible Preferred Stock Series J also includes a royalty certificate
for each "Major Investor" (meaning investors owning over 10 shares of Series J
preferred stock or common stock issued upon conversion thereof. The royalty
certificates represent a perpetual royalty payment of four percent on or before
the 15th of each month following the starting month when gross sales of the
Company exceeds $120,000 per month.
F - 11
<PAGE>
THE VOYAGER GROUP, LTD
(Formerly VOYAGER GROUP USA-BRAZIL, LTD.),
AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JULY 31, 1999, AND 1998
(Continued)
NOTE 3 - RELATED PARTY TRANSACTIONS
Mr. John Southerland, President and C.E.O. and Shareholder Mr. Marlen
Johnson committed to a majority shareholders meeting on June 13 1999 to loan (if
when and as needed) up to two hundred thousand dollars in the form of promissory
notes. Also, on June 13, 1999 the parties agreed to purchase 100 shares of the
Convertible Preferred Stock Series J for fifty thousand dollars. Subsequent to
July 31, 1999, Mr. John Southerland President and Mr. Marlen Johnson purchased
preferred stock series J for fifty thousand dollars and have loaned $107,387 to
the Company in the form of promissory notes bearing interest at 7.5%. The notes
mature on dates ranging from November 23, 1999 through January 17, 2000.
Interest on these notes accrue but are not paid until maturity. In the event of
default, the notes will bear interest at an alternative rate equal to an
additional 2%.
The Company Board of Directors authorized and organized the incorporation
of a whole owned subsidiary call Earn @ Home. Net. The Interim Officers and
Directors of whole owned subsidiary are Mr. John Southerland currently acting as
Interim President Director and Mr. Michael Johnson acting as Interim Vice
President, Secretary and Director in behalf of the Voyager. Voyager's Board of
Directors in the near term will appoint officers and Directors to replace
Interim officers and Directors of Earn @ Home. Net Voyagers whole owned
subsidiary Earn @ Home.Net was granted exclusive rights to present and future
distributors list from July 21, 1999 to July 21, 2050 in exchange for 100
convertible preferred shares series J, convertible to 1,000,000 common shares of
Earn @ Home. Net. As of July 31, 1999 Earn @ Home.Net has no other outstanding
stock or commitments to issue stock.
July 31, 1999 Voyager terminated a Agreement here stated below with former
President Mr. William Clapham, "The Former President of the Company, provided
the Company with the marketing distribution plans (uni-level and matrix network
compensation program, commission payout structure, operations, and automated
monthly ordering system), and proprietary formulas for dietary supplements
(complex liquid essential vitamins, minerals, essential fatty acids, amino acid
complex, suspension base of vegetable glycerin, purified water and aloe, liquid
herbal extracts antioxidant formulas, encapsulated antioxidant formula), weight
management formula, and natural hair care product formula. In exchange for the
use of the formulas and marketing plans Mr. Clapham received minimum royalties
of $20,000 per year with provisions for royalties of $6,000 per month when sales
volume is greater than $2,000,000 per year and $10,000 per month when sales
volume is greater than $6,000,000 per year".
F - 12
<PAGE>
THE VOYAGER GROUP, LTD
(Formerly VOYAGER GROUP USA-BRAZIL, LTD.),
AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JULY 31, 1999, AND 1998
(Continued)
NOTE 3 - RELATED PARTY TRANSACTIONS (Continued)
Former executive officers on June 12, 1999 returned three million five
hundred thousand of common stock to the company treasure under Nevada corporate
law, Section 78.283 and a shareholder subsequent to July 31, 1999 returned three
hundred thousand common shares to the company treasure.
NOTE 4 - RENT EXPENSE
The company occupies certain sales offices under a noncancellable lease.
This lease is for office space and expires September 20, 2000. It is expected
that in the normal course of business, leases that expire will be renewed or
replaced by leases on other properties. The current lease requires rental
payments of $11,524.00 per year.
NOTE 5 - INCOME TAXES
The Company is subject to corporate and state income taxes. Deferred taxes
are determined based on the estimated future tax effects of differences between
the financial reporting and tax basis of assets and liabilities given the
provisions of the enacted tax laws. The net deferred tax asset at July 31, 1999
of $572,000 is comprised of the tax benefit of the net operating loss
carryforward and the difference between financial accounting and tax
depreciation.
The Company has recorded net deferred income taxes in the accompanying
consolidated balance sheets as follows:
1999 1998
Future deductible temporary differences related to
reserves, accruals, and net operating losses .... $ 572,000 $ 295,498
Valuation allowance ................................ (572,000) (123,197)
--------- ---------
Net deferred income tax ............................ $ -- $ 172,301
========= =========
As of July 31, 1999, the Company had a net operating loss ("NOL") carry
forward for income tax reporting purposes of approximately $2,300,000 available
to offset future taxable income. This net operating loss carry-forward expires
at various dates between July 31, 2011 and 2018. An NOL generated in a
particular year will expire for federal tax purposes if not utilized within 15
years (for
F - 13
<PAGE>
THE VOYAGER GROUP, LTD
(Formerly VOYAGER GROUP USA-BRAZIL, LTD.),
AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JULY 31, 1999, AND 1998
(Continued)
NOTE 5 - INCOME TAXES (Continued)
years beginning before August 6, 1997, and 20 years after August 6, 1997.
Additionally, the Internal Revenue Code contains provisions which could reduce
or limit the availability and utilization of these NOLs if certain ownership
changes have taken place or will take place. In accordance with SFAS No. 109, a
valuation allowance is provided when it is more likely than not that all or some
portion of the deferred tax asset will not be realized. Due to the uncertainty
with respect to the ultimate realization of the NOLs, the Company established a
valuation allowance for the entire net deferred income tax asset of $572,000 as
of July 31, 1999, which includes $3,000 from the difference between financial
accounting and tax depreciation and $569,000 from net operating loss carry
forward. Also consistent with SFAS No. 109, an allocation of the income
(provision) benefit has been made to the loss from continuing operations.
The components of the income tax (benefit) provision are as follows:
July 31,
----------------------------
1999 1998
-------- --------
Current
Federal .............................. $ -- $ --
State ................................ 800 800
Deferred
Federal .............................. 108,423 (48,371)
State ................................ 63,876 (30,769)
-------- --------
Total ............................ 173,099 $(78,340)
======== ========
A reconciliation between the Company's effective tax rate and the statutory
federal income tax rate on the income (loss) from continuing operations is as
follows:
1999 1998
-------------- -------------
Statutory federal income tax rate ........ (15.00) % (15.00) %
State income taxes ....................... (8.84) % (8.84) %
Other .................................... 37.82 % 7.84 %
-------------- -------------
Effective income tax rate ................ 13.98 % (16.00) %
============== =============
F - 14
<PAGE>
THE VOYAGER GROUP, LTD
(Formerly VOYAGER GROUP USA-BRAZIL, LTD.),
AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JULY 31, 1999, AND 1998
(Continued)
NOTE 6 - SELECTED FINANCIAL DATA (unaudited)
The following tables set forth certain unaudited quarterly financial
information:
<TABLE>
<CAPTION>
Quarters Ended
-----------------------------------------------------
July 31, April 30, January 31, October 31,
----------- ----------- ----------- -----------
1999 1999 1999 1998
----------- ----------- ----------- -----------
Income statement data:
<S> <C> <C> <C> <C>
Net sales ............... $ 255,762 $ 358,579 $ 361,409 $ 311,669
Gross profit ............ 44,140 255,535 288,558 191,690
Income (loss) from
operations ............ (763,166) 76,819 (178,984) (357,293)
Other income ............ (5,381) (6,562) (2,768) (748)
----------- ----------- ----------- -----------
Income (loss) before tax (768,547) 70,257 (181,752) (358,041)
Income tax (provision)
benefit .............. (247,529) (200) 17,543 57,087
----------- ----------- ----------- -----------
Net income (loss) ..... $(1,016,076) $ 70,057 $ (164,209) $ (300,954)
=========== =========== =========== ===========
Quarters Ended
-----------------------------------------------------
July 31, April 30, January 31, October 31,
----------- ----------- ----------- -----------
1998 1998 1998 1997
----------- ----------- ----------- -----------
Income statement data:
Net sales ............... $ 385,255 $ 454,076 $ 632,669 $ 872,302
Gross profit ............ 264,549 318,498 441,510 608,474
Income (loss) from
operations ............ (263,994) (149,257) (102,099) 18,225
Other income ............ (144) 1,345 2,880 3,419
----------- ----------- ----------- -----------
Income (loss) before tax (264,138) (147,912) (99,219) (21,644)
Income tax (provision)
benefit .............. 2,102 50,238 33,000 7,000
----------- ----------- ----------- -----------
Net income (loss) ..... $ (262,036) $ (97,674) $ (66,219) $ 14,644
=========== =========== =========== ===========
</TABLE>
f - 15
Voyager Group, Ltd.
CONVERTIBLE PREFERRED STOCK SERIES "J" 1999
& ROYALITY CERTIFICATES
"PURCHASE AGREEMENT"
This Convertible Preferred Stock Series "J" 1999 & Royalty Certificate(s)
"Purchase Agreement" (the "Agreement") is made as of August 30, 1999 by and
between Voyager Group Ltd., a Nevada corporation (the "Company"), and the
investors listed on Exhibit A attached hereto (each a "Purchaser" and together
the "Purchasers").
The parties hereby agree as follows:
1. Purchase and Sale of Convertible Series "J" 1999 Preferred Stock
and Royalty Certificate(s).
1.1 Sale and Issuance of Convertible Series "J" Preferred Stock
and Royalty Certificate(s).
(a) The Company shall adopt and file with the Secretary of State of
the State of Nevada on or before the Closing (as defined below) the Designations
of Rights, Privileges, Preference, Powers, Qualification, Limitations &
Restrictions & Investor's Rights Agreement with Certificate of Incorporation
Pursuant to the Provisions of Section 78.195,199.5 & 196 of Nevada Corporate Law
in the form attached hereto as Exhibit B (the "Designations & Investors
rights").
(b) Subject to the terms and conditions of this Agreement (defined
below), each Purchaser severally and not jointly agrees to purchase and the
Company agrees to sell and issue to each such Purchaser that number of shares of
Convertible Series "J" Preferred Stock & Royalty Certificate(s) listed opposite
such Purchaser's name on Exhibit A attached hereto at a purchase price of five
hundred dollars $500.00 per convertible preferred share with Royalty
certificate(s). The shares of Convertible Series "J" Preferred Stock issued to
each such Purchaser pursuant to this Agreement are hereinafter referred to as
the "Stock" * and Royalty Certificate(s)issued to each purchaser pursuant to
this agreement are hereinafter Referred to as the "Royal" *.
(c) The Royal and Stock shall have the Rights, Privileges, and
Preferences and Restrictions and Investors Rights as set forth in the
Designation & Invertors Rights filed with secretary of state of the state of
Nevada with the Company's certificate of Incorporation.
1.2 Sale and Issuances of the Convertible Series "J" Preferred
Stock and Royalty Certificate(s).
(a) Subject to the terms and conditions of this Agreement, each
Purchaser severally and not jointly agrees to purchase at the Closing and the
Company agrees to sell and issue to each Purchaser a Convertible Preferred
Series "J" and the Royalty Certificate(s) such Purchaser's on Exhibit A to this
Agreement. The purchase price of Stock and Royal together is $500.00 per share.
The Company's Agreement with each Purchaser's is a separate Agreement, and the
sales of the Stock and Royal certificate(s) to the Purchaser's are separate
sales.
(b) The Stock, when and if issued upon conversion to common shares and
Royal are hereinafter referred to as the "Securities."**
* Stock-Convertible Preferred Series "J" 1999
* Royal- Royality Certificate(s)
** Securities-Stock and Royal
1.3 Closing; Delivery. Singing of Agreement, shall take place at the offices
Voyager Group, ltd., 6354 Corte del Abeto Suite F Carlsbad, California 92009, at
10:00 a.m., on August 30, 1999 or at such other time and place as the Company,
the Purchasers purchasing total majority of all the Convertible Series preferred
Stock and Royalty certificates offered, have mutually agree upon, orally or in
writing (which time and place are designated as the "Closing"). Purchasers have
caused a total of fifty thousand to be deposited in the Company's general Bank
account with Union Bank of California account #2300417283 by check payable, or
wire transfer on 6/15/99 $11,487.12, 6/29/99 $11,500.00, and 7/14/99 $11,900.00
7/15-16/99 $14,000.00, 7/28/99 $1,112.88. An Additional Loans to the Company
amount to $32,387.12 deposited on 7/28/99 and 8/24/99.
(b) At the Closing, the Company shall deliver to each Purchaser the
Stock and Royal certificate(s) purchased.
2. Representations and Warranties of the Company. The Company hereby
represents and warrants to each Purchaser's that, except as set forth on the
Schedule of Exceptions delivered on the date hereof, which exceptions shall be
deemed to be Representations and Warranties as if made hereunder:
2.1 Organization, Good Standing and Qualification. The Company is a
corporation duly incorporated, validly existing and in good standing under the
laws of the State of Nevada and has all requisite corporate power and authority
to carry on its business as now conducted. The Company is qualified to transact
business in the State of California and is in good standing under the laws of
the State of California. The Company is not required to qualify to transact
business in any other jurisdiction, except where the failure so to qualify would
not have a material adverse effect on its business or properties.
2.2 Capitalization. Upon filing of the Designations and Investors Rights the
authorized capital of the Company will consist, immediately prior to the
Closing, of:
(a) One Hundred (100) shares which have been designated Series "J" Preferred
Stock none of which are issued and outstanding immediately prior to the Closing.
All of the outstanding shares of Preferred Stock have been duly authorized,
fully paid and are no assessable, issued in compliance with all applicable
federal and state securities laws, and are convertible into Common Stock on a
one (1) preferred share for two hundred twenty thousand (220,000) basis.
(b) Four(4) Royality Certificate(s) consisting of four (4%) Of the Total Gross
Sales recorded by the Company and additional grants to Major Investors defined
herein as purchaser's owning over Ten Convertible Series "J" Preferred Stock or
common stock issued upon conversion there of) "Rights of First Offer" defined by
Designations and Investors Rights attached hereto as Exhibit B. The company
shall first make an offering of such securities to Major Investors first. All of
the outstanding shares of Common Stock have been duly authorized, fully paid and
are non assessable and issued in compliance with all applicable federal and
state securities laws.
