U.S. Securities and Exchange Commission
Washington, D.C. 20549
Form 10-SB/A
Amendment No. One
GENERAL FORM FOR REGISTRATION OF SECURITIES OF SMALL BUSINESS
ISSUERS
Under Section 12(b) or (g) of the Securities Exchange Act of 1934
VOXCOM HOLDINGS, INC.
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(Name of Small Business Issuer in Its Charter)
Nevada 75-2715335
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(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
8115 Preston Road, Eighth Floor-East, Dallas, Texas 75225
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(Address of Principal Executive Offices) (Zip Code)
(214) 691-0055
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(Issuer's Telephone Number)
Securities to be registered pursuant to 12(b) of the Act: None
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Securities to be registered pursuant to 12(g) of the Act:
Common Stock $.0001 Par Value
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(Title of Class)
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TABLE OF CONTENTS
Page
PART I
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Item 1. Description of Business..................................................................................3
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations.......................................................................8
Item 3. Description of Property.................................................................................13
Item 4. Security Ownership of Certain Beneficial Owners and Management..........................................14
Item 5. Directors, Executive Officers, Promoters and Control Persons............................................15
Item 6. Executive Compensation..................................................................................17
Item 7. Certain Relationships and Related Transactions..........................................................17
Item 8. Description of Securities...............................................................................18
PART II
Item 1. Market Price of and Dividends of the Registrant's Common Equity
and Other Shareholder Matters..................................................................24
Item 2. Legal Proceedings.......................................................................................24
Item 3. Changes in and Disagreements with Accountants...........................................................25
Item 4. Recent Sales of Unregistered Securities.................................................................24
Item 5. Indemnification of Directors and Officers...............................................................25
PART F/S
Financial Statements F-1
PART III
Item 1. Index to Exhibits....................................................................................III-1
Item 2. Description of Exhibits..............................................................................III-2
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Explanatory Note:
Unless otherwise indicated or the context otherwise requires, all
references herein to the "Company" are to Voxcom Holdings, Inc., a Nevada
corporation, and its wholly-owned subsidiaries, Voxcom Systems, Inc.,
AmeraPress, Inc, and The Home Business Group, Inc.
The Company is filing the Form 10SB voluntarily. The Company's Common
Stock has traded on the OTC Bulletin Board since November 1997, and the Company
believes the market for its stock will be enhanced by being a reporting
company. In adition, the Company intends to seek listing on either the Nasdaq
SmallCap Market, the National Market System or the American Stock Exchange in
the near future, for which a registration under the 1934 Act will be required.
PART I
Item 1. Description of Business
General
Newcorp One, Inc. ("Newcorp") is a corporation organized under the laws
of the State of Nevada in September 1996 in accordance with the Plan of
Reorganization of Weaver Arms Corporation ("Weaver"), as confirmed by the United
States Bankruptcy Court, Central District of California on January 20, 1994.
Weaver had existed as a publicly held corporation in the business of developing
and manufacturing weapons until its filing for protection under the bankruptcy
laws. Following its reorganization, Weaver changed its name to Madera
International, Inc. and began operating as a timber harvesting and exporting
company. A feature of Weaver's bankruptcy plan of reorganization allowed it to
create Newcorp and distribute its common stock and Class A warrants to the
shareholders and debtors of Weaver. Newcorp would then seek a merger partner
that would contribute an operating business to Newcorp.
The owners of Voxcom Systems, Inc. ("Voxcom Systems") and AmeraPress,
Inc. ("AmeraPress") desired for Voxcom Systems and AmeraPress to consolidate and
become publicly traded; however, they had been unsuccessful in negotiating a
suitable underwriting arrangement to engage in a public offering.
Therefore, in June 1997, the managements of Newcorp and Voxcom Systems
negotiated an Agreement and Plan of Reorganization pursuant to which Newcorp
acquired all of the issued and outstanding shares of common stock of Voxcom
Systems in exchange for an aggregate of 4,000,000 shares of voting common stock
of Newcorp, $.0001 par value per share, and 4,000,000 Class A Warrants,
constituting approximately 80% of the outstanding securities of Newcorp. At the
time of the acquisition of Voxcom Systems, Newcorp had no assets, business or
operations.
Voxcom Systems provides merchant accounts and credit card processing
solutions to small businesses, home based businesses, multi-level marketing
distributors, and independent distributors. In operation since January 1995,
Voxcom Systems is engaged in the transaction processing industry, providing
low-cost credit card processing to diverse merchants, including in-home
businesses, through its patented and proprietary Credit Verification Phone
system.
Concurrent with its acquisition of Voxcom Systems, Newcorp acquired all
of the issued and outstanding common stock of AmeraPress, Inc., a corporation
organized under the laws of the State of Nevada in June 1997 to engage in the
specialty printing and finishing business. AmeraPress succeeded to the business
of Voxcom Sales, L.L.C. ("Voxcom Sales"), a company organized under the laws of
the State of Delaware in November 1995. The common stock of AmeraPress was
acquired in exchange for a $10,000,000 note, payable in 24 consecutive, equal
monthly installments. The Promissory Note was collateralized by all of the
outstanding shares of AmeraPress. In December 1997, the remaining balance of the
Promissory Note was exchanged for 80,000 shares of Series A Preferred Stock
redeemable at the option of the Company at the issue price of $100 each.
On June 18, 1997, Newcorp filed Restated Articles of Incorporation with
the Secretary of State of Nevada, adding provisions regarding corporate
management and control, and changing the name of the Company to "Voxcom
Holdings, Inc." ("Voxcom Holdings").
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On July 1, 1997, the Company entered into a Consulting Agreement and
Covenant Not to Compete with Kim Crowther and Brian Jensen to manage a company
(the "Lecture Company") to conduct home business seminars to promote the
Company's goods and services, including the printed products of AmeraPress, and
to compensate them for their exclusive service to the Lecture Company for a
period of 60 months by granting them 200,000 shares of the Company's common
stock, 4% of the gross proceeds of sales by the Lecture Company, and commissions
equal to 25% of the net profit of the Lecture Company on a combined basis. The
Company will also grant them shares of the Company's common stock at June 30,
1998 in an amount equal to the net profit of the Lecture Company on a combined
basis, subject to deductions for federal income tax, debt service obligations of
the Lecture Company, and commissions paid, multiplied by the average price to
earnings ratio of the Company's common stock over the 90 days prior to June 30,
1998, multiplied by 25%, and divided by the average over the 20 trading days
preceding June 30, 1998 of the mean bid and ask price in the over-the-counter
market. In each succeeding year of the Agreement, shares of common stock will be
granted based on the same formula, except that instead of using net profit (as
adjusted) as the starting number, the growth in net profit over the previous
year will be substituted and the same adjustments applied. Home Business Group,
Inc. ("HBG") was incorporated in the State of Delaware and acquired certain
assets and liabilities of and continued the business of the Lecture Company,
commencing during the quarter ended December 31, 1997. The continued operations
of AmeraPress and HBG are referred to together as the "Home Business Segment".
On March 13, 1998 the Company agreed to acquire all of the issued and
outstanding shares of MAXpc Technologies, Inc. in consideration for the issuance
of 210,000 shares of Common Stock. MAXpc has the exclusive manufacturing and
marketing rights to certain multimedia computer hardware and software. Marketing
of the product commenced at the end of April 1998. The contract also provides
that 25% of the net after tax profits of MAXpc will be paid to the Seller.
The Company's activities to date have consisted of the promotion and
marketing through seminars of home-based business opportunities, the production
and sale of customized printing and the sale and distribution of merchant credit
card authorization and payment systems, as well as raising capital, locating and
acquiring equipment, identifying prospective customers, and administrative
activities relating to the foregoing. The Company's future business, including
expansion of its present operations, may require additional equity and/or debt
financing, which may not be available in a timely manner, on commercially
reasonable terms, or at all. See Part 1, Item 2 "Management's Discussion and
Analysis or Plan of Operation."
See Part I, Item 7, "Certain Relationships and Related Transactions"
for information about the interests of certain directors, executive officers and
promoters of the Company in the formation and reorganization transactions
described above involving Voxcom Holdings, Voxcom Systems, AmeraPress, and HBG.
Principal Products, Distribution and Competitive Conditions
The Company's activities are divided into three segments:
(i) Credit card processing and authorization systems;
(ii) Home-based business; and
(iii) Technology;
Credit Card Processing and Authorization Systems
The Company, through its subsidiary Voxcom Systems, offers merchants of
all sizes a competitive product which can include processing hardware, voice
platform and authorization, and an attractive discount rate on all credit card
transactions. In May, 1992, the credit card industry responded to increasing
levels of credit card fraud by requiring advance authorization of all credit
card transactions or else charging the merchant extra processing fees for
unauthorized charges. It is estimated that 97% of all credit card purchases in
the U.S. are preceded by such authorizations.
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For the small merchant, or direct salesperson, the Company offers its
Credit Verification Phone ("CVP"), which is a host-based system utilizing an
interactive Voice Platform instead of a modem. The device is manufactured by KIA
Intertrade, an unaffiliated company located in Korea. The CVP is compact and
light-weight. It does not require A.C. power, is portable, offers a voice
tutorial to users, and can be used as a standard telephone if desired. Prices
range from $195 to $395 for this product. The Company also provides minor
repairs at its Euless, Texas facility for malfunctioning CVP terminals, and
returns malfunctioning CVP terminals requiring major repair to the manufacturer
for replacement.
In addition to equipment, the Company provides credit card services as
an independent sales organization (ISO) of Heartland Card Services, Inc., a
credit processing company. The Company is charged interchange costs to the
credit card provider (VISA and Master Card) by Heartland and pays to Heartland a
share of the increase over the interchange cost charged to its clients. The
Company also has agency agreements with Delta Card Systems/Woodforest Bank,
Electronic Card Systems, First American Payment Systems/First National Bank in
Brookings and Money Transfer System/NPC whereby the Company purchases credit
card processing at an established rate, and retains the incremental price it
charges its customers above that rate. Because of these relationships, the
Company believes it is competitive in the rates being offered to all types of
businesses ranging from the sole trader to large merchants.
The Company's customers are broadly divided into two sections (i) small
merchant, sole traders or direct sales person, and (ii) larger, often
multi-locational businesses. Approximately 30% of sales were made to the small
merchant category during the twelve months ended June 30, 1998.
For the large merchant the Company is able to offer other
manufacturers' systems such as Verifone and Hypercom purchased to meet the
appropriate need. The larger merchants approached by the Company usually require
more expensive and more sophisticated credit card processing equipment. Most of
this equipment necessitates a dedicated phone line compared to the port ability
of the CVP.
Competition for credit card verification business is intense, and the
market is saturated with systems to meet this need, many of which have greater
experience in the industry and financial resources available to them. Most are
modem based, on-line systems requiring a dedicated phone line, and the cost of
access systems ranges from $195 to $1,700. The Company believes it can compete
for a share of the business because of the affordability, portability and
multiple uses of its CVP and due to its relationships with processing banks and
card providers. In excess of $100 million of annual credit card business has
been contracted by the Company since October 1997. Competition in this section
is also offered by major banking organizations or their subsidiaries, such as
Bank America, Wells Fargo, Citibank, Chase and First USA. While these
competitors obviously have more financial strength, the Company believes it can
compete effectively because of its flexibility to respond to customer needs and
its orientation to the smaller users in the marketplace.
Business is generated either by incoming responses from national
advertising or from contact by the Company's 75 commissioned sales
representatives.
Home-Based Business Segment
The Company operates this segment through two wholly owned
subsidiaries, HBG and AmeraPress. HBG conducts seminars in major cities
throughout the United States and offers attendees the opportunity to purchase
introductory kits to approximately three different home-based businesses. One of
these businesses is AmeraPress, and the others include vending machines and an
Internet product, neither of which is affiliated with the Company except that a
director of HBG is a shareholder and officer of the vending machine company,
Vendworx, Inc. The Internet product has been developed by Wealth International,
Inc. There are no written contracts with these corporations.
HBG attracts its attendees by a mailing campaign requesting recipients
to call in and register for attendance at the appropriate seminar. It earns its
income from the sale of the introductory kits provided free of charge by the
offered businesses, and from an additional fee paid by those businesses for each
sale made. The introductory kits are sold from prices ranging from $195 to $295
each or combined for prices ranging from $495 to $695. The purchase of these
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kits entitles the purchaser to become a distributor without any further charge.
There is sufficient salable material in the kit to enable the distributor to
recover the initial outlay.
AmeraPress conducts business with the distributors enrolled at the HBG
seminars by the purchase of the Introductory Kit. This kit includes video and
audio tapes, distribution manual and sufficient salable materials to make 100%
return on their cost. The distributors are advised by AmeraPress how to make
their home business operate. Such business is to introduce consumers to the
opportunity of having a photograph of their choice, and the appropriate words or
sketches of their choice printed on high quality, fully-laminated trading,
business, or greeting card, or post card or calendar. Sales are made by way of
pre-paid voucher which the distributor buys from AmeraPress and resells to the
consumer at a profit. Thereafter the distributor's job for that sale is
finished, and the consumer returns the voucher with all appropriate information
to AmeraPress for fulfillment. Distributors are not authorized to sell
distributorships, and for that reason neither HBG nor AmeraPress are multi-level
marketing organizations.
AmeraPress conducts is printing operations in its 20,000 square foot
facility in Euless, Texas. See Item 3 - Description of Property.
The home-based business industry is extremely large and very
competitive. Distributors are sought for many multi-level and direct sales
organizations, and many home-based business opportunity seminars are held. The
Companies rely on the responses to the mail campaigns for attendance at
seminars. Other groups use similar methods and other seminar companies use
Infomercials on local and cable television. Additionally, there is a wide
variety of home business opportunities being offered by these groups, and there
is no certainty that the businesses being offered by HBG will be attractive to
the attendees of the seminars. However, the Company believes it has been able to
compete effectively due to the sheer size of the market for these goods and
services.
Technology Division
Through March 31, 1998, all of the Company's business and revenues were
produced from the Home-Based Business Segment and the Credit Card Processing and
Authorization Segment. However, the Company continually seeks opportunities to
diversify its operations and exploit products and markets with the potential for
rapid growth. The Company believes that the technology offered by the
multi-media add-in card of MAXpc Technologies, Inc. ("MAX") produced such an
opportunity.
In April 1998, the Company acquired all of the common stock of MAX,
which has the exclusive right to manufacture and market a high performance,
multi-media add-in card providing both hardware and software for personal
computers. This card offers 22 different media functions, including full motion
video capture and editing; DVD movie playback and H Stop 324 video phone over
standard phone lines. Such card enhances the performance of computers, either as
an add-in at time of manufacture or installed into existing units. The card,
with its own inbuilt processor, has the ability to perform multi-media software
functions, simultaneously if need be, without detracting from the central
processor of the computer. Additional software can be added to the card as
developed.
The card was developed by Chromatic Research of California, and,
subsequent to its acquisition by the Company, MAX purchased the exclusive right
to manufacture and market the card by the acquisition of Chromatic's inventory
of partially completed units and components for a cost of approximately
$550,000.
Since April 1998, the staff of MAX have applied themselves to the
development of a marketing campaign, including the purchase and registration of
trade marks, trade names, and the development of packaging materials. Target
markets are original equipment manufacturers, dealers and sellers in the
industry. Evaluation cards have begun to be offered to industry groups, and a
national marketing campaign is anticipated to commence in August 1998.
No revenues or expenses of MAX were incurred prior to March 31, 1998,
and none are included in the financial statements attached hereto or in any pro
forma data.
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The Company continues to look for additional software applications
which may be integrated into the card, and it is believed some of these will
give rise to the availability of patent protection. The Company will continue
limited research and development in this regard.
While the Company believes that the MAX board fulfills functions that
no other single board can achieve, competition in the industry is extremely
high, and new developments and products are offered regularly. Marketing is
being targeted to original equipment manufacturers, dealers and resellers in the
industry. There is no assurance the marketing efforts for this computer card
will be successful.
Environmental Impact
None of the Company's activities utilize any hazardous materials or
results in any discharge of pollutants into the environment. The Company
believes it complies fully with all environmental laws and regulations.
Year 2000
The Company does not expect any adverse consequences from the problems
arising in the computer industry upon the advent of the year 2000.
Employees
The Company employs a total of 132 full-time persons, including 44 in
its HBG facility in St. George, Utah, 61 at its AmeraPress facility in Euless,
Texas, 4 in its technology division, 17 in its credit card verification
business, and six in its corporate headquarters, including three executive
personnel. The credit card verification business also relies on the sales
efforts of approximately 75 commission-only personnel. None of such persons is
represented by a union, and the Company believes its relations with its
employees is very good.
Regulation
The Company's only regulatory issues not common to all businesses is
the oversight of its home-based business services and sales programs by the U.S.
Federal Trade Commission. The laws and regulations of the FTC provide for
consumer protection against false and misleading sales promotions, but do not
include any advance filing or approval requirements. The Company is required to
exercise supervision over the methods and content utilized in the marketing of
business opportunities, and it believes it is in compliance with these laws;
however, see Part II, Item 2, "Legal Proceedings".
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Item 2. Management's Discussion and Analysis or Plan of Operation
General
The Company through its wholly-owned subsidiaries:
(i) sells and distributes merchant credit card authorization and
payment systems to direct marketing merchants throughout the
United States (commenced November 1994);
(ii) markets home-based business through seminars (acquired in
1997) and produces customized printing for distribution by
home-based businesses (commenced January 1996); and
(iii) manufacturers and markets computer hardware and software
(commenced April 1998).
Revenues and expenses for the fiscal year ended June 30, 1996 applied
only to the credit card authorization systems and to six months of the
customized printing business. Revenues and expenses for the fiscal year ended
June 30, 1997 applied to a full year for each of these businesses. No results
from the computer hardware and software are included in the revenues and
expenses for any period.
For the nine months ended March 31, 1998, the Company's revenues and
expenses apply to the operations of these two businesses for the whole period,
and to the seminar business for only the six months since acquisition.
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SELECTED FINANCIAL INFORMATION
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Nine Months Nine Months
Year Ended Ended Ended
6/30/96 6/30/97 3/31/97 3/31/98
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Statement of Operations Data
Net sales $2,005,486 $13,420,766 $9,596,882 $ 17,002,945
Gross profit 1,581,288 11,537,659 8,265,746 14,926,871
Operating income (loss) (709,833) 3,162,307 2,219,844 1,592,787
Net earnings (loss) after tax (709,833) 2,923,519 2,113,259 917,730
Net earnings (loss) per share (.14) N/A N/A .17
Pro forma net earnings (1) -- 1,964,378 1,398,502 --
Pro forma earnings per share -- .39 .28 --
(1) Pro forma net earnings give effect to income taxes that would have been
provided if the Company had been subject to federal and state income
taxes for all periods. See Note L to Financial Statements.
June 30, 1997 March 31, 1998
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Balance Sheet Data
Total assets $ 1,312,441 $ 3,885,183
Working capital deficit (5,017,331) (1,591,605)
Total liabilities 10,438,045 3,518,057
Stockholders' equity (deficit) (9,125,604) 367,126
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Results of Operations
Nine months ended March 31, 1998 compared to nine months ended March 31, 1997.
Revenues
Revenues increased by approximately 77% from $9,596,882 in the nine
months ended March 1997 to $17,002,945 in the nine months ended March 1998. This
increase was primarily from sales by the Home Based Business Segment through
expansion of the printing business and to the inclusion of the revenues of Home
Business Group Inc. Revenues of this segment were the largest component of sales
and increased by approximately 99% from $8,586,852 in the nine months ended
March 1997 to $17,047,755 in the nine months ended March 1998.
Revenues during the nine months ended March 31, 1998 were adversely
affected by the FTC action (See "-Recent Events"). This effect has not been
quantified.
Cost of Sales
Cost of sales increased by approximately 56% from $1,331,136 in the
nine months ended March 1997 to $2,076,074 in the nine months ended March 1998.
The increase resulted from the increased operating activity of the Home Based
Business Segment, but reflects the higher margins obtainable as such sales
increase.
Gross Profit
Group gross profit increased approximately 81% from $8,265,746 in the
nine months ended March 1997 to $14,926,871 in the nine months ended March 1998.
The increase is almost entirely due to, and reflects the expansion of, the
printing business and the inclusion of gross profit from the seminar business,
both forming the Home Based Business Segment. This 88% gross margin demonstrates
the attractiveness of this business to the Company.
Selling, General and Administrative Expenses
Selling, general and administrative expenses increased approximately
121% from $6,045,902 in the nine months ended March 1997 to $13,334,084 in the
nine months ended March 1998. The increase was due almost entirely to the Home
Based Business Segment and reflects the increases of labor, commissions,
delivering expenses, and overheads necessary to achieve the increased revenues
achieved by the division. In addition, attorney fees increased by $405,226 to
$463,272, for the nine months ended March 1998, due primarily to the defense
against the FTC action. (See "-Recent Events").
Interest Expense
Interest expense of $141,734 incurred during the nine months ended
March 1998 was paid primarily on the promissory note to the Company's
Shareholders who sold AmeraPress to the Company. On December 15, 1997 the note
was converted to Series A Preferred Stock, and no further interest is payable.
No interest expense was incurred for the nine months ended March 1997.
Income Taxes
Income taxes of $533,323 were accrued based on income earned for the
nine months ended March 1998. Only state income tax was accrued for the nine
months ended March 1997, because for that period the income was earned in a
limited liability company for which the members of the LLC were personally
responsible for federal taxes on the Company's income.
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Net Earnings
Net earnings decreased by approximately 57% from $2,113,259 in the nine
months ended March 1997 to $917,730 in the nine months ended March 1998. This
decrease was due to the increased profitability of the Home Based Business
Segment and reflected both the business expansion and the inclusion of the
seminar business, offset by significantly higher selling, general and
administrative expenses and legal fees related to the defense against the FTC
action. (See "-Recent Events"). In addition, income tax expense of $533,323 was
recorded for the nine months ended March 1998, while $106,585 was recorded for
the nine months ended March 1997.
Fiscal year ended June 30, 1997 compared to year ended June 30, 1996
Revenues
Revenues increased by approximately 569% from $2,005,486 in the year
ended June 30, 1996 to $13,420,766 in the year ended June 30, 1997. The increase
is due almost entirely to the Home Based Business Segment which booked its first
full year of operation.
Cost of Sales
Cost of sales increased by approximately 344% from $424,198 in the year
ended June 30, 1996 to $1,883,107 in the year ended June 30, 1997. The increase
was almost entirely due to the Home Based Business Segment and represents the
increased costs needed to achieve the increased revenues.
Selling, General and Administrative Expenses
Selling, general and administrative expenses increased approximately
266% from $2,291,121 in the year ended June 30, 1996 to $8,375,352 in the year
ended June 30, 1997. The increase represents the costs of labor, commissions,
delivery expenses, and overheads required by the Home Based Business Segment to
achieve the increased revenues.
Interest Expense
Interest expense of $44,247 incurred in the year ended June 30, 1997
was paid on the promissory note to the Sellers of AmeraPress. No interest
expense was incurred in the year ended June 30, 1996.
Income Tax
The income tax expense in the year ended June 30, 1997 of $194,541 was
accrued on the net profit of the divisions earned from the date of acquisition
by the Company to June 30, 1997. No income tax was accrued in the year ended
June 30, 1996. The effective rate of tax for the year ended June 30, 1997 was
less than the full statutory rate due to the availability of net operating
losses from prior years.
Net Earnings
Net earnings increased from a loss of $709,833 in the year ended June
30, 1996 to a profit of $2,923,519 in the year ended June 30, 1997. The increase
of profitability was almost entirely due to the Home Based Business Segment
which operated for the full year to June 30, 1997 compared to only six months in
the year to June 30, 1996.
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Liquidity
The Company had working capital deficits of ($1,591,605) at March 31,
1998 and ($5,017,331) at June 30, 1997. The Company's cash flow and working
capital requirements are primarily affected by the receipt of payments from
customers, which generally are due at the time of sale, and payment of operating
expenses. The reduction in the working capital deficit from June 30, 1997 to
March 31, 1998, of $3,425,726, included (a) additional investment in receivables
and other assets as a result of increased sales and related activities; (b)
$5,000,000 of current maturities of notes payable to stockholders were converted
to preferred stock; (c) accounts payable increased by $1,748,757, from $536,953
at June 30, 1997 to $2,285,710 at March 31, 1998 and accrued expenses increased
by $552,772 from $66,551 at June 30, 1997 to $619,323 at March 31, 1998. The
increases are due to additional payables related to the increased level of sales
and related costs, $400,000 accrued for estimated refunds to be given to
customers as a result of the FTC action and accrual of $326,817 of legal fees
incurred as a result of the FTC action; (d) income taxes payable increased by
$338,782, from $194,541 at June 30, 1997 to $533,323 at March 31, 1998. Income
taxes were accrued based on income earned for the nine months ended March 31,
1998, while federal income taxes were accrued only on earnings from the date of
acquisition of AmeraPress during the year ended June 30, 1997 due to the
availability of net operating losses from prior years, and the company operated
as a limited liability company prior to the AmeraPress acquisition, and the
members of the LLC were personally liable for federal taxes on the Company's
income. Therefore, the Company's operating activities provided net cash of
$2,616,865 for the nine months ended March 31, 1998 and $3,290,810 for the year
ended June 30, 1997.
Investing activities of the Company consisted of the acquisition of
property and equipment in the amounts of $263,978 and $703,949 for the year
ended June 30, 1997 and the nine months ended March 31, 1998, respectively.
Financing activities of the Company consisted of note repayments and
distributions to stockholders in the total amounts of $2,680,000 and $1,560,299
for the year ended June 30, 1997 and the nine months ended March 31, 1998,
respectively.
Notes payable to stockholders in the total amount of $8,000,000 were
converted to preferred stock in the nine months ended March 31, 1998.
Future cash resources available to the Company are expected to come
from profitable operations and the additional issue of shares as a result of
anticipated exercises of warrants at $4 each. Should the need arise for further
funding for increases in inventories or for capital equipment, the Company would
address the possibility of lines of credit from lending authorities and new
issues of capital stock. There is no assurance that these resources will be
available to the Company.
Recent Events
Federal Trade Commission
On February 17, 1998, the Federal Trade Commission (FTC) obtained from
the United States District Court an ex parte Temporary Restraining Order and
Asset Freeze on AmeraPress, Inc., and Home Business Group, Inc., two of the
subsidiary companies of the Company. A Temporary Receiver was also appointed by
the Court. The FTC alleged that the Company was offering prepaid business
ventures in which the purchaser could expect to receive a specific level of
earnings and that such representations were false and misleading and constituted
deceptive acts or practices in violation of Section 5(c) of the FTC Act (15
U.S.C Sec 45(a)).
On February 27, 1998, the Federal District Court removed the Temporary
Restraining Order and replaced it with a new order which substantially eased the
restrictions placed on the Company. Under the new order, the Company resumed
operations under limited oversight by a court appointed monitor to review
expenditures of the Company within specified limits and monitor sales
information.
On April 6, 1998, the defendants filed a counterclaim against the FTC
alleging that the FTC acted unlawfully in obtaining an exparte restraining order
that was overbroad, harrassing and inappropriate to the Company's situation, and
that the FTC had acted in a pattern of deceit, coercion and harrasment to obtain
information from and about the defendents.
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<PAGE>
On April 13, 1998 the FTC and the Company agreed to a compromise and
settlement of the case. The Company did not admit to any violation of any law,
statute, rule, or regulation or to the commission of any wrongful act; however,
it believed that it reached a settlement that would end the litigation and
permit the Company to operate under reasonable restrictions. Such agreed order
of settlement included a permanent injunction against making any false or
misleading statement or misrepresentation about any business venture, product or
service offered by it and the potential income that might be derived therefrom.
The agreement with FTC included the payment to the FTC of refunds to
distributors which would be reimbursed to those distributors by FTC. Refunds due
prior to the FTC action were approximately $145,000 and increased to more than
$465,000 during the time of the FTC investigation. The Company believes that
many of the distributors were led to believe that the Company was being closed.
In addition, the Company paid an administrative fee of $35,000. The Company has
a policy of offering refunds to distributors for a period of ten days, and the
average rate of refunds experienced before the FTC action was approximately 10%
of sales.
Legal fees approximating $500,000 have been incurred and paid fighting
this action. These requests for refunds and legal fees have adversely affected
the Company's profitability and cash resources during the fourth quarter of
fiscal 1998. To meet these extraordinary expenses the Company encouraged warrant
holders to exercise, by reducing the exercise price of its Class A Warrants from
$6.00 to $4.00 per warrant as permitted by the instrument creating the warrant.
As of June 30, 1998, a total of 160,835 shares had been issued upon exercise of
warrants, generating $643,340 in additional equity. In addition, in June 1998
the Company issued Convertible Debentures for $400,000 and 350,000 shares of
Series B Preferred Stock for a purchase price of $3,500,000. The Company has
therefore obtained adequate cash to enable it to return to a full operating
level and meet its obligations for the foreseeable future.
MAXpc Technologies, Inc.
On March 13, 1998, the Company agreed to purchase all of the issued and
outstanding stock of MAXpc Technologies, Inc., subject to a 30 day due diligence
period. The Company believed that MAX provided an opportunistic source of
revenues that could be acquired for common stock and future development costs
and that could provide an entry into the rapidly expanding market for computer
equipment.
On April 13, 1998, the agreement became effective, and 200,000 shares
of common stock were issued to the Seller. At the same time, finders fees of
10,000 shares of common stock were issued. MAX's assets consisted only of its
contract rights to acquire and develop its products and associated know-how and
good will. Since the acquisition, the activities of MAX have consisted of the
development of a marketing program, purchase and registration of trade marks and
trade names and development of packaging materials.
MAXpc Technologies, Inc. has the exclusive rights to manufacture and
market a high performance, multi-media add-in card providing both hardware and
software for inclusion in either new or existing computers.
Forward Looking Statements
Statements that are not historical facts included in this registration
statement are "forward-looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995 that involve risks and uncertainties
that could cause actual results to differ from projected results. Such
statements address activities, events or developments that the Company expects,
believes, projects, intends or anticipates will or may occur, including such
matters as future capital, business strategies, expansion and growth of the
Company's operations, cash flow, marketing of products and services, and
development of new products and services. Factors that could cause actual
results to differ materially ("Cautionary Disclosures") are described throughout
this registration statement. Cautionary Disclosures include, among others:
general economic conditions, the markets for and market price of the Company's
products and services, the Company's ability to find, acquire, market, develop
and produce new products and services, the strength and financial resources of
the Company's competitors, the Company's ability to find and retain skilled
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<PAGE>
personnel, labor relations, availability and cost of material and equipment, the
results of financing efforts, and regulatory developments and compliance. All
written and oral forward-looking statements attributable to the Company are
expressly qualified in their entirety by the Cautionary Disclosures. The Company
disclaims any obligation to update or revise any forward-looking statement to
reflect events or circumstances occurring hereafter or to reflect the occurrence
of anticipated or unanticipated events.
Item 3. Description of Property
Principal Plants and Other Property
On February 1, 1998, subsequent to the expiration of the Company's
lease from an unaffiliated party on its principal executive offices, located at
14990 Landmark Place, Suite 250, Dallas, Texas, the Company moved its principal
executive offices to 8115 Preston Road, Suite 800, Dallas, Texas 75225. The
premises, which are leased from an unaffiliated party, consist of 11,010 square
feet. The executive office facility contains five management offices, 11 work
stations, state of the art computers, and related software. Monthly rent is
$22,020 through the remainder of a sixty-four month Lease Term, which expires on
May 31, 2003.
The Company has a renewal option to extend the Lease Term for one
additional period of five years, at a rental rate equal to the prevailing market
for such premises at that time.
The Company's printing facility is located at 203 South Ector Drive,
Euless, Texas. The premises, which are leased from an unaffiliated party,
consist of approximately 19,777 square feet. Monthly rent is $3,500, commencing
January 1, 1996 through March 31, 1999. The Company has a renewal option to
extend the lease for one term of three years, at a monthly rental of $4,025. The
facility contains printing and pre-press equipment, including Polar cutting
machines, Challenge cutting machines, GBC double sided and single sided
laminating machines, multiple Cannon color processors, photo scanners, and
Macintosh computers. Approximately 1,500 square feet of this facility is used
for storage of executive office records, and for the shipping and programming of
CVP equipment. Pursuant to an Addendum to the lease, the Company has an
exclusive option to purchase the property, such option to terminate on March 31,
1999. The Company has the option to purchase the property and will consider the
possibility during 1998. The Company believes its current facilities are
adequate for its current needs.
The Company's facility which houses HBG is located in St. George, Utah.
The premises, which are leased from a company owned by a director of HBG,
consist of approximately 3,000 square feet. Monthly rent is $3,000 under a
month-to-month lease.
All of the Company's properties are covered by property and casualty
insurance the Company believes to be adequate.
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Item 4. Security Ownership of Certain Beneficial Owners and Management
The following table sets forth information as of June 30, 1998 with
respect to persons known to the Company to be the beneficial owners of more than
5% of its voting securities and with respect to the beneficial ownership of such
securities by each director of the Company and by all directors and executive
officers of the Company as a group.
<TABLE>
Number of Shares Number of Shares
(Assuming No Exercise (Assuming Exercise
Name and Address of of Class A Warrants of Class A Warrants
Beneficial Owner by Holder) (1) Percent by Holder)(1) Percent
- ----------------------- ---------------------- ------- -------------------- -------
<S> <C>
Lawrence R. Biggs, Jr. 1,070,000 2,158,000
8115 Preston Road
Eighth Floor-East
Dallas, Texas 75225
Lawrence A. Cahill 2,000,000 3,900,000
3330 Southgate, S.W.
Cedar Rapids, Iowa 52404
Donald G. McLellan(2) 800,000 1,460,000
8115 Preston Road
Eighth Floor-East
Dallas, Texas 75225
Ronald L. Brown 50,000 --
Suite 2200
One Galleria Tower
Dallas, Texas 75240
Directors and executive 4,332,500 7,980,500
officers as a group
(9 persons)
</TABLE>
- ---------------
(1) Messrs. Biggs, Cahill, McLellan and all executive officers and
directors as a group beneficially own Class A Warrants exercisable
until June 1999 at a price of $4.00 per share for 1,088,000, 1,900,000,
660,000 and 3,648,000 shares of Common Stock, respectively.
(2) Mr. McLellan has 50% voting and investment power in Vision Finance and
Management, a family company which owns of record 400,000 shares of
Common Stock and 400,000 Class A Warrants included in the table as
being beneficially owned by Mr. McLellan. His spouse owns the other 50%
of Vision Finance and Management.
The Company is not aware of any arrangement which might result in a
change in control in the future.
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<PAGE>
Item 5. Directors, Executive Officers, Promoters and Control Persons
The following table sets forth certain information about the directors,
executive officers, and significant employees of Voxcom Holdings, Inc. and its
wholly-owned subsidiaries, Voxcom Systems, Inc., AmeraPress, Inc., and Home
Business Group, Inc.
<TABLE>
Position with Subsidiaries
Company(1)(2)(3)(4)
<S> <C>
Name Age Position with Company
Lawrence R. Biggs, Jr. 39 Chairman of the Board, (1)(2)(3)(4)
Chief Executive Officer (1)(2)
Donald G. McLellan 58 President, Secretary and
Director (1)(2)(3)(4)
Lawrence A. Cahill 61 Director (1)(2)
Ronald L. Brown 51 Director
Leslie D. Crone 45 Chief Financial Officer (1)(2)(3)(4)
Delmar E. Guenther 60 (1)
Gwynda Gee 30 (2)
Kim Crowther 46 (3)
Brian Jenson 37 (3)
Gary Raabe 32 (4)
</TABLE>
(1) Officer and/or Director of Voxcom Systems, Inc.
(2) Officer and/or Director of AmeraPress, Inc.
(3) Officer and/or Director of Home Business Group, Inc.
(4) Officer and/or Director of MAXpc Technologies, Inc.
Lawrence Biggs is the founder of the Company and has been Chairman of
the Board and Chief Executive Officer of Voxcom Holdings, Inc., Voxcom Systems,
Inc., and AmeraPress, Inc. since June 1997. Mr. Biggs is Chairman of the Board
of Home Business Group, Inc., holding that position since August 1997. During
1988, Mr. Biggs was Vice president of Public Telecom Corporation; a private
company that developed a microprocessor controlled desktop telephone designed
for specific network access. From 1989 to 1994, Mr. Biggs was president and CEO
of Strategic Telecom, Inc. ("Strategic"). While associated with Strategic, he
developed and contracted for the manufacture of the Access Phone, a product
patented under his name for specific applications, some of which are used by
Voxcom. During the time Mr. Biggs was associated with Strategic, in excess of
150,000 Access Phones were placed in hotel rooms throughout the United States.
During 1993, Strategic's board of directors rejected the attempt of an investor
group to sell the company. The investor's group filed an involuntary Chapter 7
Bankruptcy Proceeding in the United States Bankruptcy Court, District of
Delaware in November, 1994, which was subsequently converted to a Chapter 11
Bankruptcy Proceeding in January, 1995 and confirmed by the Court in May 1995.
Mr. Biggs resigned as president and CFO in November 1993. Mr. Biggs was a
founding director of the National Pay Telephone Association in 1984. He attended
the University of Nevada, Las Vegas from 1977 to 1981.
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<PAGE>
Donald G. McLellan has been President of Voxcom Holdings, Inc. since
June 1997, as well as Director of Voxcom Holdings, Inc., Voxcom Systems, Inc.,
and AmeraPress, Inc. since that date. He has been a Director of Home Business
Group, Inc. since August 1997. Mr. McLellan is a native of Australia where he
was involved in the formation and capitalization of entrepreneurial companies in
various industries. In 1989, he found the initial investment monies for
Strategic Telecom, Inc., and acted as a consultant to the Company until 1992,
when he was appointed C.F.O. In November 1993, Mr. McLellan became C.E.O. of
Strategic, serving in that capacity throughout the company's Chapter 11
bankruptcy proceeding, and until the confirmation of its Plan of Reorganization
in May 1995. Mr. McLellan became a Fellow of the Institute of Chartered Accounts
(the Australian equivalent to Certified Public Accountant) in 1963.
Lawrence Cahill has been a Director since June 1997. Mr. Cahill is the
President and Treasurer of Larken, Inc., a Cedar Rapids, Iowa-based hospitality
management company founded by Mr. Cahill and his brother in 1956. Larkin, Inc.
presently manages over fifteen hotels with approximately 3,500 rooms throughout
the continental United States and has been the largest franchiser of Holiday Inn
hotels. Mr. Cahill specializes in property acquisitions and private investments.
Ronald L. Brown has been a director since June, 1997. Mr. Brown is a
principal of the Dallas law firm of Glast, Phillips & Murray, P.C., which serves
as general counsel to the Company. He has been in the private practice of law
since 1975. In 1983-85, he was an adjunct professor of law at Southern Methodist
University. Mr. Brown serves on the Board of Directors of several privately
owned companies.
Leslie D. Crone, Chief Financial Officer, joined the Company in May
1998. Prior to this, he was employed as a senior manager at a public accounting
firm, Grant Thornton, LLP, from November 1989 to November 1997. He was
self-employed from December 1997 to May 1998.
Delmar E. Guenther, President of Voxcom Systems, Inc., joined Voxcom
Systems, Inc., in August 1994, to help develop the banking and processing
systems for Voxcom Systems' CVP. Prior to 1994, he was self-employed as the
owner of Merchant Financial Systems.
Gwynda Gee, President of AmeraPress, Inc., joined AmeraPress, Inc. as
Vice President of Operations in September 1996. In this capacity, Ms. Gee
restructured the customer service and production departments to maximize
employee efficiency, improve product quality and customer service. Ms. Gee was
named President of AmeraPress in January 1998. From November 1995 to August
1996, Ms. Gee was Vice President of Operations for Hardwarehouse. Ms. Gee was
Systems Director for Voxcom Systems from December 1994 to November 1995. Ms. Gee
jointed Strategic Telecom in 1989 and during the course of her tenure advanced
to Systems Director before her departure in December 1994. See the discussion
above under Mr. Biggs regarding the bankruptcy of Strategic Telecom.
Kim D. Crowther, President of Home Business Group, Inc. since April
1996. Prior to that he was employed by Financial Freedom Reports, Inc. for at
least five years as a motivational speaker.
Brian Jensen, Vice President and co-founder of Home Business Group,
Inc. since April 1996. From 1993 to the present he has served as President of
Vendworx, Incorporated, a supplier of candy vending machines.
Gary J. Raabe, CEO of MAXpc Technologies, Inc., since April 1998. Prior
to that, from 1993 to 1998, he was the owner and operator of Computer Broker.
From 1991 to 1993, he was the operations manager of The Logic Approach. He has
specialized in the development of low cost telecomuting, televideo conferencing,
televideo marketing, video surveillance and video-configuration systems.
Directors serve for a term of one year or until their successors are
elected and qualified. Directors do not receive cash compensation for serving as
such.
Executive officers are appointed by and serve at the will of the Board
of Directors. There are no family relationships between or among any of the
directors or executive officers of the Company.
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<PAGE>
By virtue of their activities in founding and organizing the Company,
as well as their beneficial ownership of its voting securities, Lawrence R.
Biggs, Jr., Donald G. McLellan, and Lawrence A. Cahill may be deemed to be
"promoters" of the Company.
Item 6. Executive Compensation
The following summary compensation table sets forth certain information
regarding compensation paid during each of the three fiscal years ended June 30,
1998, 1997 and 1996, to the persons serving as the Company's chief executive
officer and each executive officer whose annual compensation exceeded $100,000.
Name and Principal Fiscal Total Remuneration
Position Year Salary Commissions(2)
- ------------------ ------ ------ -----------
Lawrence Biggs, 1998 $151,392 $562,252
Chairman 1997 151,392 384,655
1996(1) 153,078 23,751
Donald G. McLellan, 1998 $102,000 $280,490
President 1997 102,000 192,328
1996(1) 72,450 16,771
Gwynda Gee 1998 $101,458 $ 39,057
- ---------------------
(1) Compensation paid by Voxcom Systems prior to acquisition by Voxcom Holdings.
(2) Commissions paid are computed on a percentage of gross sales of AmeraPress
as follows: Lawrence Biggs - 4%, Donald G. McLellan - 2%, and Gwenda Gee - 0.4%.
There is no employment agreement with any executive officer. There are
no salary, bonus or incentive plans covering cash or securities except the
Company's 1997 Stock Bonus Plan relating to individuals or one-person service
corporations who render legal, professional, or consulting services to the
Company.
Item 7. Certain Relationships and Related Transactions
Lawrence R. Biggs, Jr., a director, executive officer and promoter of
the Company, acquired 30,000 shares of Voxcom Systems for $300 upon its
organization in November 1994.
Lawrence Cahill, a director and promoter of the Company, acquired
50,000 shares of Voxcom Systems for $500.
Donald G. McLellan, a director, executive officer and promoter of the
Company, acquired 20,000 shares of Voxcom Systems for $200 and transferred
10,000 shares to Vision Finance and Management.
The Company acquired all of the issued and outstanding stock of Voxcom
Systems in exchange for 4,000,000 shares of the Company's voting Common Stock
and 4,000,000 Class A Warrants pursuant to an Agreement and Plan of
Reorganization, dated June 9, 1997 In connection with this transaction, Lawrence
R. Biggs, Jr. received 1,200,000 of such shares and 1,200,000 of such warrants;
Donald G. McLellan and Vision Finance and Management received 800,000 of such
shares and 800,000 of such warrants, and Lawrence Cahill received 2,000,000 of
such shares and 2,000,000 of such warrants. See Part I, Item 1, "Description of
Business--General" and Part I, Item 5, "Directors, Executive Officers, Promoters
and Control Persons."
17
<PAGE>
In June 1997, concurrent with the closing of the Agreement and Plan of
Reorganization, the Company acquired 10,000 shares of AmeraPress common stock,
representing 100% of shares outstanding, pursuant to a Stock Purchase Agreement
dated June 9, 1997. Such transaction resulted from an arms'-length negotiation
between the AmeraPress sellers (Messrs. Biggs, McLellan and Cahill), and the
prior management of the Company. The consideration for the sale of AmeraPress
common stock was a Promissory Note in the amount of $10,000,000 payable to
Messrs. Biggs, McLellan, and Cahill payable in 24 monthly installments of
principal plus interest on the unpaid balance at the prime rate, secured by a
Security Agreement-Pledge in favor of Messrs. Biggs, Cahill and McLellan as
Secured Parties. Messrs. Cahill, Biggs and McLellan realized a gain of
approximately $9.3 million on the sale of AmeraPress. In December 1997, the
Company requested and the holders agreed to exchange the remaining $8,000,000
amount of the Promissory Note for 80,000 shares of the Company's Series A
Preferred Stock, valued at $8,000,000. Such exchange was made in order to
improve the Company's financial condition and cash flow. See Item 8
"-Description of Securities, Series A Preferred Stock."
In April 1998, Lawrence Cahill advanced $300,000 to pay the fees of law
firms representing the Company in the case against the Federal Trade Commission.
The Company repaid such loan without interest in June 1998.
In May 1998, the Company entered into a Consulting Agreement with Jande
International Holdings, LLC to provide consulting services consisting of
financial and securities advice and in connection therewith issued 110,000
shares of common stock valued at $275,000. An affiliate of Jande, Ely Mandell,
was the owner of 25% of the outstanding common stock of the Company prior to the
reorganization in June 1997.
In June 1998, the Company entered into a Consulting Agreement with S.G.
Financial, Inc., to provide consulting services consisting of exploring
marketing opportunities in Germany for the Company's products and securities,
and in connection therewith issued 30,000 shares of common stock valued at
$75,000. An affiliate of S.G. Financial, David Lezak, was a former director,
executive officer and owner of 25% of the common stock of the Company prior to
the reorganization in June 1997.
Item 8. Description of Securities
The authorized capital stock of the Company consists of 75,000,000
shares of capital stock, composed of 25,000,000 shares of Common Stock, par
value $0.0001 per share ("Common Stock"), and 50,000,000 shares of Preferred
Stock, par value $.0001 per share ("Preferred Stock").
Common Stock
Voting Rights. Each holder of shares of Common Stock is entitled to one
vote for each share of Common Stock for the election of directors and on each
other matter submitted to a vote of the stockholders of the Company. The holders
of Common Stock have exclusive voting power on all matters at any time. No
Preferred Stock with superior voting rights is issued and outstanding.
Liquidation Rights. Upon liquidation, dissolution or winding up of the
Company, holders of shares of Common Stock are entitled to share ratably in
distributions of any assets after payment in full or provision for all amounts
due creditors and provision for any liquidation preference of any other class or
series of stock of the Company then outstanding.
Dividends. Dividends may be declared by the Board of Directors and paid
from time to time to the holders of Common Stock, on such record dates as may be
determined by the Board of Directors, out of the net profits or surplus of the
Company.
Warrants
All stockholders of the Company hold one Class A Warrant for each
common share acquired by them. Each warrant entitles the holder to purchase one
share of Common Stock for $4.00. If not exercised, Class A Warrants expire in
June 1999. If exercised, the holder will receive one Class B Warrant for each
18
<PAGE>
Class A Warrant exercised. Each Class B Warrant entitles the holder to purchase
one share of common stock for $20.00. If not exercised, Class B Warrants expire
in June 2000. At June 30, 1998, there were 4,839,101 Class A Warrants and
160,835 Class B Warrants outstanding.
Preferred Stock
The Board of Directors of the Company has the authority to divide the
Authorized Preferred Stock into series, the shares of each series to have such
relative rights and preferences as shall be fixed and determined by the Board of
Directors. The provisions of a particular series of Authorized Preferred Stock,
as designated by the Board of Directors, may include restrictions on the payment
of dividends on Common Stock. Such provisions may also include restrictions on
the ability of the Company to purchase shares of Common Stock or to purchase or
redeem shares of a particular series of Authorized Preferred Stock. Depending
upon the voting rights granted to any series of Authorized Preferred Stock,
issuance thereof could result in a reduction in the voting power of the holders
of Common Stock. In the event of any dissolution, liquidation or winding up of
the Company, whether voluntary or involuntary, the holders of each series of the
then outstanding Authorized Preferred Stock may be entitled to receive, prior to
the distribution of any asset or funds to the holders of Common Stock, a
liquidation preference established by the Board of Directors, together with all
accumulated and unpaid dividends. Depending upon the consideration paid for
Authorized Preferred Stock, the liquidation preference of Authorized Preferred
Stock and other matters, the issuance of Authorized Preferred Stock could result
in a reduction in the assets available for distribution to the holders of Common
Stock in the event of the liquidation of the Company.
As of June 30, 1998, the only outstanding Authorized Preferred Stock is
(I) a series of 100,000 authorized shares of Series A Preferred Stock of which
80,000 shares are outstanding and (ii) a series of 350,000 authorized shares of
Series B Preferred Stock, of which all 350,000 shares are outstanding. Following
is a brief summary of certain provisions of each of this Series of Authorized
Preferred Stock.
Series A Preferred Stock
Voting Rights. Holders of Series A Preferred Stock have no right to
vote their Shares, except that holders of Series A Preferred Stock, voting as a
separate class by majority vote, must approve any amendment to the Designation
of Rights and Preferences of Series A Preferred Stock, to (I) increase or
decrease the number of authorized shares of Series A Preferred Stock, (ii)
increase or decrease the Issue Price, (iii) effect an exchange, reclassification
or cancellation of all or part of the shares of Series A Preferred Stock, (iv)
effect an exchange, or create a right of exchange, of all or any part of the
shares of another class into shares of Series A Preferred Stock, (v) change the
designations, preferences, limitations, or relative rights of the Series A
Preferred Stock, (vi) change the shares of Series A Preferred Stock into the
shares of another class, or (viii) cancel or otherwise affect accumulated but
undeclared dividends on the Series A Preferred Stock.
Preemptive Rights. No holder of Series A Preferred Stock will be
entitled as a matter of right to subscribe or receive additional shares of any
class of stock of the Company, whether now or hereafter authorized, or any
bonds, debentures or other securities convertible into such stock.
Liquidation Rights. In the event of any liquidation, dissolution or
winding up of the Company, holders of Preferred Stock are entitled to be paid an
amount agreed to $100 per share. Such Preferred Stock before any accounts an
distributed to the holder of this Common Stock.
Conversion Rights. There are no conversion rights for holders of
Preferred Stock.
Dividends. The holders of Preferred Stock are not entitled to
receive any dividends.
Redemption Rights. The Preferred Stock is redeemable by the Company.
The redemption price is $100 per share.
Series B Preferred Stock
Voting Rights. Holders of Series B Preferred Stock have no right to
vote their shares, except as mandated by law and except that holders of Series B
Preferred Stock, voting as a separate class by majority vote, must approve any
19
<PAGE>
amendment to the Designation of Rights and Preferences of Series B Preferred
Stock, and any action of the Board of Directors, if such amendment or action
would (i) increase or decrease the number of authorized shares of Series B
Preferred Stock, (ii) increase or decrease the Issue Price (which is $10.00 per
share), (iii) effect an exchange, reclassification or cancellation of all or
part of the shares of Series B Preferred Stock, (iv) effect an exchange, or
create a right of exchange, of all or any part of the shares of another class
into shares of Series B Preferred Stock, (v) change the designations,
preferences, limitations, or relative rights of the Series B Preferred Stock,
(vi) change the shares of Series B Preferred Stock into the shares of another
class, or (viii) cancel or otherwise affect accumulated but undeclared dividends
on the Series B Preferred Stock.
Preemptive Rights. No holder of Series B Preferred Stock is entitled as
a matter of right to subscribe or receive additional shares of any class of
stock of the Company or any bonds, debentures or other securities convertible
into such stock.
Liquidation Rights. In the event of any liquidation, dissolution or
winding up of the Company, holders of Series B Preferred Stock are entitled to
be paid an amount per share equal to the Issue Price, plus any accumulated and
unpaid dividends, prior to any payments or distributions to the holders of
Common Stock, but on a pro rata basis with holders of Series A Preferred Stock.
Conversion Rights. Each share of Series B Preferred Stock is
convertible, at the option of the holder thereof at any time prior to
redemption, into that number of shares of Common Stock (the "Conversion Rate")
determined by dividing the Issue Price by the lesser of (i) $3.24375 or (ii) 80%
of the average closing bid price of the Common Stock in the over-the-counter
market for the five trading days preceding the date upon which notice of
conversion is given. The number of shares issuable upon conversion is also
subject to certain anti-dilution adjustments for stock splits and combinations,
reclassifications and mergers, consolidations or sales of all or substantially
all of the assets of the Company.
Dividends. The holders of Series B Preferred Stock are entitled to
receive annual dividends in the amount of 5% of the Issue Price, payable
quarterly in cash or, at the option of the Company, in shares of Common Stock at
the rate equal to the Conversion Rate. Dividends are payable monthly and no
dividend or other distribution shall be paid on shares of Common Stock or any
other class of stock or series of Preferred Stock ranking equal or junior to the
Series B Preferred Stock until all cumulative dividends have been paid.
Redemption Rights. The Series B Preferred Stock is redeemable by the
Company so long as all dividends on Series B Preferred Stock have been paid or
set apart for payment. The redemption price per share is 120% of the Issue Price
of the shares redeemed, plus the amount of any unpaid accumulated dividends to
the date of redemption. Any record holder of Series B Preferred Stock may
convert such Series B Preferred Stock into Common Stock prior to such date of
redemption by delivering written notice to the Company of such holder's election
to convert all or a portion of such shares.
Certain Rights of Holders of Common Stock
The Company is a Nevada corporation organized under Chapter 78 of the
Nevada Revised Statutes ("NRS"). Accordingly, the rights of the holders of
Common Stock are governed by Nevada law. Moreover, the rights of holders of
Common Stock differ from the rights of such holders of equity in the corporation
or other entity acquired by virtue of different provisions appearing in the
Articles of Incorporation ("Articles") and bylaws of the Company. Although it is
impracticable to set forth all of the material provisions of the NRS or the
Company's Articles and bylaws, the following is a summary of certain significant
provisions of the NRS and/or the Company's Articles and bylaws that affect the
rights of securities holders.
Possible Anti-Takeover Provisions
Special Meetings of Stockholders; Director Nominees. The Company's
bylaws and Articles provide that special meetings of stockholders may be called
by stockholders only if the holders of at least 66-2/3% of the Common Stock join
in such action. The bylaws and Articles also provide that stockholders desiring
to nominate a person for election to the Board of Directors must submit their
nominations to the Company at least 60 days in advance of the date on which the
20
<PAGE>
last annual stockholders' meeting was held, and provide that the number of
directors to be elected (within the minimum - maximum range of 3-21 set forth in
the Articles and bylaws) shall be determined by the Board of Directors or by the
holders of at least 66 2/3% of the Common Stock. While these provisions of the
Articles and bylaws have been established to provide a more cost-efficient
method of calling special meetings of stockholders and a more orderly and
complete presentation and consideration of stockholder nominations, they could
have the effect of discouraging certain stockholder actions or opposition to
candidates selected by the Board of Directors and provide incumbent management a
greater opportunity to oppose stockholder nominees or hostile actions by
stockholders. The affirmative vote of holders of at least 66-2/3% of the Common
Stock is necessary to amend, alter or adopt any provision inconsistent with or
repeal any of these provisions.
Removal of Directors. The Articles of the Company provide that
directors may be removed from office only for "cause" by the affirmative vote of
holders of at least 66 2/3% of the Common Stock. "Cause" means proof beyond the
existence of a reasonable doubt that a director has been convicted of a felony,
committed gross negligence or willful misconduct resulting in a material
detriment to the Company, or committed a material breach of such director's
fiduciary duty to the Company resulting in a material detriment to the Company.
The inability to remove directors except for "cause" could provide incumbent
management with a greater opportunity to oppose hostile actions by stockholders.
The affirmative vote of holders of at least 66 2/3% of the Common Stock is
necessary to amend, alter or adopt any provision inconsistent with or repeal
this provision.
Control Share Statute. Sections 78.378 - 78.3793 of the NRS constitute
Nevada's control share statute, which set forth restrictions on the acquisition
of a controlling interest in a Nevada corporation which does business in Nevada
(directly or through an affiliated corporation) and which has 200 or more
stockholders, at least 100 of whom are stockholders of record and residents of
Nevada. A controlling interest is defined as ownership of Common Stock
sufficient to enable a person directly or indirectly and individually or in
association with others to exercise voting power over at least 20% but less than
33.3% of the Common Stock, or at least 33.3% but less than a majority of the
Common Stock, or a majority or more of the Common Stock. Generally, any person
acquiring a controlling interest must request a special meeting of stockholders
to vote on whether the shares constituting the controlling interest will be
afforded full voting rights, or something less. The affirmative vote of the
holders of a majority of the Common Stock, exclusive of the control shares, is
binding. If full voting rights are not granted, the control shares may be
redeemed by the Company under certain circumstances. If full voting rights are
granted, stockholders voting against such rights being granted may demand
payment from the Company for the fair value of their shares. The Board of
Directors may adopt a resolution amending the Bylaws within ten days following
the acquisition of any controlling interest to provide that the foregoing
provisions shall not be applicable to such acquisition. The Company does not
believe the foregoing provisions of the NRS is presently applicable to it
because it does not presently conduct business in Nevada; however, if in the
future it does conduct business in Nevada then such provisions may apply.
Business Combination Statute. Sections 78.411 - 78.444 of the NRS set
forth restrictions and prohibitions relating to certain business combinations
and prohibitions relating to certain business combinations with interested
stockholders. These Sections generally prohibit any business combination
involving the Company and a person that beneficially owns 10% or more of the
Common Stock (an "Interested Stockholder") (I) within five years after the date
(the "Acquisition Date") the Interested Stockholder became an Interested
Stockholder, unless, prior to the Acquisition Date, the Company's Board of
Directors had approved the combination or the purchase of shares resulting in
the Interested Stockholder becoming an Interested Stockholder; or (ii) unless
five years have elapsed since the Acquisition Date and the combination has been
approved by the holders of a majority of the Common Stock not owned by the
Interested Stockholder and its affiliates and associates; or (iii) unless the
holders of Common Stock will receive in such combination, cash and/or property
having a fair market value equal to the higher of (a) the market value per share
of Common Stock on the date of announcement of the combination or the
Acquisition Date, whichever is higher, plus interest compounded annually through
the date of consummation of the combination less the aggregate amount of any
cash dividends and the market value of other dividends, or (b) the highest price
per share paid by the Interested Stockholder for shares of Common Stock acquired
at a time when he owned 5% or more of the outstanding shares of Common Stock and
which acquisition occurred at any time within five years before the date of
announcement of the combination or the Acquisition Date, whichever results in
the higher price, plus interest compounded annually from the earliest date on
which such highest price per share was paid less the aggregate amount of any
cash dividends and the market value of other dividends. For purposes of these
provisions, a "business combination" is generally defined to include (I) any
merger or consolidation of the Company or a subsidiary with or into an
21
<PAGE>
Interested Stockholder or an affiliate or associate; (ii) the sale, lease or
other disposition by the Company to an Interested Stockholder or an affiliate or
associate of assets of the Company representing 5% or more of the value of its
assets on a consolidated basis or 10% or more of its earning power or net
income; (iii) the issuance by the Company of any of its securities to an
Interested Stockholder or an affiliate or associate having an aggregate market
value equal to 5% or more of the aggregate market value of all outstanding
shares of the Company; (iv) the adoption of any plan to liquidate or dissolve
the Company proposed by or under an agreement with the Interested Stockholder or
an affiliate or associate; (v) any receipt by the Interested Stockholder or an
affiliate, except proportionately as a stockholder, of any loan, advance,
guarantee, pledge or other financial assistance or tax credit or other tax
advantage; and (vi) any recapitalization or reclassification of securities or
other transaction that would increase the proportionate shares of outstanding
securities owned by the Interested Stockholder or an affiliate. Sections 78.411
- - 78.444 of the NRS are presently applicable to the Company.
Special Meetings
The Company's bylaws and Articles provide that special meetings of the
stockholders of the Company may be called by the Chairman of the Board, the
Board of Directors or upon written request of stockholders holding not less than
66 2/3% of the Common Stock.
Mergers, Consolidations and Sales of Assets
Nevada law provides that an agreement of merger or consolidation, or
the sale or other disposition of all or substantially all of a corporation's
assets, must be approved by the affirmative vote of the holders of a majority of
the voting power of the corporation (except that no vote of the stockholders of
the surviving corporation is required to approve a merger if certain conditions
are met, unless the articles of incorporation of such corporation states
otherwise, and except that no vote of stockholders is required for certain
mergers between a corporation and a subsidiary), but does not require the
separate vote of each class of stock unless the corporation's articles of
incorporation provides otherwise (except that class voting is required in a
merger if shares of the class are being exchanged or if certain other rights of
the class are affected). The Company's Articles do not alter the provisions of
Nevada law.