(c) Conversion privileges of the Convertible
Preferred Stock and Royalty Certificate(s) payments as set forth in the
Designations and Investors' Rights (as defined below), the Company has Know
outstanding options, warrants, rights (including conversion or preemptive rights
and rights of first refusal or similar rights) or agreements, orally or in
writing, for the purchase or acquisition from the Company of any shares of its
capital stock.
2.3 Authorization. All corporate action on the part of the Company, its
officers, directors and stockholders necessary for the authorization, execution
and delivery of this Agreement, the Designations and Investor Rights Investors'
Rights in the form attached hereto as Exhibit B ( the "Investors' Rights
Agreement") and ( Designations )and collectively with the Investors' Rights
Agreement and this Agreement, the ( "Agreements"),*** the performance of all
obligations of the Company hereunder and thereunder and the authorization,
issuance and delivery of the Securities has been taken or will be taken prior to
the Closing, and the Agreements, when executed and delivered by the Company,
will constitute valid and legally binding obligations of the Company,
enforceable against the Company in accordance with their terms except (i) as
limited by applicable bankruptcy, insolvency, reorganization, moratorium,
fraudulent conveyance, and other laws of general application affecting
enforcement of creditors' rights generally, as limited by laws relating to the
availability of specific performance, injunctive relief, or other equitable
remedies, or (ii) to the extent the indemnification provisions contained in the
Investors' Rights Agreement may be limited by applicable federal or state
securities laws.
2.4 Valid Issuance of Securities. The Securities are being issued to
the Purchasers hereunder, when issued, sold and delivered in accordance with the
terms hereof for the consideration expressed herein, will be duly and validly
issued and free of restrictions on transfer other than restrictions on transfer
under this Agreement, the Investors' Rights and Designations Agreements
applicable state and federal securities laws. The Stock that may be issued to
the Purchasers upon conversion of the Convertible Preferred Stock en duly and
validly reserved for issuance and, when issued and delivered in accordance with
the terms thereof, will be duly and validly issued and free of restrictions on
transfer other than restrictions on transfer under this Agreement, the
Investors' Rights and applicable state and federal securities laws. Based in
part upon the representations of the Purchasers in this Agreement and subject to
the provisions of Section 2.6 below, the Securities will be issued in compliance
with all applicable federal and state securities laws. Neither the Company nor
any agent on its behalf has solicited or will solicit any offers to sell or has
offered to sell or will offer to sell all or any part of the Stock or Royal to
any person or persons so as to bring the sale of such Stock or Royal the Company
within the registration provisions of the Securities Act or any state securities
laws. Except as set forth in Section 2.6, no governmental orders, permissions,
consents, approvals or authorizations are required to be obtained and no
registrations or declarations are required to be filed in connection with the
execution and delivery of this Agreement and the issuance of the Stock, the
Royal or Securities, except such as has been duly and validly obtained or filed,
or with respect to any filings that must be made after the Closing, as will be
filed in a timely manner. The Common Stock when and if issued upon conversion of
the Stock has been duly and validly reserved for issuance, and upon issuance in
accordance with the terms of the designations and Investors Rights will be duly
and validly issued, fully paid and non assessable and free of restrictions on
transfer other than restrictions on transfer under this Agreement, the
Investors' Rights and Designations and applicable federal and state securities
laws and will be issued in compliance with all applicable federal and state
securities laws.
2.5 Governmental Consents. No consent, approval, order or
authorization of, or registration, qualification, designation, declaration or
filing with, any federal, state or local governmental authority on the part of
the Company is required in connection with the consummation of the transactions
contemplated by this Agreement.
2.6 Liabilities. The Company has no material liabilities and, to the
best of its knowledge, knows of no material contingent liabilities not disclosed
in the Financial Statements, except current liabilities incurred in the ordinary
course of business subsequent to the Statement Date, which have not been, either
in any individual case or in the aggregate, materially adverse.
*** Agreements- Designations and Investors Rights.
2.7 Litigation. There is no action, suit, proceeding or investigation
pending or, to the Company's knowledge, currently threatened against the Company
that questions the validity of the Agreements or the right of the Company to
enter into them, or to consummate the transactions contemplated hereby or
thereby, or that might result, either individually or in the aggregate, in any
material adverse changes in the assets, condition or affairs of the Company,
financially or otherwise, nor is the Company aware that there is any basis for
the foregoing. The Company is not a party or subject to the provisions of any
order, writ, injunction, judgment or decree of any court or government agency or
instrumentality. There is no action, suit, proceeding or investigation by the
company currently pending or that the Company intends to initiate.
2.8 Intellectual Property. To its knowledge, the Company owns or
possesses sufficient legal rights to all patents, trademarks, service marks,
tradenames, copyrights, trade secrets, licenses, information and proprietary
rights necessary for its business as now conducted without any conflict with, or
infringement of, the rights of others. The Company has not received any
communications alleging that the Company has violated or, by conducting its
business, would violate any of the patents, trademarks, service marks,
tradenames, copyrights, trade secrets or other proprietary rights of any other
person or entity. The Company is not aware that any of its employees is
obligated under any contract or other agreement, or subject to any judgment,
decree or order of any court or administrative agency that would interfere with
the use of such employee's best efforts to promote the interest of the Company
or that would conflict with the Company's business. Neither the execution or
delivery of this Agreement, nor the carrying on of the Company's business as now
conducted by the employees of the Company, will, to the Company's knowledge,
conflict with or result in a breach of the terms, conditions, or provisions of,
or constitute a default under, any contract, covenant or instrument under which
any such employee is now obligated. The Company does not believe it is or will
be necessary to use any inventions of any of its employees (or persons it
currently intends to hire) made prior to their employment by the Company.
2.9 Compliance with Other Instruments. The Company is not in violation
or default of any provisions of its Articles of incorporation or Bylaws or in
violation or default of any instrument, judgment, order, writ, decree or
contract to which it is a party or by which it is bound or, to its knowledge, of
any provision of any federal or state statute, rule or regulation applicable to
the Company, the effect of which would have a material adverse effect on the
Company. The execution, delivery and performance of the Agreements and the
consummation of the transactions contemplated hereby or thereby will not result
in any such violation or be in conflict with or constitute, with or without the
passage of time and giving of notice, either a default under any such provision,
instrument, judgment, order, writ, decree or contract or an event, which results
in the creation of any lien, charge or encumbrance upon any assets of the
Company.
2.10 Agreements; Action.
(a) Except for agreements explicitly contemplated hereby there are no
agreements, understandings or proposed transactions between the Company and any
of its officers, directors, affiliates or any affiliate thereof that would be
required to be disclosed pursuant to Regulation S-K, as promulgated by the
Securities and Exchange Commission.
(b) Except for agreements explicitly contemplated by the Agreements,
there are no agreements, understandings, instruments, contracts or proposed
transactions to which the Company is a party or by which it is bound that
involve (i) obligations (contingent or otherwise) of, or payments to, the
Company in excess of, $100,000, (ii) the license of any patent, copyright, trade
secret or other proprietary right to or from the Company (other than standard
"off the shelf"
product licenses), or (iii) the grant of rights to manufacture, produce,
assemble, license, market, or sell its products to any other person or affect
the Company's exclusive right to develop, manufacture, assemble, distribute,
market or sell its products.
(c) The Company has not (i) declared or paid any dividends, or
authorized or made any distribution upon or with respect to any class or series
of its capital stock, (ii) incurred any indebtedness for money borrowed or
incurred any other liabilities individually in excess of $10,000 or in excess of
$50,000 in the aggregate, (iii) made any loans or advances to any person, other
than ordinary advances for business expenses, or (iv) sold, exchanged or
otherwise disposed of any of its assets or rights, other than in the ordinary
course of business.
(d) For the purposes of subsections (b) and (c) above, all
indebtedness, liabilities, agreements, understandings, instruments, contracts
and proposed transactions involving the same person or entity (including persons
or entities the Company has reason to believe are affiliated therewith) shall be
aggregated for the purpose of meeting the individual minimum dollar amounts of
such subsections.
2.11 No Conflict of Interest. The Company is not indebted, directly or
indirectly, to any of its officers or directors or to they're respective spouses
or children, in any amount whatsoever other than in connection with expenses or
advances of expenses incurred in the ordinary course of business or relocation
expenses of employees. None of the Company's officers or directors, or any
members of their immediate families, are, directly or indirectly, indebted to
the Company (other than in connection with purchases of the Company's stock) or,
to the Company's knowledge, have any direct or indirect ownership interest in
any firm or corporation with which the Company is affiliated or with which the
Company has a business relationship, or any firm or corporation that competes
with the Company except that officers, directors and/or existing stockholders of
the Company may own stock in (but not exceeding two percent of the outstanding
capital stock of) any publicly traded company that may compete with the Company.
To the Company's knowledge, none of the Company's officers or directors or any
members of their immediate families are, directly or indirectly, interested in
any material contract with the Company. The Company is not a guarantor or
indemnitor of any indebtedness of any other person, firm or corporation.
2.12 Rights of Registration and Voting Rights. Except as contemplated
in the Investors' Rights Agreement, the Company has not granted or agreed to
grant any registration rights, including piggyback rights, to any person or
entity.
2.13 Title to Property and Assets. With respect to the property and
assets it leases, the Company is in compliance with such leases and, to its
knowledge, holds a valid leasehold interest free of any liens, claims or
encumbrances.
2.14 Changes. Since the Company's inception, there has been:
(g) payments made by the Company to the benefit of former officers or
directors, and members of their immediate families, not made in the ordinary
course of its business;
(h) declaration, setting aside payments and other distribution in
respect to any of the Company's capital stock, which were set aside by the
Company;
(i) without Company's knowledge, other event and condition that might materially
and adversely affect the financial condition of the Company;
(j) and arrangements by former officers and directors of the Company
to do things described in this Section 2.14.
2.15 Tax Returns and Payments. The Company has filed all tax returns
and reports as required by law. These returns and reports are true and correct
in all material respects. The Company has paid all taxes and other assessments
due.
2.16 Labor Agreements and Actions. The Company is not bound by or
subject to (and none of its assets or properties is bound by or subject to) any
written or oral, express or implied, contract, commitment or arrangement with
any labor union, and no labor union has requested or, to the knowledge of the
Company, has sought to represent any of the employees, representatives or agents
of the Company. There is no strike or other labor dispute involving the Company
pending, or to the knowledge of the Company threatened, which could have a
material adverse effect on the assets, properties, financial condition,
operating results, or business of the Company, nor is the Company aware of any
labor organization activity involving its employees. The employment of each
officer and employee of the Company is terminable at the will of the Company. To
its knowledge, the Company has complied in all material respects with all
applicable state and federal equal employment opportunity laws and with other
laws related to employment. To the Company's knowledge, no employee of the
Company, nor any consultant with whom the Company has contracted, is in
violation of any term of any employment contract, proprietary information
agreement or any other agreement relating to the right of any such individual to
be employed by, or to contract with, the Company because of the nature of the
business to be conducted by the Company that would have a material adverse
effect on the Company; and to the Company's knowledge the continued employment
by the Company of its present employees, and the performance of the Company's
contracts with its independent contractors, will not result in any such
violation that would have a material adverse effect on the Company. To its
knowledge, the Company has not received any notice alleging that any such
violation has occurred.
2.17 Confidential Information and Invention Assignment Agreements.
Each employee, consultant and officer of the Company has executed an agreement
with the Company regarding confidentiality and proprietary information in the
form provided to the Purchasers. The Company is not aware that any of its
employees or consultants is in violation thereof, and the Company will use its
best efforts to prevent any such violation.
2.18 Compliance with Laws; Permits. To its knowledge, the Company is
not in violation of any applicable statute, rule, regulation, order or
restriction of any domestic or foreign government or any instrumentality or
agency thereof in respect of the conduct of its business or the ownership of its
properties which violation would materially and adversely affect the business,
assets, liabilities, financial condition, operations or prospects of the
Company. The Company has all franchises, permits, licenses and any similar
authority necessary for the conduct of its business, the lack of which could
materially and adversely affect the business, properties, prospects, or
financial condition of the Company. The Company is not in default in any
material respect under any of such franchises, permits, licenses or other
similar authority.
2.19 Corporate Documents. The documents and Designations, Investors Rights
restating Certificate of Company articles and Bylaws of the Company are in the
form made available to counsel for the Purchaser's. The copy of the minute books
of the Company made available to the Purchaser's
contains minutes of all meetings of directors and stockholders and all actions
by written consent without a meeting by the directors and stockholders since the
date of incorporation and reflects all actions by the directors and stockholders
with respect to all transactions referred to in such minutes accurately in all
material respects.
2.20 Full Disclosure. This Agreement, the Exhibits hereto, the
Agreements and all other documents delivered by the Company to Purchasers or
their attorneys or agents in connection herewith or therewith or with the
transactions contemplated hereby or thereby, do not contain any untrue statement
of a material fact nor, to the Company's knowledge, omit to state a material
fact necessary in order to make the statements contained herein or therein not
misleading in light of the circumstances under which they were made. To the
Company's knowledge, there are no facts which (individually or in the aggregate)
materially adversely affect the business, assets, liabilities, financial
condition, prospects or operations of the Company that have not been set forth
in the Agreements, the Exhibits hereto, or in other documents delivered to
Purchasers or their attorneys or agents in connection herewith.
3. Representations and Warranties of the Purchaser's. Each Purchaser
hereby represents and warrants to the Company that:
3.1 Authorization. Such Purchaser has full power and authority to
enter into this Agreement. The Agreements, when executed and delivered by the
Purchaser, will constitute valid and legally binding obligations of the
Purchaser, enforceable in accordance with their terms, except (a) as limited by
applicable bankruptcy, insolvency, reorganization, moratorium, fraudulent
conveyance, and any other laws of general application affecting enforcement of
creditors' rights generally, and as limited by laws relating to the availability
of a specific performance, injunctive relief, or other equitable remedies, or
(b) to the extent the indemnification provisions contained in the Investors'
Rights may be limited by applicable federal or state securities laws.