Directors; Removal of Directors
Under Nevada law, the number of directors may be fixed by, or
determined in the manner provided in, the articles of incorporation or by-laws,
and the Board of Directors may be divided into classes as long as at least 25%
in number of the directors are elected annually. Nevada law further requires
that a corporation have at least one director. Directors may be removed under
Nevada law with or without cause by the holders of not less than two-thirds of
the voting power of the corporation, unless a greater percentage is set forth in
the articles of incorporation. See "-Possible Anti-Takeover Provisions Removal
of Directors" and "---Classification of Directors", above, for a further
discussion.
Limitation on Liability of Directors
Section 78.037 of the NRS provides that a Nevada corporation may limit
the personal liability of a director or officer to the corporation or its
stockholders for breaches of fiduciary duty, except that such provision may not
limit liability for acts or omissions which involve intentional misconduct,
fraud or a knowing violation of law, or payment of dividends or other
distributions in violation of the NRS. The Company's Articles provide that no
director shall be personally liable to the Company or its stockholders for
monetary damages or breach of fiduciary duty as a director, except for liability
(I) for any breach of the director's duty of loyalty to the Company or its
stockholders, (ii) for acts or omissions not in good faith or which involved
intentional misconduct or a knowing violation of law, (iii) liability under the
NRS, or (iv) for any transaction from which the director derived an improper
personal benefit.
In the opinion of the Securities and Exchange Commission, the
indemnification and limitation of liability provisions described in "--
Indemnification of Directors and Officers", above, and "-- Limitation on
Liability of Directors" would not eliminate or limit the liability of directors
and officers under the federal securities laws.
22
<PAGE>
Amendments to Bylaws
The Company's bylaws may be amended by the Board of Directors or
stockholders, provided, however that certain provisions can only be amended by
the affirmative vote of holders of at least 66 2/3% of the Common Stock. These
provisions relate to special meetings of stockholders, actions by written
consent of stockholders, nomination of directors by stockholders, proceedings
for the conduct of stockholder's meetings and the procedures for fixing the
number of and electing directors.
Appraisal Rights
The NRS provides dissenting or objecting security holders with the
right to receive the fair value of their securities in connection with certain
extraordinary corporate transactions. These appraisal rights are available with
respect to certain mergers and share exchanges and in connection with the
granting of full voting rights to control shares acquired by an interested
stockholder. However, unless the transaction is subject to the control share
provisions of the NRS, a stockholder of a Nevada corporation may not assert
dissenters' rights, in most cases, if the stock is listed on a national
securities exchange or held by at least 2,000 stockholders of record (unless the
articles of incorporation expressly provide otherwise or the security holders
are required to exchange their shares for anything other than shares of the
surviving corporation or another publicly held corporation that is listed on a
national securities exchange or held of record by more than 2,000 stockholders).
Distributions
Dividends and other distributions to security holders are permitted
under the NRS as authorized by a corporation's articles of incorporation and its
board of directors if, after giving effect to the distribution, the corporation
would be able to pay its debts as they become due in the usual course of
business and the corporation's total assets would exceed the sum of its total
liabilities plus (unless the articles of incorporation provide otherwise) the
amount needed to satisfy the preferential rights on dissolution of holders of
stock whose preferential rights are superior to those of the shares receiving
the distribution.
Preemptive Rights
Under the NRS, stockholders of Nevada corporations organized prior to
October 1, 1991 have preemptive rights unless the articles of incorporation
expressly deny those rights or the stock issuance is among those described in
Section 78.265 of the NRS. A stockholder who has preemptive rights is entitled,
on terms and conditions prescribed by the board of directors, to acquire
proportional amounts of the corporation's unissued or treasury shares in most
instances in which the board has decided to issue them. The Company's Articles
expressly deny availability of preemptive rights to the Company's stockholders.
Cumulative Voting
Under the NRS, the articles of incorporation of a corporation may
provide for cumulative voting, which means that the stockholders are entitled to
multiply the number of votes they are entitled to cast by the number of
directors for whom they are entitled to vote and then cast the product for a
single candidate or distribute the product among two or more candidates.
Cumulative voting is not available to stockholders of a Nevada corporation,
however, unless its articles expressly provide for that voting right, and the
Company's Articles do not contain a provision permitting stockholders to
cumulate their votes when electing directors.
23
<PAGE>
PART II
Item 1. Market Price of and dividends on the Registrant's Common Equity and
Other Shareholder Matters
Market Information
The Company's Common Stock is traded in the over-the-counter market on
the Nasdaq Bulletin Board under the Symbol "VXCH." The following table shows the
price range of the Company's Common Stock since it was initially quoted in
November 1997 until June 30, 1998.
<TABLE>
BID ASK
High Low High Low
<S> <C>
Fourth Quarter 1997 6-1/8 2 6-5/8 2-7/8
First Quarter 1998 5-3/4 1-5/8 6-1/4 1-7/8
Second Quarter 1998 6 2-1/8 6-1/4 2-3/8
Holders
</TABLE>
As of June 30, 1998, there were 233 record holders of the Company's
Common Stock, 3 holders of the Company's Series A Preferred Stock and 2 holders
of the Company's Series B Preferred Stock.
Dividends
The Company does not anticipate any stock or cash dividends on its
Common Stock in the foreseeable future.
Reports to Stockholders
With the effectiveness of this registration statement, the Company will
become subject to the reporting requirements of the Securities Exchange Act of
1934, as amended (the "Exchange Act"), and in accordance therewith will file
reports, proxy statements and other information with the Commission. Such
reports, proxy statements and other information can be inspected and copied at
the public reference facilities of the Commission at 450 Fifth Street, NW,
Washington, D.C. 20549 and at its New York Regional Office, Room 1300, 7 World
Trade Center, New York, NY 10048 and at its Chicago Regional Office,
Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago, IL
60661-2511. Copies of such material may also be obtained from the Public
Reference Section of the Commission at prescribed rates. The Company's
Registration Statement on Form SB-2 as well as any reports to be filed under the
Exchange Act can also be obtained electronically after the Company has filed
such documents with the Commission through a variety of databases, including
among others, the Commission's Electronic Data Gathering, Analysis and Retrieval
("EDGAR") program, Knight-Ridder Information, Inc., Federal Filings/Dow Jones
and Lexis/Nexis. Additionally, the Commission maintains a Website (at
http://www.sec.gov) that contains such information regarding the Company.
Item 2. Legal Proceedings
See Part I, Item 2, "Management Discussion and Analysis or Plan of
Operations - Recent Developments - Federal Trade Commission". In addition to the
refunds made in such action, the Company also receives requests for refunds from
time to time from purchasers of HBG distributor materials, some of which also
threaten litigation if not paid. The Company's policy is to offer refunds for
ten days, after which it generally denies these requests, although the Company
will often seek a mutually satisfactory settlement of disputed claims.
Item 3. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
Item 4. Recent Sales of Unregistered Securities
The following information sets forth certain information for all
securities the Company sold during the past three years without registration
under the Securities Act of 1933 (the "Securities Act"). All transactions were
effected in reliance on the exemption from registration afforded by Section 4(2)
of the Securities Act for transactions not involving a public offering.
There were no underwriters in any of these transactions.
Pursuant to the Plan of Reorganization of Weaver Arms Corporation, a
Nevada corporation, as confirmed by the United States Bankruptcy Court, Central
District of California, on January 20, 1994, and in satisfaction of all approved
claims therein, the Company (then known as Newcorp One, Inc.) in June 1997,
issued 1,000,000 shares of its common stock and 1,000,000 Class A Warrants, to
Weaver Arms' creditors, Certificate of Indebtedness holders, shareholders, and
administrative claimants.
24
<PAGE>
In accordance with an Agreement and Plan of Reorganization, dated June
9, 1997, this Company issued 4,000,000 shares of its common stock, $.0001 par
value per share, and 4,000,000 Class A Warrants to Lawrence R. Biggs, Jr.,
Lawrence Cahill, and Donald G. McLellan and Vision Finance and Management, the
shareholders of Voxcom Systems, Inc., in the amount of 1,200,000 shares,
2,000,000 shares, 400,000 shares and 400,000 shares, respectively.
Pursuant to the 1997 Stock Bonus Plan, the Company issued a total of
575,000 shares of its common stock at a recorded price of $1.00 per share to
Rick Graf, Gwynda Gee, Ronald L. Brown, Kim Crowther, Brian Jensen, and Herbert
Sievers, for services provided to the Company.
In December 1997, the Company issued 80,000 shares of Series A
Preferred Stock at an issue price of $100 per share to Messrs. Cahill, Briggs
and McLellan in conversion of $8,000,000 principal amount of promissory notes.
In April 1998, the Company issued 210,000 shares of Common Stock to
Gary Raabe, John Higgins and Terry Casner in connection with the acquisition of
the Computer Based Business for a recorded issue price of $2.50 per share.
In May 1998, the Company issued 110,000 shares of Common Stock pursuant
to SEC Rule 504 under a Consulting Agreement with Jande International Holdings,
LLC, for consideration consisting of future services to the Company, including
financial and securities advice.
In June 1998, the Company issued 30,000 shares of Common Stock to S.G.
Financial, Inc. under a Consulting Agreement with S.G. Financial pursuant to SEC
Rule 504 to provide future services consisting of exploring marketing
opportunities in Germany for the Company's products and securities.
Also in June 1998, the Company issued $400,000 of 5% debentures due May
31, 2000 under SEC Rule 504 to Carmax Investments, Ltd., an unrelated party,
pursuant to a Securities Purchase Agreement. Such debentures are convertible
into common stock at a conversion price equal to the lower of the average market
price on the five days preceding issuance of the debentures ($3.24375) or 80% of
the market price for the five days preceding the conversion date. In July, 1998,
$150,000 of such debentures were converted into 71,499 shares of common stock.
Also in June 1998, the Company issued 350,000 shares of Series B
Preferred Stock for a issue price of $3,500,000, pursuant to a Securities
Purchase Agreement with Dominion Capital Fund, Ltd. and Sovereign Partners
Limited Partnership, pursuant to SEC Rule 506. See "Description of Securities -
Series B Preferred Stock." The Company is obligated under the Securities
Purchase Agreement to file a registration statement to provide for resale of the
Common Stock issuable upon conversion.
Item 5. Indemnification of Directors and Officers
Article VII, Section 710 of the Company's Bylaws provides for
indemnification of officers and directors to the fullest extent permitted by the
provisions of the General Corporation Law of Nevada (the "Nevada Law").
Under Section NRS 78.7502 of the Nevada Law, a corporation may
indemnify a past or present director or officer against liability incurred in a
proceeding if (1) the director or officer conducted himself in good faith, (2)
the director or officer reasonably believed that his conduct was in, or not
opposed to, the corporation's best interest, and (3) in the case of any criminal
action or proceeding, the director or officer had no reasonable cause to believe
his conduct was unlawful; provided, however, that a corporation may not
indemnify a director or officer (I) in connection with a proceeding by or in the
right of the corporation in which the director or officer is adjudged liable to
the corporation, unless, and only to the extent that, the court in which the
action or suit was brought or other court of competent jurisdiction determines
that the director or officer is fairly and reasonably entitled to
indemnification in view of all the relevant circumstances.
In addition, pursuant to subsection 3 of Section NRS 78.7502 of the
Nevada Law, a corporation shall indemnify a director or officer who is wholly
successful, on the merits or otherwise, in the defense of any proceeding to
which he is a party because he is or was a director or officer against
reasonable expenses incurred by him in connection with the proceeding.
25
<PAGE>
PART F/S
The following financial statements are filed as part of this
registration statement on Form 10-SB. Financial Statements as of June 30, 1997
and for the year then ended have been audited by Grant Thornton LLP, as stated
in their report. Audited Financial Statements for the year ended June 30, 1996
are not available, and unaudited financial statements are included pursuant to
the Form 10-SB, Part F/S. Financial Statements for the nine month periods ended
March 31, 1997 and 1998 have not been audited, but are believed by management to
contain all accruals and adjustments required for a fair presentation of the
financial condition and results of operations of the Company in accordance with
generally accepted accounting principles.
Report of Independent Certified Public Accountants
Consolidated Balance Sheets as of June 30, 1997 and March 31, 1998 (unaudited)
Consolidated Statements of Earnings for the years ended June 30, 1996
(unaudited) and 1997 and the nine months ended March 31, 1997 (unaudited) and
1998 (unaudited)
Consolidated Statement of Stockholders' Equity (Deficit) for the years ended
June 30, 1996 (unaudited) and 1997 and the nine months ended March 31, 1998
(unaudited)
Consolidated Statements of Cash Flows for the years ended June 30, 1996
(unaudited) and 1997 and the nine months ended March 31, 1997 (unaudited) and
1998 (unaudited)
Notes to Consolidated Financial Statements
F - 1
<PAGE>
Report of Independent Certified Public Accountants
Board of Directors and Stockholders
Voxcom Holdings, Inc.
We have audited the accompanying consolidated balance sheet of Voxcom Holdings,
Inc. and Subsidiaries as of June 30, 1997, and the related consolidated
statements of earnings, stockholders' equity (deficit), and cash flows for the
year 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 financial statements referred to above, present fairly, in
all material respects, the consolidated financial position of Voxcom Holdings,
Inc., and Subsidiaries as of June 30, 1997, and the consolidated results of
their operations and their consolidated cash flows for the year then ended, in
conformity with generally accepted accounting principles.
GRANT THORNTON LLP
Dallas, Texas
October 28, 1997
F - 2
<PAGE>
<TABLE>
<CAPTION>
Voxcom Holdings, Inc.
CONSOLIDATED BALANCE SHEETS
March 31,
ASSETS June 30, 1997 1998
------------- ----------
(unaudited)
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 375,687 $ 728,304
Inventories 363,409 378,312
Receivables -- 411,465
Other current assets 41,618 408,371
----------- -----------
Total current assets 780,714 1,926,452
PROPERTY AND EQUIPMENT, AT COST
Machinery and equipment 323,606 679,227
Furnishings 103,281 451,609
----------- -----------
426,887 1,130,836
Less accumulated depreciation 117,895 188,306
----------- -----------
308,992 942,530
OTHER ASSETS 222,735 1,016,201
----------- -----------
$ 1,312,441 $ 3,885,183
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES
Current maturities of notes payable to stockholders $ 5,000,000 $ 79,701
Accounts payable 536,953 2,285,710
Accrued expenses 66,551 619,323
Income taxes payable 194,541 533,323
----------- -----------
Total current liabilities 5,798,045 3,518,057
NOTES PAYABLE TO STOCKHOLDERS, less current maturities 4,640,000 --
COMMITMENTS -- --
STOCKHOLDERS' EQUITY (DEFICIT)
Preferred stock, $100 par value; authorized, 50,000,000 shares;
issued and outstanding, 80,000 shares at March 31 (unaudited) -- 8,000,000
Common stock, $.0001 par value; authorized, 25,000,000 shares;
issued and outstanding, 4,999,937 shares at June 30 and 5,574,937
shares at March 31 (unaudited) 500 557
Additional paid-in capital -- 574,943
Accumulated deficit (9,126,104) (8,208,374)
----------- -----------
(9,125,604) 367,126
----------- -----------
$ 1,312,44 $ 3,885,183
=========== ===========
</TABLE>
F - 3
<PAGE>
<TABLE>
<CAPTION>
Voxcom Holdings, Inc.
CONSOLIDATED STATEMENTS OF EARNINGS
Nine months ended
Year ended June 30, March 31,
----------------------------- ----------------------------------
1996 1997 1997 1998
---- ---- ---- ----
(unaudited) (unaudited)
<S> <C> <C>
Net sales $2,005,486 $13,420,766 $9,596,882 $17,002,945
Cost of sales 424,198 1,883,107 1,331,136 2,076,074
---------- ----------- ---------- ----------
Gross profit 1,581,288 11,537,659 8,265,746 14,926,871
Selling, general and
administrative expenses 2,291,121 8,375,352 6,045,902 13,334,084
---------- ----------- --------- -----------
Operating income (loss) (709,833) 3,162,307 2,219,844 1,592,787
Interest expense - 44,247 - 141,734
---------- ----------- ----------- ----------
Earnings (loss) before
income taxes (709,833) 3,118,060 2,219,844 1,451,053
Income taxes - 194,541 106,585 533,323
---------- ----------- ---------- --------
Net earnings (loss) $ (709,833) $ 2,923,519 $2,113,259 $ 917,730
========== =========== ========== ===========
Earnings (loss) per share - basic ($.14) $.17
==== ===
Weighted average shares outstanding 4,999,937 5,507,938
========= =========
Unaudited pro forma information (Note L):
Earnings before income taxes $3,118,060 $2,219,844
Pro forma income tax expense 1,153,682 821,342
--------- --------
Pro forma net earnings $1,964,378 $1,398,502
========= =========
Pro forma earnings per share - basic $.39 $.28
=== ====
Weighted average shares outstanding 4,999,937 4,999,937
========= =========
</TABLE>
F - 4
<PAGE>
<TABLE>
<CAPTION>
Voxcom Holdings, Inc.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
Additional
Common stock Preferred stock paid-in
-------------------------- --------------------------
Shares Amount Shares Amount capital
------ ------ ------ ------ -----------
<S> <C> <C> <C>
Balances at July 1, 1995 100,000 $ 1,000 -- $ -- $ 444,000
Net loss for the year -- -- -- -- --
Capital contributions -- -- -- -- 850,000
------------ ------------ ------------ ------------ ------------
Balances at June 30, 1996 (unaudited) 100,000 1,000 -- -- 1,294,000
Reorganization (Note A) Merger of
Voxcom Holdings, Inc.
And Voxcom Systems, Inc. 4,899,937 (500) -- -- (1,294,000)
Notes issued for acquisition
of AmeraPress, Inc. -- -- -- -- --
Distributions to stockholders -- -- -- -- --
Net earnings for the year -- -- -- -- --
------------ ------------ ------------ ------------ ------------
Balances at June 30, 1997 4,999,937 500 -- -- --
Issuance of stock 575,000 57 -- -- 574,943
Conversion of debt -- -- 80,000 8,000,000 --
Net earnings for the period -- -- -- -- --
------------ ------------ ------------ ------------ ------------
Balances at March 31, 1998 (unaudited) 5,574,937 $ 557 80,000 $ 8,000,000 $ 574,943
============ ============ ============ ============ ============
</TABLE>
Accumulated
deficit Total
------------ ------------
Balances at July 1, 1995 $ (714,290) $ (269,290)
Net loss for the year (709,833) (709,833)
Capital contributions -- 850,000
------------ ------------
Balances at June 30, 1996 (unaudited) (1,424,123) (129,123)
Reorganization (Note A) Merger of
Voxcom Holdings, Inc.
And Voxcom Systems, Inc. 1,294,500 --
Notes issued for acquisition
of AmeraPress, Inc. (10,000,000) (10,000,000)
Distributions to stockholders (1,920,000) (1,920,000)
Net earnings for the year 2,923,519 2,923,519
------------ ------------
Balances at June 30, 1997 (9,126,104) (9,125,604)
Issuance of stock -- 575,000
Conversion of debt -- 8,000,000
Net earnings for the period 917,730 917,730
------------ ------------
Balances at March 31, 1998 (unaudited) $ (8,208,374) $ 367,126
============ ============
The accompanying notes are an integral part of this statement.
F - 5
<PAGE>
<TABLE>
<CAPTION>
Voxcom Holdings, Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine months ended
Year ended June 30, March 31,
-------------------------- -------------------------
1996 1997 1997 1998
------ ------ ------ ------
(unaudited) (unaudited)
<S> <C> <C> <C>
Cash flows from operating activities
Net earnings (loss) $ (709,833) $ 2,923,519 $ 2,113,259 $ 917,730
Adjustments to reconcile net earnings (loss)
to net cash provided by operating activities:
Write-off of receivables -- 258,085 -- 10,657
Depreciation and amortization 5,320 71,489 48,019 185,731
Stock issued for services -- -- -- 25,000
Change in operating assets and liabilities
Receivables -- -- -- (422,122)
Other current assets (354,940) 65,288 178,580 (366,753)
Inventories (60,354) (303,459) (356,855) (14,903)
Other assets (54,830) (67,898) (7,592) (358,786)
Accounts payable and accrued
expenses 466,759 149,245 36,574 2,301,529
Income taxes payable -- 194,541 106,585 338,782
----------- ----------- ----------- -----------
Net cash provided by (used in)
operating activities (707,878) 3,290,810 2,118,570 2,616,865
Cash flows from investing activities
Acquisition of property and equipment (120,687) (263,978) (227,918) (703,949)
Cash flows from financing activities
Capital contributions 850,000 -- -- --
Payments on notes payable to stockholders -- (760,000) (400,000) (1,560,299)
Distributions paid to stockholders -- (1,920,000) (1,225,000) --
----------- ----------- ----------- -----------
Net cash used in financing activities 850,000 (2,680,000) (1,625,000) (1,560,299)
Net increase in cash 21,435 346,832 265,652 352,617
Cash at beginning of period 7,420 28,855 28,855 375,687
----------- ----------- ----------- -----------
Cash at end of period $ 28,855 $ 375,687 $ 294,507 $ 728,304
=========== =========== =========== ===========
Supplemental disclosure of cash flow information:
Interest paid $ -- $ -- $ -- $ 185,981
Income taxes $ -- $ -- $ -- $ --
Noncash investing and financing activities
Common stock issued for services and
noncompetition agreements $ -- $ -- $ -- $ 575,000
</TABLE>
The accompanying notes are an integral part of these statements.
F - 6
<PAGE>
Voxcom Holdings, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information with respect to March 31, 1998, the year ended June 30, 1996
and the nine month periods ended March 31, 1997 and 1998 is unaudited)
NOTE A - BASIS OF PRESENTATION
The accompanying financial statements include the accounts of Voxcom
Holdings, Inc. (Holdings) and its subsidiaries, Voxcom Systems, Inc.
(Systems), AmeraPress, Inc. (AmeraPress) and Home Business Group, Inc.
(HBG), collectively, "the Company."
Holdings, formerly Newcorp One, Inc., was incorporated in 1996. On June 17,
1997, Holdings, which had no operations and no significant assets or
liabilities, issued 4,000,000 shares of its common stock (equal to 80% of
its then outstanding shares) for all of the outstanding capital stock of
Systems.
Since the stockholders of Systems owned 80% of the common stock of Holdings
after the sale of Systems, Systems is deemed to be the acquiring
corporation for accounting purposes. Concurrent with the above
transactions, Holdings acquired all of the outstanding common stock of
AmeraPress in exchange for a $10,000,000 note, payable in 24 equal monthly
installments. AmeraPress was incorporated on June 19, 1997 and succeeded to
the business of Voxcom Sales, L.L.C. (Voxcom Sales).
AmeraPress and Holdings were under common control. Accordingly, the
acquisition of AmeraPress has been accounted for in a manner similar to a
pooling of interests. The $10,000,000 note given in the acquisition of
AmeraPress has been deemed a distribution to the shareholders of AmeraPress
for accounting purposes and resulted in a charge to stockholders' equity of
a like amount.
Home Business Group, Inc. (HBG), a wholly-owned subsidiary, commenced
operations on October 1, 1997.
The financial statements include the operations of Systems and Voxcom Sales
from July 1, 1996 and AmeraPress and Holdings from June 17, 1997, and HBG
from October 1, 1997.
NOTE B - BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
Business
AmeraPress sells materials to home-based businesses and produces laminated,
customized sports, trading, and greeting cards sold by those businesses. HBG
conducts seminars and sells introductory kits to home-based businesses.
AmeraPress and its predecessor, Voxcom Sales, L.L.C., accounted for
approximately 89% of total revenues for the year ended June 30, 1997.
Systems sells and provides services related to credit card verification
units for merchants.
Advertising Costs
The Company charges advertising costs to expense when incurred. Advertising
costs for the year ended June 30, 1997 were approximately $213,000.
Cash and Cash Equivalents
Cash and cash equivalents include cash in banks and all highly liquid
investments with maturities of three months or less when purchased.
Inventories
F-7
<PAGE>
Voxcom Holdings, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information with respect to March 31, 1998, the year ended June 30, 1996
and the nine month periods ended March 31, 1997 and 1998 is unaudited)
NOTE B-BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES-Continued
Inventories consist principally of finished goods and are stated at the
lower of cost or market; cost is determined using the first-in, first-out
method.
Property and Equipment
Property and equipment are stated at cost. Depreciation is computed on a
straight-line basis over the estimated lives of the individual assets,
ranging from five to seven years.
Revenue Recognition
Sales of products and services are recorded as products are shipped or
services are rendered.
Earnings (Loss) Per Share
The Company adopted Statement of Financial Accounting Standards No. 128
(SFAS No. 128) effective December 31, 1997. In accordance with SFAS No.
128, the Company computes basic earnings or loss per share based on the
weighted average number of common shares outstanding. Diluted earnings per
share is computed based on the weighted average number of common shares
outstanding plus the number of additional common shares that would have
been outstanding if dilutive potential common shares, consisting of stock
purchase warrants, had been issued. For all periods presented, there was no
dilutive effect from outstanding stock purchase warrants.
The computation of weighted average shares outstanding gives retroactive
effect to the shares issued by Holdings in the acquisition of Systems (Note
A).
Use 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 - 8
<PAGE>
Voxcom Holdings, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information with respect to March 31, 1998, the year ended June 30, 1996
and the nine month periods ended March 31, 1997 and 1998 is unaudited)
NOTE B - BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES - Continued
Interim Financial Statements
The accompanying interim financial statements are unaudited. They have been
prepared in accordance with generally accepted accounting principles for
interim financial information and Item 310(b) of Regulation S-B.
Accordingly, they do not include all the information and footnotes required
by generally accepted accounting principles for complete financial
statements. In the opinion of management, all adjustments (consisting of
normal recurring accruals) considered necessary for a fair presentation
have been included. Operating results for the interim periods are not
necessarily indicative of the results that may be expected for the full
year.
NOTE C - ACQUISITION OF BUSINESS
Effective October 1, 1997, the Company acquired certain assets and
liabilities of a company engaged in the business of home-based business
seminars for no consideration. The acquisition was accounted for as a
purchase, and the financial statements include the operations of the
acquired business since October 1, 1997.
The following unaudited pro forma data presents combined net sales and net
earnings assuming the acquisition had taken place at the beginning of
fiscal 1997. Pro forma net earnings reflect both the pro forma effect of
income taxes (see Note L) and the pro forma effect of the acquisition:
Nine months ended
Year ended March 31
June 30, 1997 1997 1998
------------- ---- ----
Net sales $21,968,000 $16,261,000 $19,449,000
Net earnings 1,936,000 1,185,000 1,406,000
Earnings per share .39 .24 .26
NOTE D - OTHER ASSETS
Other assets consist of the following:
June 30, 1997 March 31, 1998
(unaudited)
------------- --------------
Deposits $221,689 $ 596,576
Noncompetition agreements - 400,305
Other 1,046 19,320
-------- ----------
$222,735 $1,016,201
======== ==========
During 1997, the Company issued 500,000 shares in exchange for
non-compete agreements with various individuals. The agreements are being
amortized over their respective lives, ranging from 32 to 60 months.
F-9
<PAGE>
Voxcom Holdings, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information with respect to March 31, 1998, the year ended June 30, 1996
and the nine month periods ended March 31, 1997 and 1998 is unaudited)
NOTE E - NOTES PAYABLE
Notes payable to stockholders are due in 24 equal monthly installments of
principal plus interest. The Company has the right to defer all or any part
of any 12 installments by paying all accrued interest required on the date
of payment, provided that all principal and interest shall be paid by June
11, 2001. The notes bear interest at prime, adjusted each December 31. The
interest rate at June 30, 1997 was 8.5%. The notes are collateralized by all
of the outstanding shares of AmeraPress.
In December 1997, $8,000,000 principal amount of notes were exchanged for
80,000 shares of preferred stock. The preferred stock pays no dividends and
is redeemable at the option of the Company.
NOTE F - FAIR VALUE OF FINANCIAL INSTRUMENTS
The fair value of notes payable approximates carrying value because the
notes have variable interest rates. Due to their short-term nature, the fair
value of cash, cash equivalents and accounts payable approximates their
carrying value.
NOTE G - LEASE COMMITMENTS
The Company leases offices and warehouse space and equipment under various
noncancellable lease agreements. Total rent expense was $180,097 for the
year ended June 30, 1997. As of June 30, 1997, the future minimum rental
payments are as follows:
Year ending
June 30,
-----------
1998 $139,383
1999 111,096
2000 62,168
2001 56,958
2002 15,762
-------
$385,367
========
In February 1998, the Company entered into a new lease agreement for office
space with a five-year term. Monthly rental payments are approximately
$24,000.
NOTE H - INCOME TAXES
The provision for income taxes for the year ended June 30, 1997, consists of
the following:
Federal $ 52,257
State 142,284
--------
$194,541
========
F - 10
<PAGE>
Voxcom Holdings, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information with respect to March 31, 1998, the year ended June 30, 1996
and the nine month periods ended March 31, 1997 and 1998 is unaudited)
NOTE H - INCOME TAXES - Continued
Voxcom Sales, the predecessor to AmeraPress, was a limited liability
company. Therefore, federal income taxes on its earnings were the liability
of its stockholders. Following is a reconciliation of income taxes at the
federal statutory rate to income tax expense for the year ended June 30,
1997:
<TABLE>
<S> <C>
Tax at statutory rate $1,060,141
Earnings of Voxcom Sales, not subject to federal tax (838,629)
State income tax, net of federal benefit 131,646
Benefit of utilization of net operating loss carryovers of Systems (157,155)
Other (1,462)
----------
Income tax expense $ 194,541
==========
</TABLE>
At June 30, 1997, the Company had no remaining operating loss carryovers and
no material deferred income tax assets or liabilities.
NOTE I - STOCK PURCHASE WARRANTS
All stockholders of Holdings were given one Class A warrant for each common
share acquired by them. Each warrant entitles the holder to purchase one
share of common stock for $6.00. If not exercised, warrants expire in June
1999. If exercised, the holder will receive one Class B warrant for each
Class A warrant. Each Class B warrant entitles the holder to purchase one
share of common stock for $20.00 and expires in June 1999.
At June 30, 1997, there were 4,999,937 Class A warrants outstanding; none
had been exercised.
In March 1998, the Company reduced the exercise price of the class A
warrants to $4.00.