3.2 Purchase Entirely for Own Account. This Agreement is made with
the Purchaser in reliance upon the Purchaser's representation to the Company,
which by the Purchaser's execution of this Agreement, the Purchaser hereby
confirms, that the Securities to be acquired by the Purchaser will be acquired
for investment for the Purchaser's own account, not as a nominee or agent, and
not with a view to the resale or distribution of any part thereof, and that the
Purchaser has no present intention of selling, granting any participation in, or
otherwise distributing the same. By executing this Agreement, the Purchaser
further represents that the Purchaser does not presently have any contract,
undertaking, agreement or arrangement with any person to sell, transfer or grant
participation to such person or to any third person, with respect to any of the
Securities. The Purchaser has not been formed for the specific purpose of
acquiring the Securities.
3.3 Disclosure of Information. The Purchaser's has had an opportunity to discuss
the Company's business, management, financial affairs and the terms and
conditions of the offering of the Stock with the Company's management and has
had an opportunity to review the Company's facilities. The Purchaser's
understands that such discussions, as well as any written information delivered
by the Company to the Purchaser's, were intended to describe the aspects of the
Company's business that it believes to be material.
3.4 Restricted Securities. The Purchaser understands that the
Securities have not been, and will not be, registered under the Securities Act,
by reason of a specific exemption from the registration provisions of the
Securities Act, which depends upon, among other things, the bona fide nature of
the investment intent and the accuracy of the Purchaser's representations as
expressed herein. The Purchaser understands that the Securities are
"restricted securities" under applicable U.S. federal and state securities laws
and that, pursuant to these laws, the Purchaser must hold the Securities
indefinitely unless they are registered with the Securities and Exchange
Commission and qualified by state authorities, or an exemption from such
registration and qualification requirements are available. The Purchaser
acknowledges that the Company has no obligation to register or qualify the
Securities for resale except as set forth in the Investors' Rights. The
Purchaser further acknowledges that if an exemption from registration or
qualification is available, it may be conditioned on various requirements
including, but not limited to, the time and manner of sale, the holding period
for the Securities, and on requirements relating to the Company that are outside
of the Purchaser's control, and which the Company is under no obligation and may
not be able to satisfy.
3.5 No Public Market. The Purchaser understands that no public market
now exists for any of the Securities issued by the Company, and that the Company
has made no assurances that a public market will ever exist for the Securities.
3.6 Legends. The Purchaser's understands that the Securities, and any securities
issued in respect thereof or exchange therefore, may bear one or all of the
following legends:
(a) "THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AND HAVE BEEN ACQUIRED FOR
INVESTMENT AND NOT WITH A VIEW TO, OR IN CONNECTION WITH, THE SALE OR
DISTRIBUTION THEREOF. NO SUCH SALE OR DISTRIBUTION MAY BE EFFECTED WITHOUT AN
EFFECTIVE REGISTRATION STATEMENT RELATED THERETO OR AN OPINION OF COUNSEL IN A
FORM SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED UNDER
THE SECURITIES ACT OF 1933."
(b) Any legend set forth in the other Agreements.
(c) Any legend required by the Blue Sky laws of any state to the
extent such laws are applicable to the shares represented by the certificate so
legended.
3.7 Accredited Investor. The Purchaser is an accredited investor as
defined in Rule 501(a) of Regulation D promulgated under the Securities Act.
4. Conditions of the Purchasers' Obligations at Closing. The
obligations of each Purchaser to the Company under this Agreement are subject to
the fulfillment, on or before the Closing, of each of the following conditions,
unless otherwise waived:
4.1 Representations and Warranties. The representations and warranties
of the Company contained in Section 2 shall be true and correct in all material
respects on and as of the Closing with the same effect as though such
representations and warranties had been made on and as of the date of the
Closing.
4.2 Performance. The Company shall have performed and complied with
all covenants, agreements, obligations and conditions contained in this
Agreement that is required to be performed or complied with by it on or before
the Closing and, except as set forth in Section 2.6, the Company shall have
obtained any and all consents, permits and waivers necessary or appropriate for
consummation of the transactions contemplated by the Agreement and the
Agreements.
4.3 Reservation of Conversion Shares. The Stock when and if issued
upon conversion of the Convertible Preferred stock and the Securities when and
if issued upon conversion of the Stock shall have been duly authorized and
reserved for issuance upon such conversions.
4.4 Qualifications. Except as described in Section 6, all
authorizations, approvals or permits, if any, of any governmental authority or
regulatory body of the United States or of any state that are required in
connection with the lawful issuance and sale of the Notes pursuant to this
Agreement shall be obtained and effective as of the Closing.
4.5 Investors' Rights & Designations. The Company, each Purchaser and
the parties thereto shall have executed and delivered the Investors' Rights
Agreement in substantially the form attached as Exhibit B.
4.6 Certifications. The Company shall have filed the appropriate
documents with the Secretary of State of Nevada on or prior to the Closing,
which shall continue to be in full force and effect as of the Closing.
5. Conditions of the Company's Obligations at Closing. The
obligations of the Company to each Purchaser under this Agreement are subject to
the fulfillment, on or before the Closing, of each of the following conditions,
unless otherwise waived:
5.1 Representations and Warranties. The representations and warranties
of each Purchaser contained in Section 3 shall be true and correct in all
material respects on and as of the Closing with the same effect as though such
representations and warranties had been made on and as of the Closing.
5.2 Performance. All covenants, agreements and conditions contained in
this Agreement to be performed by the Purchasers on or prior to the Closing
shall have been performed or complied with in all material respects.
5.3 Qualifications. Except as described in Section 6, all
authorizations, approvals or permits, if any, of any governmental authority or
regulatory body of the United States or of any state that are required in
connection with the lawful issuance and sale of the Stock pursuant to this
Agreement shall be obtained and effective as of the Closing.
5.4 Investors' Rights & Designations. The Company and each Purchaser
shall have executed and delivered the Investors' Rights & Designations in
substantially the form attached as Exhibit B.
5.5 Nevada Certificates. The Company shall have filed all documents the
Restating Certificate with the Secretary of State of Nevada on or prior to the
Closing, which shall continue to be in full force and effect as of the Closing.
6. Nevada Law. Holders of Series "J" Preferred Stock,
outstanding shall vote as a separate class.
7. Miscellaneous.
7.1 Survival of Warranties. The warranties, representations and
covenants of the Company and the Purchasers contained in or made pursuant to
this Agreement shall survive any investigation made by any Purchaser and the
closing of the transactions contemplated hereby.
7.2 Transfer; Successors and Assigns. The terms and conditions of this
Agreement shall inure to the benefit of and be binding upon the respective
successors and assigns of the parties. Nothing in this Agreement, express or
implied, is intended to confer upon any party other than the parties hereto or
their respective successors and assigns any rights, remedies, obligations, or
liabilities under or by reason of this Agreement, except as expressly provided
in this Agreement.
7.3 Governing Law. This Agreement and all acts and transactions
pursuant hereto and the rights and obligations of the parties hereto shall be
governed, construed and interpreted in accordance with the laws of the State of
California, without giving effect to principles of conflicts of law.
7.4 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original and all of which
together shall constitute one instrument.
7.5 Titles and Subtitles. The titles and subtitles used in this
Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement.
7.6 Notices. Any notice required or permitted by this Agreement shall
be in writing and shall be deemed sufficient upon delivery, when delivered
personally or by overnight courier or sent by telegram or fax, or forty-eight
(48) hours after being deposited in the U.S. mail, as certified or registered
mail, with postage prepaid, addressed to the party to be notified at such
party's address as set forth on the signature page or Exhibit A hereto, or as
subsequently modified by written notice, and if to the Company.
7.7 Finder's Fee. Each party represents that it neither is nor will be
obligated for any finder's fee or commission in connection with this
transaction. Each Purchaser agrees to indemnify and to hold harmless the Company
from any liability for any commission or compensation in the nature of a
finder's fee (and the costs and expenses of defending against such liability or
asserted liability) for which each Purchaser or any of its officers, employees,
or representatives is responsible. The Company agrees to indemnify and hold
harmless each Purchaser from any liability for any commission or compensation in
the nature of a finder's fee (and the costs and expenses of defending against
such liability or asserted liability) for which the Company or any of its
officers, employees or representatives is responsible.
7.8 Fees and Expenses. If the Closing is consummated, the Company
shall pay the reasonable fees and expenses of one special counsel for the
Purchasers, incurred with respect to this Agreement, the documents referred to
herein and the transactions contemplated hereby and thereby, provided such fees
and expenses do not exceed $15,000. Except as provided above, the Company and
each Purchaser shall pay their respective filing fees and other expense in
connection with all filings they are required by law.
7.9 Attorney's Fees. If any action at law or in equity (including
arbitration) is necessary to enforce or interpret the terms of any of the
Agreements, the prevailing party shall be entitled to reasonable attorney's
fees, costs and necessary disbursements in addition to any other relief to which
such party may be entitled.
7.10 Amendments and Waivers. Any term of this Agreement may be amended
or waived only with the written consent of the Company and the Purchasers of at
least a majority of the Convertilbe Preferred Stock purchased hereunder. Any
amendment or waiver effected in accordance with this Section 7.10 shall be
binding upon the Purchasers and each transferee of the Securities, each future
holder of all such Securities, and the Company.
7.11 Severability. If one or more provisions of this Agreement are
held to be unenforceable under applicable law, the parties agree to renegotiate
such provision in good faith. In the event that the parties cannot reach a
mutually agreeable and enforceable replacement for such provision, then (a) such
provision shall be excluded from this Agreement, (b) the balance of the
Agreement shall be interpreted as if such provision were so excluded and (c) the
balance of the Agreement shall be enforceable in accordance with its terms.
7.12 Delays or Omissions. No delay or omission to exercise any right,
power or remedy accruing to any party under this Agreement, upon any breach or
default of any other party under this Agreement, shall impair any such right,
power or remedy of such non-breaching or non-defaulting party nor shall it be
construed to be a waiver of any such breach or default, or acquiescence therein,
or of or in any similar breach or default thereafter occurring; nor shall any
waiver of any single breach or default be deemed a waiver of any other breach or
default theretofore or thereafter occurring. Any waiver, permit, consent or
approval of any kind or character on the part of any party of any breach or
default under this Agreement, or any waiver on the part of any party of any
provisions or conditions of this Agreement, must be in writing and shall be
effective only to the extent specifically set forth in such writing. All
remedies, either under this Agreement or by law or otherwise afforded to any
party, shall be cumulative and not alternative.
7.13 Entire Agreement. This Agreement, and the documents referred to
herein constitute the entire agreement between the parties hereto pertaining to
the subject matter hereof, and any and all other written or oral agreements
relating to the subject matter hereof existing between the parties hereto are
expressly canceled.
7.14 Corporate Securities Law. THE SALE OF THE SECURITIES, WHICH ARE
THE SUBJECT OF THIS AGREEMENT HAS NOT BEEN QUALIFIED WITH THE COMMISSIONER OF
CORPORATIONS OF THE STATE OF CALIFORNIA AND THE ISSUANCE OF THE SECURITIES OR
THE PAYMENT OR RECEIPT OF ANY PART OF THE CONSIDERATION THEREFOR PRIOR TO THE
QUALIFICATION IS UNLAWFUL, UNLESS THE SALE OF SECURITIES IS EXEMPT FROM THE
QUALIFICATION BY SECTION 25100, 25102 OR 25105 OF THE CALIFORNIA CORPORATIONS
CODE. THE RIGHTS OF ALL PARTIES TO THIS AGREEMENT ARE EXPRESSLY CONDITIONED UPON
THE QUALIFICATION BEING OBTAINED UNLESS THE SALE IS SO EXEMPT.
7.15 Confidentiality. Except as provided below, each party hereto agrees
that, except with the prior written permission of the other party, it shall at
all times keep confidential and not divulge, furnish or make accessible to
anyone any confidential information, knowledge or data concerning or relating to
the business or financial affairs of the other parties to which such party has
been or shall become privy by reason of this Agreement, discussions or
negotiations relating to this Agreement, the performance of its obligations
hereunder or the ownership of Stock purchased hereunder. The provisions of this
Section 7.15 shall be in addition to, and not in substitution for, the
provisions of any separate nondisclosure agreement executed by the parties
hereto with respect to the transactions contemplated hereby. Notwithstanding the
foregoing, nothing herein shall prevent any party from disclosing (i) such
information which has been publicly disclosed, (ii) such information which
becomes available to the party on a non-confidential basis from a source other
than a party hereto, provided that such source is not bound by confidentiality
with such party, (iii) information required to be disclosed pursuant to subpoena
or other court process or otherwise required by law and (iv) such information
was known to such party prior to its first receipt from the other party.
Notwithstanding the foregoing provisions of this Section
7.16 Exculpation Among Purchasers. Each Purchaser acknowledges that it
is not relying upon any person, firm or corporation, other than the Company and
its officers and directors, in making its investment or decision to invest in
the Company. Each Purchaser agrees that no Purchaser nor the respective
controlling persons, officers, directors, partners, agents, or employees of any
Purchaser shall be liable to any other Purchaser for any action heretofore or
hereafter taken or omitted to be taken by any of them in connection with the
purchase of the Securities.
The parties have executed this Series "J" Preferred Stock &
Royalty Certificate
Purchase Agreement as of the date first written above.
SIGNATURE PAGE.
COMPANY:
Voyager Group, Ltd
By:
-------------------------------------
Name: Michael Johnson
Title: Vice President, Secretary and Director
PURCHASERS:
John Southerland
By:______________________
Marlen Johnson
BY:_______________________
Signature Page to the Series "J" Preferred Stock and
Royalty Certificates Purchase Agreement
EXHIBITS
Exhibit A - Schedule of Purchasers
Exhibit B - Designation of Rights, Privileges, Preferences,
Power, Qualifications, Limitations & restriction
of the Convertible Preferred Series "J" 1999
and Royalty certificates. Pursuant to Nevada Law Sections
78-195,199.5, And 196 filed with Secretary of State and
Company's Certificate of Incorporation.
B - Investors' Rights Agreement filed with Designations
Rights, with Secretary of State of Nevada
Exhibit C - Form of Convertible Preferred Series "J" 1999
Exhibit D - Form of Royalty Certificate
EXHIBIT A
SCHEDULE OF PURCHASERS
Purchaser Name Total Purchase Price Preferred Shares Royalty Certificates
John Southland $25,000.00 50 2
Marlen Johnson $25,000.00 50 2
* Pursuant to Section 1.2 of this Agreement, such Purchaser is acquiring
convertible preferred stock series "J" 1999.
* Pursuant to Section 1.2 of this Agreement, such Purchaser's are acquiring two
Royalty Certificates.
The Voyager Group, LTD.
6354 Corte Del Abeto
Suite F
Carlsbad, Ca 92009
File number # 15403-1996.
Designation of Rights, Privileges, Preferences, Powers, Qualifications,
Limitations & Restrictions of Convertible Preferred Stock Series J - 1999 &
Royalty Certificates.
Pursuant to the provisions of Sections 78-195,199.5 & 87-196 of the Nevada
General Corporate laws, the undersigned corporation hereby adopts the following
Designation of Rights, Privileges, Preferences, Powers, Qualifications,
Limitatiions & Restriction of the Convertible Preferred Series"J"-1999, &
Royalty Certificates
{The Designations}
FIRST:
The name of the corporation Is
Voyager Group Ltd.
SECOND:
The following resolution established a Convertible Preferred Stock
Series J - 1999 (hereinafter referred to as "J") consisting of One Hundred
Shares, Par Value $0.001, & Royalty Certificates consisting of four percent of
the total gross sales recorded by the company and duly adopted by the Board of
Directors and majority shareholders of the corporation on June 13, 1999 in
accordance with the Nevada General Corporate Law:
RESOLVED,
The Board of Directors and majority shareholders has
hereby created a Convertible stock designated as the
"Convertible Preferred Stock Series J - 1999" consisting of
one hundred shares, par value- $0.001, and royalty
certificates with the following Powers, Preferences, Rights,
Qualifications, Limitations, & Restrictions so listed:
{DESIGNATION}
1. LIQUIDATION
1.01 In the event of any voluntary or involuntary or liquidation's (whether
complete of partial), dissolution, or winding up of the corporation, the
holders of series "J" shares shall be entitled to be paid out of the assets of
the corporation available for distribution to its shareholders, whether from
Capital, Surplus or Earnings, an amount in cash equal to the net book value of
the corporation on the date of liquidation, plus all unpaid dividends, whether
or not previously declared, accrued thereon to the date of final distribution.
Know distribution shall be made of any common stock, convertible preferred
stock AA 1996 or any other series of preferred stock of the corporation by
reason of any voluntary or involuntary liquidation (whether complete or
partial), dissolution or winding up of the corporation unless each holder of
series "J" shall have received all amounts to which such series "J" holders
shall be entitled under this subsection 1.01.
1.02 If on any liquidation (whether complete or partial), dissolution or
winding up of the assets of the corporation available for distribution to
holders of series "J" shall be insufficient to pay the holders of outstanding
series "J" the full amount to which they otherwise would be entitled under
section 1.01, the assets of the corporation available for distribution to
holders of series "J" shall be distributed to them on the basis of the number
of shares of series "J" stock held by each such holder
1.03 Certain Acquisitions.
A. Demand Liquidation. For the purposes of this
Section 1.03 a liquidation, dissolution or winding up of the corporation shall
be deemed to occur if the corporation shall (i) sell, convey or otherwise
dispose of all or substantially all of its property or business or merge or
consolidate with any other corporation (other than a wholly owned subsidiary
corporation) where the stockholders of the corporation own less than fifty
percent 50% of the voting power of the surviving entity after such merger or
consolidation or (ii) effect any other transaction or series of related
transaction in which more than fifty percent 50% of the voting power of the
corporation is disposed of provided that this Section 1.03 shall not apply to
merger effected solely for the purpose of changing domicile of the corporation.
B. Valuation of Consideration. In the event of
a demand liquidation as described in Section 1.03(i) above if the consideration
received by the corporation is other than cash its value will be deemed its fair
market value.
Any securities shall be valued as follows:
1.Securities not subject to investment letter
or other similar restriction on free
marketability:
a.If traded on a securities exchange or the NASSDAQ stock market the
value shall be the average of the closing prices of the securities
on such exchange over the thirty day period ending three (3) days
prior to the closing;
b.If actively traded over the counter, the value
shall be deemed to be the average of the
closing bid or sale prices which ever is
applicable over the thirty day period ending
thirty days prior to he closing; and
c.If there is no active public market, the value shall be the fair
market value there of, as mutually determined by the corporation
and the holders of at least a majority of the voting of all then
outstanding series "J" preferred stock.
d.The method of valuation of securities subject to investment letter
or other restrictions on free marketability (other than restricted
arising solely by virtue of a stockholder's status as an affiliate
or former affiliate shall make an appropriate discount from the
market value determined as above is Section
1.03(B)(1) to reflect the approximate fair market value thereof,
as mutually determined by the corporation and the corporation and
the holders of at least a majority of the voting power of all then
outstanding shares of series "J" preferred stock.
C. Notice of transaction. The corporation shall give each holders of record of
series "J" Preferred stock written notice of such impending transaction not
later than (10) days prior to the closing of such transaction, whichever is
earlier, and shall also notify such holders in writing of the final approval of
such transaction. The first of such notices shall describe the material terms
and conditions of the impending transaction and the provisions of this Section
1.03 and the corporation shall hereinafter give such holders prompt notice of
any material changes. The transaction shall in no event take place sooner than
then (10) days after the corporation has given the first notice provided for
herein or sooner than five (5) days after the corporation has given notice of
any material changes provided for herein.
D. Effect of Noncompliance. In the event the
requirements of Section 1.03 1 are not complied with, the corporation shall
forthwith either cause the closing of the transaction to be postponed until such
requirement have been complied with or cancel such transaction, in which event
the Rights, Preferences and Privileges of the holders of the "J" preferred stock
shall revert to and be the same as such rights, preferences and privileges
existing immediately prior to the date of the first notice referred to in
Section 1 (103)(1) hereof.
2.VOTING RIGHTS
201 The holder of Series J" preferred stock shall have the right to vote 220,000
share of common stock for one share of Series "J" preferred stock, which could
be converted to common stock and with respect to such vote such preferred "J"
holder shall have full voting rights and powers equal to the voting rights and
powers of the holders of common stock and be entitled notwithstanding any
provisions thereof to of any stockholders' meeting in accordance with the
by-laws of the corporation and shall be entitled to vote, together with holders
of common stock, with respect to any question upon which holders of common stock
have the right to vote.
2.02 The holders of series "J' preferred stock shall have the
right to vote as a separate class of stock.
3.DIVIDENED PROVISIONS
3.01 J" series holders as a class is entitled to establish dividends, which
shall be entitled to receive dividends, out of any assets legally available
hereof, prior and in preference to any decoration of payment of any dividend
(payable other than in Common stock or other securities and rights convertible
into or entitling the holder thereof to receive, directly or indirectly
additional shares of common stock of the corporation). Series "J" preferred
stock is adjusted for any stock dividends combinations splits, re-capitalization
and the like if declared by the Board of Directors. Such dividends shall be
cumulative. In addition, in the event dividends are paid on any share of common
stock, an additional dividend shall be paid with respect to all outstanding
shares of "J" preferred stock in an amount equal per share if and when issued as
converted basis to the amount paid or set aside
for each share of common stock of the corporation
whenever funds are legally available thereof when
as and if declared by the Board of Directors.
4.REDEMTION.
4.01 The "J" series Preferred Stock is not
Redeemable.
5.CONVERSION OF "J" SERIES PREFERRED STOCK.
5.01 Holders of record of any series "J" shares shall have the rights, at there
option, any time after issuance of said series, to convert each share of "J"
series surrendering, their certificates' "J" series for converted corporate
common stock, for which there is know charge into such number of fully paid and
non-accessible common stock.
5.02 Series "J" "Conversion Rights" are as follows:
1.Series J" conversion ratio to common stock
of the corporation is one "J" series for
two hundred twenty thousand common shares.
2.Automatic Conversion. "J" Series preferred shall convert Converted to
shares of common stock at the so stated conversion ration of common stock
except as provided below in Section 6, the corporation's sale of its
common stock in an underwritten public offering pursuant to a registration
statement under the securities act of 1933, as amended (the "Securities
Act "), the public offering price of which is not less than $10.00 per
share (appropriately adjusted for any stock split, dividends, combination
or other re-capitalization) and which results in gross cash proceeds in
excess of $15,000,000 and (ii) the date specified by written consent or
agreement of the holders of at least two thirds (2/3) of then outstanding
shares of "J" series preferred stock voting as a class.
3.Mechanics of Conversion. Before any holder of series "J" shall be
entitled to convert the same into shares of common stock, he shall
surrender the certificate or certificates therefore, duly endorse at the
office of the corporation or of any transfer agent for such series and
shall give written notice to the corporation at its principal corporate
office of the election to convert the same and shall state therein the
name of names in which the certificate or certificates for shares of
common stock are to be issued. If the conversion is in connection with an
underwritten offering or securities registered pursuant to the Securities
Act the conversion may at the option of any holder tendering such "J'
series stock for conversion, be conditioned upon the closing with the
underwriter of the sale of securities pursuant to such offering, in which
event the person(s) entitled to receive common stock upon conversion of
such "J" series shall not be deemed to have converted such series "J"
until immediately prior to the closing of such sale of securities. If the
conversion is on connection with an underwritten offering of securities
registered pursuant to the Securities Act the conversion may at the option
of any holder tendering such Series "J" preferred stock for conversion be
conditioned upon the closing with the underwriters of the sale of
securities pursuant to such offering in which event the persons(s)
entitled to receive common stock upon conversion of such Series "J" shall
not be deemed to have converted such series "J" preferred stork until
immediately prior to the closing of such sale of securities.
6.Conversion adjustments for splits and combination and
other distribution of series "J" preferred.
6.01 Common stock splits:
1.Reverse common stock splits:
If number of shares of common stock outstanding at any time after purchase
date of series "J" is decreased by a combination of the series "J"
preferred stock, the conversion ratio for each series "J" preferred shall
remain the same so that the number of shares of common stock issued upon
conversion of each share of series "J" shall increase in proportion to
such decrease in outstanding common shares.
2.Forward stock splits:
If the number of shares of common stock outstanding at any time after
purchase date of series "J" is increased by a combination conversion ration
for each series "J" preferred shall be increased the same so that the
number of shares of common stock issued on conversion of each share of such
series "J" shall increase in proportion to such increase in outstanding
common shares.
6.02 Common Stock Equivalents
Means outstanding common stock or the determination of holders of common stock
entitled to receive a dividend or other distribution payable in additional
shares of common stock or other securities or rights convertible in additional
shares of common stock or other securities or rights convertible into, or
entitling the holder thereof to receive directly or indirectly additional shares
of common stock. Series "J" Preferred stock shall be entitled to a proportionate
share of any such distribution.
6.03 Other distributions.
In the event the corporation shall declare a distribution payable in securities
of other persons, evidences of indebtedness issued by the corporation or other
persons assets excluding cash dividends or options or rights not referred to in
this document the holders of series "J" preferred shall be entitled to a
proportionate share of any such distribution.
7.KNOW IMPAIRMENT.
7.01 Corporation will not, by amendment of its certificate of Incorporation or
through any reorganization, re-capitalization, transfer of assets,
consolidation, merger dissolution issue or sale of securities or any other
voluntary action, avoid or seek to avoid the observance or performance of any of
the terms to be observed or performed hereunder by the corporation, but will at
all times in good faith assist in the carrying out of all the provisions of this
document and in the taking of all such action as may be necessary or appropriate
in order to protect the rights or Series "J" preferred sharers against
impairment.
8.KNOW FRACTION SHARES AND CERTIFICATE AS TO ADJUSTMENTS.
8.01 Know fractional shares shall be issued upon the
conversion of any share or shares of series "J" the number of
shares of common stock to be issued shall be rounded to the
nearest whole share.
8.02 The corporation shall upon the written request at any time of any holder
of Series J" Preferred stock furnished or cause to be furnished to such holders
a like certificate setting forth (a) such adjustments or readjustments,(b)the
conversion ration for series "J" at the time in effect and the additional shares
of common stock and the amount if any of other property which at the time would
be received upon conversation of a share of series "J" preferred stock
9.RESERVATION OF STOCK ISSUSBLE UPON CONVERSION.
9.01 The corporation shall at all times reserve and keep available out of its
authorized but un-issued shares of common stock, solely for the propose of
effecting the conversion of the shares of the series "J" preferred stock such
number of its shares of common stock as shall from time to time be sufficient to
effect the conversion of all outstanding shares of such series "J" preferred
stock and if at any time the number of authorized but unissued shares of common
stock shall be sufficient to effect the conversion of all then outstanding
shares of such series "J" preferred stock in addition to such other remedies as
shall be available to the holders of such preferred stock the corporation will
take such corporate action as may in the option of its counsel be necessary to
increase its authorized but unisssued shares of common stock to such number of
shares as shall be sufficient for purposes of this document.
10.NOTICES.
10.01 Any notice required by the provisions of the Section 5 to be given to the
holders of series "J" preferred stock shall be deemed given: (I)upon person
delivery to the party to be notified; (ii) when sent by confirmed telex or
facsimile as sent during normal business hours of the recipient; if not then on
the next business day; (iii) one (1) day after deposit with a nationally
recognized overnight courier, specifying next day delivery with written
verification of receipt; or (iv) five (5) days after having been deposited in
the United States mail postage prepaid. All notices shall be addressed to each
holder of record at his address appearing on the books of the corporation.
11.PROTECTIVE PROVISIONS
11.01 So long as at least one (1) shares of series "J" preferred stock is
outstanding (as adjusted for stock splits, stock dividends combinations or
re-capitalization's and the like), the corporation shall not without fist
obtaining the approval (by vote or written consent, as provided by law) of the
holders of at least two thirds (2/3) of then outstanding shares of Series "J"
preferred stock, voting together as a class:
a. authorize or issue, or obligate itself to issue any other
equity security, including any other security convertible into or
exercisable of or any equity security having a preferences, over or
being party with, the Series "J" with respect to voting dividends
conversions or upon liquidation;
b. effect a liquidation dissolution or winding up of the
corporation or a transaction described in sections above;
declare or pay any dividends to the holders of shares of common
stock or other preferred stock;
c. amend, alter or appeal the corporation's certificate
of Incorporation or bylaws or take any other action, whether by
merger consolidation or otherwise in manner that would alter or
change the rights preferences or privileges of the shares of Series
"J" preferred stock so as to affect adversely the shares of such
class.