F - 11
<PAGE>
Voxcom Holdings, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information with respect to March 31, 1998, the year ended June 30, 1996
and the nine month periods ended March 31, 1997 and 1998 is unaudited)
NOTE J - INDUSTRY SEGMENTS
The Company operates in two industry segments, as described in Note B.
Financial information by segment as of June 30, 1997 and for the year then
ended is as follows:
<TABLE>
Home-based Credit card
businesses verification Corporate Consolidated
<S> <C> <C>
Sales to unaffiliated customers $12,008,786 $1,411,980 $ - $13,420,766
=========== ========== ========== ===========
Operating income $ 2,700,086 $ 462,221 $ - $ 3,162,307
Corporate expenses - - (44,247) (44,247)
----------- ---------- ---------- -----------
Earnings before income taxes $ 2,700,086 $ 462,221 $ (44,247) $ 3,118,060
=========== ========== ========== ===========
Identifiable assets at June 30, 1997 $ 1,168,394 $ 144,047 $ - $ 1,312,441
=========== ========== ========== ===========
Capital expenditures $ 250,208 $ 13,770 $ - $ 263,978
=========== ========== ========== ===========
</TABLE>
Operating income is revenue less operating expenses, exclusive of corporate
interest expense.
NOTE K - FEDERAL TRADE COMMISSION SETTLEMENT (unaudited)
In April 1998, the Company and the Federal Trade Commission (FTC) agreed to
a compromise and settlement of a lawsuit filed by the FTC in February 1998.
The FTC had alleged violations of the FTC Act in connection with the
Company's business of marketing sales opportunities for home-based
businesses.
The agreement resulted in refunds by the Company to distributors in the
amount of approximately $145,000 which were due at the time the lawsuit was
filed, plus an additional $320,000 which arose during the FTC's
investigation after the lawsuit was filed. The Company believes that many of
the distributors were led to believe during the investigation that the
Company was being closed. The Company has a policy of making refunds to
distributors for a period of ten days after receipt of goods.
Legal fees in connection with this matter were approximately $500,000.
F - 12
<PAGE>
Voxcom Holdings, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information with respect to March 31, 1998, the year ended June 30, 1996
and the nine month periods ended March 31, 1997 and 1998 is unaudited)
NOTE L - PRO FORMA DATA
As discussed in Note G, Voxcom Sales was a limited liability company, and
income taxes on its earnings were the liability of its shareholders. The
unaudited pro forma income tax information included in the statements of
earnings presents income tax expense as though the Company had been subject
to federal and state income taxes for all periods presented.
F - 13
<PAGE>
PART III
Item 1. Index to Exhibits
The following list describes the exhibits filed as part of this
registration statement on Form 10-SB:
Exhibit No. Description of Document
2.01 Agreement and Plan of Reorganization, dated
June 9, 1997, among Newcorp One, Inc. and the
shareholders of Voxcom Systems, Inc.
2.02.1 Stock Purchase Agreement, dated June 30, 1997,
among Voxcom Holdings, Inc. and the
shareholders of AmeraPress, Inc.
2.02.2 Promissory Note, dated June 30, 1997, in
connection with Stock Purchase Agreement
between Voxcom Holdings, Inc. and the
Shareholders of AmeraPress, Inc.
2.02.3 Security Agreement-Pledge, dated June 30, 1997,
in connection with Promissory Note between
Voxcom Holdings, Inc. and the Shareholders of
AmeraPress, Inc.
2.03.1 Stock Purchase Agreement regarding MAXpc
2.03.2 Employment Agreement with Gary Raabe
3.01 Restated Articles of Incorporation of
Newcorp One, Inc., dated June 12, 1997.
3.02 By-laws of Voxcom Holdings, Inc.
3.03 Certificate of Decrease in Authorized and
Issued Shares.
3.04 Certificate of Designation regarding Series A Preferred Stock
*3.05 Certificate of Designation regarding Series B Preferred Stock
*4.01.1 Securities Purchase Agreement dated June 19, 1998 with
Carmax Investments, Inc.
*4.01.2 5% Convertible Debenture due May 31, 2000 dated June 19, 1998
III-1
<PAGE>
*4.02. 1 Securities Purchase Agreement dated June 22, 1998 among
the Company and Dominion Capital Fund, Ltd. and
Sovereign Partners, Limited Partnership
*4.02.2 Registration Rights Agreement
10.01 Consulting Agreement and Covenant Not to
Compete, dated July 1, 1997, between the Company
and Kim Crowther and Brian Jensen.
10.02 1997 Stock Bonus Plan
10.03 Promissory Note and Purchase Money Security
Agreement between the Company and General
Binding Corporation, dated March 27, 1997.
10.04 Settlement Agreement with FTC
*10.05 Consulting Agreement with Jande International
Holdings, LLC
*10.06 Consulting Agreement with S.G. Financial, Inc.
11.01 Earnings per Share
21.01 Subsidiaries
*27.01 Financial Data Schedule
- --------------------
*Filed with this Amendment No. One. Others were filed with Form 10-SB on May 15,
1998.
Item 2 - Description of Exhibits - Not applicable
III - 2
<PAGE>
SIGNATURES
In accordance with Section 12 of the Securities Exchange Act of 1934,
the Registrant has caused this Registration Statement to be signed on its behalf
by the undersigned, thereunto duly authorized.
VOXCOM HOLDINGS, INC.
By: /s/ Donald G. McLellan
-----------------------------
Donald G. McLellan, President
August 3, 1998
III - 3
VOXCOM HOLDINGS, INC.
Amended and Restated
Certificate of Designations, Preferences and
Rights of Preferred Stock
By Resolution of the Board of Directors
I, Donald G. McLellan, President and Secretary, of Voxcom Holdings,
Inc., a corporation organized and existing under the General Corporation Law of
the State of Nevada, in accordance with the provisions of Section 78.195 and
78.1955 of the Nevada Revised Statutes thereof, DO HEREBY CERTIFY:
That, pursuant to authority conferred upon the Board of Directors by
the Articles of Incorporation (or an amendment thereto) of said Corporation,
said Board of Directors, at a meeting duly held on June 15, 1998, adopted an
Amendment and Restatement of the Certificate of Preferences and Rights of
Preferred Stock providing for the issuance of a series of Three Hundred Fifty
Thousand (350,000) shares of Series B Preferred Stock, which resolution is as
follows:
WHEREAS, pursuant to the authority of the Board of Directors
in accordance with its Articles of Incorporation, the Corporation
created on June 11, 1998, a series of Preferred Stock known as the
Series A Preferred Stock; and
WHEREAS, the Corporation had previously created in December
1997, a series of Preferred Stock known as the Series A Preferred
Stock; and
WHEREAS, the Corporation wishes to completely amend and
restate the Certificate of Designations, Preferences and Rights of the
Series A Preferred Stock filed on June 11, 1998, it is therefore,
RESOLVED, that pursuant to the authority vested in the Board
of Directors of this Corporation in accordance with the provisions of
its Articles of Incorporation, the Corporation's Series A Preferred
Stock filed on June 11, 1998 which contained the dividend rate, rights
of redemption, conveyance rights, prices at which shares of such series
may be redeemed and other features as set forth on Exhibit A to these
minutes, is hereby amended and restated in its entirety by the
- 1 -
<PAGE>
statement of rights and preferences contained in the Amendment and
Restatement contained in Exhibit B hereto; and
RESOLVED FURTHER, that the Series A Preferred Stock created on
June 11, 1998 is hereby redesignated in the amendment hereby as Series
B Preferred Stock, and
RESOLVED FURTHER, that the Series A Preferred Stock created by
Certificate of Designations, Rights and Preferences in December 1997 is
unaffected by the filing on June 11, 1998 and the filing hereby, and
RESOLVED FURTHER, that after the filing hereof, there shall be
two series of Preferred Stock outstanding, the Series A Preferred Stock
created in December 1997 and the Series B Preferred Stock having the
rights and preferences set forth on Exhibit B, and
RESOLVED FURTHER, that no shares of Preferred Stock have been
issued pursuant to the Certificate of Designation, Rights and
Preferences filed on June 11, 1998. IN WITNESS WHEREOF, said Voxcom
Holdings, Inc. has caused its corporate seal to be hereunto affixed and
this certificate to be signed by Donald G. McLellan, its President and
Secretary this 17th day of June, 1998.
/S/ Donald G. McLellan
By: ---------------------------------
Donald G. McLellan, President and
Secretary
STATE OF TEXAS ss.
ss.
COUNTY OF DALLAS ss.
On June 17, 1998 personally appeared before me, a Notary Public, Donald
G. McLellan, President and Secretary, of Voxcom Holdings, Inc., who acknowledged
that he executed the above instrument on behalf of said corporation.
/s/ Lori Scott
----------------------------------
Notary Public, State of Texas
(Seal)
- 2 -
<PAGE>
EXHIBIT A
SERIES A PREFERRED STOCK
Following is a statement of the original rights and preferences of the
Series A Preferred Stock as filed on June 11, 1998, none of which were issued,
that is superseded in its entirety by the right and preferences set forth in
Exhibit B.
1. Voxcom Holdings, Inc. (the "Company") establishes a series of Preferred
Stock pursuant to the authority contained in the Articles of Incorporation of
the Company, to be known as Series A Preferred Stock, par value $0.0001 per
share.
2. There shall be authorized the issuance of 350,000 shares of Series A
Preferred Stock.
3. The issue price of Series A Preferred Stock shall be $10.00 per share,
(the "Issue Price") issuable in exchange for cash.
4. A dividend shall be payable in cash on Series A Preferred Stock, in the
annual amount of 5% of the Issue Price, payable quarterly on January 1, April 1,
July 1 and October 1, of each year, beginning July 1, 1998, in cash or, at the
option of the Company, in shares of the Company's common stock, par value
$0.0001 per share (the "Common Stock") at a rate equal to the Conversion Rate
(as defined herein) in effect as of the payment date. Such dividends shall be
cumulative from the date of issue, so that no dividend (other than a dividend
payable in Common Stock of the Company) or other distribution shall be paid or
declared or made, and no amounts shall be applied to the purchase or redemption
of the Common Stock or any other class of stock or series of Preferred Stock
ranking equal or junior to the Series A Preferred Stock as to dividends unless
full cumulative dividends for all past dividend periods shall have been paid or
declared and set apart for payment, and full dividends for the then current
dividend period shall have been or simultaneously therewith shall be paid or
declared and set apart for payment, on outstanding Series A Preferred Stock.
5. In the event of any dissolution, liquidation or winding up of the
Company, whether voluntarily or involuntarily, the holders of Series A Preferred
Stock, without any preference among them, shall be entitled to receive in cash
out of the assets of the Company, whether capital or surplus or otherwise,
before any distribution of the assets shall be made to the holders of Common
Stock, an amount equal to the aggregate Issue Price of their shares, together,
in all cases, with unpaid accumulated dividends, if any, whether such dividends
are earned, declared or otherwise, to the date fixed for such payment. After
payment to the holders of the Series A Preferred Stock of the full preferential
amounts hereinbefore provided for, the holders of Series A Preferred Stock will
have no other rights or claims to any of the remaining assets of the Company,
either upon distribution of such assets or upon dissolution, liquidation or
winding up. The sale of all or substantially all of the property of the Company
to, or the merger, consolidation or reorganization of the Company into or with,
any other company, or the purchase or redemption
- 3 -
<PAGE>
by the Company of any shares of any class of its Preferred Stock or its Common
Stock or any other class of its stock shall not be deemed to be a distribution
of assets or a dissolution, liquidation or winding up for the purposes of this
paragraph.
6. So long as full cumulative dividends on all outstanding shares of Series
A Preferred Stock for all dividend periods have been paid or declared and set
apart for payment and subject to any applicable requirements of Nevada law, then
following satisfaction of such conditions, the Company may, at its option, from
time to time redeem the whole or any part of the shares of Series A Preferred
Stock, and the redemption price thereof shall be equal to 120% of the Issue
Price of the shares so redeemed, plus the amount of unpaid accumulated
dividends, if any, to the date of such redemption. The Company may only redeem
outstanding shares of Series A Preferred Stock after giving each record holder
of Series A Preferred Stock at such holder's last address, as shown on the
records of the Company, at least twenty (20), but not more than fifty (50),
days' notice thereof in writing by mail, postage prepaid. Except as may be
limited herein, all such redemptions of Series A Preferred Stock shall be
effected in accordance with any procedure for redemptions set forth in the
General Corporation Law of the State of Nevada. Shares of Series A Preferred
Stock which are redeemed shall be restored to the status of authorized but
unissued shares.
On or before the date fixed for redemption, the Company, if it elects to
call such shares for redemption, shall provide for payment of a sum sufficient
to redeem the shares called for redemption either (1) by setting aside the sum,
separate from its other funds, in trust for the benefit of the holders of the
shares to be redeemed, or (2) by depositing such sum in a bank or trust company
as a trust fund, with irrevocable instructions and authority to the bank or
trust company to give or complete the notice of redemption and to pay, on or
after the date fixed for redemption, the redemption price on surrender of
certificates evidencing the shares of Series A Preferred Stock called for
redemption. From and after the date fixed for redemption, (a) the shares shall
be deemed to be redeemed, (b) dividends thereon shall cease to accumulate, (c)
such setting aside or deposit shall be deemed to constitute full payment of the
shares, (d) the shares shall no longer be deemed to be outstanding, (e) the
holders thereof shall cease to be shareholders with respect to such shares, and
(f) the holders thereof shall have no rights with respect thereto, except the
right to receive their proportionate shares of the fund set aside pursuant
hereto or deposited upon surrender of their respective certificates. Any
interest accrued on funds set aside pursuant hereto or deposited shall belong to
the Company. If the holders of shares do not, within six (6) years after such
deposit, claim any amount so deposited for redemption thereof, the bank or trust
company shall upon demand pay over to the Company the balance of the funds so
deposited, and the bank or trust company shall thereupon be relieved of all
responsibility to such holders.
7. Holders of the Series A Preferred Stock shall have no right to cause
redemption of the Series A Preferred Stock by the Company.
8. Except as provided by law or as set forth herein, the holders of Series
A Preferred Stock shall not have any right to vote for any purpose or on any
matter whatsoever. Holders of
- 4 -
<PAGE>
Series A Preferred Stock shall not be entitled to receive notice of any meeting
of shareholders of the Company at which they are not entitled to vote.
9. The holders of shares of any and all series of Series A Preferred Stock
outstanding on the record date for any such meeting of the shareholders shall be
entitled to vote, as a single class, upon any proposed amendment to the
Company's Articles of Incorporation, and their consent shall be required for any
action of the Board of Directors, if such amendment or action would (i) increase
or decrease the aggregate number of authorized shares of Series A Preferred
Stock, (ii) increase or decrease the Issue Price of shares of Series A Preferred
Stock, (iii) effect an exchange, reclassification or cancellation of all or part
of the shares of Series A Preferred Stock, (iv) effect an exchange, or create a
right of exchange, of all or any part of the shares of another class into shares
of Series A Preferred Stock, (v) change the designations, preferences,
limitations, or relative rights of the Series A Preferred Stock herein, (vi)
change the shares of Series A Preferred Stock into the same or a different
number of shares, either with or without par value, of the same class or another
class or classes, or (vii) cancel or otherwise affect accumulated but undeclared
dividends on the shares of Series A Preferred Stock, and no such proposed
amendment or action shall be deemed to have been adopted and approved without
the affirmative vote or consent of holders of a majority of shares of Series A
Preferred Stock then outstanding.
10. Subject to and upon compliance with the provisions hereof, each holder
of shares of Series A Preferred Stock shall have the right, at such holder's
option, at any time prior to the dated fixed for redemption, to convert all or
any portion (in minimum increments of $25,000 per exercise if for less than all
shares owned) of the Issue Price of shares of Series A Preferred Stock into
shares of Common Stock (the "Common Stock") of the Company at a conversion price
per share of Common Stock equal to the lesser of (i) the average bid price of
the Common Stock in the over-the-counter market for the five trading days
preceding the closing of the issuance of the Series A Preferred Stock, or (ii)
80% of the average bid price of the Common Stock in the over- the counter market
for the five trading days preceding the date upon which notice of conversion is
given (referred to herein as the "Conversion Price").
The Conversion Price and number of common shares issuable upon conversion
shall be adjusted to take into account any and all increases or reductions in
the number of shares of Common Stock outstanding which may have occurred since
the date of issuance of the Series A Preferred Shares by reason of a split,
share dividend, merger, consolidation, or other capital change or reorganization
affecting the number of outstanding common shares so as fairly and equitably to
preserve so far as reasonably possible the original conversion rights of the
Series A Preferred Shares, and provided further that when such adjustment is
required, no notice of redemption shall be given until such amendment and
adjustment shall have been accomplished.
Upon any conversion by a holder of all shares of Series A Preferred Stock,
cumulative unpaid dividends shall be paid to the holder concurrently with the
presentation of the shares for conversion. Upon any conversion of less than all
shares owned by such holder, cumulative unpaid dividends on such portion not
converted shall remain payable and shall be paid on the next scheduled dividend
payment date. Upon conversion of all or a part of the outstanding Series A
- 5 -
<PAGE>
Preferred Shares, the Series A Preferred Shares surrendered for conversion shall
be canceled and returned to the status of authorized but unissued shares. Under
no circumstances shall the Company be obligated to issue any fractional shares.
In order to exercise the conversion privilege, the holder of Series A
Preferred Stock shall present the shares to the Company at its office,
accompanied by written notice to the Company that the holder elects to convert
all or a portion of Series A Preferred Stock. Such notice shall also state the
name or names (with the address or addresses) in which the certificate or
certificates representing Common Stock which shall be issuable on such
conversion shall be issued. As soon as practicable after the receipt of such
notice and the presentation of the Shares of the Series A Preferred Stock, the
Company shall issue and shall deliver to the holder a certificate or
certificates for the number of full shares of common stock issuable upon the
conversion of Series A Preferred Shares (or portion hereof), and provision shall
be made for any fraction of a Unit as provided above. Such conversion shall be
deemed to have been effected immediately prior to the close of business on the
date on which such notice shall have been received by the Company, and the
shares of Series A Preferred Stock shall have been presented as aforesaid, and
conversion shall be at the Conversion Price in effect at such time, and at such
time the rights (other than rights in respect of accrued dividends) of the
holder of the shares of Series A Preferred Stock as such holder shall cease (to
the extent the shares of Series A Preferred Stock are so converted) and the
person or persons in whose name or names any certificate or certificates for
Common Stock shall be issuable upon such conversion shall be deemed to have
become the holder or holders of record of the Common Stock represented thereby.
Upon conversion by a holder of only a part of the shares of Series A Preferred
Stock held by such holder, new shares of Series A Preferred Stock representing
the shares not converted shall be issued in the name of such holder.
Notwithstanding the holder's designation of names in which shares of Common
Stock are to be issued, nothing contained in this Section shall permit the
holder of the Series A Preferred Shares to make any transfer or assignment of
its rights hereunder which is otherwise prohibited by the Series A Preferred
Shares or by law.
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<PAGE>
EXHIBIT B
SERIES B PREFERRED STOCK
1. Creation of Series. Voxcom Holdings, Inc. (the "Company") establishes a
series of Preferred Stock pursuant to the authority contained in the Articles of
Incorporation of the Company, to be known as Series B Preferred Stock, par value
$0.0001 per share.
2. Authorized Shares. There shall be authorized the issuance of 350,000
shares of Series B Preferred Stock.
3. Issue Price. The issue price of Series B Preferred Stock shall be $10.00
per share, (the "Issue Price") issuable in exchange for cash.
4. Dividends. A dividend shall be payable in cash on Series B Preferred
Stock, in the annual amount of 5% of the Issue Price, payable quarterly on
January 1, April 1, July 1 and October 1, of each year, beginning July 1, 1998,
in cash or, at the option of the Company, in shares of the Company's common
stock, par value $0.0001 per share (the "Common Stock") at a rate equal to the
Conversion Rate (as defined herein) in effect as of the payment date. Such
dividends shall be cumulative from the date of issue, so that no dividend (other
than a dividend payable in Common Stock of the Company) or other distribution
shall be paid or declared or made, and no amounts shall be applied to the
purchase or redemption of the Common Stock or any other class of stock or series
of Preferred Stock ranking equal or junior to the Series B Preferred Stock as to
dividends unless full cumulative dividends for all past dividend periods shall
have been paid or declared and set apart for payment, and full dividends for the
then current dividend period shall have been or simultaneously therewith shall
be paid or declared and set apart for payment, on outstanding Series B Preferred
Stock.
5. Preference. In the event of any dissolution, liquidation or winding up
of the Company, whether voluntarily or involuntarily, the holders of Series B
Preferred Stock, without any preference among them, shall be entitled to receive
in cash out of the assets of the Company, whether capital or surplus or
otherwise, before any distribution of the assets shall be made to the holders of
Common Stock, an amount equal to the aggregate Issue Price of their shares,
together, in all cases, with unpaid accumulated dividends, if any, whether such
dividends are earned, declared or otherwise, to the date fixed for such payment.
After payment to the holders of the Series B Preferred Stock of the full
preferential amounts hereinbefore provided for, the holders of Series B
Preferred Stock will have no other rights or claims to any of the remaining
assets of the Company, either upon distribution of such assets or upon
dissolution, liquidation or winding up. The sale of all or substantially all of
the property of the Company to, or the merger, consolidation or reorganization
of the Company into or with, any other company, or the purchase or redemption by
the Company of any shares of any class of its Series B Preferred Stock or its
Common Stock or any other class of its stock shall not be deemed to be a
distribution of assets or a dissolution, liquidation or winding up for the
purposes of this paragraph.
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<PAGE>
6. Company Redemption.
6.1 Right to Redeem. So long as full cumulative dividends on all
outstanding shares of Series B Preferred Stock for all dividend periods have
been paid or declared and set apart for payment and subject to any applicable
requirements of Nevada law, then following satisfaction of such conditions, the
Company may, at its option, from time to time redeem the whole or any part of
the shares of Series B Preferred Stock for cash, and the redemption price (the
"Redemption Price") thereof shall be equal to 120% of the Issue Price of the
shares so redeemed, plus the amount of unpaid accumulated dividends, if any, to
the date such Redemption Price is paid to the holder. The redemption option
shall be exercisable upon and by the Company's providing written notice (the
"Redemption Notice") to the holders of Series B Preferred Stock at least five
(5) business days and not more than ten (10) business days prior to the payment
of the Redemption Price (the "Redemption Date"). The holder shall have the right
to convert any or all of the shares included in the Redemption Notice by giving
a notice of conversion within five (5) business days after its receipt of the
Redemption Notice. If such conversion notice is given, such conversion will take
precedence over the Redemption Notice.
6.2 Partial Redemption. In the event of any redemption of only a part of
the outstanding Series B Preferred Stock, the Company shall effect such
redemption pro rata among all the holders of the then outstanding Series B
Preferred Stock based on the number of shares of such stock held by each holder.
6.3 Redemption Procedure. At least five (5) but not more than ten (10)
business days prior to the Redemption Date, the Redemption Notice shall be
mailed, via next day delivery, postage prepaid, to each holder of record (at the
close of business on the business day next preceding the day on which notice is
given) of Series B Preferred Stock to be redeemed at such holder's address
appearing on the stock record books of the Company, notifying such holder of the
redemption to be effected, specifying the number of shares to be redeemed from
such holder, the Redemption Date, the Redemption Price, the place at which
payment may be obtained and that such holders' Conversion Rights (as set forth
in Section 10 hereof) as to such shares have terminated and calling upon such
holder to surrender to the Company, in the manner and at the place designated in
the Redemption Notice, such holder's certificate or certificates representing
the shares to be redeemed. On or after the Redemption Date, each holder of
shares of Series B Preferred Stock to be redeemed shall surrender such holder's
certificate or certificates representing such shares to the Company, in the
manner and at the place designated in the Redemption Notice, and thereupon the
Redemption Price of such shares shall be payable to the order of the person
whose name appears on such certificates or certificates as the record owner
thereof and each surrendered certificate shall be canceled. In the event less
than all the shares represented by any such certificates are redeemed, a new
certificate shall be issued representing the unredeemed shares. From and after
the Redemption Date, unless there shall have been a default in payment of the
Redemption Price, all rights of the holders of such shares as holders of Series
B Preferred Stock of the Company (except the right to receive the Redemption
Price without interest upon surrender of their certificate or certificates)
shall cease and terminate with respect to such shares, and such shares shall not
thereafter be transferred on the books of the Company or be deemed to
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<PAGE>
be outstanding for any purpose whatsoever. If the funds of the Company legally
available for redemption of shares of Series B Preferred Stock on any Redemption
Date are insufficient to redeem the total number of shares of Series B Preferred
Stock to be redeemed on such date, those funds which are legally available will
be used to redeem the maximum possible number of such shares pro rata among the
holders of such shares to be redeemed. The shares of Series B Preferred Stock
not redeemed shall remain outstanding and entitled to all the rights and
preferences provided herein. At any time thereafter when additional funds of
this Company are legally available for the redemption of shares of Series B
Preferred Stock, such funds will immediately be used to redeem the balance of
the shares which the Company has become obligated to redeem on any Redemption
Date but which it has not redeemed.
6.4 Payment. At least one (1) day prior to the Redemption Date, the Company
shall deposit the Redemption Price of all outstanding shares of Series B
Preferred Stock designated for redemption in the Redemption Notice with a bank
or trust company having aggregate capital and surplus in excess of One Hundred
Million Dollars ($100,000,000) as a trust fund for the benefit of the respective
holders of the shares designated for redemption, and not yet redeemed.
Simultaneously, the Company shall deposit irrevocable instructions and authority
to such bank or trust company to immediately confirm the receipt of such deposit
to the holders of the Series B Preferred Stock being redeemed hereunder and pay
(by write transfer or otherwise as such holders shall direct), on and after the
date fixed for redemption or prior thereto, the Redemption Price of the Series B
Preferred Stock to the holders thereof upon surrender of their certificates. In
the event the Company fails to comply with the provisions of this Section 6 the
Company's redemption shall be canceled and any further right to redeem the
Series B Preferred Stock hereunder shall immediately cease and terminate and be
of no further force or effect. Any monies deposited by the Company pursuant to
this Section 6.4 remaining unclaimed the expiration of two (2) years following
the Redemption Date shall thereafter be returned to the Company, provided that
the stockholder to whom such monies would be payable shall be entitled, upon
proof of his ownership of the Series B Preferred Stock and payment of any bonds
requested by the Company, to receive such monies but without interest from the
Redemption Date.
7. Redemption by Holders. Except as may be specified in an agreement
executed by the Company, holders of the Series B Preferred Stock shall have no
right to cause redemption of the Series B Preferred Stock by the Company.
8. Voting. Except as provided by law or as set forth herein, the holders of
Series B Preferred Stock shall not have any right to vote for any purpose or on
any matter whatsoever. Notwithstanding the foregoing, holders of Series B
Preferred Stock shall be entitled to receive notice of any meeting of
stockholders of the Company, including meetings at which they are not entitled
to vote.
9. Permitted Voting. The holders of shares of any and all series of Series
B Preferred Stock outstanding on the record date for any such meeting of the
shareholders shall be entitled to vote, as a single class, upon any proposed
amendment to the Company's Articles of Incorporation, and their consent shall be
required for any action of the Board of Directors, if such amendment
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<PAGE>
or action would (i) increase or decrease the aggregate number of authorized
shares of Series B Preferred Stock, (ii) increase or decrease the Issue Price of
shares of Series B Preferred Stock, (iii) effect an exchange, reclassification
or cancellation of all or part of the shares of Series B Preferred Stock, (iv)
effect an exchange, or create a right of exchange, of all or any part of the
shares of another class into shares of Series B Preferred Stock, (v) change the
designations, preferences, limitations, or relative rights of the Series B
Preferred Stock herein, (vi) change the shares of Series B Preferred Stock into
the same or a different number of shares, either with or without par value, of
the same class or another class or classes, or (vii) cancel or otherwise affect
accumulated but undeclared dividends on the shares of Series B Preferred Stock,
and no such proposed amendment or action shall be deemed to have been adopted
and approved without the affirmative vote or consent of holders of a majority of
shares of Series B Preferred Stock then outstanding.
10. Conversion.
10.1 Conversion Price. Subject to and upon compliance with the provisions
hereof, each holder of shares of Series B Preferred Stock shall have the right,
at such holder's option, at any time prior to the dated fixed for redemption, to
convert all or any portion (but at least $10,000 per exercise if for less than
all shares owned) of the Issue Price of shares of Series B Preferred Stock into
shares of Common Stock (the "Common Stock") of the Company at a conversion price
per share of Common Stock (the "Conversion Price") equal to the lesser of (i)
the average closing bid price of the Common Stock in the over-the-counter market
for the five trading days preceding the closing of the issuance of the Series B
Preferred Stock (the "Fixed Conversion Price"), or (ii) 80% of the average
closing bid price of the Common Stock in the over-the counter market for the
five trading days preceding the date upon which notice of conversion is given.
10.2 Adjustments.
10.2.1 Adjustment for Stock Splits and Combinations. If the Company shall
at any time effect a subdivision of the outstanding shares of Common Stock (or
other securities into which the Series B Preferred Stock may be converted),
then, and in each such case, the Fixed Conversion Price as in effect immediately
before such subdivision shall be proportionately decreased and, conversely, if
the Company shall at any time combine the outstanding shares of Common Stock (or
other securities into which the Series B Preferred Stock may be converted),
then, and in each such case, the Fixed Conversion Price as in effect immediately
before such combination shall be proportionately increased.
10.2.2 Adjustment for Reclassification, Exchange and Substitution. If the
Common Stock (or other securities into which the Series B Preferred Stock may be
converted) shall at any time be reclassified or otherwise changed, whether by
reorganization, spin off, reclassification or otherwise (other than by a merger,
consolidation or sale of assets described in Section 10.2.3), then, and in each
such event, each share of Series B Preferred Stock shall thereafter be
convertible into the kind and amount of shares of stock and other securities or
property which the holder of that number of shares of Common Stock (or other
securities into which such share of Preferred
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<PAGE>
Stock shall be convertible immediately prior to such event would be entitled to
receive upon the occurrence of such event.