12.STATUS OF CONVERTED SERIES "J" PREFERRED STOCK.
12.01 In the event any shares of series "J" preferred stock pursuant to Section
(5) Hereof, the shares so converted shall be retired and canceled and shall not
be reissued by the corporation. The certificate incorporation or the corporation
shall be appropriately amended to effect the corresponding reduction in the
corporation's authorized capital stock. No shares of Series "J" preferred stock
acquired by the corporation by reason or redemption, purchase or other wise
shall be reissued.
13.SERIES "J" PREFFERED STOCK
13.01 The corporation shall be entitled to treat the person whose name any share
of its series"J"is registered as the owner thereof for all purposes and shall
not be bound to recognizes any equity or other claim to or interest in, such
series "J" the part of any other person, whether or not the corporation shall
have thereof, except as expressly provided by applicable law.
14.PURSCHASERS OF SERIES "J" PREFERRED STOCK;
"INVESTORS RIGHTS AGREEMENT"
14.01 July 13, 1999-52% majority of the special meeting of shareholders
adopted by a unanimously vote. Resolved: the company, purchaser
and the parties thereto shall have executed and delivered the
"Investor's Right's Agreement" to the secretary of the
corporation attached as Exhibit A.
15.ROYALITY CERTIFICATES
15.01 Royalty Certificates are issued at the time of closing
of Series "J" preferred stock to purchases. Only "Major
Investors" meaning investors owning over 10 Series
"J" preferred stock(or common stock issued upon conversion
there of).
15.02 Royalty Certificate carry a "Right of Fist Offer" subject to the term
conditions specified herein. The company hereby grants to each "Major Investor"
as hereinafter defined a "Right of First Offer" with respect to future sales by
the company of its shares (as hereinafter defined). For purposes of this
document and
section 2.3 of the "Investors Right Agreement" a major investor shall mean any
person who holds a least 10 shares of the preferred stock (or the common stock
issued upon conversion thereof). For purpose of the document and section 2.3 of
the above mentioned "Investor Rights Agreement" major investor who chooses to
exercises the right of first offer may designate as purchasers under such right
itself or its partners or affiliates in such proportions as it deems
appropriate.
A. Each time the company proposes to offer any shares of
or securities convertible into or exercisable for any shares of
any class of its capital stock (shares), the company shall first
make an offering of such shares to each "Major Investors" in
accordance with the following provisions:
1.The company shall deliver a notice by certified mail or
overnight courier (notice) to the major investors stating (i) its
bona file intention to offer such shares, (ii) the number of
shares to be offered and (iii) the price and terms, if any upon
which it proposes to offer such shares.
2.Within 15 calendar days after delivery of the Notice, each "Major
Investor" may elect to purchase or obtain, at the price and on the terms
specified in the Notice, up to that portion of such shares which equals
the proportion that the number of shares of common stock issued and held
or issuable upon conversion and exercise of Series "J" preferred stock
then held by such "Major Investors" bears to the total number of shares of
common stock outstanding (assuming full conversion and exercise of all
convertible or exercisable securities.
3.The company may, during the 60 day period following the expiration of
the period provided in subsection 2.3(b) of "Investor Rights Agreement",
offer the remaining unsubscribe portion of the shares to any person or
persons at a price not less than, and upon the terms no more favorable to
the offeree than those specified in the Notice. If the company dose not
enter into a agreement for the sale of the shares within such period, or
if such agreement is not consummated within 60 days of the execution
thereof, the rights provided hereunder shall be deemed to be revived and
such shares shall not be offered unless first re-offered to the "Major
Investors" in accordance herewith.
4.The "Right of First Offer" shall not be applicable (i) to the
issuance or sale of capital stock (or option thereof) to employees,
consultants, officers or directors of the company pursuant to stock
purchase or stock option plans or agreements approved by the Board of
Directors of the company (including options granted prior to the date
hereof), (ii) to the
issuance of securities in connection with bona fide acquitions mergers
or similar transactions (iii) to the issuance of securities to
financial institutions or leseors in connection with credit
arrangements, equipment financing or similar transactions, (iv) sale of
series "J" preferred stock and the common stock issued upon conversion
of the Series "J" preferred stock (v) to the issuance of securities in
a public offering of securities pursuant to a registration statement
filed under the Securities Act (vi) to the issuance of securities
pursuant to the conversion or exercise of options warrants notes or
other rights to acquire securities of the company or (viii) to the
issuance of securities pursuant to stock splits, stock dividends or
like transactions.
B.Termination of "Rights to First Offer".
1.The convents set forth herein and section 2.3 of the "Investor Rights
Agreement" shall terminate as to each "Major Investor" and be of no further
force or effect (i) upon the consummation of a qualified IPO, or (ii) when
the company shall (a) sell, convey, or otherwise dispose of all or
substantially all of its property or business or merger or consolidate with
any other corporation other than a wholly owned subsidiary corporation)
where the stockholders of the company own less than fifty percent (50%) of
the voting of the surviving entity after such merger is consolidation or (b)
effect any other transaction or series of related transaction in which more
than fifty percent (50%) of the voting power of the company is disposed of
provided that this subsection (ii) shall not apply to a merger affected
exclusively for the purpose of changing the domicile of the company.
2.The convents set forth herein document and section 2.3 of
"Investor Right Agreement" shall terminate as to each holder and be
of no further force of effect when the company first becomes subject
to the periodic reporting requirement of Section 13 or 15 (d) of the
Exchange Act.
16 ROYALITY CERTICATE -PERPETUAL EXISTENCE-
16.01 Royalty Certificates represent a perpetual royalty payment of
four percent 4% on or before the 15th of each month
following the starting month when gross sales of the company
exceeds one hundred twenty thousand per month.
1.Payment from the company to the royalty certificate holder hall begin on
the 15th each month upon the company's total Company sales exceed one
hundred twenty thousand per month. Gross sales for this purpose shall
mean the entire selling price computed on a cash basis, of all products
sold by the company.
2.Monthly payments received by royalty certificate holders shall
remain binding for the corporate life of company and subsidiaries
including but not limited to the reorganizations combinations,
mergers herein.
17.ROYALITY CERTICATE PAYMENT NON-TERMINATION.
17.01 The Board of Director of neither the company nor a majority of
shareholders shall terminate this four (4%) royalty payment of
the total gross sales recorded by the company.
17.02 The Royalty Certificate holders only may unilaterally, at any time
terminates royalty payment or any singular section herein.
18.DEFAULT OF ROYALITY PAYMENT MONTHLY.
18.01 In any month that the company shall be in default of its Monthly payment
to Royalty Certificate holders the company understands and agrees that the
Royalty Certificate holders shall charge a penalty of 18% of the amount in
default. Holders of Royalty Certificates can jointly take legal action if
default is over 60 days past due.
19.ROYALITY CERTIFACTE HOLDER-LAW SUITE.
19.01 In the event the company should decide to bring lawsuit against royalty
certificate holders. The Board of Director of the company or majority
shareholders nor the officers of the company shall not stop the monthly payment
from the company to the Royalty Certificate Holders herein during the course of
the law suite. The Company's Royalty Payment monthly to Certificate holders must
continue until the sooner of the time when judgment is determed in favor of the
company or the parties settle the matter.
In witness whereof, the following Designation of Rights, Privileges,
Preferences, Qualifications, Limitations & Restrictions of Convertible Preferred
series "J" 1999 & Royalty Certificates the company has been executed this day
Aug 24, 1999.
THE VOYAGER GROUP LTD
Michael Johnson
- -------------------------
Vice President & Secretary
Director
Investors' Rights Agreement
This Investors' Rights Agreement (the "Agreement") is made as of the 24th
day of August, 1999 by and among VOYAGER GROUP LTD, ., a Nevada corporation (the
"Company") and the Investors listed on Exhibit A hereto (the "Investors").
RECITALS
A. The Company and certain of the Investors have entered into a Series "J"
Convertible Preferred Stock 1999 (the "Purchase Agreement") of even date
herewith pursuant to which the Company will sell to such Investors and such
Investors will purchase from the Company shares of the Company's Series "J"
Convertable Preferred Stock 1999. In connection with entering into the (Purchase
Agreement), the Company and the Investors wish to enter into this Agreement in
order to provide the Investors with (i) certain rights to register shares of the
Company's Common Stock issuable upon conversion of the Series "J" Convertible
Preferred Stock held by the Investors, (ii) certain rights to receive and
inspect information pertaining to the Company, (iii) a Right of First Offer"
with respect to certain issuances by the Company of its securities, and (iv)
certain other covenants by the Company. The Company desire to induce the
Investors to purchase shares of Series J Convertiable preferred 1999 pursuant to
the (Purchase Agreement) by agreeing to the terms and conditions set forth
herein.
B. Pursuant to a Shareholders meeting Section 78.320 of Navada Corporate law Of
the company, this Agreement is being executed by the Company and the holders of
at least two-thirds (52%) of the shares Registrable Securities then outstanding,
here by agree to the entirety of this Agreement.
AGREEMENT
The parties hereby agree as follows:
1. Registration Rights. The Company and the Investors covenant and agree
as follows:
1.1 Definitions. For purposes of this Section 1:
(a) The terms "register," "registered," and "registration" refer
to a registration effected by preparing and filing a registration statement or
similar document in compliance with the Securities Act of 1933, as amended (the
"Securities Act"), and the declaration or ordering of effectiveness of such
registration statement or document;
(b) The term "Registrable Securities" means (i) the shares of
Common Stock issuable or issued upon conversion of the Series "J" Convertible
Preferred Stock, 1999, (iv) shares of Series "J" Convertible Preferred Stock
1999 issued or if nad wheb issued upon conversion pursuant to the Purchase
Agreement, and (ii) any other shares of Common Stock of the Company issued as
(or if and when issued upon the conversion or exercise of any warrant, right or
other security which is issued as) a dividend or other distribution with respect
to, or in exchange for or in replacement of, the shares listed in (i), (ii);
provided, however, that the foregoing definition shall exclude in all cases any
Registrable Securities sold by a person in a transaction in which his or her
rights under this Agreement are not assigned. Notwithstanding the foregoing,
Common Stock or other securities shall only be treated as Registrable Securities
if and so long as they have not been (A) sold to or through a broker or dealer
or underwriter
in a public distribution or a public securities transaction, or (B) sold in a
transaction exempt from the registration and prospectus delivery requirements of
the Securities Act under Section 4(1) thereof so that all transfer restrictions,
and restrictive legends with respect thereto, if any, are removed upon the
consummation of such sale;
(c) The number of shares of "Registrable Securities then
outstanding" shall be determined by the number of shares of Common Stock
outstanding which are, and the number of shares of Common Stock issuable
pursuant to then exercisable or convertible securities which are, Registrable
Securities;
(d) The term "Holder" means any person owning or having the right
to acquire Registrable Securities or any assignee thereof in accordance with
Section 1.12 of this Agreement;
(e) The term "Form S-3" means such form under the Securities Act
as in effect on the date hereof or any successor form under the Securities Act;
(f) The term "SEC" means the Securities and Exchange Commission;
and
(g) The term "Qualified IPO" means an underwritten public
offering by the Company of shares of its Common Stock pursuant to a registration
statement under the Securities Act, which results in gross proceeds in excess of
$15,000,000 and the public offering price of which is at least $10.00 per share
(appropriately adjusted for any stock split, dividend, combination or other
re-capitalization ).
1.2 Request for Registration.
(a) If the Company shall receive at any time after the earlier of
(i) January 01, 2003, or (ii) six (6) months after the effective date of the
first registration statement for a public offering of securities of the Company
(other than a registration statement on Form S-4, S-8 or any successor thereto),
a written request from the Holders of at least thirty-three percent (33%) of the
Registrable Securities then outstanding that the Company file a registration
statement under the Securities Act covering the registration of Registrable
Securities, then the Company shall, within fifteen (15) days of the receipt
thereof, give written notice of such request to all Holders and shall, subject
to the limitations of subsection 1.2(b), use its best efforts to effect as soon
as practicable, and in any event within 90 days of the receipt of such request,
the registration under the Securities Act of all Registrable Securities which
the Holders request to be registered within ten (10) days of the mailing of such
notice by the Company in accordance with Section 5.3.
(b) If the Holders initiating the registration request hereunder
("Initiating Holders") intend to distribute the Registrable Securities covered
by their request by means of an underwriting, they shall so advise the Company
as a part of their request made pursuant to this Section 1.2 and the Company
shall include such information in the written notice referred to in subsection
1.2(a). The underwriter will be selected by a majority in interest of the
Initiating Holders and shall be reasonably acceptable to the Company. In such
event, the right of any Holder to include his Registrable Securities in such
registration shall be conditioned upon such Holder's participation in such
underwriting and the inclusion of such Holder's Registrable Securities in the
underwriting (unless otherwise mutually agreed by a majority in interest of the
Initiating Holders and such Holder) to the extent provided herein. All Holders
proposing to distribute their securities through such underwriting shall
(together with the Company as provided in subsection 1.5(e)) enter into an
underwriting agreement in customary form with the underwriter or underwriters
selected for such underwriting. Notwithstanding any other provision of this
Section 1.2, if the underwriter advises the Initiating Holders in writing that
marketing factors require a limitation of the number of shares to be
underwritten, then the Initiating Holders shall so advise all Holders of
Registrable Securities which would otherwise be underwritten pursuant hereto,
and the number of shares of Registrable Securities that may be included in the
underwriting shall be allocated among all Holders thereof, including the
Initiating Holders, in proportion (as nearly as practicable) to the amount of
Registrable Securities of the Company owned by each Holder; provided, however,
that the number of shares of Registrable Securities to be included in such
underwriting shall not be reduced unless all other securities are first entirely
excluded from the underwriting.
(c) Notwithstanding the foregoing, if the Company shall furnish
to Holders requesting a registration statement pursuant to this Section 1.2, a
certificate signed by the President of the Company stating that in the good
faith judgment of the Board of Directors of the Company, it would be seriously
detrimental to the Company and its stockholders for such registration statement
to be filed and it is therefore essential to defer the filing of such
registration statement, the Company shall have the right to defer such filing
for a period of not more than 120 days after receipt of the request of the
Initiating Holders; provided, however, that the Company may not utilize this
right more than once in any twelve-month period.
(d) In addition, the Company shall not be obligated to effect, or
to take any action to effect, any registration pursuant to this Section 1.2:
(i) After the Company has effected two (2) registrations
pursuant to this Section 1.2 and such registrations have been declared or
ordered effective;
(ii) During the period starting with the date sixty (60)
days prior to the Company's good faith estimate of the date of filing of, and
ending on a date one hundred eighty (180) days after the effective date of, a
registration subject to Section 1.3 hereof; provided that the Company is
actively employing in good faith all reasonable efforts to cause such
registration statement to become effective;
(iii) If the anticipated aggregate offering price to the
public would not be in excess of $5,000,000; or (iv) If the Initiating Holders
propose to dispose of shares of Registrable Securities that may be immediately
registered on Form S-3 pursuant to a request made pursuant to Section 1.4 below.
1.3 Company Registration. If (but without any obligation to do so) the
Company proposes to register (including for this purpose a registration effected
by the Company for stockholders other than the Holders) any of its stock under
the Securities Act in connection with the public offering of such securities
solely for cash (other than a registration on Form S-4, Form S-8 or any
successors thereto, a registration in which the only stock being registered is
Common Stock issuable upon conversion of debt securities which are also being
registered, or any registration on any form which does not include substantially
the same information as would be required to be included in a registration
statement covering the sale of the Registrable Securities), the Company shall,
at such time, promptly give each Holder written notice of such registration.
Upon the written request of each Holder given within fifteen (15) days after
mailing of such notice by the Company in accordance with Section 5.3, the
Company shall, subject to the provisions of Section 1.8, cause to be registered
under the Securities Act all of the Registrable Securities that each such Holder
has requested to be registered.
1.4 Form S-3 Registration. In case the Company shall receive a written
request or requests (i) from any Holder or Holders of at least twenty percent
(20%) of the Registrable Securities then outstanding holds Registrable
Securities with an aggregate offering price of at least $5,000,000 (five
Million), that, in each case, the Company effect a registration on Form S-3 and
any related qualification or compliance with respect to all or a part of the
Registrable Securities owned by such Holder or Holders, the Company will:
(a) promptly give written notice of the proposed registration,
and any related qualification or compliance, to all other Holders; and
(b) as soon as practicable, effect such registration and all such
qualifications and compliances as may be so requested and as would permit or
facilitate the sale and distribution of all or such portion of such Holder's or
Holders' Registrable Securities as are specified in such request, together with
all or such portion of the Registrable Securities of any other Holder or Holders
joining in such request as are specified in a written request given within
fifteen (15) days after receipt of such written notice from the Company;
provided, however, that the Company shall not be obligated to effect any such
registration, qualification or compliance, pursuant to this Section 1.4: (i) if
Form S-3 is not available for such offering by the Holders; (ii) if the Holders
propose to sell Registrable Securities at an aggregate price to the public of
less than $500,000; (iii) if the Company shall furnish to the Holders a
certificate signed by the President of the Company stating that in the good
faith judgment of the Board of Directors of the Company, it would be seriously
detrimental to the Company and its stockholders for such Form S-3 Registration
to be effected at such time, in which event the Company shall have the right to
defer the filing of the Form S-3 registration statement for a period of not more
than 120 days after receipt of the request of the Holder or Holders under this
Section 1.4; provided, however, that the Company shall not utilize this right
more than once in any twelve month period; (iv) if the Company has, within the
twelve (12) month period preceding the date of such request, already effected
two registrations on Form S-3 for the Holders pursuant to this Section 1.4; (v)
in any particular jurisdiction in which the Company would be required to qualify
to do business or to execute a general consent to service of process in
effecting such registration, qualification or compliance; or (vi) during the
period ending one hundred eighty (180) days after the effective date of a
registration statement subject to Section 1.3.
(c) Subject to the foregoing, the Company shall file a registration statement
covering the Registrable Securities and other securities so requested to be
registered as soon as practicable after receipt of the request or requests of
the Holders. Registrations effected pursuant to this Section 1.4 shall not be
counted as demands for registration or registrations effected pursuant to
Sections 1.2 or 1.3, respectively.
1.5 Obligations of the Company. Whenever required under this Section 1
to effect the registration of any Registrable Securities, the Company shall, as
expeditiously as reasonably possible:
(a) Prepare and file with the SEC a registration statement with
respect to such Registrable Securities and use all reasonable efforts to cause
such registration statement to become effective, and, upon the request of the
Holders of a majority of the Registrable Securities registered thereunder, keep
such registration statement effective for up to one hundred twenty (120) days.
The Company shall not be required to file, cause to become effective or maintain
the effectiveness of any registration statement (other than a registration
statement on Form S-3 pursuant to Section 1.4) that contemplates a distribution
of securities on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act.
(b) Prepare and file with the SEC such amendments and supplements
to such registration statement and the prospectus used in connection with such
registration statement as may be necessary to comply with the provisions of the
Securities Act with respect to the disposition of all securities covered by such
registration statement for up to one hundred twenty (120) days.
(c) Furnish to the Holders such numbers of copies of a
prospectus, including a preliminary prospectus, in conformity with the
requirements of the Securities Act, and such other documents as they may
reasonably request in order to facilitate the disposition of Registrable
Securities owned by them.
(d) Use its best efforts to register and qualify the securities
covered by such registration statement under such other securities or Blue Sky
laws of such jurisdictions as shall be reasonably requested by the Holders,
provided that the Company shall not be required in connection therewith or as a
condition thereto to qualify to do business or to file a general consent to
service of process in any such states or jurisdictions.
(e) In the event of any underwritten public offering, enter into
and perform its obligations under an underwriting agreement, in usual and
customary form, with the managing underwriter of such offering. Each Holder
participating in such underwriting shall also enter into and perform its
obligations under such an agreement.
(f) Notify each Holder of Registrable Securities covered by such
registration statement at any time when a prospectus relating thereto is
required to be delivered under the Securities Act of the happening of any event
as a result of which the prospectus included in such registration statement, as
then in effect, includes an untrue statement of a material fact or omits to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading in the light of the circumstances then
existing, such obligation to continue for one hundred twenty (120) days.
(g) Cause all such Registrable Securities registered pursuant
hereunder to be listed on each securities exchange or market on which similar
securities issued by the Company are then listed.
(h) Provide a transfer agent and registrar for all Registrable Securities
registered pursuant hereunder and a CUSIP number for all such Registrable
Securities, in each case not later than the effective date of such registration.
(i) Use its best efforts to furnish, at the request of any Holder
requesting registration of Registrable Securities pursuant to this Section 1, on
the date that such Registrable Securities are delivered to the underwriters for
sale in connection with a registration pursuant to this Section 1, if such
securities are being sold through underwriters, or, if such securities are not
being sold through underwriters, on the date that the registration statement
with respect to such securities becomes effective, (i) an opinion, dated such
date, of the counsel representing the Company for the purposes of such
registration, in form and substance as is customarily given to underwriters in
an underwritten public offering, addressed to the underwriters, if any, and to
the Holders requesting registration of Registrable Securities and (ii) a letter
dated such date, from the independent certified public accountants of the
Company, in form and substance as is customarily given by independent certified
public accountants to underwriters in an underwritten public offering, addressed
to the underwriters, if any, and to the Holders requesting registration of
Registrable Securities.
1.6 Furnish Information. It shall be a condition precedent to the
obligations of the Company to take any action pursuant to this Section 1 with
respect to the Registrable Securities of any selling Holder that such Holder
shall furnish to the Company such information regarding itself, the Registrable
Securities held by it, and the intended method of disposition of such securities
as shall be required to effect the registration of such Holder's Registrable
Securities. The Company shall have no obligation with respect to any
registration requested pursuant to Section 1.2 or Section 1.4 of this Agreement
if, as a result of the application of the preceding sentence, the number of
shares or the anticipated aggregate offering price of the Registrable Securities
to be included in the registration does not equal or exceed the number of shares
or the anticipated aggregate offering price required to originally trigger the
Company's obligation to initiate such registration as specified in subsection
1.2(a) or subsection 1.4(b)(2), whichever is applicable.
1.7 Expenses of Registration.
(a) Demand Registration. All expenses (other than underwriting
discounts and commissions, stock transfer taxes and fees of counsel to the
selling Holders in addition to that provided below) incurred in connection with
registrations, filings or qualifications pursuant to Section 1.2, including
(without limitation) all registration, filing and qualification fees, printers'
and accounting fees, fees and disbursements of counsel for the Company, and the
reasonable fees and disbursements of one counsel for the selling Holders
selected by them with the approval of the Company, which approval shall not be
unreasonably withheld, shall be borne by the Company; provided, however, that
the Company shall not be required to pay for any expenses of any registration
proceeding begun pursuant to Section 1.2 if the registration request is
subsequently withdrawn at the request of the Holders of a majority of the
Registrable Securities to be registered (in which case all participating Holders
shall bear such expenses), unless the Holders of a majority of the Registrable
Securities agree to forfeit their right to one demand registration pursuant to
Section 1.2; provided further, however, that if at the time of such withdrawal,
the Holders have learned of a material adverse change in the condition,
business, or prospects of the Company from that known or reasonably foreseeable
to the Holders at the time of their request and have withdrawn the request with
reasonable promptness following disclosure by the Company of such material
adverse change, then the Holders shall not be required to pay any of such
expenses and shall retain their rights pursuant to Section 1.2.
(b) Company Registration. All expenses (other than underwriting
discounts and commissions, stock transfer taxes and fees of counsel to the
selling Holders in addition to that provided below) incurred in connection with
registrations, filings or qualifications of Registrable Securities pursuant to
Section 1.3 for each Holder, including (without limitation) all registration,
filing, and qualification fees, printers' and accounting fees, fees and
disbursements of counsel for the Company, and the reasonable fees and
disbursements of one counsel for the selling Holders selected by them with the
approval of the Company, which approval shall not be unreasonably withheld,
shall be borne by the Company.
(c) Registration on Form S-3. All expenses (other than
underwriting discounts and commissions, stock transfer taxes and fees of counsel
to the selling Holders in addition to that provided below) incurred in
connection with a registration requested pursuant to Section 1.4, including
(without limitation) all registration, filing, qualification, printers' and
accounting fees and the reasonable fees and disbursements of one counsel for the
selling Holder or Holders selected by them with the approval of the Company,
which approval shall not be unreasonably withheld, and counsel for the Company
shall be borne by the Company.
(d) Underwriting Discounts and Commissions. All underwriting
discounts and commissions incurred in connection with registrations in
connection with each registration statement under Section 1 shall be borne by
the participating sellers (and the Company, if the Company is a seller) in
proportion to the number of shares sold by each, or as they otherwise may agree.
1.8 Underwriting Requirements. In connection with any offering
involving an underwriting of shares of the Company's capital stock, the Company
shall not be required under Section 1.3 to include any of the Holders'
securities in such underwriting unless they accept the terms of the underwriting
as agreed upon between the Company and the underwriters selected by it (or by
other persons entitled to select the underwriters), and then only in such
quantity as the underwriters determine in their sole discretion will not
jeopardize the success of the offering by the Company. If the total amount of
securities, including Registrable Securities, requested by Holders to be
included in such offering exceeds the amount of securities sold other than by
the Company that the underwriters determine in their sole discretion is
compatible with the success of the offering, then the Company shall be required
to include in the offering only that number of such securities, including
Registrable Securities, which the underwriters determine in their sole
discretion will not jeopardize the success of the offering (the securities so
included to be apportioned pro rata among the selling stockholders according to
the total amount of securities entitled to be included therein owned by each
selling stockholder or in such other proportions as shall mutually be agreed to
by such selling stockholders) but in no event shall the amount of securities of
the selling Holders included in the offering be reduced below thirty percent
(30%) of the total amount of securities included in such offering, unless such
offering is the initial public offering of the Company's securities, in which
case, the selling stockholders may be excluded if the underwriters make the
determination described above and no other stockholder's securities are
included. For purposes of the preceding parenthetical concerning apportionment,
for any selling stockholder which is a holder of Registrable Securities and
which is a partnership or corporation, the partners, retired partners and
stockholders of such holder, or the estates and family members of any such
partners and retired partners and any trusts for the benefit of any of the
foregoing persons shall be deemed to be a single "selling stockholder," and any
pro-rata reduction with respect to such "selling stockholder" shall be based
upon the aggregate amount of shares carrying registration rights owned by all
entities and individuals included in such "selling stockholder," as defined in
this sentence.
1.9 Delay of Registration. No Holder shall have any right to obtain or
seek an injunction restraining or otherwise delaying any such registration as
the result of any controversy that might arise with respect to the
interpretation or implementation of this Section 1.
1.10 Indemnification. In the event any Registrable Securities are
included in a registration statement under this Section 1:
(a) To the extent permitted by law, the Company will indemnify
and hold harmless each Holder, any underwriter (as defined in the Securities
Act) for such Holder each person, if any, who controls such Holder or
underwriter within the meaning of the Securities Act or the Securities Exchange
Act of 1934, as amended (the "Exchange Act") and the partners, officers and
directors of any such Holder, against any losses, claims, damages, or
liabilities (joint or several) to which they may become subject under the
Securities Act, the Exchange Act or other federal or state law, insofar as such
losses, claims, damages, or liabilities (or actions in respect thereof) arise
out of or are based upon any of the following statements, omissions or
violations (collectively a "Violation"): (i) any untrue statement or alleged
untrue statement of a material fact contained in such registration statement,
including any preliminary prospectus or final prospectus contained therein or
any amendments or supplements thereto, (ii) 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, or (iii) any violation or alleged
violation by the Company of the Securities Act, the Exchange Act, any state
securities law or any rule or regulation promulgated under the Securities Act,
the Exchange Act or any state securities law; and the Company will pay to each
such Holder, underwriter or controlling person, as incurred, any legal or other
expenses reasonably incurred by them in connection with investigating or
defending any such loss, claim, damage, liability, or action; provided, however,
that the indemnity agreement contained in this subsection 1.10(a) shall not
apply to amounts paid in settlement of any such loss, claim, damage, liability,
or action if such settlement is effected without the consent of the Company
(which consent shall not be unreasonably withheld), nor shall the Company be
liable to any Holder, underwriter or controlling person for any such loss,
claim, damage, liability, or action to the extent that it arises out of or is
based upon a Violation which occurs in reliance upon and in conformity with
written information furnished expressly for use in connection with such
registration by any such Holder, underwriter or controlling person.