10.2.3 Merger, Consolidation and Sale of Assets. If the Company shall at
any time merge or consolidate with or into another Company (other than where the
Company is the surviving Company and there is no reclassification or change in
the Common Stock or other securities into which the Series B Preferred Stock may
be converted) or shall sell all or substantially all of its properties and
assets to any other person, then, as a part of such merger, consolidation or
sale, provision shall be made to assure that the holders of Series B Preferred
Stock shall thereafter be entitled to receive, upon conversion of the Series B
Preferred Stock, the kind and amount of shares of stock and other securities or
property of the Company, or of the successor Company resulting from such merger,
consolidation or sale, that the holders of that number of shares of Common Stock
(or other securities) into which the Preferred Stock shall be convertible
immediately prior to such merger, consolidation or sale would be entitled to
receive on such merger, consolidation or sale. In every such case, appropriate
adjustment shall be made in application of the provisions of this Section 10
with respect to the rights of the holders of Series B Preferred Stock after the
merger, consolidation or sale to the end that the provisions of this Section 10
(including adjustment of the Fixed Conversion Price then in effect and the kind
and amount of shares or other property into which the Series B Preferred Stock
may be converted) shall be applicable after that event, as nearly equivalent as
may be practicable.
10.2.4 Time of Adjustments to Conversion Price. All adjustments to the
Fixed Conversion Price, unless otherwise specified herein, shall be effective as
of the earlier of:
(i) the date of issue of the security causing the adjustment;
(ii) the effective date of a division or combination of shares, or
(iii) the record date of any action of holders of the Company's capital
stock of any class taken for the purpose of dividing or
combining shares or entitling stockholders to receive a
distribution or dividends payable in Common Stock.
10.2.5 Notice of Adjustments. In each case of an adjustment of the Fixed
Conversion Price, the Company, at its expense, shall cause the Chief Financial
Officer of the Company to compute such adjustment and prepare a certificate
setting forth such adjustment and showing in detail the facts upon which such
adjustment is based. The Company shall promptly mail a copy of each such
certificate to each holder of Series B Preferred Stock affected by such
adjustment.
10.2.6 Duration of Adjusted Conversion Price. Following each adjustment of
the Fixed Conversion Price, such adjusted Fixed Conversion Price shall remain in
effect until a further adjustment of such Fixed Conversion Price hereunder.
10.2.7 Minimum Adjustment. No adjustment of the Fixed Conversion Price
shall be made in an amount less than One Cent ($0.01) per share (subject to
appropriate adjustments for stock splits and stock dividends, and provided that
at such time as events causing adjustments
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<PAGE>
accumulating, One Cent ($0.01) or more have occurred, adjustments to the Fixed
Conversion Price shall be made).
10.2.8 Notices of Record Date. In the event of any reclassification of or
other change in the capital stock of the Company or any merger or consolidation
of the Company, transfer of all or substantially all of the assets of the
Company to any other person or voluntary or involuntary dissolution, liquidation
or winding up of the Company, the Company shall mail to each holer of shares of
Series B Preferred Stock, at least twenty (20) days prior to the record date of
such event, a notice specifying the date on which such event is expected to
become effective and the time, if any, that is to be fixed as to when the
holders of record of shares of Common Stock (or other securities) shall be
entitled to exchange their shares of Common Stock (or other securities) for
securities or other property deliverable upon such event.
10.2.9 Fractional Shares. No fractional shares of Common Stock shall be
issued upon conversion of shares of Series B Preferred Stock. The number of
shares of Common Stock to which a holder of shares of Series B Preferred Stock
shall be entitled shall be based on the aggregate number of shares of Series B
Preferred Stock, then being converted by such holder. In lieu of any fractional
shares to which such holder would otherwise be entitled, the Company shall pay
cash equal to the fair market value of such fraction based on the closing bid
price in the over-the-counter market on the date of conversion.
10.2.10 Reservation of Stock Issuable upon Conversion. The Company shall at
all times reserve and keep available out of its authorized but unissued shares
of Common Stock (or other securities into which the Series B Preferred Stock may
be converted), solely for the purpose of effecting the conversion of the Series
B Preferred Stock, such number of its shares of Common Stock (or other
securities) as shall, from time to time, be sufficient to effect the conversion
of all outstanding shares of Series B Preferred Stock. If at any time the number
of authorized but unissued shares of Common Stock (or other securities) shall
not be sufficient to effect the conversion of all the Series B Preferred Stock
then outstanding, the Company will take such corporate action as may, in the
opinion of its counsel, be necessary to increase its authorized but unissued
shares of Common Stock (or other securities) to such number of shares as shall
be sufficient for such purpose. If any shares of Common Stock reserved for the
purpose of conversion of shares of Series B Preferred Stock require
registration, qualification or listing with, or approval of, any governmental
authority, stock exchange or other regulatory body under any federal or state
law or regulation or otherwise before such shares may be validly issued or
delivered upon conversion, the Company will, in good faith, at its own expense
and as expeditiously as possible, endeavor to secure such registration,
qualification, listing or approval, as the case may be.
10.2.11 Notices. Any notice required by the provisions of this Section 10
to be given to the holder of shares of Series B Preferred Stock shall be deemed
given five (5) business days after the same has been deposited in the United
States mail, certified or registered, postage prepaid and addressed to each
holder of record at such holder's address appearing on the stock record books of
the Company.
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<PAGE>
10.2.12 Payment of Taxes. The Company will pay all taxes and other
governmental charges (other than taxes based on income) that may be imposed in
respect of the issue or delivery of shares of Common Stock (or other securities
or property) upon conversion of Series B Preferred Stock. The Company shall not,
however, be required to pay any tax which may be payable in respect of any
transfer involved in the issue and delivery of shares of Common Stock in a name
other than that in which the shares of Series B Preferred Stock so converted
were registered, and no such issue or delivery shall be made unless and until
the person requesting such issue has paid to the Company the amount of any such
tax, or has established to the satisfaction of the Company that such tax has
been paid.
10.2.13 Status of Converted Stock. In case any shares of Series B Preferred
Stock shall be converted pursuant hereto or redeemed pursuant to Section 6, the
shares so converted or redeemed shall be canceled and the authorized number of
shares of Series B Preferred Stock shall be reduced accordingly.
10.3 Effects of Conversion. Upon any conversion by a holder of all shares
of Series B Preferred Stock, cumulative unpaid dividends shall be paid to the
holder concurrently with the presentation of the shares for conversion. Upon any
conversion of less than all shares owned by such holder, cumulative unpaid
dividends on such portion not converted shall remain payable and shall be paid
on the next scheduled dividend payment date. Upon conversion of all or a part of
the outstanding Series B Preferred Shares, the Series B Preferred Shares
surrendered for conversion shall be canceled and returned to the status of
authorized but unissued shares.
10.4 Mechanics of Voluntary Conversion. The Company will permit any holder
of Series B Preferred Stock to exercise its right to convert the Series B
Preferred Stock by telecopying or delivering an executed and completed notice of
conversion to the Company and to the Company's transfer agent, and by
delivering, within five (5) business days thereafter, the original Series B
Preferred Stock certificate being converted to the Company by express courier.
The term "Conversion Date" means, with respect to any conversion elected by the
holder of the Series B Preferred Stock, the date specified in the notice of
conversion, provided the copy of the notice of conversion is telecopied to or
otherwise delivered to the Company in accordance with the provisions hereof so
that it is received by the Company on or before such specified date. The Company
shall, at its expense, take all actions and use all means necessary and diligent
to cause its transfer agent to transmit the certificates representing the Common
Stock, issuable upon conversion of any Series B Preferred Stock (together with
Series B Preferred Stock not being so converted) to the holder thereof via
express courier, by electronic transfer or otherwise, within three (3) business
days after (i) the business day on which the Company has received both the
notice of conversion (by facsimile or other delivery) and the original Series B
Preferred Stock certificate being converted (and if the same are not delivered
to the Company on the same date, the date of delivery of the second of such
times) or (ii) the date a dividend payment on the Series B Preferred Stock,
which the Company has elected to pay by the issuance of Common Stock, as
contemplated herein, was done.
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<PAGE>
11. Severability of Provisions. If any voting powers, preferences and
relative, participating, options, and other special rights of the Series B
Preferred Stock and qualifications, limitations and restrictions thereof set
forth in this certificate (as such certificate may be amended from time to time)
are invalid, unlawful or incapable of being enforced by reason of any rule of
law or public policy, all other voting powers, preferences and relative,
participating, optional and other special rights of the Series B Preferred Stock
and qualifications, limitations and restrictions thereof set forth in this
certificate (as so amended) which can be given effect without the invalid,
unlawful or unenforceable voting powers, preferences and relative,
participating, optional and other special rights of the Series B Preferred Stock
and qualifications, limitations and restrictions thereof shall, nevertheless,
remain in full force and effect, and no voting powers, preferences and relative,
participating, optional or other special rights of the Series B Preferred Stock
and qualifications, limitations and restrictions thereof herein set forth shall
be deemed dependent upon any other such voting powers, preferences and relative,
participating, optional or other special rights of the Series B Preferred Stock
and qualifications, limitations and restrictions thereof unless so express
herein.
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THESE SECURITIES HAVE NOT BEEN REGISTERED WITH THE UNITED STATES SECURITIES AND
EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE PURSUANT TO AN
EXEMPTION FROM REGISTRATION PROVIDED BY SECTION 3(b) OF THE SECURITIES ACT OF
1933, AS AMENDED (THE "1933 ACT") AND RULE 504 OF REGULATION D PROMULGATED
THEREUNDER. THIS SECURITIES PURCHASE AGREEMENT SHALL NOT CONSTITUTE AN OFFER TO
SELL NOR A SOLICITATION OF AN OFFER TO BUY THE SECURITIES IN ANY JURISDICTION IN
WHICH SUCH OFFER OR SOLICITATION WOULD BE UNLAWFUL.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION (THE "COMMISSION") NOR HAS THE COMMISSION OR ANY AGENCY
REVIEWED OR PASSED UPON THE ACCURACY OR ADEQUACY OF THIS DISCLOSURE STATEMENT.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. ACCORDINGLY, INVESTORS
MUST RELY UPON THEIR OWN EXAMINATION OF THIS OFFERING AND THE COMPANY IN MAKING
AN INVESTMENT DECISION. THIS OFFERING IS MADE IN RELIANCE ON AN EXEMPTION FROM
REGISTRATION WITH THE COMMISSION PROVIDED BY SECTION 3(b) OF THE 1933 ACT, AND
RULE 504 OF REGULATION D PROMULGATED THEREUNDER BY THE COMMISSION.
SECURITIES PURCHASE AGREEMENT
VOXCOM HOLDINGS, INC.
THIS AGREEMENT is made this 18th day of June, 1998, between VOXCOM
HOLDINGS, INC., NASDAQ Symbol "VXCH" (the "Company"), a Nevada corporation, with
its principal office at 8115 Preston Road, Eighth Floor-East, Dallas, TX 75225,
and CARMAX INVESTMENTS LTD. (the "Purchaser"), with its principal office at c/o
Thomson Kernaghan & Co., Ltd., 365 Bay St., Toronto, Ontario, Canada M5H 2V2.
IN CONSIDERATION of the mutual covenants contained in this Agreement, the
Company and the Purchaser agree as follows:
Section 1. Certain Definitions. For purposes of this Agreement:
"Closing Date" means the date agreed to by the parties for the delivery of
the Debenture to the Purchaser against a wire transfer of the funds to the
Company.
<PAGE>
"Closing" means the completion of the purchase and sale of the Common Stock
on the Closing Date.
"Common Stock" means the Common Stock of the Company $0.0001 par value.
"Conversion Shares" means the shares of Common Stock issuable upon the
conversion of the Debentures in accordance with their terms, subject to the
provisions hereof.
"Debenture(s)" means the 5% Convertible Debenture issued by the Company,
which which will be convertible into shares of Common, upon the terms and
subject to the conditions of the Debentures and which will be substantially in
the form annexed hereto as Exhibit 1.
2. Authorization and Sale of the Debenture.
2.1 Authorization. Subject to the terms and conditions of this Agreement,
the Company has authorized the execution and delivery of one or more Debentures
in the aggregate principal amount of Four Hundred Thousand Dollars ($400,000;
the "Purchase Price").
2.2 Agreement to Execute and Deliver the Agreement and the Debenture. The
Purchaser will pay such sum to the Company, in reliance upon the representations
and warranties of the Company contained in this Agreement, and upon the terms
and conditions hereinafter set forth.
2.3 Time and Place of Closing. The Closing shall be held at the offices of
Krieger & Prager, Esqs., 319 Fifth Avenue, New York, New York 10016 ("Escrow
Agent") on the Closing Date.
2.4 Payment and Delivery. Upon the execution of this Agreement, the
following shall occur:
(a) Purchaser shall remit by wire transfer to the Escrow Agent, pursuant to
instructions provided below, on or before the Closing Date, the Purchase Price
to be held in escrow, subject to the provisions of this Agreement and the escrow
instructions set forth in Exhibit 2 hereto (the "Escrow Instructions"), the
terms of which are incorporated herein as if set forth herein in full.
(b) The Company shall deliver or cause to be delivered to the Escrow Agent
or its designee one or more duly executed Debentures in the aggregate principal
amount of the Purchase Price to be held in escrow, subject to the provisions of
this Agreement and the Escrow Instructions. The Company shall also cause to be
delivered to
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<PAGE>
the Escrow Agent the legal opinion required pursuant to the terms of Section
3.17 hereof to be executed and delivered to the Purchaser (the "Opinion").
(c) The Purchaser shall wire the Purchase Price to the Escrow Agent, as
follows:
The Bank of New York
ABA #021000018
For the Account of
Krieger & Prager, Esq. - Master Escrow Account
Account #[To be provided by the Escrow Agent to Purchaser]
Reference: Voxcom Holdings, Inc. Debenture Transaction
Section 2.5. Closing. At the Closing, as contemplated by the Escrow
Instructions, the Purchase Price will disbursed as provided therein and the
Escrow Agent shall release the Debentures and the Opinion to the Purchaser.
Section 3. General Representations and Warranties of the Company. At the
Closing, the Company will represent and warrant to, and covenant with, the
Purchaser that the following are true and correct as of the Closing Date (and
the release of the Debentures to the Purchaser shall constitute the Company's
making such representations and warranties):
3.1 Organization; Qualification. The Company is a corporation duly
organized and validly existing under the laws of the State of Nevada and is in
good standing under such laws. The Company has all requisite corporate power and
authority to own, lease and operate its properties and assets, and to carry on
its business as presently conducted. The Company is qualified to do business as
a foreign corporation in each jurisdiction in which the ownership of its
property or the nature of its business requires such qualification, except where
failure to so qualify would not have a material adverse effect on the Company.
3.2 Capitalization. The authorized capital stock of the Company consists of
(i) 25,000,000 shares of Common Stock, $0.0001 par value per share, of which
approximately 6,550,771 had been issued as of June 15, 1998 and (ii) 50,000,000
shares of Preferred Stock, $0.0001 par value per share, including (x) 80,000
shares of Series A, having an issue price of $800,000, all of which are
outstanding and (y) 350,000 shares of Series B, none of which are outstanding as
of the date hereof or will be outstanding as of the Closing Date. All issued and
outstanding shares of Common Stock have been duly authorized and validly issued
and are fully paid and nonassessable. The Company has sufficient authorized and
unissued shares of Common Stock as may be reasonably necessary to effect the
conversion of the Debentures. The Conversion Shares have been duly authorized
and, when issued upon conversion of, or as interest on, the Debentures in
accordance with its terms will be duly and validly issued, fully paid and
non-assessable and will not subject the holder thereof to personal liability by
reason of being such holder.
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<PAGE>
3.3 Authorization. The Company has all requisite corporate right, power and
authority to execute and deliver this Agreement and to consummate the
transactions contemplated hereby. All corporate action on the part of the
Company, its directors and shareholders necessary for (i) the authorization,
execution, delivery and performance of this Agreement by the Company, (ii) the
authorization, sale, issuance and delivery of the Debentures and the issuance of
the Conversion Shares by the Company and (iii) the performance of the Company's
obligations hereunder and under the Debentures has been taken. This Agreement
has been duly executed and delivered by the Company and constitutes a legal,
valid and binding obligation of the Company enforceable in accordance with its
terms, subject to laws of general application relating to bankruptcy, insolvency
and the relief of debtors and rules of law governing specific performance,
injunctive relief or other equitable remedies, and to limitations of public
policy as they may apply to the indemnification provisions set forth in Section
7.2 of this Agreement. Upon issuance and delivery pursuant to this Agreement,
the Debentures will be validly issued, fully paid and nonassessable and will be
free of any liens or encumbrances except for those imposed by or on behalf of
the Purchaser, its creditors or agents.
3.4 No Conflict. The execution and delivery of this Agreement do not, and
the consummation of the transactions contemplated hereby will not, conflict
with, or result in any violation of, or default (with or without notice or lapse
of time, or both), or give rise to a right of termination, cancellation or
acceleration of any obligation or to a loss of a material benefit, under, any
provision of the Articles of Incorporation, and any amendments thereto, Bylaws,
Stockholders Agreements and any amendments thereto of the Company or any
material mortgage, indenture, lease or other agreement or instrument, permit,
concession, franchise, license, judgment, order, decree statute, law, ordinance,
rule or regulation applicable to the Company, its properties or assets.
3.5 Eligibility of Company Under Rule 504(a). The Company is not subject to
the reporting requirements of Sections 13 or 15(d) of the Securities Exchange
Act, is not an investment company or a developmental stage company that either
has no specific business plan or purpose or has indicated that its business plan
is to engage in a merger or acquisition with an unidentified company or
companies, or other entity or person.
3.6 Full Disclosure. There is no fact known to the Company (other than
general economic conditions known to the public generally) that has not been
publicly disclosed by the Company or disclosed in writing to the Purchaser which
could reasonably be expected to have a material adverse effect on the condition
(financial or otherwise) or in the earnings, business affairs, properties or
assets of the Company, or (ii) could reasonably be expected to materially and
adversely affect the ability of the Company to perform its obligations pursuant
to this Agreement.
3.7 Absence of Undisclosed Liabilities. The Company has no material
liabilities or obligations, absolute or contingent (individually or in the
aggregate), except as
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set forth in the Company's Form 10SB filed with the SEC on May 15, 1998 (the
"Reports") or as incurred in the ordinary course of business after the date of
the Reports.
3.8 Governmental Consent, etc. No consent, approval or authorization of or
designation, declaration or filing with any governmental authority on the part
of the Company is required in connection with the valid execution and delivery
of this Agreement, or the offer, sale or issuance of the Common Stock, or the
consummation of any other transaction contemplated hereby, except the filing
with the Commission of Form D. A copy of such filed Form D will be promptly sent
to Purchaser's attorney.
3.9 Material Contracts. Except as set forth in the Reports, the agreements
to which the Company is a party described in the Reports are valid agreements,
in full force and effect, the Company is not in material breach or material
default (with or without notice or lapse of time, or both) under any of such
agreements, and, to the Company's knowledge, the other contracting party or
parties thereto are not in material breach or material default (with or without
notice or lapse of time, or both) under any of such agreements.
3.10 Litigation. Except as disclosed in the Reports, there is no action,
proceeding or investigation pending, or to the Company's knowledge threatened,
against the Company which might result, either individually or in the aggregate,
in any material adverse change in the business, prospects, conditions, affairs
or operations of the Company. The Company is not a party to 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 which the Company currently
intends to initiate.
3.11 Title to Assets. Except as set forth in the Reports, the Company has
good and marketable title to all properties and material assets described in the
Reports as owned by it, free and clear of any pledge, lien, security interest,
encumbrance, claim or equitable interest other than such as are not material to
the business of the Company.
3.12 Subsidiaries. Except as disclosed in the Reports and the financial
statements, the Company does not presently own or control, directly or
indirectly, any interest in any other corporation, partnership, association or
other business entity.
3.13 Required Governmental Permits. The Company is in possession of and
operating in compliance with all authorizations, licenses, certificates,
consents, orders and permits from state, federal and other regulatory
authorities which are material to the conduct of its business, all of which are
valid and in full force and effect.
3.14 Other Outstanding Securities. Except as disclosed in the Reports,
there are no other material outstanding debt or equity securities presently
convertible into Common Stock.
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3.15 No Other Offerings. Except for sales of Common Stock under SEC Rule
504 not exceeding, in the aggregate, gross sales prices of $600,000 the Company
has not sold any securities within the twelve month period prior to the date the
Common Stock was first offered in reliance on any exemption under Section 3(b)
of the 1933 Act or in violation of Section 5(a) of the 1933 Act.
3.16 Legal Opinion. Purchaser shall, upon the Closing, receive an opinion
letter from counsel to the Company, and the Company represents that it will
obtain such an opinion from counsel substantially to the effect that:
(i) To the knowledge of such counsel, the Company is duly incorporated
and validly existing under the laws and jurisdiction of its incorporation.
The Company and/or its subsidiaries are duly qualified to do business as a
foreign corporation and is in good standing in all jurisdictions where the
Company and/or its subsidiaries owns or leases properties, maintains
employees or conducts business, except for jurisdictions in which the
failure to so qualify would not have a material adverse effect on the
Company, and has all requisite corporate power and authority to own its
properties and conduct its business.
(ii) To the knowledge of such counsel, and based upon representations
made to the Company, except as disclosed in the Reports, there is no
action, proceeding or investigation pending, threatened against the Company
which might reasonably result, either individually or in the aggregate, in
any material adverse change in the business, conditions, affairs or
operations of the Company.
(iii) To the knowledge of such counsel, and based upon representations
made to the Company, except as disclosed in the Reports, the Company is not
a party to or subject to the provisions of any order, writ, injunction,
judgment or decree of any court or government agency or instrumentality.
(iv) To the knowledge of such counsel, and based upon representations
made to the Company, except as disclosed in the Reports, there is no
material action, suit, proceeding or investigation by the Company currently
pending or which the Company currently intends to initiate.
(v) To the knowledge of such counsel, all issued and outstanding
shares of Common Stock have been duly authorized and validly issued and are
fully paid and nonassessable.
(vi) The Debentures have been duly authorized, executed and delivered
by the Company and constitute the Company's binding and enforceable
obligations in accordance with their terms.
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(vii) This Agreement and the issuance of the Conversion Shares have
been duly approved by all required corporate action and that, upon payment
of the consideration by the Purchaser in the manner specified in this
Agreement, all such securities, upon delivery, shall be validly issued and
outstanding, fully paid and nonassessable.
(viii) The authorized capital stock of the Company consists of (x)
25,000,000 shares of Common Stock, $0.0001 par value per share, of which
approximately 6,550,771 had been issued as of the Closing Date, and (y)
50,000,000 shares of Preferred Stock, $0.0001 par value per share,
including (1) 80,000 shares of Series A, having an issue price of $800,000,
all of which are outstanding and (2) 350,000 shares of Series B, none of
which are outstanding as of the Closing Date.
(ix) The Company has the requisite corporate power and authority to
enter into this Agreement and to sell and deliver the Debentures and the
Conversion Shares described in this Agreement or in the Debentures; this
Agreement has been duly and validly authorized by all necessary corporate
action by the Company to the knowledge of such counsel, no approval of any
governmental or other body is required for the execution and delivery of
this Agreement by the Company or the consummation of the transactions
contemplated thereby; this Agreement has been duly and validly executed and
delivered by and on behalf of the Company, as is a valid and binding
agreement of the Company, enforceable in accordance with its terms, except
as enforceability may be limited by general equitable principles,
bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium
or other laws affecting creditors rights generally.
(x) To the knowledge of such counsel, and based upon representations
made by the Company, the execution, delivery and performance of the
agreements by the Company and the performance of its obligations thereunder
do not and will not constitute a breach or violation of any of the terms
and provisions of, or constitute a default under or conflict with or
violate any provision of (i) the Company's Articles of Incorporation or
By-Laws, each as currently in effect, (ii) any indenture, mortgage, deed of
trust, agreement or other instrument to which the Company is a party or by
which it or any of its property is bound, (iii) any applicable statute or
regulation or as other, or (iv) any judgment, decree or order or any court
or governmental body having jurisdiction over the Company or any of its
property.
3.17 Dilution. The number of shares of Common Stock issuable upon
conversion of the Debentures may increase substantially in certain
circumstances, including, but not necessarily limited to, the circumstance
wherein the trading price of the Common Stock declines prior to the conversion
of the Debentures. The Company's executive officers and directors have studied
and fully understand the nature of the securities being sold hereby and
recognize that they have a potential dilutive effect. The board of directors of
the
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Company has concluded, in its good faith business judgment, that such issuance
is in the best interests of the Company. The Company specifically acknowledges
that its obligation to issue the Conversion Shares upon conversion of the
Debentures is binding upon the Company and enforceable regardless of the
dilution such issuance may have on the ownership interests of other shareholders
of the Company.
Section 4. Representations, Warranties and Covenants of the Purchaser. The
Purchaser represents and warrants to, and covenants with, the Company that the
following are true and correct as of the date hereof and as of the Closing Date.
4.1 Authority. The Purchaser's signatory has all right, power, authority
and capacity to execute and deliver this Agreement and to consummate the
transactions contemplated hereby. This Agreement has been duly executed and
delivered by the Purchaser and will constitute the legal, valid and binding
obligations of the Purchaser, enforceable in accordance with its terms, subject
to laws of general application relating to bankruptcy, insolvency and the relief
of debtors and rules of law governing specific performance, injunctive relief or
other equitable remedies, and to limitations of public policy as they may apply
to the indemnification provisions set forth in Section 7.2 of this Agreement.
4.2 Investment Experience. Purchaser is an "accredited investor" as defined
in Rule 501(a) under the Securities Act. Purchaser is aware of the Company's
business affairs and financial condition and has had access to and has acquired
sufficient information about the Company, including the Reports to reach an
informed and knowledgeable decision to acquire the Debentures and the Conversion
Shares. Purchaser has such business and financial experience as is required to
give it the capacity to protect its own interests in connection with such
purchase.
4.3 Investment Intent. Without limiting its ability to resell the Common
Stock pursuant to an effective registration statement, Purchaser represents that
it is purchasing the Debentures and the Conversion Shares for its own account as
principal for investment purposes. Purchaser understands that its acquisition of
the Debentures and the Conversion Shares has not been registered under the
Securities Act or registered or qualified under any state securities law in
reliance on specific exemptions therefrom, which exemptions may depend upon,
among other things, the bona fide nature of Purchaser's investment intent as
expressed herein. Purchaser will not, directly or indirectly, offer, sell,
pledge, transfer or otherwise dispose of (or solicit any offers to buy,
purchaser or otherwise acquire or take a pledge of) the Debentures and the
Conversion Shares except in compliance with the Securities Act and any
applicable state securities laws, and the rules and regulations promulgated
thereunder.
4.4 No Legal, Tax or Investment Advice. Purchaser understands that nothing
in this Agreement or any other materials presented to Purchaser in connection
with
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the purchase and sale of the Debentures and the Conversion Shares constitutes
legal, tax or investment advice. Purchaser has consulted such legal, tax and
investment advisors as it, in its sole discretion, has deemed necessary or
appropriate in connection with such purchase.
4.5 Purchaser Review. Purchaser hereby represents and warrants that the
Purchaser has carefully examined the Reports, and the financial statements
contained therein. The Purchaser acknowledges that the Company has made
available to the Purchaser all documents and information that it has requested
relating to the Company and has provided answers to all of its questions
concerning the Company and the Common Stock. Nothing stated in the previous two
sentences, however, shall be deemed to affect the representations and warranties
of the Company contained in this Agreement.
4.6 Certain Risks. The Purchaser recognizes that the purchase of the
Debentures and the Conversion Shares involves a high degree of risk in that:
(i) an investment in the Company is highly speculative and only
investors who can afford the loss of their entire investment should
consider investing in the Company and the Debentures and the Conversion
Shares;
(ii) a Purchaser may not be able to liquidate its investment;
(iii) transferability of the Debentures and the Conversion Shares is
extremely limited;
(iv) in the event of disposition, Purchaser could sustain the loss of
its entire investment;
(v) no return on investment, whether through distributions,
appreciation, transferability or otherwise, and no performance by, through
or of the Company, has been promised, assured, represented or warranted by
the Company, or by any director, officer, employee, agent or representative
thereof;
(vii) the Common Stock is presently quoted and traded on the
NASDAQ/OTC Bulletin Board;
(viii) the price of the Common Stock has been arbitrarily determined
by the Company and bears no relationship to the book value of the Company
or other recognized criteria of value;
(ix) although this Offering is being made pursuant to Rule 504(b)(1)
of Regulation D of the 1933 Act, purchasers of the Common Stock, may have
certain restrictions placed upon the resale of their securities by a
particular state. Certificates or instruments representing the securities
issued hereunder will not bear a restricted
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<PAGE>
legend in that it is the Company's belief that purchasers will be permitted
to resell the securities without registration under the Act pursuant to
Rule 502(d).
4.8 No Registration, Review or Approval. The Purchaser acknowledges and
understand that the limited private offering and sale of the Debentures and the
Conversion Shares pursuant to this Agreement has not been reviewed or approved
by the SEC or by any state securities commission, authority or agency, and is
issued pursuant to an exemption under the 1933 Act and has not been registered
under the securities or "blue sky" laws, rules or regulations of any state. The
Purchaser acknowledges, understands and agrees that the Debentures and the
Conversion Shares are being offered and sold hereunder pursuant to (i) a private
placement exemption to the registration provisions of the Act pursuant to
Section 3(b) of such Act and Regulation D promulgated under such Act, and (ii) a
similar exemption to the registration provisions of applicable state securities
laws.
4.9 Additional Information. In addition to this Agreement, the Company
will, upon request, provide prospective investors with additional information
concerning the Company, its business and this Offering. No additional sales
material has been authorized to be used in connection with the offer and sale of
the Common Stock described herein.
4.10 Purchaser's Representations. No principals, officers, directors or
shareholders of Purchaser have ever been the subject of a criminal indictment,
injunctive action or other disciplinary action brought by a governmental agency
or is currently under investigation by any governmental agency or body.
4.11 Short Sales. So long as the Company is in compliance in all material
respects with its obligations to the Buyer under this Agreement and the other
Transaction Agreements, and so long as the Buyer owns any of the Debentures, the
Buyer will not engage in any open market Short Sales of the Common Stock, other
than upon conversions of the Debentures. As used herein, "Short Sale" has the
meaning provided in Rule 3b-3 under the 1934 Act.
Section 5. Conditions to the Purchaser's Obligation to Purchase. The
Company understands that the Purchaser's obligation to purchase the Debentures
is conditioned upon:
(a) Acceptance by Purchaser of this Agreement for the purchase of the
Debentures, as evidenced by the execution of this Agreement by its
authorized officers;
(b) Delivery of the Debentures into Escrow;
(c) Delivery of the Opinion, as contemplated by this Agreement.
Section 6. Conditions to Company's Obligation to Sell. Purchaser
understands that the Company's obligation to sell the Debentures is conditioned
upon:
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(a) The receipt and acceptance by the Company of this Agreement for
the Debentures as evidenced by execution of this Subscription Agreement by
the Company;
(b) Delivery into escrow by Purchaser of good funds as payment in full
for the Purchase Price of the Debentures.
Section 7. Compliance with the Securities Act.
7.1 Underwriter. The Company understands that the Purchaser disclaims being
an "underwriter" (as such term is defined under the Securities Act and the rules
and regulations promulgated thereunder (an "Underwriter")).
7.2 Indemnification. Each of the Company and the Purchaser agrees to
indemnify the other and to hold the other harmless from and against any and all
losses, damages, liabilities, costs and expenses (including reasonable
attorneys' fees) which the other may sustain or incur in connection with the
breach by the indemnifying party of any representation, warranty or covenant
made by it in this Agreement.
Section 8. Legal Fees and Expenses. Except for the portion of the Escrow
Agent's fees specified in the Escrow Instructions, each of the parties shall pay
its own fees and expenses (including the fees of any attorneys, accountants,
appraisers or others engaged by such party) in connection with this Agreement
and the transactions contemplated hereby.
Section 9. Notices. All notices, requests, consents and other
communications hereunder shall be in writing, shall be mailed by first class
registered or certified airmail, postage prepaid, and shall be deemed given when
so mailed:
(a) if to the Company, to
VOXCOM HOLDINGS, INC.
8115 Preston Road, Eighth Floor-East
Dallas, TX 75225
Attn: Secretary
Telephone No.: (214) 691-0005
Telecopier No.: (214) 691-5984
with a copy to:
Glast, Phillips & Murray
13355 Noel Rd., Suite 2200
Dallas, TX 75240
Attn: Ronald L. Brown, Esq.
Telephone No.: (972) 419-8302
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Telecopier No.: (972) 419-8329
or to such other person at such other place as the Company shall designate to
the Purchaser in writing;
(b) if to the Purchaser, to:
CARMAX INVESTMENTS LTD.
c/o Thomson Kernaghan & Co., Ltd.
365 Bay St.
Toronto, Ontario, Canada M5H 2V2
Attn: Mark Valentine
Telephone No.: (416) 860 - 6130
Telecopier No.: (416) 367 - 8055
with a copy to:
Krieger & Prager
319 Fifth Avenue
New York, NY 10016
Attn: Samuel Krieger, Esq.
Telephone No.: (212) 689-3322
Telecopier No. (212) 213-2077
or at such other address or addresses as may have been furnished to the Company
in writing; or
(c) if to any transferee or transferees of a Purchaser, at such
address or addresses as shall have been furnished to the Company at the
time of the transfer or transfers, or at such other address or addresses as
may have been furnished by such transferee or transferees to the Company in
writing.
Section 10. Use of Proceeds. The net proceeds to the Company from the sale
of the Debentures offered hereby by the Company are estimated to be $400,000,
assuming the sale of the maximum Debentures, before deducting offering expenses
and fees as contemplated by the Escrow Instructions. It is presently anticipated
that the estimated net proceeds will be used by the Company to reimburse Larry
Cahill, directly or indirectly, for costs incurred by the Company in connection
with the Federal Trade Commission litigation and advanced by him. Any funds
remaining thereafter shall be applied to working capital, including rent,
utilities and other general corporate purposes. Pending use of the net proceeds,
the funds will be invested in short-term interest-bearing securities or their
equivalent.
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Section 11. Transfer Agent Instructions.
11.1. Instructions. Promptly following the delivery by the Purchaser of the
Purchase Price in accordance with this Agreement, the Company will irrevocably
instruct its transfer agent to issue Common Stock from time to time upon
conversion of the Debentures in such amounts as specified from time to time by
the Company to the transfer agent, registered in the name of the Purchaser or
its nominee and in such denominations to be specified by the Purchaser in
connection with each conversion of the Debentures. The Company warrants that no
instruction other than such instructions referred to in this Section 11 will be
given by the Company to the transfer agent and that the Conversion Shares shall
otherwise be freely transferable on the books and records of the Company as and
to the extent provided in this Agreement and applicable law. Nothing in this
Section 11 shall affect in any way the Purchaser's obligations and agreement to
comply with all applicable securities laws upon resale of the Debentures and the
Conversion Shares. .
11.2 Conversion Exercise. (i) The Company will permit the Purchaser to
exercise its right to convert the Debentures by telecopying or delivering an
executed and completed Notice of Conversion to the Company with a copy to the
transfer agent and delivering, within five (5) business days thereafter, the
original Debentures being converted to the Company by express courier, .
(ii) The term "Conversion Date" means, with respect to any conversion
elected by the holder of the Debentures, the date specified in the Notice of
Conversion, provided the copy of the Notice of Conversion is telecopied to or
otherwise delivered to the Company in accordance with the provisions hereof so
that is received by the Company on or before such specified date.
(iii) The Company shall, at its expense, take all actions and use all means
necessary and diligent to cause its transfer agent to transmit the certificates
representing the Conversion Shares issuable upon conversion of any Debentures
(together with any portion of the Debentures not being so converted) to the
Purchaser via express courier, by electronic transfer or otherwise, within three
(3) business days (such third business day, the "Delivery Date") after (A) the
business day on which the Company has received both of the Notice of Conversion
(by facsimile or other delivery) and the original Debentures being converted
(and if the same are not delivered to the Company on the same date, the date of
delivery of the second of such items) or (B) the date an interest payment on the
Debentures, which the Company has elected to pay by the issuance of Common
Stock, as contemplated by the Debentures, was due.
11.3 Delay in Delivery. The Company understands that a delay in the
issuance of the Conversion Shares beyond the Delivery Date could result in
economic loss to the Purchaser. As compensation to the Purchaser for such loss,
the Company agrees to pay late payments to the Purchaser for late issuance of
Conversion Shares in accordance with
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the following schedule (where "No. Business Days Late" is defined as the number
of business days beyond two (2) business days from the Delivery Date):
Late Payment For Each $10,000
of Principal of Debentures
No. Business Days Late Amount Being Converted
1 $100
2 $200
3 $300
4 $400
5 $500
6 $600
7 $700
8 $800
9 $900
10 $1,000
>10 $1,000 +$200 for each Business
Day Late beyond 10 days
The Company shall pay any payments incurred under this Section in immediately
available funds upon demand. Nothing herein shall limit the Purchaser's right to
pursue actual damages for the Company's failure to issue and deliver the Common
Stock to the Purchaser. Furthermore, in addition to any other remedies which may
be available to the Purchaser, in the event that the Company fails for any
reason to effect delivery of such shares of Common Stock within two (2) business
days after the Delivery Date, the Purchaser will be entitled to revoke the
relevant Notice of Conversion by delivering a notice to such effect to the
Company whereupon the Company and the Purchaser shall each be restored to their
respective positions immediately prior to delivery of such Notice of Conversion.
11.4 Buy In. If, by the relevant Delivery Date, the Company fails for any
reason to deliver the Conversion Shares to be issued upon conversion of a
Debenture and after such Delivery Date, the holder of the Debenture being
converted (a "Converting Holder") purchases, in an open market transaction or
otherwise, shares of Common Stock (the "Covering Shares") in order to make
delivery in satisfaction of a sale of Common Stock by the Converting Holder (the
"Sold Shares"), which delivery such Converting Holder anticipated to make using
the Conversion Shares to be issued upon such conversion (a "Buy- In"), the
Company shall pay to the Converting Holder, in addition to all other amounts
contemplated in other provisions of this Agreement or the Debentures, and not in
lieu thereof, the Buy-In Adjustment Amount (as defined below). The "Buy-In
Adjustment Amount" is the amount equal to the excess, if any, of (x) the
Converting Holder's total purchase price (including brokerage commissions, if
any) for the Covering Shares over (y) the net proceeds (after brokerage
commissions, if any) received by the Converting Holder
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from the sale of the Sold Shares. The Company shall pay the Buy-In Adjustment
Amount to the Company in immediately available funds immediately upon demand by
the Converting Holder. By way of illustration and not in limitation of the
foregoing, if the Converting Holder purchases shares of Common Stock having a
total purchase price (including brokerage commissions) of $11,000 to cover a
Buy-In with respect to shares of Common Stock it sold for net proceeds of
$10,000, the Buy-In Adjustment Amount which Company will be required to pay to
the Converting Holder will be $1,000.
11.5 DTC. In lieu of delivering physical certificates representing the
Common Stock issuable upon conversion, provided the Company's transfer agent is
participating in the Depository Trust Company ("DTC") Fast Automated Securities
Transfer program, upon request of the Purchaser and its compliance with the
provisions contained in this paragraph, the Company shall use its best efforts
to cause its transfer agent to electronically transmit the Common Stock issuable
upon conversion to the Purchaser by crediting the account of Purchaser's Prime
Broker with DTC through its Deposit Withdrawal Agent Commission system.
11.6 Transfer Agent Contact. The Company will authorize its transfer agent
to give information relating to the Company directly to the Purchaser or the
Purchaser's representatives upon the request of the Purchaser or any such
representative. The Company will provide the Purchaser with a copy of the
authorization so given to the transfer agent.
Section 12. Miscellaneous.
12.1 Listing. The Company will use its best efforts to maintain the listing
of its Common Stock on the NASDAQ/OTC Bulletin Board or the NASDAQ/SmallCap
Market, National Market System, American Stock Exchange or New York Stock
Exchange.
12.2 Entire Agreement. This Agreement embodies the entire agreement and
understanding between the parties hereto with respect to the subject matter
hereof and supersedes all prior oral or written agreements and understandings
relating to the subject matter hereof. No statement, representation, warranty,
covenant or agreement or any kind not expressly set forth in this Agreement
shall affect, or be used to interpret, change or restrict, the express terms and
provisions of this Agreement.
12.3 Amendments. This Agreement may not be modified or amended except
pursuant to an instrument in writing signed by the Company and by Purchaser.
12.4 Headings. The headings of the various sections of this Agreement have
been inserted for convenience of reference only and shall not be deemed to be
part of this Agreement.
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12.5 Severability. In case any provision contained in this Agreement should
be invalid, illegal or unenforceable in any respect, the validity, legality and
enforceability of the remaining provisions contained herein shall not in any way
be affected or impaired thereby.
12.6 Governing Law/Jurisdiction. This Agreement shall be governed by and
interpreted in accordance with the laws of the State of New York for contracts
to be wholly performed in such state and without giving effect to the principles
thereof regarding the conflict of laws. Each of the parties consents to the
jurisdiction of the federal courts whose districts encompass any part of the
City of New York or the state courts of the State of New York sitting in the
City of New York in connection with any dispute arising under this Agreement and
hereby waives, to the maximum extent permitted by law, any objection, including
any objection based on forum non conveniens, to the bringing of any such
proceeding in such jurisdictions. To the extent determined by such court, the
Company shall reimburse the Purchaser for any reasonable legal fees and
disbursements incurred by the Purchaser in enforcement of or protection of any
of its rights under this Agreement.
12.7 Counterparts/Facsimile. This Agreement may be executed in two or more
counterparts, each of which shall constitute an original, but all of which, when
taken together, shall constitute but one instrument, and shall become effective
when one or more counterparts have been signed by each party hereto and
delivered to the other party. In lieu of the original, a facsimile transmission
or copy of the original shall be as effective and enforceable as the original.
12.8 Publicity. The Purchaser shall not issue any press releases or
otherwise make any public statement with respect to the transactions
contemplated by this Agreement without the prior written consent of the Company,
except as may be required by applicable law or regulation.
12.9 Survival. The representations and warranties in this Agreement shall
survive Closing.
[Balance of page intentionally left blank.]
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
signed by their duly authorized representatives the day and year first above
written.
VOXCOM HOLDINGS, INC.
By: Donald G. McLellan
----------------------------
Officer
CARMAX INVESTMENTS LTD..
By: Mark Valentine
----------------------------
Officer
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NEITHER THESE SECURITIES NOR THE SECURITIES ISSUABLE UPON CONVERSION HEREOF
HAVE BEEN REGISTERED WITH THE UNITED STATES SECURITIES AND EXCHANGE
COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE OR UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, AND HAVE BEEN ISSUED PURSUANT TO
EXEMPTION UNDER RULE 504 OF THE REGULATION D PROMULGATED BY THE COMMISSION.
No. 98-1 US $ 400,000.00
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VOXCOM HOLDINGS, INC.
5% CONVERTIBLE DEBENTURE DUE MAY 31, 2000
THIS DEBENTURE is one of a duly authorized issue of up to $400,000 in
Debentures of VOXCOM HOLDINGS, INC., a corporation organized and existing under
the laws of the State of Nevada (the "Company") designated as its 5% Convertible
Debentures. Such Debentures may be issued in series, but which otherwise have
substantially similar terms.
FOR VALUE RECEIVED, the Company promises to pay to CARMAX INVESTMENTS LTD.
, the registered holder hereof (the "Holder"), the principal sum of Four Hundred
Thousand and 00/100 Dollars (US $400,000.00) on May 31, 2000 (the "Maturity
Date") and to pay interest on the principal sum outstanding from time to time in
arrears (i) prior to the Maturity Date, quarterly, on the last day of March,
June, September and December of each year, (ii) upon conversion as provided
herein or (iii) on the Maturity Date, at the rate of 5% per annum accruing from
June , 1998 (the "Issue Date"), the date of initial issuance of this Debenture.
Accrual of interest shall commence on the first such business day to occur after
the date hereof and shall continue to accrue on a daily basis until payment in
full of the principal sum has been made or duly provided for. Subject to the
provisions of Section 4 below (the terms of which shall govern as if this
sentence were not included in this Debenture), prior to the Maturity Date,
interest on this Debenture is payable, at the option of the Company, in shares
of Common Stock of the Company, $0.0001 par value ("Common Stock"), at the
Conversion Rate (as defined below) in effect on the date of payment, or in cash.
This Debenture is subject to the following additional provisions:
1. The Debentures are issuable in denominations of Ten Thousand Dollars
(US$10,000) and integral multiples thereof. The Debentures are exchangeable for
an equal aggregate principal amount of Debentures of different authorized
denominations, as requested by
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the Holder surrendering the same. No service charge will be made for such
registration or transfer or exchange.
2. The Company shall be entitled to withhold from all payments of principal
of, and interest on, this Debenture any amounts required to be withheld under
the applicable provisions of the United States income tax laws or other
applicable laws at the time of such payments, and Holder shall execute and
deliver all required documentation in connection therewith.
3. Prior to due presentment for transfer of this Debenture, the Company and
any agent of the Company may treat the person in whose name this Debenture is
duly registered on the Company's Debenture Register as the owner hereof for the
purpose of receiving payment as herein provided and for all other purposes,
whether or not this Debenture be overdue, and neither the Company nor any such
agent shall be affected by notice to the contrary.
4. A. The Holder of this Debenture is entitled, at its option, subject to
the following provisions of this Section 4, to convert all or a portion of this
Debenture into shares of Common Stock of the Company at any time until the
Maturity Date, at a conversion price for each share of Common Stock (the
"Conversion Rate") equal to the lower of (x) the Market Price (as defined below)
for the five (5) trading days preceding the Issue Date (the "Fixed Conversion
Price"; which amount is subject to adjustment as hereinafter provided)) or (y)
80% of the Market Price for the five (5) trading days preceding the Conversion
Date (as defined below); provided that the principal amount being converted is
at least US $10,000 (unless if at the time of such election to convert the
aggregate principal amount of all Debentures registered to the Holder is less
than Ten Thousand Dollars [US $10,000], then the whole amount thereof) .
B. Conversion shall be effectuated by surrendering the Debentures to be
converted to the Company's transfer agent, Oxford Transfer and Registrar Agency,
Inc., accompanied by or preceded by facsimile or other delivery of the form of
conversion notice attached hereto as Exhibit A, executed by the Holder of the
Debenture evidencing such Holder's intention to convert this Debenture or a
specified portion hereof, and accompanied, if required by the Company, by proper
assignment hereof in blank. Interest accrued or accruing from the date of
issuance to the date of conversion shall, at the option of the Company, be paid
in cash or Common Stock upon conversion at the Conversion Rate applicable to
such conversion. No fractional shares of Common Stock or scrip representing
fractions of shares will be issued on conversion, but the number of shares
issuable shall be rounded to the nearest whole share. The date on which notice
of conversion is given (the "Conversion Date") shall be deemed to be the date on
which the Holder faxes or otherwise delivers the conversion notice ("Notice of
Conversion"), substantially in the form annexed hereto as Exhibit A, duly
executed, to the Company, provided that the Holder shall deliver to the
Company's transfer agent or the Company the original Debentures being converted
within five (5) business days thereafter (and if not so delivered with such
time, the Conversion Date shall be the date on which the later of the Notice of
Conversion and the original Debentures being converted is received by the
Company). Facsimile delivery of the Notice of Conversion shall be accepted by
the Company at facsimile number (214) 691-5984;
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ATTN: Don McLellan. Certificates representing Common Stock upon conversion will
be delivered within three (3) business days from the date later of the Notice of
Conversion is delivered to the Company as contemplated in the first sentence of
this paragraph C or the original Debenture is delivered to the Company's
transfer agent or the Company.
C. For purposes of this Debenture, the term "Market Price" shall mean (x)
the average closing bid price of the Common Stock as reported by Bloomberg, LP
or the average closing bid price on the over-the-counter market, (i) if a period
of time is specified in the relevant provision of this Debenture, for such
period, and (ii) if no period of time is specified in the relevant provision of
this Debenture, then for the five (5) trading days ending on the trading day
immediately preceding the relevant date, or (y) if the Common Stock is listed on
a stock exchange, the closing price on such exchange on the date indicated in
the relevant provision hereof, as reported in The Wall Street Journal.
D. (i) Notwithstanding any other provision hereof to the contrary, at any
time prior to the Conversion Date, the Company shall have the right to redeem
all or any portion of the then outstanding principal amount of the Debentures
then held by the Holder in cash for an amount (the "Redemption Amount") equal to
the sum of (a) one hundred twenty percent (120%) of the then outstanding
principal of the Debentures, plus (b) all accrued but unpaid interest thereon
through the date the Redemption Amount is paid to the Holder (the "Redemption
Payment Date").
(ii) The Company shall give at least ten (10) business days' written notice
of such redemption to the Holder (the "Notice of Redemption"). Anything in the
preceding provisions of this Section 4(D) to the contrary notwithstanding, the
Redemption Amount shall, unless otherwise agreed to in writing by the Holder
after receiving the Notice of Redemption, be paid to the Holder in good funds at
least five (5) but not more than ten (10) business days from the date of the
Notice of Redemption, except that, with respect to any Debentures for which a
Notice of Redemption is given, the Holder shall have the right, exercisable by
giving a Notice of Conversion submitted to the Company within five (5) business
days of the Holder's receipt of the Company's Notice of Redemption, to convert
any or all of the Debentures sought to be redeemed (a "Redemption Notice
Conversion") and the Redemption Notice Conversion shall take precedence over the
redemption contemplated by the Notice of Redemption. Such Debentures shall be
converted in accordance with the terms hereof.
(iii) In the event the Redemption Amount is not timely made, any rights of
the Company to redeem outstanding Debentures shall terminate, and the Notice of
Redemption shall be null and void.
(iv) Any redemption contemplated by this Debenture shall be made only in
cash by the payment of immediately available good funds to the Holder.
5. Subject to the terms of the Securities Purchase Agreement, dated June18,
1998 (the "Securities Purchase Agreement"), between the Company and the Holder
(or the Holder's
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predecessor in interest), no provision of this Debenture shall alter or impair
the obligation of the Company, which is absolute and unconditional, to pay the
principal of, and interest on, this Debenture at the time, place, and rate, and
in the coin or currency, herein prescribed. This Debenture and all other
Debentures now or hereafter issued of similar terms are direct obligations of
the Company.
6. If the Company merges or consolidates with another corporation or sells
or transfers all or substantially all of its assets to another person and the
holders of the Common Stock are entitled to receive stock, securities or
property in respect of or in exchange for Common Stock, then as a condition of
such merger, consolidation, sale or transfer, the Company and any such
successor, purchaser or transferee agree that the Debenture may thereafter be
converted on the terms and subject to the conditions set forth above into the
kind and amount of stock, securities or property receivable upon such merger,
consolidation, sale or transfer by a holder of the number of shares of Common
Stock into which this Debenture might have been converted immediately before
such merger, consolidation, sale or transfer, subject to adjustments which shall
be as nearly equivalent as may be practicable. In the event of any proposed
merger, consolidation or sale or transfer of all or substantially all of the
assets of the Company (a "Sale"), the Holder hereof shall have the right to
convert by delivering a Notice of Conversion to the Company within fifteen (15)
days of receipt of notice of such Sale from the Company. .
7. If, for any reason, prior to the Conversion Date, the Company spins off
or otherwise divests itself of a part of its business or operations or disposes
all or of a part of its assets in a transaction (the "Spin Off") in which the
Company does not receive compensation for such business, operations or assets,
but causes securities of another entity (the "Spin Off Securities") to be issued
to security holders of the Company, then the Company shall cause (i) to be
reserved Spin Off Securities equal to the number thereof which would have been
issued to the Holder had all of the Holder's Debentures outstanding on the
record date (the "Record Date") for determining the amount and number of Spin
Off Securities to be issued to security holders of the Company (the "Outstanding
Debentures") been converted as of the close of business on the trading day
immediately before the Record Date (the "Reserved Spin Off Shares"), and (ii) to
be issued to the Holder on the conversion of all or any of the Outstanding
Debentures, such amount of the Reserved Spin Off Shares equal to (x) the
Reserved Spin Off Shares multiplied by (y) a fraction, of which (I) the
numerator is the principal amount of the Outstanding Debentures then being
converted, and (II) the denominator is the principal amount of the Outstanding
Debentures.
8. If, at any time while any portion of this Debenture remains outstanding,
the Company effectuates a stock split or reverse stock split of its Common Stock
or issues a dividend on its Common Stock consisting of shares of Common Stock,
the Fixed Conversion Price shall be equitably adjusted to reflect such action.
By way of illustration, and not in limitation, of the foregoing (i) if the
Company effectuates a 2:1 split of its Common Stock, thereafter, with respect to
any conversion for which the Company issues the shares after the record date of
such split, the Fixed Conversion Price shall be deemed to be one-half of what it
had been calculated to be immediately prior to such split; (ii) if the Company
effectuates a 1:10 reverse split of its Common
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Stock, thereafter, with respect to any conversion for which the Company issues
the shares after the record date of such reverse split, the Fixed Conversion
Price shall be deemed to be ten times what it had been calculated to be
immediately prior to such split; and (iii) if the Company declares a stock
dividend of one share of Common Stock for every 10 shares outstanding,
thereafter, with respect to any conversion for which the Company issues the
shares after the record date of such dividend, the Fixed Conversion Price shall
be deemed to be the amount of such Fixed Conversion Price calculated immediately
prior to such record date multiplied by a fraction, of which the numerator is
the number of shares (10) for which a dividend share will be issued and the
denominator is such number of shares plus the dividend share(s) issuable or
issued thereon (11).
9. All payments contemplated hereby to be made "in cash" shall be made in
immediately available good funds in such coin or currency of the United States
of America as at the time of payment is legal tender for payment of public and
private debts. All payments of cash and each delivery of shares of Common Stock
issuable to the Holder as contemplated hereby shall be made to the Holder at the
address last appearing on the Debenture Register of the Company as designated in
writing by the Holder from time to time; except that the Holder can designate,
by notice to the Company, a different delivery address for any one or more
specific payments or deliveries.
10. This Debenture shall be governed by and construed in accordance with
the laws of the State of New York. Each of the parties consents to the
jurisdiction of the federal courts whose districts encompass any part of the
City of New York or the state courts of the State of New York sitting in the
City of New York in connection with any dispute arising under this Agreement and
hereby waives, to the maximum extent permitted by law, any objection, including
any objection based on forum non coveniens, to the bringing of any such
proceeding in such jurisdictions. To the extent determined by such court, the
Company shall reimburse the Holder for any reasonable legal fees and
disbursements incurred by the Holder in enforcement of or protection of any of
its rights under any of this Debenture.
11. The following shall constitute an "Event of Default":
a. The Company shall default in the payment of principal or interest
on this Debenture and same shall continue for a period of three
(3) business days; or
b. Any of the representations or warranties made by the Company
herein, in the Securities Purchase Agreement or in any
certificate or financial or other written statements heretofore
or hereafter furnished by the Company in connection with the
execution and delivery of this Debenture or the Securities
Purchase Agreement shall be false or misleading in any material
respect at the time made; provided, however, that if such
deficiency is capable of being cured, the Event of Default shall
be deemed to occur if it
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is not cured within thirty (30) days after written notice thereof
from the Holder or its representatives to the Company; or
c. The Company fails to issue shares of Common Stock to the Holder
or to cause its Transfer Agent to issue shares of Common Stock
upon exercise by the Holder of the conversion rights of the
Holder in accordance with the terms of this Debenture, fails to
transfer or to cause its Transfer Agent to transfer any
certificate for shares of Common Stock issued to the Holder upon
conversion of this Debenture and when required by this Debenture,
and such transfer is otherwise lawful, and any such failure shall
continue uncured for five (5) business days.
d. The Company shall fail to perform or observe, in any material
respect, any other covenant, term, provision, condition,
agreement or obligation of any Debenture in this series and such
failure shall continue uncured for a period of thirty (30) days
after written notice from the Holder of such failure; or
e. The Company shall fail to perform or observe, in any material
respect, any covenant, term, provision, condition, agreement or
obligation of the Company under the Securities Purchase Agreement
and such failure shall continue uncured for a period of thirty
(30) days after written notice from the Holder of such failure;
or
f. The Company shall (1) admit in writing its inability to pay its
debts generally as they mature; (2) make an assignment for the
benefit of creditors or commence proceedings for its dissolution;
or (3) apply for or consent to the appointment of a trustee,
liquidator or receiver for its or for a substantial part of its
property or business; or
g. A trustee, liquidator or receiver shall be appointed for the
Company or for a substantial part of its property or business
without its consent and shall not be discharged within sixty (60)
days after such appointment; or
h. Any governmental agency or any court of competent jurisdiction at
the instance of any governmental agency shall assume custody or
control of the whole or any substantial portion of the properties
or assets of the Company and shall not be dismissed within sixty
(60) days thereafter; or
i. Any money judgment, writ or warrant of attachment, or similar
process in excess of Two Hundred Thousand ($200,000) Dollars in
the aggregate shall be entered or filed against the Company or
any of its properties or other assets and shall remain unpaid,
unvacated, unbonded or unstayed for a
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period of sixty (60) days or in any event later than five (5)
days prior to the date of any proposed sale thereunder; or
j. Bankruptcy, reorganization, insolvency or liquidation proceedings
or other proceedings for relief under any bankruptcy law or any
law for the relief of debtors shall be instituted by or against
the Company and, if instituted against the Company, shall not be
dismissed within sixty (60) days after such institution or the
Company shall by any action or answer approve of, consent to, or
acquiesce in any such proceedings or admit the material
allegations of, or default in answering a petition filed in any
such proceeding; or
k. The Company shall have its Common Stock suspended or delisted
from an exchange or over-the-counter market from trading for in
excess of five (5) trading days.
Then, or at any time thereafter, and in each and every such case, unless such
Event of Default shall have been waived in writing by the Holder (which waiver
shall not be deemed to be a waiver of any subsequent default) at the option of
the Holder and in the Holder's sole discretion, the Holder may consider this
Debenture immediately due and payable, without presentment, demand, protest or
notice of any kinds, all of which are hereby expressly waived, anything herein
or in any note or other instruments contained to the contrary notwithstanding,
and the Holder may immediately enforce any and all of the Holder's rights and
remedies provided herein or any other rights or remedies afforded by law.
12. Nothing contained in this Debenture shall be construed as conferring
upon the Holder the right to vote or to receive dividends or to consent or
receive notice as a shareholder in respect of any meeting of shareholders or any
rights whatsoever as a shareholder of the Company, unless and to the extent
converted in accordance with the terms hereof.
13. In the event for any reason, any payment by or act of the Company or
the Holder shall result in payment of interest which would exceed the limit
authorized by or be in violation of the law of the jurisdiction applicable to
this Debenture, the ipso facto the obligation of the Company to pay interest or
perform such act or requirement shall be reduced to the limit authorized under
such law, so that in no event shall the Company be obligated to pay any such
interest, perform any such act or be bound by any requirement which would result
in the payment of interest in excess of the limit so authorized. In the event
any payment by or act of the Company shall result in the extraction of a rate of
interest in excess of a sum which is lawfully collectible as interest, then such
amount (to the extent of such excess not returned to the Company) shall, without
further agreement or notice between or by the Company or the Holder, be deemed
applied to the payment of principal, if any, hereunder immediately upon receipt
of such excess funds by the Holder, with the same force and effect as though the
Company had specifically designated such sums to be so applied to principal and
the Holder had agreed to accept such sums as an interest-
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free prepayment of this Debenture. If any part of such excess remains after the
principal has been paid in full, whether by the provisions of the preceding
sentences of this Section 13 or otherwise, such excess shall be deemed to be an
interest-free loan from the Company to the Holder, which loan shall be payable
immediately upon demand by the Company. The provisions of this Section 13 shall
control every other provision of this Debenture.
IN WITNESS WHEREOF, the Company has caused this instrument to be duly
executed by an officer thereunto duly authorized.
Dated: June 18, 1998
VOXCOM HOLDINGS, INC.
By:/s/ Donald G. McLellan
---------------------------
Donald G. McLellan, President
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EXHIBIT A
NOTICE OF CONVERSION
(To be Executed by the Registered Holder in order to Convert the Debenture)
The undersigned hereby irrevocably elects to convert $ ________________ of
the principal amount of the above Debenture No. ___ into Shares of Common Stock
of VOXCOM HOLDINGS, INC. (the "Company") according to the conditions hereof, as
of the date written below.
Conversion Date*
- --------------------------------------------------------------------------------
Applicable Conversion Price
- --------------------------------------------------------------------------------
Signature
- --------------------------------------------------------------------------------
[Name]
Address:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
* This original Debenture must be received by the Company or its transfer agent
by the fifth business date following the Conversion Date.
SECURITIES PURCHASE AGREEMENT
THIS SECURITIES PURCHASE AGREEMENT, dated as of the date of acceptance set
forth below, is entered into by and between VOXCOM HOLDINGS, INC., a Nevada
corporation, with headquarters located at 8115 Preston Road, Eighth Floor-East,
Dallas, TX 75225 (the "Company"), and each entity named on a signature page
hereto (each, a "Buyer").