(b) To the extent permitted by law, each selling Holder will
indemnify and hold harmless the Company, each of its directors, each of its
officers who has signed the registration statement, each person, if any, who
controls the Company within the meaning of the Securities Act, any underwriter,
any other Holder selling securities in such registration statement and any
controlling person of any such underwriter or other Holder, against any losses,
claims, damages, or liabilities (joint or several) to which any of the foregoing
persons may become subject, under the Securities Act, the Exchange Act or other
federal or state law, insofar as such losses, claims, damages, or liabilities
(or actions in respect thereto) arise out of or are based upon any Violation, in
each case to the extent (and only to the extent) that such Violation occurs in
reliance upon and in conformity with written information furnished by such
Holder expressly for use in connection with such registration; and each such
Holder will pay, as incurred, any legal or other expenses reasonably incurred by
any person intended to be indemnified pursuant to this subsection 1.10(b), in
connection with investigating or defending any such loss, claim, damage,
liability, or action; provided, however, that the indemnity agreement contained
in this subsection 1.10(b) shall not apply to amounts paid in settlement of any
such loss, claim, damage, liability or action if such settlement is effected
without the consent of the Holder, which consent shall not be unreasonably
withheld; provided, that in no event shall any indemnity under this subsection
1.10(b) exceed the net proceeds from the offering received by such Holder,
except in the case of willful fraud by such Holder.
(c) Promptly after receipt by an indemnified party under this
Section 1.10 of notice of the commencement of any action (including any
governmental action), such indemnified party will, if a claim in respect thereof
is to be made against any indemnifying party under this Section 1.10, deliver to
the indemnifying party a written notice of the commencement thereof and the
indemnifying party shall have the right to participate in, and, to the extent
the indemnifying party so desires, jointly with any other indemnifying party
similarly noticed, to assume the defense thereof with counsel mutually
satisfactory to the parties; provided, however, that an indemnified party
(together with all other indemnified parties which may be represented without
conflict by one counsel) shall have the right to retain one separate counsel,
with the reasonable fees and expenses to be paid by the indemnifying party, if
representation of such indemnified party by the counsel retained by the
indemnifying party would be inappropriate due to actual or potential differing
interests between such indemnified party and any other party represented by such
counsel in such proceeding. The failure to deliver written notice to the
indemnifying party within a reasonable time of the commencement of any such
action, if prejudicial to its ability to defend such action, shall relieve such
indemnifying party of any liability to the indemnified party under this Section
1.10, but the omission so to deliver written notice to the indemnifying party
will not relieve it of any liability that it may have to any indemnified party
otherwise than under this Section 1.10.
(d) If the indemnification provided for in this Section 1.10 is
held by a court of competent jurisdiction to be unavailable to an indemnified
party with respect to any loss, liability, claim, damage or expense referred to
therein, then the indemnifying party, in lieu of indemnifying such indemnified
party hereunder, shall contribute to the amount paid or payable by such
indemnified party as a result of such loss, liability, claim, damage, or expense
in such proportion as is appropriate to reflect the relative fault of the
indemnifying party on the one hand and of the indemnified party on the other in
connection with the statements or omissions that resulted in such loss,
liability, claim, damage or expense as well as any other relevant equitable
considerations; provided, that in no event shall any contribution by a Holder
under this Subsection 1.10(d) exceed the net proceeds from the offering received
by such Holder, except in the case of willful fraud by such Holder. The relative
fault of the indemnifying party and of the indemnified party shall be determined
by reference to, among other things, whether the untrue or alleged untrue
statement of a material fact or the omission to state a material fact relates to
information supplied by the indemnifying party or by the indemnified party and
the parties' relative intent, knowledge, access to information, and opportunity
to correct or prevent such statement or omission.
(e) Notwithstanding the foregoing, to the extent that the
provisions on indemnification and contribution contained in the underwriting
agreement entered into in connection with the underwritten public offering are
in conflict with the foregoing provisions, the provisions in the underwriting
agreement shall control.
(f) The obligations of the Company and Holders under this Section
1.10 shall survive the completion of any offering of Registrable Securities in a
registration statement under this Section 1, and otherwise.
1.11 Reports Under Securities Exchange Act of 1934. With a view to
making available to the Holders the benefits of Rule 144 promulgated under the
Securities Act and any other rule or regulation of the SEC that may at any time
permit a Holder to sell securities of the Company to the public without
registration or pursuant to a registration on Form S-3, the Company agrees to:
(a) make and keep public information available, as those terms
are understood and defined in SEC Rule 144, at all times after ninety (90) days
after the effective date of the first registration statement filed by the
Company for the offering of its securities to the general public so long as the
Company remains subject to the periodic reporting requirements under Sections 13
or 15(d) of the Exchange Act;
(b) take such action, including the voluntary registration of its
Common Stock under Section 12 of the Exchange Act, as is necessary to enable the
Holders to utilize Form S-3 for the sale of their Registrable Securities, such
action to be taken as soon as practicable after the end of the fiscal year in
which the first registration statement filed by the Company for the offering of
its securities to the general public is declared effective;
(c) file with the SEC in a timely manner all reports and other
documents required of the Company under the Securities Act and the Exchange Act;
and
(d) furnish to any Holder, so long as the Holder owns any
Registrable Securities, forthwith upon request (i) a written statement by the
Company that it has complied with the reporting requirements of SEC Rule 144 (at
any time after ninety (90) days after the effective date of the first
registration statement filed by the Company), the Securities Act and the
Exchange Act (at any time after it has become subject to such reporting
requirements), or that it qualifies as a registrant whose securities may be
resold pursuant to Form S-3 (at any time after it so qualifies), (ii) a copy of
the most recent annual or quarterly report of the Company and such other reports
and documents so filed by the Company, and (iii) such other information as may
be reasonably requested in availing any Holder of any rule or regulation of the
SEC which permits the selling of any such securities without registration or
pursuant to such form.
1.12 Assignment of Registration Rights. The rights to cause the
Company to register Registrable Securities pursuant to this Section 1 may be
assigned (but only with all related obligations) by a Holder to a transferee or
assignee of at least 1,000,000 shares of such securities (appropriately adjusted
for any stock split, stock dividend, or other recapitalization) or to a partner
or affiliate (within the meaning of Rule 12b-2 of the Exchange Act) of the
Holder,provided that (i) the Company is, promptly after such transfer, furnished
with written notice of the name and address of such transferee or assignee and
the securities with respect to which such registration rights are being
assigned; (ii) the transferee or assignee agrees to be bound by the terms and
conditions of this Agreement; and (iii) such assignment shall be effective only
if immediately following such transfer the further disposition of such
securities by the transferee or assignee is restricted under the Securities Act.
Notwithstanding the limitations set forth in the foregoing sentence regarding
the minimum number of shares that must be transferred, any Holder that is a
corporation may transfer such Holder's registration rights to its wholly-owned
subsidiaries without restriction as to the number of shares transferred.
1.13 Limitations on Subsequent Registration Rights. Except as provided
in Section 1.1(b) and Section 5.9, from and after the date of this Agreement,
the Company shall not, without the prior written consent of the Holders of a
majority of the outstanding Registrable Securities, enter into any agreement
with any holder or prospective holder of any securities of the Company which
would allow such holder or prospective holder (a) to include such securities in
any registration filed under Section 1.2 hereof, unless under the terms of such
agreement, such holder or prospective holder may include such securities in any
such registration only to the extent that the inclusion of his securities will
not reduce the amount of the Registrable Securities of the Holders which is
included or (b) to make a demand registration which could result in such
registration statement being declared effective prior to the earlier of either
of the dates set forth in subsection 1.2(a) or within one hundred twenty (120)
days of the effective date of any registration effected pursuant to Section 1.2.
1.14 "Market Stand-Off" Agreement. Each Holder hereby agrees that,
during the period of duration (up to, but not exceeding, 180 days) specified by
the Company and an underwriter of Common Stock or other securities of the
Company, following the effective date of a registration statement of the Company
filed under the Securities Act, it shall not, to the extent requested by the
Company and such underwriter, directly or indirectly sell, offer to sell,
contract to sell (including, without limitation, any short sale), grant any
option to purchase or otherwise transfer or dispose of (other than to donees who
agree to be similarly bound) any securities of the Company held by it at any
time during such period except Common Stock included in such registration;
provided, however, that:
(a) such agreement shall be applicable to the first such
registration statement of the Company which covers Common Stock (or other
securities) to be sold on its behalf to the public in an underwritten offering;
and
(b) all officers and directors of the Company, and all holders of
one percent or more of the Company's outstanding Common Stock (including shares
issuable upon conversion of Preferred Stock) enter into similar agreements.
In order to enforce the foregoing covenant, the Company may impose
stop-transfer instructions with respect to the Registrable Securities of each
Holder (and the shares or securities of every other person subject to the
foregoing restriction) until the end of such period, and each Holder agrees
that, if so requested, such Holder will execute an agreement in the form
provided by the underwriter containing terms which are essentially consistent
with the provisions of this Section 1.14.
Notwithstanding the foregoing, the obligations described in this
Section 1.14 shall not apply to a registration relating solely to employee
benefit plans on Form S-1 or Form S-8 or similar forms which may be promulgated
in the future, or a registration relating solely to a transaction on Form S-4 or
similar forms which may be promulgated in the future.
1.15 Termination of Registration Rights. No Holder shall be entitled
to exercise any right provided for in this Section 1 after the earlier of (i)
one (1) years following the consummation of a Qualified IPO, or (ii) such time
as Rule 144 or another similar exemption under the Securities Act is available
for the sale of all of such Holder's shares during a three-month period without
registration.
2. Covenants of the Company.
2.1 Delivery of Financial Statements. The Company shall deliver to
each Holder of at least 1,000,000 shares of Registrable Securities:
(a) as soon as practicable, but in any event within one hundred
twenty (120) days after the end of each fiscal year of the Company, an income
statement for such fiscal year, a balance sheet of the Company and statement of
stockholder's equity as of the end of such year, and a statement of cash flows
for such year, such year-end financial reports to be in reasonable detail,
prepared in accordance with generally accepted accounting principles ("GAAP"),
and audited and certified by an independent public accounting firm of nationally
recognized standing selected by the Company or otherwise reasonably acceptable
to Holders of a majority of the Registrable Securities then outstanding;
(b) within forty-five (45) days of the end of each quarter, an
unaudited income statement and a statement of cash flows and balance sheet for
and as of the end of such quarter, in reasonable detail; and
(c) as soon as practicable, but in any event at least fifteen
(15) days prior to the end of each fiscal year, an operating budget and business
plan for the next fiscal year.
2.2 Inspection. The Company shall permit each Holder of at least
1,000,000 shares of Registrable Securities, at such Holder's expense, to visit
and inspect the Company's properties, to examine its books of account and
records and to discuss the Company's affairs, finances and accounts with its
officers, all at such reasonable times as may be requested by the Investor;
provided, however, that the Company shall not be obligated pursuant to this
Section 2.2 to provide access to any information which the Board of Directors
reasonably determines in good faith to be a trade secret or similar confidential
information.
2.3 Right of First Offer. Subject to the terms and conditions
specified in this Section 2.3, the Company hereby grants to each Major Investor
(as hereinafter defined) a right of first offer with respect to future sales by
the Company of its Shares (as hereinafter defined). For purposes of this Section
2.3, a "Major Investor" shall mean any person who holds at least 1,000,000
shares of the Preferred Stock (or the Common Stock issued upon conversion
thereof). For purposes of this Section 2.3, Major Investor includes any general
partners and affiliates of a Major Investor. A Major Investor who chooses to
exercise the right of first offer may designate as purchasers under such right
itself or its partners or affiliates in such proportions as it deems
appropriate.
Each time the Company proposes to offer any shares of, or securities
convertible into or exercisable for any shares of, any class of its capital
stock ("Shares"), the Company shall first make an offering of such Shares to
each Major Investor in accordance with the following provisions:
(a) The Company shall deliver a notice by certified mail or
overnight courier ("Notice") to the Major Investors stating (i) its bona fide
intention to offer such Shares, (ii) the number of such Shares to be offered,
and (iii) the price and terms, if any, upon which it proposes to offer such
Shares.
(b) Within 15 calendar days after delivery of the Notice, each
Major Investor may elect to purchase or obtain, at the price and on the terms
specified in the Notice, up to that portion of such Shares which equals the
proportion that the number of shares of Common Stock issued and held, or
issuable upon conversion and exercise of all convertible or exercisable
securities then held, by such Major Investor bears to the total number of shares
of Common Stock then outstanding (assuming full conversion and exercise of all
convertible or exercisable securities).
(c) The Company may, during the 60-day period following the
expiration of the period provided in subsection 2.3(b) hereof, offer the
remaining unsubscribed portion of the Shares to any person or persons at a price
not less than, and upon terms no more favorable to the offeree than those
specified in the Notice. If the Company does not enter into an agreement for the
sale of the Shares within such period, or if such agreement is not consummated
within 60 days of the execution thereof, the right provided hereunder shall be
deemed to be revived and such Shares shall not be offered unless first reoffered
to the Major Investors in accordance herewith.
(d) The right of first offer in this paragraph 2.3 shall not be
applicable (i) to the issuance or sale of capital stock (or options therefor) to
employees, consultants, officers or directors of the Company pursuant to stock
purchase or stock option plans or agreements approved by the Board of Directors
of the Company (including options granted prior to the date hereof), (ii) to the
issuance of securities in connection with bona fide acquisitions, mergers or
similar transactions, (iii) to the issuance of securities to financial
institutions or lessors in connection with commercial credit arrangements,
equipment financings or similar transactions, (iv) to the issuance and sale of
the Series D Preferred Stock under the Purchase Agreement and the Common Stock
issued upon conversion of the Series A, Series B, Series C or Series D Preferred
Stock, (v) to the issuance of securities in a public offering of securities
pursuant to a registration statement filed under the Securities Act, (vi) to the
issuance of securities pursuant tothe conversion or exercise of options,
warrants, notes, or other rights to acquire securities of the Company, or (vii)
to the issuance of securities pursuant to stock splits, stock dividends or like
transactions.