W I T N E S S E T H:
WHEREAS, the Company and the Buyer are executing and delivering this
Agreement in accordance with and in reliance upon the exemption from securities
registration afforded, inter alia, by Rule 506 under Regulation D ("Regulation
D") as promulgated by the United States Securities and Exchange Commission (the
"SEC") under the Securities Act of 1933, as amended (the "1933 Act"), and/or
Section 4(2) of the 1933 Act; and
WHEREAS, the Buyer wishes to purchase, upon the terms and subject to the
conditions of this Agreement, shares of Series B Convertible Preferred Stock,
$0.0001 par value per share (the "Convertible Preferred Stock"), of the Company,
which which will be convertible into shares of Common Stock, $0.0001 par value
per share, of the Company (the "Common Stock"), upon the terms and subject to
the conditions of such Convertible Preferred Stock, and subject to acceptance of
this Agreement by the Company;
NOW THEREFORE, in consideration of the premises and the mutual covenants
contained herein and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties agree as follows:
1. AGREEMENT TO PURCHASE; PURCHASE PRICE.
a. Purchase; Certain Definitions. (i) The undersigned hereby agrees to
purchase from the Company shares of the Convertible Preferred Stock in the
amount set forth on the signature page of this Agreement (the "Preferred
Stock"), out of a total offering of $3,500,000 of such Convertible Preferred
Stock, and having the terms and conditions set forth in the Certificate of
Designations, Preferences and Rights of Preferred Stock relating to the Series B
Preferred Stock of the Company attached hereto as Annex I (the "Certificate of
Designations"). The purchase price for the Preferred Stock shall be as set forth
on the signature page hereto and shall be payable in United States Dollars.
(ii) As used herein, the term "Securities" means the Preferred Stock and
the Common Stock issuable upon conversion of the Preferred Stock.
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(iii) As used herein, the term "Purchase Price" means the purchase price
for the Preferred Stock.
(iv) As used herein, the term "Closing Date" means the date of the closing
of the purchase and sale of the Preferred Stock, as provided herein.
(v) As used herein, the term "Market Price of the Common Stock" means (x)
the average closing bid price of the Common Stock for the five (5) trading days
ending on the trading day immediately before the date indicated in the relevant
provision hereof as reported by Bloomberg, LP or, if not so reported, as
reported on the over-the-counter market or (y) if the Common Stock is listed on
a stock exchange, the closing price on such exchange on the date indicated in
the relevant provision hereof, as reported in The Wall Street Journal.
(vi) As used herein, the term "Effective Date" means the effective date of
the Registration Statement covering the Registrable Securities (as those terms
are defined in the Registration Rights Agreement defined below).
b. Form of Payment; Delivery of Preferred Stock.
(i) The Buyer shall pay the Purchase Price for the Preferred Stock by
delivering immediately available good funds in United States Dollars to the
escrow agent (the "Escrow Agent") identified in the Joint Escrow Instructions
attached hereto as Annex II (the "Joint Escrow Instructions") on the date prior
to the Closing Date.
(ii) No later than the relevant Closing Date, but in any event promptly
following payment by the Buyer to the Escrow Agent of the relevant Purchase
Price, the Company shall deliver one or more certificates representing the
Preferred Stock, duly executed by or on behalf of the Company (collectively, the
"Certificate"), to the Escrow Agent.
(iii) By signing this Agreement, each of the Buyer and the Company, subject
to acceptance by the Escrow Agent, agrees to all of the terms and conditions of,
and becomes a party to, the Joint Escrow Instructions, all of the provisions of
which are incorporated herein by this reference as if set forth in full.
c. Method of Payment. Payment into escrow of the Purchase Price shall be
made by wire transfer of funds to:
Bank of New York
350 Fifth Avenue
New York, New York 10001
ABA# 021000018
For credit to the account of Krieger & Prager, Esqs.
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Account No.: [To be provided to the Buyer by Krieger & Prager]
Reference: Voxcom Holdings, Inc. Transaction
Not later than 5:00 p.m., New York time, on the date which is two (2) New York
Stock Exchange trading days after the Company shall have accepted this Agreement
and returned a signed counterpart of this Agreement to the Escrow Agent by
facsimile, the Buyer shall deposit with the Escrow Agent the Purchase Price for
the Preferred Stock in currently available funds. Time is of the essence with
respect to such payment, and failure by the Buyer to make such payment, shall
allow the Company to cancel this Agreement.
d. Escrow Property. The Purchase Price and the Certificate delivered to the
Escrow Agent as contemplated by Sections 1(b) and (c) hereof are referred to as
the "Escrow Property."
2. BUYER REPRESENTATIONS, WARRANTIES, ETC.; ACCESS TO INFORMATION;
INDEPENDENT INVESTIGATION.
The Buyer represents and warrants to, and covenants and agrees with, the
Company as follows:
a. Without limiting Buyer's right to sell the Common Stock pursuant to the
Registration Statement, the Buyer is purchasing the Preferred Stock and will be
acquiring the shares of Common Stock issuable upon conversion of the Preferred
Stock (the "Converted Shares") for its own account for investment only or as
agent for other "accredited investors" (as that term is used in paragraph 2(b)
below) and not with a view towards the public sale or distribution thereof and
not with a view to or for sale in connection with any distribution thereof.
b. The Buyer is (i) an "accredited investor" as that term is defined in
Rule 501 of the General Rules and Regulations under the 1933 Act by reason of
Rule 501(a)(3), (ii) experienced in making investments of the kind described in
this Agreement and the related documents, (iii) able, by reason of the business
and financial experience of its officers (if an entity) and professional
advisors (who are not affiliated with or compensated in any way by the Company
or any of its affiliates or selling agents), to protect its own interests in
connection with the transactions described in this Agreement, and the related
documents, and (iv) able to afford the entire loss of its investment in the
Securities.
c. All subsequent offers and sales of the Preferred Stock and the shares of
Common Stock representing the Converted Shares (such Common Stock sometimes
referred to as the "Shares") by the Buyer shall be made pursuant to registration
of the Shares under the 1933 Act or pursuant to an exemption from registration.
d. The Buyer understands that the Preferred Stock are being offered and
sold to it in reliance on specific exemptions from the registration requirements
of United States federal and
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state securities laws and that the Company is relying upon the truth and
accuracy of, and the Buyer's compliance with, the representations, warranties,
agreements, acknowledgments and understandings of the Buyer set forth herein in
order to determine the availability of such exemptions and the eligibility of
the Buyer to acquire the Preferred Stock.
e. The Buyer and its advisors, if any, have been furnished with all
materials relating to the business, finances and operations of the Company and
materials relating to the offer and sale of the Preferred Stock and the offer of
the Shares which have been requested by the Buyer, including Annex V hereto. The
Buyer and its advisors, if any, have been afforded the opportunity to ask
questions of the Company and have received complete and satisfactory answers to
any such inquiries. Without limiting the generality of the foregoing, the Buyer
has also had the opportunity to obtain and to review the Company's Form 10SB, as
filed with the SEC on May 15, 1998 (the "Company's SEC Documents").
f. The Buyer understands that its investment in the Securities involves a
high degree of risk.
g. The Buyer understands that no United States federal or state agency or
any other government or governmental agency has passed on or made any
recommendation or endorsement of the Securities.
h. This Agreement has been duly and validly authorized, executed and
delivered on behalf of the Buyer and is a valid and binding agreement of the
Buyer enforceable in accordance with its terms, subject as to enforceability to
general principles of equity and to bankruptcy, insolvency, moratorium and other
similar laws affecting the enforcement of creditors' rights generally.
i. Notwithstanding the provisions hereof or of the Preferred Stock, in no
event (except if the Company is in default under any of the terms of the
Certificate of Designations or any of the Transaction Agreements, as defined
below and the Buyer has asserted such default) shall the holder be entitled to
convert any Preferred Stock to the extent that, after such conversion, the sum
of (1) the number of shares of Common Stock beneficially owned by the Buyer and
its affiliates (other than shares of Common Stock which may be deemed
beneficially owned through the ownership of the unconverted portion of the
Preferred Stock), and (2) the number of shares of Common Stock issuable upon the
conversion of the Preferred Stock with respect to which the determination of
this proviso is being made, would result in beneficial ownership by the Buyer
and its affiliates of more than 9.99% of the outstanding shares of Common Stock
(after taking into account the shares to be issued to the Buyer upon such
conversion). For purposes of the proviso to the immediately preceding sentence,
beneficial ownership shall be determined in accordance with Section 13(d) of the
Securities Exchange Act of 1934, as amended (the "1934 Act"), except as
otherwise provided in clause (1) of such proviso. The Buyer further agrees that
if the Buyer transfers or assigns any of the Preferred Stock to a party who or
which would not be considered an affiliate, such transfer or assignment shall be
made subject to the transferee's or assignee's specific agreement
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<PAGE>
to be bound the provisions of this Section 2(i) as if such transferee or
assignee were a signatory to this Agreement.
j. So long as the Company is in compliance in all material respects with
its obligations to the Buyer under this Agreement and the other Transaction
Agreements, and so long as the Buyer owns any of the Preferred Shares, the Buyer
will not engage in any open market Short Sales of the Common Stock, other than
upon conversions of the Preferred Shares. As used herein, "Short Sale" has the
meaning provided in Rule 3b-3 under the 1934 Act.
3. COMPANY REPRESENTATIONS, ETC.
The Company represents and warrants to the Buyer that, except as provided
in Annex V hereto:
a. Concerning the Preferred Stock and the Shares. The Preferred Stock has
been duly authorized, and when issued, will be duly and validly issued, fully
paid and non-assessable and will not subject the holder thereof to personal
liability by reason of being such holder. There are no preemptive rights of any
stockholder of the Company, as such, to acquire the Preferred Stock or the
Shares.
b. Reporting Company Status. The Company is a corporation duly organized,
validly existing and in good standing under the laws of the State of Nevada and
has the requisite corporate power to own its properties and to carry on its
business as now being conducted. The Company is duly qualified as a foreign
corporation to do business and is in good standing in each jurisdiction where
the nature of the business conducted or property owned by it makes such
qualification necessary, other than those jurisdictions in which the failure to
so qualify would not have a material adverse effect on the business, operations
or condition (financial or otherwise) of the Company, individually, or together
with its subsidiaries, taken as a whole. The Company has registered its Common
Stock pursuant to Section 12 of the 1934 Act, and the Common Stock is listed and
traded on The NASDAQ/Bulletin Board Market. The Company has received no notice,
either oral or written, with respect to the continued eligibility of the Common
Stock for such listing, and the Company has maintained all requirements for the
continuation of such listing.
c. Authorized Shares. The Company has sufficient authorized and unissued
Shares as may be reasonably necessary to effect the conversion of the Preferred
Stock. The Converted Shares have been duly authorized and, when issued upon
conversion of, or as interest on, the Preferred Stock in accordance with the
terms of the Certificate of Designations will be duly and validly issued, fully
paid and non-assessable and will not subject the holder thereof to personal
liability by reason of being such holder.
d. Securities Purchase Agreement; Registration Rights Agreement and Stock.
This Agreement and the Registration Rights Agreement, the form of which is
attached hereto as Annex IV (the "Registration Rights Agreement"), and the
transactions contemplated thereby,
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<PAGE>
have been duly and validly authorized by the Company, this Agreement has been
duly executed and delivered by the Company and this Agreement is, and the
Registration Rights Agreement, when executed and delivered by the Company, will
be, valid and binding agreements of the Company enforceable in accordance with
their respective terms, subject, as to enforceability, to general principles of
equity and to bankruptcy, insolvency, moratorium, and other similar laws
affecting the enforcement of creditors' rights generally; and the Preferred
Stock will be duly and validly authorized and, when executed and delivered on
behalf of the Company in accordance with this Agreement, will be a valid and
binding obligation of the Company in accordance with its terms, subject to
general principles of equity and to bankruptcy, insolvency, moratorium, or other
similar laws affecting the enforcement of creditors' rights generally.
e. Non-contravention. The execution and delivery of this Agreement and the
Registration Rights Agreement by the Company, the issuance of the Securities,
and the consummation by the Company of the other transactions contemplated by
this Agreement, the Registration Rights Agreement, and the Preferred Stock do
not and will not conflict with or result in a breach by the Company of any of
the terms or provisions of, or constitute a default under (i) the articles of
incorporation or by-laws of the Company, each as currently in effect, (ii) any
indenture, mortgage, deed of trust, or other material agreement or instrument to
which the Company is a party or by which it or any of its properties or assets
are bound, including any listing agreement for the Common Stock except as herein
set forth, (iii) to its knowledge, any existing applicable law, rule, or
regulation or any applicable decree, judgment, or order of any court, United
States federal or state regulatory body, administrative agency, or other
governmental body having jurisdiction over the Company or any of its properties
or assets, or (iv) the Company's listing agreement for its Common Stock, except
such conflict, breach or default which would not have a material adverse effect
on the Company or on the transactions contemplated herein.
f. Approvals. No authorization, approval or consent of any court,
governmental body, regulatory agency, self-regulatory organization, or stock
exchange or market or the stockholders of the Company is required to be obtained
by the Company for the issuance and sale of the Securities to the Buyer as
contemplated by this Agreement, except such authorizations, approvals and
consents that have been obtained.
g. SEC Filings. None of the Company's SEC Documents contained, at the time
they were filed, any untrue statement of a material fact or omitted to state any
material fact required to be stated therein or necessary to make the statements
made therein in light of the circumstances under which they were made, not
misleading. The Company has since April 1, 1997 timely filed all requisite
forms, reports and exhibits thereto with the SEC.
h. Absence of Certain Changes. Since December 31, 1997, there has been no
material adverse change and no material adverse development in the business,
properties, operations, condition (financial or otherwise), or results of
operations of the Company, except as disclosed in the Company's SEC Documents.
Since December 31, 1997, except as provided in the Company's SEC Documents, the
Company has not (i) incurred or become subject to any material liabilities
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<PAGE>
(absolute or contingent) except liabilities incurred in the ordinary course of
business consistent with past practices; (ii) discharged or satisfied any
material lien or encumbrance or paid any material obligation or liability
(absolute or contingent), other than current liabilities paid in the ordinary
course of business consistent with past practices; (iii) declared or made any
payment or distribution of cash or other property to stockholders with respect
to its capital stock, or purchased or redeemed, or made any agreements to
purchase or redeem, any shares of its capital stock; (iv) sold, assigned or
transferred any other tangible assets, or canceled any debts or claims, except
in the ordinary course of business consistent with past practices; (v) suffered
any substantial losses or waived any rights of material value, whether or not in
the ordinary course of business, or suffered the loss of any material amount of
existing business; (vi) made any changes in employee compensation, except in the
ordinary course of business consistent with past practices; or (vii) experienced
any material problems with labor or management in connection with the terms and
conditions of their employment.
i. Full Disclosure. There is no fact known to the Company (other than
general economic conditions known to the public generally or as disclosed in the
Company's SEC Documents) that has not been disclosed in writing to the Buyer
that (i) would reasonably be expected to have a material adverse effect on the
business or financial condition of the Company , (ii) would reasonably be
expected to materially and adversely affect the ability of the Company to
perform its obligations pursuant to this Agreement or any of the agreements
contemplated hereby (collectively, including this Agreement, the "Transaction
Agreements"), or (iii) would reasonably be expected to materially and adversely
affect the value of the rights granted to the Buyer in the Transaction
Agreements.
j. Absence of Litigation. Except as set forth in the Company's SEC
Documents, there is no action, suit, proceeding, inquiry or investigation before
or by any court, public board or body pending or, to the knowledge of the
Company, threatened against or affecting the Company, wherein an unfavorable
decision, ruling or finding would have a material adverse effect on the
properties, business or financial condition, or results of operation of the
Company and its subsidiaries taken as a whole or the transactions contemplated
by any of the Transaction Agreements or which would adversely affect the
validity or enforceability of, or the authority or ability of the Company to
perform its obligations under, any of the Transaction Agreements.
k. Absence of Events of Default. Except as set forth in Section 3(e)
hereof, no Event of Default (or its equivalent term), as defined in the
respective agreement to which the Company is a party, and no event which, with
the giving of notice or the passage of time or both, would become an Event of
Default (or its equivalent term) (as so defined in such agreement), has occurred
and is continuing, which would have a material adverse effect on the Company's
financial condition or results of operations.
l. Prior Issues. During the twelve (12) months preceding the date hereof,
the Company has not issued any convertible securities. The presently outstanding
unconverted principal amount of each such issuance as at June 1, 1998 are set
forth in Annex V.
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m. No Undisclosed Liabilities or Events. The Company has no liabilities or
obligations other than those disclosed in the Company's SEC Documents or those
incurred in the ordinary course of the Company's business since December 31,
1997, and which individually or in the aggregate, do not or would not have a
material adverse effect on the properties, business, condition (financial or
otherwise), or results of operations of the Company individually, or together
with its subsidiaries, taken as a whole. No event or circumstances has occurred
or exists with respect to the Company or its properties, business, condition
(financial or otherwise), or results of operations, which, under applicable law,
rule or regulation, requires public disclosure or announcement prior to the date
hereof by the Company but which has not been so publicly announced or disclosed.
There are no proposals currently under consideration or currently anticipated to
be under consideration by the Board of Directors or the executive officers of
the Company which proposal would (x) change the charter or by-laws of the
Company, each as currently in effect, with or without shareholder approval,
which change would reduce or otherwise adversely affect the rights and powers of
the shareholders of the Common Stock or (y) materially or substantially change
the business, assets or capital of the Company, including its interests in
subsidiaries.
n. No Default. The Company is not in default in the performance or
observance of any material obligation, agreement, covenant or condition
contained in any indenture, mortgage, deed of trust or other material instrument
or agreement to which it is a party or by which it or its property is bound.
o. No Integrated Offering. Neither the Company nor any of its affiliates
nor any person acting on its or their behalf has, directly or indirectly, at any
time since April 1, 1997, made any offer or sales of any security or solicited
any offers to buy any security under circumstances that would eliminate the
availability of the exemption from registration under Rule 506 of Regulation D
in connection with the offer and sale of the Securities as contemplated hereby.
p. Dilution. The number of Shares issuable upon conversion of the Preferred
Stock may increase substantially in certain circumstances, including, but not
necessarily limited to, the circumstance wherein the trading price of the Common
Stock declines prior to the conversion of the Preferred Stock. The Company's
executive officers and directors have studied and fully understand the nature of
the Securities being sold hereby and recognize that they have a potential
dilutive effect. The board of directors of the Company has concluded, in its
good faith business judgment, that such issuance is in the best interests of the
Company. The Company specifically acknowledges that its obligation to issue the
Shares upon conversion of the Preferred Stock is binding upon the Company and
enforceable regardless of the dilution such issuance may have on the ownership
interests of other shareholders of the Company.
4. CERTAIN COVENANTS AND ACKNOWLEDGMENTS.
a. Transfer Restrictions. The Buyer acknowledges that (1) the Preferred
Stock have not been and are not being registered under the provisions of the
1933 Act and, except as
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<PAGE>
provided in the Registration Rights Agreement, the Shares have not been and are
not being registered under the 1933 Act, and may not be transferred unless (A)
subsequently registered thereunder or (B) the Buyer shall have delivered to the
Company and opinion of counsel, reasonably satisfactory in form, scope and
substance to the Company, to the effect that the Securities to be sold or
transferred may be sold or transferred pursuant to an exemption from such
registration; (2) any sale of the Securities made in reliance on Rule 144
promulgated under the 1933 Act may be made only in accordance with the terms of
said Rule and further, if said Rule is not applicable, any resale of such
Securities under circumstances in which the seller, or the person through whom
the sale is made, may be deemed to be an underwriter, as that term is used in
the 1933 Act, may require compliance with some other exemption under the 1933
Act or the rules and regulations of the SEC thereunder; and (3) neither the
Company nor any other person is under any obligation to register the Securities
(other than pursuant to the Registration Rights Agreement) under the 1933 Act or
to comply with the terms and conditions of any exemption thereunder.
b. Restrictive Legend. The Buyer acknowledges and agrees that the Preferred
Stock and, until such time as the Common Stock has been registered under the
1933 Act as contemplated by the Registration Rights Agreement and sold in
accordance with an effective Registration Statement, certificates and other
instruments representing any of the Securities shall bear a restrictive legend
in substantially the following form (and a stop-transfer order may be placed
against transfer of any such Securities):
THESE SECURITIES (THE "SECURITIES") HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES
ACT"), OR THE SECURITIES LAWS OF ANY STATE AND MAY NOT BE SOLD OR
OFFERED FOR SALE IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT FOR THE SECURITIES OR AN OPINION OF COUNSEL OR OTHER
EVIDENCE ACCEPTABLE TO THE CORPORATION THAT SUCH REGISTRATION IS
NOT REQUIRED.
c. Registration Rights Agreement. The parties hereto agree to enter into
the Registration Rights Agreement on or before the Closing Date.
d. Filings and Shareholder Consent. (i) The Company undertakes and agrees
to make all necessary filings in connection with the sale of the Preferred Stock
to the Buyer under any United States laws and regulations applicable to the
Company, or by any domestic securities exchange or trading market, and to
provide a copy thereof to the Buyer promptly after such filing.
(ii) The Company undertakes and agrees to take all steps necessary to have
a vote of the shareholders of the Company regarding authorization of the
Company's issuance to the holders of the Preferred Stock of shares of Common
Stock in excess of twenty percent (20%) of the outstanding shares of Common
Stock on the Closing Date on or before the Effective Date in accordance with
NASDAQ Rule 4301(c)(25)(H)(i)(d)(2). The Company will recommend to the
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<PAGE>
shareholders that such authorization be granted and will seek proxies from
shareholders not attending the meeting (if such meeting is required to
effectuate such authorization) naming a director or officer of the Company as
such shareholder's proxy and directing the proxy to vote, or giving the proxy
the authority to vote, in favor of such authorization. Upon determination that
the shareholders have voted in favor of such authorization, the Company shall
cause its counsel to issue to the Buyer an unqualified opinion (the
"Authorization Opinion") that such authorization has been duly adopted by all
necessary corporate action of the Company and that the Company will be able to
issue, without restriction as to the number of such shares, all shares of Common
Stock as may be issuable upon conversion of the Preferred Stock and without any
limits imposed by the Cap Regulations (as defined below) adopted on or before
and in effect on the date of the Authorization Opinion. The Authorization
Opinion shall state that the Buyer may rely thereon in connection with the
transactions contemplated regarding its holdings of the Preferred Stock. If, for
any reason, (x) the Authorization Opinion is not issued within five (5) business
days after such meeting, (y) the meeting is not held by the thirtieth day after
the Effective Date or (z) the requisite shareholder is not obtained at the
meeting, the Conversion Price shall be adjusted to ninety percent (90%) of what
the Conversion Price would have been in the absence of this provision.
(iii) In furtherance of the provisions of the immediately preceding
subparagraph (ii) hereof, the Company (a) commits to using its best efforts to
obtain any shareholder authorization contemplated by said subparagraph (ii) by
written consent of shareholders holding at least the minimum number of shares
necessary to take such action without a meeting of all shareholders and, if such
consent is not obtained, by vote of the shareholders at a meeting of
shareholders duly called and held, and (b) represents to the Buyer that the
Company has obtained the binding irrevocable commitment or proxy (each, a
"Principal Voter Proxy") of each Principal Voter (as defined below) that such
Principal Voter will vote in favor of any shareholder authorization contemplated
by said subparagraph (ii). A "Principal Voter" is a person who meets any one or
more of the following criteria: (A) a person who is a director or principal
officer of the Company (each, a "Company Principal") and who, directly or
indirectly, holds any shares of Common Stock of the Company; (B) a spouse of a
Company Principal (a "Principal's Spouse") who, directly or indirectly, holds
any shares of Common Stock of the Company, (C) a parent, sibling or child of a
Company Principal who resides in the household of a Company Principal or of a
Principal's Spouse (each, a "Principal's Relative") and who, directly or
indirectly, holds any shares of Common Stock or (D) any other person or entity,
including, without limitation, for profit or non-profit corporations,
partnerships and trusts, whose voting rights regarding Common Stock of the
Company is subject to the direction, control or other influence of any Company
Principal, Principal's Spouse or Principal's Relative. The Company will deliver
such Principal Voter Proxies to the Buyer or the Buyer's designee within ten
(10) business days after the Closing Date, together with an opinion of the
Company's counsel that each such Principal Voter Proxy is binding and
irrevocable and is enforceable or exercisable by the Buyer or the Buyer's
designee.
e. Reporting Status. So long as the Buyer beneficially owns any of the
Preferred Stock, the Company shall file, upon the effectiveness of the Company's
Form 10SB, all reports required to be filed with the SEC pursuant to Section 13
or 15(d) of the 1934 Act, and the
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Company shall not terminate its status as an issuer required to file reports
under the 1934 Act even if the 1934 Act or the rules and regulations thereunder
would permit such termination. The Company will take all reasonable action under
its control to continue the listing and trading of its Common Stock on The
NASDAQ/Bulletin Board Market and will comply in all material respects with the
Company's reporting, filing and other obligations under the by-laws or rules of
the National Association of Securities Dealers, Inc. ("NASD") or The
NASDAQ/Bulletin Board Market.
f. Use of Proceeds. The Company will use the proceeds from the sale of the
Preferred Stock (excluding amounts paid by the Company for legal fees, finder's
fees and escrow agent fees in connection with the sale of the Preferred Stock)
for internal working capital purposes and shall not, directly or indirectly, use
such proceeds for any loan to or investment in any other corporation,
partnership, enterprise or other person, including any of its affiliates, or to
repay any debt to any of its affiliates.
g. Certain Agreements. The Company covenants and agrees that, except as
provided in the immediately succeeding sentence, it will not, without the prior
written consent of the Buyer, enter into any subsequent or further offer or sale
of Common Stock or securities convertible into Common Stock with any third party
on any date which is earlier than one hundred eighty (180) days after the
Effective Date. Notwithstanding the foregoing provisions of this subparagraph
(g), the Company may complete an offering under Rule 504 of up to 30,000 shares
of Common Stock to an unrelated party.
h. Available Shares. The Company shall have at all times authorized and
reserved for issuance, free from preemptive rights, shares of Common Stock
sufficient to yield two hundred percent (200%) of the number of shares of Common
Stock issuable at conversion as may be required to satisfy the conversion rights
of the Buyer pursuant to the terms and conditions of the Preferred Stock.
i. Limitation on Issuance of Shares. The Company may be limited in the
number of shares of Common Stock it may issue by virtue of (i) the number of
authorized shares or (ii) the applicable rules and regulations of the principal
securities market on which the Common Stock is listed or traded (collectively,
the "Cap Regulations"). The Company agrees, whether or not provided in the
Certificate of Designations, that (i) the Company will take all steps reasonably
necessary to be in a position to issue shares of Common Stock on conversion of
the Preferred Stock without violating the Cap Regulations and (ii) if, despite
taking such steps, the Company still can not issue such shares of Common Stock
without violating the Cap Regulations, the holder of one or more shares of
Preferred Stock which can not be converted as result of the Cap Regulations
(each such share, an "Unconverted Preferred Stock") shall have the option,
exercisable in such holder's sole and absolute discretion, to elect either of
the following remedies:
(x) require the Company to issue shares of Common Stock in accordance
with such holder's notice of conversion at a conversion purchase price
equal to the average of the closing bid price per share of Common Stock for
any five (5)
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consecutive trading days (subject to certain equitable adjustments for
certain events occurring during such period) during the sixty (60) trading
days immediately preceding the date of notice of conversion; or
(y) require the Company to redeem such share of Unconverted Preferred
Stock for an amount (the "Redemption Amount"), payable in cash, equal to:
V x M
------
CP
where:
"V" means the liquidation preference of a share of Unconverted
Preferred Stock plus any accrued but unpaid dividends thereon;
"CP" means the conversion price in effect on the date of redemption
(the "Redemption Date") specified in the notice from the holder of the
Unconverted Preferred Stock electing this remedy; and
"M" means the highest closing bid price per share of the Common Stock
during the period beginning on the Redemption Date and ending on the date
of payment of the Redemption Amount.
If a holder owns more than one share of Unconverted Preferred Stock, such holder
may elect one of the above remedies with respect to some of such shares of
Unconverted Preferred Stock and the other remedy with respect to other shares of
Unconverted Preferred Stock. The Certificate of Designations shall not contain
any provisions inconsistent with the above terms. The provisions of this
paragraph are not intended to limit the scope of the provisions otherwise
included in the Certificate of Designations.
5. TRANSFER AGENT INSTRUCTIONS.
a. Promptly following the delivery by the Buyer of the Purchase Price for
the Preferred Stock in accordance with Section 1(c) hereof, the Company will
irrevocably instruct its transfer agent to issue Common Stock from time to time
upon conversion of the Preferred Stock in such amounts as specified from time to
time by the Company to the transfer agent, bearing the restrictive legend
specified in Section 4(b) of this Agreement prior to registration of the Shares
under the 1933 Act, registered in the name of the Buyer or its nominee and in
such denominations to be specified by the Buyer in connection with each
conversion of the Preferred Stock. The Company warrants that no instruction
other than such instructions referred to in this Section 5 and stop transfer
instructions to give effect to Section 4(a) hereof prior to registration and
sale of the Shares under the 1933 Act will be given by the Company to the
transfer agent and that the Shares shall otherwise be freely transferable on the
books and records of the Company as and to the extent provided in this
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<PAGE>
Agreement, the Registration Rights Agreement, and applicable law. Nothing in
this Section shall affect in any way the Buyer's obligations and agreement to
comply with all applicable securities laws upon resale of the Securities. If the
Buyer provides the Company with an opinion of counsel reasonably satisfactory to
the Company that registration of a resale by the Buyer of any of the Securities
in accordance with clause (1)(B) of Section 4(a) of this Agreement is not
required under the 1933 Act, the Company shall (except as provided in clause (2)
of Section 4(a) of this Agreement) permit the transfer of the Securities and, in
the case of the Converted Shares, promptly instruct the Company's transfer agent
to issue one or more certificates for Common Stock without legend in such name
and in such denominations as specified by the Buyer.
b. (i) The Company will permit the Buyer to exercise its right to convert
the Preferred Stock by telecopying or delivering an executed and completed
Notice of Conversion to the Company and delivering, within five (5) business
days thereafter, the original Preferred Stock being converted to the Company by
express courier, with a copy to the transfer agent.