2.4 Employee Confidential Information and Invention Assignment
Agreements. The Company will require that all future employees, consultants and
officers having access to proprietary information execute Confidential
Information and Invention Assignment Agreements substantially in the form
currently used by the Company and that such form may not be altered in a manner
adverse to the Company without the approval of the Company's President.
2.5 Termination of Covenants.
(a) The covenants set forth in Sections 2.1 through Section 2.3
shall terminate as to each Investor and be of no further force or effect (i)
upon the consummation of a Qualified IPO, or (ii) when the Company shall (A)
sell, convey, or otherwise dispose of all or substantially all of its property
or business or merge or consolidate with any other corporation (other than a
wholly-owned subsidiary corporation) where the stockholders of the Company own
less than fifty percent (50%) of the voting power of the surviving entity after
such merger or consolidation or (B) effect any other transaction or series of
related transactions in which more than fifty percent (50%) of the voting power
of the Company is disposed of, provided that this subsection (ii) shall not
apply to a merger effected exclusively for the purpose of changing the domicile
of the Company.
(b) The covenants set forth in Sections 2.1 and 2.2 shall
terminate as to each Holder and be of no further force or effect when the
Company first becomes subject to the periodic reporting requirements of Sections
13 or 15(d) of the Exchange Act, if this occurs earlier than the events
described in Section 2.5(a) above.
3. Standstill Agreement.
3.1 No Increase of Ownership Interest. At any time following the date
of this Agreement, except with the prior written consent of a majority of the
Company's Board of Directors (excluding the vote of any director(s) appointed by
the respective Investor or otherwise affiliated with such Investor), no Major
Investor, together with any persons or entities affiliated with such Major
Investor (collectively, the "Standstill Investor"), shall acquire beneficial
ownership (as defined in Rule 13d-3 of the Exchange Act) of any securities of
the Company entitled to vote with respect to the election of any directors of
the Company ("Voting Securities"), any security convertible into, exchangeable
for, or exercisable for, or that may become any Voting Securities or any other
right to acquire Voting Securities (such Voting Securities and rights to acquire
Voting Securities are collectively referred to herein as "Securities"), if after
such acquisition, the Voting Securities then beneficially owned by the
Standstill Investor represent more than the Standstill Investor's Threshold
Percentage (defined below) of the Company's then outstanding Voting Securities
(assuming the conversion, exchange and/or exercise of all convertible,
exchangeable and exercisable securities, including all securities reserved for
issuance under the Company's stock plans); provided
however, that if at any time the Voting Securities beneficially owned by a
Standstill Investor shall represent less than or the same as the Standstill
Investor's Threshold Percentage, and, subsequently and solely as a result of the
Company's repurchases of Voting Securities or a recapitalization of all the
Company's capital stock, the Voting Securities beneficially owned by a
Standstill Investor shall then represent more than the Standstill Investor's
Threshold Percentage, then such Standstill Investor shall not be deemed in
violation of this Section 3.1 for so long as such Standstill Investor does not
purchase or acquire additional Voting Securities. For purposes of this
Agreement, the "Standstill Investor's Threshold Percentage" shall be equal to
40.0% for each Standstill Investor. Notwithstanding the foregoing, for purposes
of this Section 3.1 and for purposes of Sections 3.2, 3.3, 3.4 and 3.5 only,
John Southerland and marlen Johnson shall not be considered a "Major Investor"
and shall not be deemed a "Standstill Investor".
3.2 Notice of Voting Securities Purchases. Each Standstill Investor
shall notify the Company as to any future acquisition of beneficial ownership of
Voting Securities, or rights thereto, within ten (10) business days after such
action in order for the Company to monitor compliance with the terms of this
Agreement.
3.3 Acts in Concert with Others. The Standstill Investor shall not
join a partnership, limited partnership, syndicate or other group, or otherwise
act in concert with any third person, for the purpose of acquiring any
Securities that would exceed such Standstill Investor's Threshold Percentage.
3.4 Termination of Standstill Agreement. The covenants set forth in
this Section 3 shall terminate as to each Standstill Investor on the earlier of
(i) August 10, 2000 or (ii) when the Company shall (A) sell, convey, or
otherwise dispose of all or substantially all of its property or business or
merge or consolidate with any other corporation (other than a wholly-owned
subsidiary corporation) where the stockholders of the Company own less than
fifty percent (50%) of the voting power of the surviving entity after such
merger or consolidation or (B) effect any other transaction or series of related
transactions in which more than fifty percent (50%) of the voting power of the
Company is disposed of, except in each case a merger effected exclusively for
the purpose of changing the domicile of the Company.
3.5 Permitted Transaction. Notwithstanding the provisions of this
Section 3, on and after the eleventh business day after the commencement of a
proxy contest, tender offer or exchange offer which could result in a "Change of
Control Transaction" (as defined below) for outstanding Securities or on or
after the public announcement that the Company has entered into an agreement
with a third party not affiliated with the Company that would result in a Change
of Control Transaction, the Standstill Investor shall be permitted to make a
proposal to the Company's Board of Directors or shareholders or to tender or
exchange any Securities beneficially owned by it pursuant to such transaction.
As used herein, "Change of Control Transaction" shall mean (A) any tender or
exchange offer, merger, consolidation, re-capitalization or other business
combination or transaction pursuant to which either (i) the holders of the
outstanding voting power immediately prior to the transaction would hold less
than 50% of the outstanding voting power outstanding immediately after the
transaction or (ii)50% of the assets of the Company would be transferred to or
controlled by a third party not affiliated with the Company, except in each case
a merger effected exclusively for the purpose of changing the domicile of the
Company, or (B) any action by the shareholders of the Company that results in
the directors, who as of the date of Closing constitute the Company's Board of
Directors (the "Incumbent Board"), ceasing to constitute
at least a majority of the Company's Board of Directors; provided, however, that
any individual becoming a director subsequent to the date of Closing whose
nomination for election by the shareholders of the Company was approved by the
vote of the Incumbent Board shall be considered as though such individual were a
member of the Incumbent Board.
4. Sales Mr. John Southerland or Mr. Marlen Johnson
4.1 Right of First Refusal. Before any shares of the Company's capital
stock ("Stock") held by John Southerland or Marlen Johnson (including its
affiliated funds) each a "ROFR Investor") may be sold or otherwise transferred,
the Company or its permitted assignee under Section 4.2 shall have a right of
first refusal to purchase such Stock on the terms and conditions set forth in
this Section 4 (the "Right of First Refusal").
(a) Exercise of Right of First Refusal. At any time within
fifteen (15) business days after receipt of the Seller Notice, the Company or
its assignee may, by giving written notice to the Seller, elect to purchase all
of the Stock proposed to be transferred to any one or more of the Proposed
Transferees, at the purchase price determined in accordance with subsection (c)
below.
(b) Purchase. The purchase price ("Purchase Price") for the Stock
purchased by the Company or its assignee under this Section 4 shall be the
Offered Price. If the Offered Price includes consideration other than cash, the
cash equivalent value of the non-cash consideration shall be determined by the
Board of Directors of the Company in good faith. Payment of the Purchase Price
shall be made, at the option of the Company or its assignee(s), in cash (by
check), by cancellation of all or a portion of any outstanding indebtedness of
the Seller to the Company (or, in the case of purchase by an assignee, to the
assignee), or by any combination thereof within 30 days after the Company or its
assignee provides the written notice to the Seller as provided in subsection (b)
above.
(d) Seller's Right to Transfer. If the Stock proposed in the
Seller Notice to be transferred is not purchased by the Company or its assignee
as provided in this Section 4, then the Seller may sell or otherwise transfer
such Stock to that Proposed Transferee at the Offered Price or at a higher
price, provided that such sale or other transfer is consummated within 90 days
after the date of the Seller Notice and provided further that any such sale or
other transfer is effected in accordance with any applicable securities laws. If
any Stock described in the Seller Notice is not transferred to the Proposed
Transferee within such period, or if the Seller proposes to change the price or
other terms to make them more favorable to the Proposed Transferee, a new Seller
Notice shall be given to the Company and the other Investor, and the Company
and/or its assignee shall again be offered the Right of First Refusal before any
Stock held by the Seller may be sold or otherwise transferred.
(e) Reissuance of Repurchased Shares. Any Stock purchased by the
Company under this Section 4 from Investor may be retired by the Company or held
by the Company as treasury stock, but such Stock may not be reissued by the
Company without the prior written consent of the non-selling Investor (the
"Non-Selling Investor").
4.2 Assignment of Right of First Refusal. In the case of proposed
sales or transfers of Stock by a Investor, the Company agrees that in the event
that the Company declines to exercise the Right of First Refusal, the Company
will provide the Non-Selling Investor with notice of such determination at least
five (5) business days prior to the end of the period in which the Right of
First Refusal expires under Section 4.1(b). The Non-Selling Investor shall then
have the right, exercisable by notice prior to the end of such
period, to exercise such Right of First Refusal as the Company's assignee. Any
Stock purchased by a Investor under this Section 4.2 shall not be deemed Voting
Securities under Section 3.1 for purposes of calculating the Standstill
Investor's Threshold Percentage. The Right of First Refusal is not otherwise
assignable by the Company.
4.3 Permitted Transactions. The provisions of this Section 4 shall
not pertain or apply to:
(i) Stock sold pursuant to a registration statement filed
under the Securities Act;
(ii) Distributions of Stock by john southerland or marlen
Johnson to its businesspartners and
subsequent resales of such Stock;
4.5 Legended Certificates. Each certificate representing shares of
Stock of the Company now or hereafter owned by the Investors or issued to any
Permitted Transferee pursuant to Section 4.3(iii) shall be endorsed with the
following legend:
"THE SALE, PLEDGE, HYPOTHECATION OR TRANSFER OF THE SECURITIES
REPRESENTED BY THIS CERTIFICATE IS SUBJECT TO THE TERMS AND CONDITIONS
OF A CERTAIN RIGHT OF FIRST REFUSAL BY AND BETWEEN THE STOCKHOLDER,
THE CORPORATION AND CERTAIN HOLDERS OF PREFERRED STOCK OF THE
CORPORATION. COPIES OF SUCH AGREEMENT MAY BE OBTAINED UPON WRITTEN
REQUEST TO THE SECRETARY OF THE CORPORATION."
The foregoing legend shall be removed upon termination of the Right of
First Refusal in accordance with the provisions of Section 4.6.
4.6 Termination of Right of First Refusal. The Right of First Refusal
under this Section 4 shall terminate at such time as the covenants set forth in
Section 3 shall have terminated pursuant to Section 3.4 above.
5. Miscellaneous.
5.1 Successors and Assigns. Except as otherwise provided in this
Agreement, the terms and conditions of this Agreement shall inure to the benefit
of and be binding upon the respective permitted successors and assigns of the
parties. Nothing in this Agreement, express or implied, is intended to confer
upon any party other than the parties hereto or their respective successors and
assigns any rights, remedies, obligations, or liabilities under or by reason of
this Agreement, except as expressly provided in this Agreement. A Holder that is
a corporation may assign or transfer such Holder's rights and obligations to its
wholly-owned subsidiaries without restriction as to the number of shares
acquired.
5.2 Amendments and Waivers. Any term of this Agreement may be amended
or waived only with the written consent of the Company and the holders of at
least two-thirds (2/3) of the Registrable Securities then outstanding. Any
amendment or waiver effected in accordance with this paragraph shall be binding
upon each holder of any Registrable Securities then outstanding, each future
holder of all such Registrable Securities, and the Company.
5.3 Notices. Unless otherwise provided, any notice required or
permitted by this Agreement shall be in writing and shall be deemed sufficient
upon delivery, when delivered personally or by overnight courier or sent by
telegram or fax, or forty-eight (48) hours after being deposited in the U.S.
mail, as certified or registered mail, with postage prepaid, and addressed to
the party to be notified at such party's address or fax number as set forth
below or on Exhibit A hereto or as subsequently modified by written notice.
5.4 Severability. If one or more provisions of this Agreement are held
to be unenforceable under applicable law, the parties agree to renegotiate such
provision in good faith. In the event that the parties cannot reach a mutually
agreeable and enforceable replacement for such provision, then (a) such
provision shall be excluded from this Agreement, (b) the balance of the
Agreement shall be interpreted as if such provision were so excluded and (c) the
balance of the Agreement shall be enforceable in accordance with its terms.
5.5 Governing Law. This Agreement and all acts and transactions
pursuant hereto shall be governed, construed and interpreted in accordance with
the laws of the State of Navada, without giving effect to principles of
conflicts of laws.
5.6 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
5.7 Titles and Subtitles. The titles and subtitles used in this
Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement.
The parties have executed this Investors' Rights Agreement as of the date
first above written.
COMPANY: INVESTORS:
VOYAGER GROUP LTD Johnson Southerland
By: Michael Johnson By: John Southerland
--------------------- ------------------
Vice president
By: Marlen Johnson
-------------------
INVESTORS RIGHTS AGREEMENT
EXHIBIT A
INVESTORS
Name and Address
- ---------------------------------------
John Southerland
ADDRESS
Marlen Johnson
ADDRESS
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THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
BALANCE SHEET OF THE VOYAGER GROUP, lTD. AS OF JULY 31, 1999 AND THE RELATED
STATEMENTS OF OPERATIONS AND CASH FLOWS FOR THE YEAR THEN ENDED AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
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<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUL-31-1999
<PERIOD-END> JUL-31-1999
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<RECEIVABLES> 7
<ALLOWANCES> 0
<INVENTORY> 114
<CURRENT-ASSETS> 138
<PP&E> 147
<DEPRECIATION> 90
<TOTAL-ASSETS> 226
<CURRENT-LIABILITIES> 257
<BONDS> 0
0
0
<COMMON> 13
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<TOTAL-LIABILITY-AND-EQUITY> 226
<SALES> 1287
<TOTAL-REVENUES> 1287
<CGS> 507
<TOTAL-COSTS> 507
<OTHER-EXPENSES> 2003
<LOSS-PROVISION> 2003
<INTEREST-EXPENSE> 15
<INCOME-PRETAX> (1238)
<INCOME-TAX> 173
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<EXTRAORDINARY> 0
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<NET-INCOME> (1411)
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