(ii) The term "Conversion Date" means, with respect to any conversion
elected by the holder of the Preferred Stock, the date specified in the Notice
of Conversion, provided the copy of the Notice of Conversion is telecopied to or
otherwise delivered to the Company in accordance with the provisions hereof so
that is received by the Company on or before such specified date.
(iii) The Company shall, at its expense, take all actions and use all
means necessary and diligent to cause its transfer agent to transmit the
certificates representing the Converted Shares issuable upon conversion of any
Preferred Stock (together with Preferred Stock not being so converted) to the
Buyer via express courier, by electronic transfer or otherwise, within three (3)
business days (such third business day, the "Delivery Date") after (A) the
business day on which the Company has received both of the Notice of Conversion
(by facsimile or other delivery) and the original Preferred Stock being
converted (and if the same are not delivered to the Company on the same date,
the date of delivery of the second of such items) or (B) the date a dividend
payment on the Preferred Stock, which the Company has elected to pay by the
issuance of Common Stock, as contemplated by the Preferred Stock, was due.
c. The Company understands that a delay in the issuance of the Shares of
Common Stock beyond the Delivery Date could result in economic loss to the
Buyer. As compensation to the Buyer for such loss, the Company agrees to pay
late payments to the Buyer for late issuance of Shares upon Conversion in
accordance with the following schedule (where "No. Business Days Late" is
defined as the number of business days beyond two (2) business days from the
Delivery Date):
Late Payment For Each $10,000 of
Preferred Stock Liquidation
Preference or Interest
No. Business Days Late Amount Being Converted
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1 $100
2 $200
3 $300
4 $400
5 $500
6 $600
7 $700
8 $800
9 $900
10 $1,000
>10 $1,000 +$200 for each Business
Day Late beyond 10 days
The Company shall pay any payments incurred under this Section in immediately
available funds upon demand. Nothing herein shall limit the Buyer's right to
pursue actual damages for the Company's failure to issue and deliver the Common
Stock to the Buyer. Furthermore, in addition to any other remedies which may be
available to the Buyer, in the event that the Company fails for any reason to
effect delivery of such shares of Common Stock within two (2) business days
after the Delivery Date, the Buyer will be entitled to revoke the relevant
Notice of Conversion by delivering a notice to such effect to the Company
whereupon the Company and the Buyer shall each be restored to their respective
positions immediately prior to delivery of such Notice of Conversion.
d. If, by the relevant Delivery Date, the Company fails for any reason to
deliver the Shares to be issued upon conversion of a Preferred Stock and after
such Delivery Date, the holder of the Preferred Stock being converted (a
"Converting Holder") purchases, in an open market transaction or otherwise,
shares of Common Stock (the "Covering Shares") in order to make delivery in
satisfaction of a sale of Common Stock by the Converting Holder (the "Sold
Shares"), which delivery such Converting Holder anticipated to make using the
Shares to be issued upon such conversion (a "Buy-In"), the Company shall pay to
the Converting Holder, in addition to all other amounts contemplated in other
provisions of the Transaction Agreements, and not in lieu thereof, the Buy-In
Adjustment Amount (as defined below). The "Buy-In Adjustment Amount" is the
amount equal to the excess, if any, of (x) the Converting Holder's total
purchase price (including brokerage commissions, if any) for the Covering Shares
over (y) the net proceeds (after brokerage commissions, if any) received by the
Converting Holder from the sale of the Sold Shares. The Company shall pay the
Buy-In Adjustment Amount to the Company in immediately available funds
immediately upon demand by the Converting Holder. By way of illustration and not
in limitation of the foregoing, if the Converting Holder purchases shares of
Common Stock having a total purchase price (including brokerage commissions) of
$11,000 to cover a Buy-In with respect to shares of Common Stock it sold for net
proceeds of $10,000, the Buy-In Adjustment Amount which Company will be required
to pay to the Converting Holder will be $1,000.
e. In lieu of delivering physical certificates representing the Common
Stock issuable upon conversion, provided the Company's transfer agent is
participating in the Depository Trust Company ("DTC") Fast Automated Securities
Transfer program, upon request of the Buyer and its compliance with the
provisions contained in this paragraph, so long as the certificates therefor
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<PAGE>
do not bear a legend and the Buyer thereof is not obligated to return such
certificate for the placement of a legend thereon, the Company shall use its
best efforts to cause its transfer agent to electronically transmit the Common
Stock issuable upon conversion to the Buyer by crediting the account of Buyer's
Prime Broker with DTC through its Deposit Withdrawal Agent Commission system.
f. The Company will authorize its transfer agent to give information
relating to the Company directly to the Buyer or the Buyer's representatives
upon the request of the Buyer or any such representative. The Company will
provide the Buyer with a copy of the authorization so given to the transfer
agent.
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<PAGE>
6. DELIVERY INSTRUCTIONS.
The Preferred Stock shall be delivered by the Company to the Escrow Agent
pursuant to Section 1(b) hereof, on a delivery against payment basis, no later
than the Closing Date.
7. CLOSING DATE.
a. The Closing Date shall occur on the date which is the first NYSE trading
day after the fulfillment or waiver of all closing conditions pursuant to
Sections 8 and 9 hereof or such other date and time as is mutually agreed upon
by the Company and the Buyer.
b. The closing of the purchase and issuance of Preferred Stock shall occur
on the Closing Date at the offices of the Escrow Agent and shall take place no
later than 12:00 Noon, New York time, on such day or such other time as is
mutually agreed upon by the Company and the Buyer.
c. Notwithstanding anything to the contrary contained herein, the Escrow
Agent will be authorized to release the Escrow Property only upon satisfaction
of the conditions set forth in Sections 8 and 9 hereof. The Certificates
representing the Preferred Stock shall be delivered by the Company to the Escrow
Agent pursuant to Section 1(b) hereof no later than the Closing Date.
8. CONDITIONS TO THE COMPANY'S OBLIGATION TO SELL.
The Buyer understands that the Company's obligation to sell the Preferred
Stock to the Buyer pursuant to this Agreement on the Closing Date is conditioned
upon:
a. The execution and delivery of this Agreement by the Buyer;
b. Delivery by the Buyer to the Escrow Agent of good funds as payment in
full of an amount equal to the purchase price for the Preferred Stock in
accordance with this Agreement;
c. The accuracy on such Closing Date of the representations and warranties
of the Buyer contained in this Agreement, each as if made on such date, and the
performance by the Buyer on or before such date of all covenants and agreements
of the Buyer required to be performed on or before such date; and
d. There shall not be in effect any law, rule or regulation prohibiting or
restricting the transactions contemplated hereby, or requiring any consent or
approval which shall not have been obtained.
9. CONDITIONS TO THE BUYER'S OBLIGATION TO PURCHASE.
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The Company understands that the Buyer's obligation to purchase the
Preferred Stock on the Closing Date is conditioned upon:
a. The execution and delivery of this Agreement and the Registration Rights
Agreement by the Company;
b. Delivery by the Company to the Escrow Agent of the Certificate
representing the Preferred Stock in accordance with this Agreement;
c. The accuracy in all material respects on the Closing Date of the
representations and warranties of the Company contained in this Agreement. each
as if made on such date, and the performance by the Company on or before such
date of all covenants and agreements of the Company required to be performed on
or before such date;
d. On the Closing Date, the Buyer shall have received an opinion of counsel
for the Company, dated the Closing Date, in form, scope and substance reasonably
satisfactory to the Buyer, substantially to the effect set forth in Annex III
attached hereto; and
e. No statute, rule, regulation, executive order, decree, ruling or
injunction shall be enacted, entered, promulgated or endorsed by any court or
governmental authority of competent jurisdiction which prohibits or adversely
effects any of the transactions contemplated by this Agreement or the
Transaction Documents, and no proceeding or investigation shall have been
commenced or threatened which may have the effect of prohibiting or adversely
affecting any of the transactions contemplated by this Agreement or the
Transaction Documents.
10. GOVERNING LAW: MISCELLANEOUS.
a. This Agreement shall be governed by and interpreted in accordance with
the laws of the State of New York for contracts to be wholly performed in such
state and without giving effect to the principles thereof regarding the conflict
of laws. Each of the parties consents to the jurisdiction of the federal courts
whose districts encompass any part of the City of New York or the state courts
of the State of New York sitting in the City of New York in connection with any
dispute arising under this Agreement and hereby waives, to the maximum extent
permitted by law, any objection, including any objection based on forum non
conveniens, to the bringing of any such proceeding in such jurisdictions. To the
extent determined by such court, the Company shall reimburse the Buyer for any
reasonable legal fees and disbursements incurred by the Buyer in enforcement of
or protection of any of its rights under any of the Transaction Agreements.
b. Failure of any party to exercise any right or remedy under this
Agreement or otherwise, or delay by a party in exercising such right or remedy,
shall not operate as a waiver thereof.
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c. If any provision of this Agreement shall be invalid or unenforceable in
any jurisdiction, such invalidity or unenforceability shall not affect the
validity or enforceability of the remainder of this Agreement or the validity or
enforceability of this Agreement in any other jurisdiction.
d. This Agreement shall inure to the benefit of and be binding upon the
successors and assigns of each of the parties hereto.
e. All pronouns and any variations thereof refer to the masculine, feminine
or neuter, singular or plural, as the context may require.
f. A facsimile transmission of this signed Agreement shall be legal and
binding on all parties hereto.
g. This Agreement may be signed in one or more counterparts, each of which
shall be deemed an original.
h. The headings of this Agreement are for convenience of reference and
shall not form part of, or affect the interpretation of, this Agreement.
i. If any provision of this Agreement shall be invalid or unenforceable in
any jurisdiction, such invalidity or unenforceability shall not affect the
validity or enforceability of the remainder of this Agreement or the validity or
enforceability of this Agreement in any other jurisdiction.
j. This Agreement may be amended only by an instrument in writing signed by
the party to be charged with enforcement thereof.
k. In the event for any reason, any payment by or act of the Company or the
Buyer with respect to any of the Transaction Agreements shall result in payment
of interest which would exceed the limit authorized by or be in violation of the
law of the jurisdiction applicable to the Transaction Agreements, then ipso
facto the obligation of the Company to pay interest or perform such act or
requirement shall be reduced to the limit authorized under such law, so that in
no event shall the Company be obligated to pay any such interest, perform any
such act or be bound by any requirement which would result in the payment of
interest in excess of the limit so authorized. In the event any payment by or
act of the Company shall result in the extraction of a rate of interest in
excess of a sum which is lawfully collectible as interest, then such amount (to
the extent of such excess not returned to the Company) shall, without further
agreement or notice between or by the Company or the Buyer, be deemed applied to
the payment of the liquidation preference of the Preferred Stock, if any,
immediately upon receipt of such excess funds by the Buyer, with the same force
and effect as though the Company had specifically designated such sums to be so
applied and the Buyer had agreed to accept such sums as an interest-free
prepayment thereof. If any part of such excess remains after the liquidation
preference has been paid in full, whether by the provisions of
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<PAGE>
the preceding sentences of this paragraph (k) or otherwise, such excess shall be
deemed to be an interest-free loan from the Company to the Buyer, which loan
shall be payable immediately upon demand by the Company. The provisions of this
paragraph (k) shall control every other provision of the Transaction Agreements.
l. This Agreement supersedes all prior agreements and understandings among
the parties hereto with respect to the subject matter hereof.
11. NOTICES. Any notice required or permitted hereunder shall be given in
writing (unless otherwise specified herein) and shall be deemed effectively
given on the earliest of
(a) the date delivered, if delivered by personal delivery as against
written receipt therefor or by confirmed facsimile transmission,
(b) the seventh business day after deposit, postage prepaid, in the
United States Postal Service by registered or certified mail, or
(c) the third business day after mailing by international express
courier, with delivery costs and fees prepaid,
in each case, addressed to each of the other parties thereunto entitled at the
following addresses (or at such other addresses as such party may designate by
ten (10) days' advance written notice similarly given to each of the other
parties hereto):
COMPANY: VOXCOM HOLDINGS, INC.
8115 Preston Road, Eighth Floor-East
Dallas, TX 75225
Attn: Secretary
Telephone No.: (214) 691-0005
Telecopier No.: (214) 691-5984
with a copy to:
Glast, Phillips & Murray
13355 Noel Rd., Suite 2200
Dallas, TX 75240
Attn: Ronald L. Brown, Esq.
Telephone No.: (972) 419-8302
Telecopier No.: (972) 419-8329
BUYER: At the address set forth on the signature page of this Agreement.
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<PAGE>
ESCROW AGENT: Krieger & Prager, Esqs.
319 Fifth Avenue
New York, New York 10016
Telephone No.: (212) 689-3322
Telecopier No. (212) 213-2077
12. SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The Company's and the
Buyer's representations and warranties herein shall survive the execution and
delivery of this Agreement and the delivery of the Preferred Stock and payment
of the Purchase Price, and shall inure to the benefit of the Buyer and the
Company and their respective successors and assigns.
[BALANCE OF PAGE INTENTIONALLY LEFT BLANK.]
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<PAGE>
IN WITNESS WHEREOF, this Agreement has been duly executed by the Buyer by
one of its officers thereunto duly authorized as of the date set forth below.
NUMBER OF SHARES OF
PREFERRED STOCK TO BE PURCHASED: 200,000
AGGREGATE PURCHASE PRICE OF
SUCH PREFERRED STOCK: $2,000,000
SIGNATURES FOR ENTITIES
IN WITNESS WHEREOF, the undersigned represents that the foregoing
statements are true and correct and that it has caused this Securities Purchase
Agreement to be duly executed on its behalf this13th day of June, 1998.
c/o Thomas Kernighan & Co, Ltd Dominion Capital Fund, Ltd
- ------------------------------------ --------------------------------
Address Printed Name of Subscriber
365 Bay Street, Toronto Ont M54-2V2
By: Mark Valentine
----------------------------
Telecopier No. (416) 307-8055 (Signature of Authorized Person)
Mark Valentine, Agent
Nassau, Bahamas Printed Name and Title
- -----------------------------------
Jurisdiction of Incorporation
or Organization
As of the date set forth below, the undersigned hereby accepts this Agreement
and represents that the foregoing statements are true and correct and that it
has caused this Securities Purchase Agreement to be duly executed on its behalf.
VOXCOM HOLDINGS, INC.
By: Donald G. McLellan
-------------------------------
Title: President
-------------------------------
Date: June 22, 1998
-------------------------------
<PAGE>
IN WITNESS WHEREOF, this Agreement has been duly executed by the Buyer by
one of its officers thereunto duly authorized as of the date set forth below.
NUMBER OF SHARES OF
PREFERRED STOCK TO BE PURCHASED: 110,000
----------
AGGREGATE PURCHASE PRICE OF
SUCH PREFERRED STOCK: $ 1,100,000
----------
SIGNATURES FOR ENTITIES
IN WITNESS WHEREOF, the undersigned represents that the foregoing
statements are true and correct and that it has caused this Securities Purchase
Agreement to be duly executed on its behalf this13th day of June, 1998.
c/o Thomas Kernighan & Co, Ltd Sovereign Partners Limited Partnership
- ----------------------------------- --------------------------------------
Address Printed Name of Subscriber
365 Bay Street, Toronto Ont M54-2V2
By: Mark Valentine
----------------------------------
Telecopier No. (416) 307-8055 (Signature of Authorized Person)
Mark Valentine, Agent
----------------------------------
Nassau, Bahamas Printed Name and Title
- -----------------------------------
Jurisdiction of Incorporation
or Organization
As of the date set forth below, the undersigned hereby accepts this Agreement
and represents that the foregoing statements are true and correct and that it
has caused this Securities Purchase Agreement to be duly executed on its behalf.
VOXCOM HOLDINGS, INC.
By: Donald G. McLellan
------------------------
Title: President
------------------------
Date: June 22, 1998
------------------------
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT, dated as of June 22, 1998 (this
"Agreement"), is made by and between VOXCOM HOLDINGS, INC., a Nevada
corporation, with headquarters located at 8115 Preston Road, Eighth Floor-East,
Dallas, TX 75225 (the "Company"), and each entity named on a signature page
hereto (each, an "Initial Investor").
W I T N E S S E T H:
WHEREAS, upon the terms and subject to the conditions of the Securities
Purchase Agreement, dated as of June 22, 1998, between the Initial Investor and
the Company (the "Securities Purchase Agreement"; terms not otherwise defined
herein shall have the meanings ascribed to them in the Securities Purchase
Agreement), the Company has agreed to issue and sell to each Initial Investor
shares of Series B Convertible Preferred Stock, $0.0001 par value per share, of
the Company, in an aggregate purchase price (the "Purchase Price") not exceeding
$3,500,000 (the "Preferred Stock," which term, as used herein shall have the
meaning ascribed to it in the Securities Purchase Agreement); and
WHEREAS, the Preferred Stock are convertible into shares of Common Stock
(the "Conversion Shares") upon the terms and subject to the conditions contained
in the Certificate of Designations; and
WHEREAS, to induce the Initial Investor to execute and deliver the
Securities Purchase Agreement, the Company has agreed to provide certain
registration rights under the Securities Act of 1933, as amended, and the rules
and regulations thereunder, or any similar successor statute (collectively, the
"Securities Act"), with respect to the Conversion Shares;
NOW, THEREFORE, in consideration of the premises and the mutual covenants
contained herein and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Company and the Initial
Investor hereby agree as follows:
1. Definitions.
(a) As used in this Agreement, the following terms shall have the following
meanings:
(i) "Investor" means the Initial Investor and any permitted transferee or
assignee who agrees to become bound by the provisions of this Agreement in
accordance with Section 9 hereof.
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(ii) "Potential Material Event" means any of the following: (a) the
possession by the Company of material information not ripe for disclosure in a
registration statement, which shall be evidenced by determinations in good faith
by the Board of Directors of the Company that disclosure of such information in
the registration statement would be detrimental to the business and affairs of
the Company; or (b) any material engagement or activity by the Company which
would, in the good faith determination of the Board of Directors of the Company,
be adversely affected by disclosure in a registration statement at such time,
which determination shall be accompanied by a good faith determination by the
Board of Directors of the Company that the registration statement would be
materially misleading absent the inclusion of such information.
(iii) "Register," "Registered," and "Registration" refer to a registration
effected by preparing and filing a Registration Statement or Statements in
compliance with the Securities Act and pursuant to Rule 415 under the Securities
Act or any successor rule providing for offering securities on a continuous
basis ("Rule 415"), and the declaration or ordering of effectiveness of such
Registration Statement by the United States Securities and Exchange Commission
(the "SEC").
(iv) "Registrable Securities" means the Conversion Shares.
(v) "Registration Statement" means a registration statement of the Company
under the Securities Act.
(b) Capitalized terms used herein and not otherwise defined herein shall
have the respective meanings set forth in the Securities Purchase Agreement.
2. Registration.
(a) Mandatory Registration. The Company shall prepare and file with the
SEC, as soon as possible after the Closing Date but no later than forty-five
(45) days following the Initial Closing Date, either a Registration Statement on
Form SB-2 or an amendment to an existing Registration Statement, in either event
registering for resale by the Investor a sufficient number of shares of Common
Stock for the Initial Investors to sell the Registrable Securities (or such
lesser number as may be required by the SEC, but in no event less than two
hundred percent (200%) of the aggregate number of shares into which the
Preferred Stock would be convertible at the time of filing of such Registration
Statement (assuming for such purposes that all Preferred Stock had been eligible
to be converted, and had been converted, into Conversion Shares in accordance
with their terms, whether or not such eligibility or conversion had in fact
occurred as of such date). The Registration Statement (i) shall include only the
Registrable Securities and (ii) shall also state that, in accordance with Rule
416 and 457 under the Securities Act, it also covers such indeterminate number
of additional shares of Common Stock as may become issuable upon conversion of
the Preferred Stock resulting from adjustment in the Conversion Price or to
prevent dilution resulting from stock splits, or stock dividends. The Company
will use its reasonable best efforts to cause such Registration Statement to be
declared effective no later than the earlier of (x) five (5) days after notice
by the SEC that it may be declared effective or (y) one hundred twenty (120)
days after the Closing Date. If at any time the number of shares of Common Stock
into which the Preferred Stock may be converted exceeds the aggregate number of
shares of Common Stock then registered, the
2
<PAGE>
Company shall, within ten (10) business days, either (i) amend the Registration
Statement filed by the Company pursuant to the preceding provisions of this
Section 2, if such Registration Statement has not been declared effective by the
SEC at that time, to register all shares of Common Stock into which the
Preferred Stock may currently or in the future be converted, or (ii) if such
Registration Statement has been declared effective by the SEC at that time, file
with the SEC an additional Registration Statement on Form SB-2 or other
appropriate form to register the shares of Common Stock into which the Preferred
Stock may currently or in the future be converted that exceed the aggregate
number of shares of Common Stock already registered.
(b) Payments by the Company.
(i) If the Registration Statement covering the Registrable Securities is
not filed in proper form with the SEC within forty-five (45) days after the
Closing Date (the "Required Filing Date"), the Company will make payment to the
Initial Investor in such amounts and at such times as shall be determined
pursuant to this Section 2(b).
(ii) If the Registration Statement covering the Registrable Securities is
not effective (a) within the earlier of (1) five (5) days after notice by the
SEC that it may be declared effective or (2) one hundred twenty (120) days
following the Closing Date (the "Required Effective Date"), or (b) after a
Suspension Period (as defined below), then the Company will make payments to the
Initial Investor in such amounts and at such times as shall be determined
pursuant to this Section 2(b).
(ii) The amount (the "Periodic Amount") to be paid by the Company to the
Initial Investor shall be determined as of each Computation Date (as defined
below) and such amount shall be equal to (A) one percent (1%) of the purchase
price paid by the Initial Investor (the "Purchase Price") for all Preferred
Stock purchased pursuant to the Securities Purchase Agreement for the period
from the date following the Required Filing Date or the Required Effective Date,
as the case may be, to the first relevant Computation Date, and (B) one percent
(1%) to each Computation Date thereafter. By way of illustration and not in
limitation of the foregoing, if the Registration Statement is timely filed but
is not declared effective until one hundred ninety-five (195) days after the
Closing Date, the Periodic Amount will aggregate three percent (3%) of the
Purchase Price of the Preferred Stock (1% for days 121 - 150, plus 1% for days
151 - 180 and 1% for days 181 - 195).
(iv) Each Periodic Amount will be payable by the Company in cash or other
immediately available funds to the Investor monthly, without requiring demand
therefor by the Investor.
(v) The parties acknowledge that the damages which may be incurred by the
Investor if the Registration Statement is not filed by the Required Filing Date
or if the
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<PAGE>
Registration Statement has not been declared effective by the Required
Registration Date may be difficult to ascertain. The parties agree that the
Periodic Amount represent a reasonable estimate on the part of the parties, as
of the date of this Agreement, of the amount of such damages.
(vi) Notwithstanding the foregoing, the amounts payable by the Company
pursuant to this provision shall not be payable to the extent any delay in the
effectiveness of the Registration Statement occurs because of an act of, or a
failure to act or to act timely by the Initial Investor or its counsel, or in
the event all of the Registrable Securities may be sold pursuant to Rule 144 or
another available exemption under the Act.
(vii) "Computation Date" means (i) the date which is the earlier of (A)
thirty (30) days after the Required Filing Date and the Required Effective Date,
as the case may be, or (B) the date after the Required Filing Date or the
Required Registration Date on which the Registration Statement is filed (with
respect to payments due as contemplated by Section 2(b)(i) hereof) or declared
effective (with respect to payments due as contemplated by Section 2(b)(ii)
hereof), as the case may be, and (ii) each date which is the earlier of (A)
thirty (30) days after the previous Computation Date or (B) the date after the
previous Computation Date on which the Registration Statement is filed (with
respect to payments due as contemplated by Section 2(b)(i) hereof) or declared
effective (with respect to payments due as contemplated by Section 2(b)(ii)
hereof), as the case may be.
3. Obligations of the Company. In connection with the registration of the
Registrable Securities, the Company shall do each of the following.
(a) Prepare promptly, and file with the SEC by the Required Filing Date, a
Registration Statement with respect to not less than the number of Registrable
Securities provided in Section 2(a) above, and thereafter use its reasonable
best efforts to cause each Registration Statement relating to Registrable
Securities to become effective by the Required Effective Date and keep the
Registration Statement effective at all times during the period (the
"Registration Period") continuing until the earliest of (i) the date that is two
(2) years after the Initial Closing Date, (ii) the date when the Investors may
sell all Registrable Securities under Rule 144 without restriction or (iii) the
date the Investors no longer own any of the Registrable Securities, which
Registration Statement (including any amendments or supplements thereto and
prospectuses contained therein) shall not contain any untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances in which
they were made, not misleading;
(b) Prepare and file with the SEC such amendments (including post-effective
amendments) and supplements to the Registration Statement and the prospectus
used in connection with the Registration Statement as may be necessary to keep
the Registration effective at all times during the Registration Period, and,
during the Registration Period, comply with the provisions of the Securities Act
with respect to the disposition of all Registrable Securities of the Company
covered by the Registration Statement until such time as all of such Registrable
Securities have been
4
<PAGE>
disposed of in accordance with the intended methods of disposition by the seller
or sellers thereof as set forth in the Registration Statement;
(c) The Company shall permit a single firm of counsel designated by the
Initial Investors to review the Registration Statement and all amendments and
supplements thereto a reasonable period of time (but not less than three (3)
business days) prior to their filing with the SEC, and not file any document in
a form to which such counsel reasonably objects.
(d) Notify each Holder of Registrable Securities to be sold, their Counsel
and any managing underwriters immediately (and, in the case of (i)(A) below, not
less than five (5) days prior to such filing) and (if requested by any such
Person) confirm such notice in writing no later than one (1) Business Day
following the day (i)(A) when a Prospectus or any Prospectus supplement or
post-effective amendment to the Registration Statement is proposed to be filed;
(B) whenever the SEC notifies the Company whether there will be a "review" of
such Registration Statement; (C) whenever the Company receives (or a
representative of the Company receives on its behalf) any oral or written
comments from the SEC respect of a Registration Statement (copies or, in the
case of oral comments, summaries of such comments shall be promptly furnished by
the Company to the Holders); and (D) with respect to the Registration Statement
or any post-effective amendment, when the same has become effective; (ii) of any
request by the SEC or any other Federal or state governmental authority for
amendments or supplements to the Registration Statement or Prospectus or for
additional information; (iii) of the issuance by the SEC of any stop order
suspending the effectiveness of the Registration Statement covering any or all
of the Registrable Securities or the initiation of any Proceedings for that
purpose; (iv) if at any time any of the representations or warranties of the
Company contained in any agreement (including any underwriting agreement)
contemplated hereby ceases to be true and correct in all material respects; (v)
of the receipt by the Company of any notification with respect to the suspension
of the qualification or exemption from qualification of any of the Registrable
Securities for sale in any jurisdiction, or the initiation or threatening of any
Proceeding for such purpose; and (vi) of the occurrence of any event that to the
best knowledge of the Company makes any statement made in the Registration
Statement or Prospectus or any document incorporated or deemed to be
incorporated therein by reference untrue in any material respect or that
requires any revisions to the Registration Statement, Prospectus or other
documents so that, in the case of the Registration Statement or the Prospectus,
as the case may be, it will not contain any untrue statement of a material fact
or omit to state any material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances under which they were
made, not misleading. In addition, the Company shall furnish the Holders with
copies of all intended written responses to the comments contemplated in clause
(C) of this Section 3(d) not later than one (1) Business Day in advance of the
filing of such responses with the SEC so that the Holders shall have the
opportunity to comment thereon.
(e) Furnish to each Investor whose Registrable Securities are included in
the Registration Statement and its legal counsel identified to the Company, (i)
promptly after the same is prepared and publicly distributed, filed with the
SEC, or received by the Company, one (1) copy of the Registration Statement,
each preliminary prospectus and prospectus, and each amendment or
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<PAGE>
supplement thereto, and (ii) such number of copies of a prospectus, and all
amendments and supplements thereto and such other documents, as such Investor
may reasonably request in order to facilitate the disposition of the Registrable
Securities owned by such Investor;
(f) As promptly as practicable after becoming aware of such event, notify
each Investor of the happening of any event of which the Company has knowledge,
as a result of which the prospectus included in the 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, in light of the circumstances under which they were made,
not misleading, and use its best efforts promptly to prepare a supplement or
amendment to the Registration Statement or other appropriate filing with the SEC
to correct such untrue statement or omission, and deliver a number of copies of
such supplement or amendment to each Investor as such Investor may reasonably
request;
(g) As promptly as practicable after becoming aware of such event, notify
each Investor who holds Registrable Securities being sold (or, in the event of
an underwritten offering, the managing underwriters) of the issuance by the SEC
of a Notice of Effectiveness or any notice of effectiveness or any stop order or
other suspension of the effectiveness of the Registration Statement at the
earliest possible time;
(h) Notwithstanding the foregoing, if at any time or from time to time
after the date of effectiveness of the Registration Statement, the Company
notifies the Investors in writing of the existence of a Potential Material
Event, the Investors shall not offer or sell any Registrable Securities, or
engage in any other transaction involving or relating to the Registrable
Securities, from the time of the giving of notice with respect to a Potential
Material Event until such Investor receives written notice from the Company that
such Potential Material Event either has been disclosed to the public or no
longer constitutes a Potential Material Event; provided, however, that the
Company may not so suspend the right to such holders of Registrable Securities
for more than two twenty (20) day periods in the aggregate during any 12-month
period ("Suspension Period") with at least a ten (10) business day interval
between such periods, during the periods the Registration Statement is required
to be in effect;
(i) Use its reasonable efforts to secure designation of all the Registrable
Securities covered by the Registration Statement on the "Small Capitalization
Market" of the National Association of Securities Dealers Automated Quotations
System ("NASDAQ") within the meaning of Rule 11Aa2-1 of the SEC under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and the
quotation of the Registrable Securities on The NASDAQ SmallCap Market; or if,
despite the Company's reasonable efforts to satisfy the preceding clause, the
Company is unsuccessful in doing so, to maintain or secure NASDAQ/OTC Bulletin
Board authorization and quotation for such Registrable Securities and, without
limiting the generality of the foregoing, to arrange for at least two market
makers to register with the National Association of Securities Dealers, Inc.
("NASD") as such with respect to such Registrable Securities;
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<PAGE>
(j) Provide a transfer agent and registrar, which may be a single entity,
for the Registrable Securities not later than the effective date of the
Registration Statement;
(k) Cooperate with the Investors who hold Registrable Securities being
offered to facilitate the timely preparation and delivery of certificates for
the Registrable Securities to be offered pursuant to the Registration Statement
and enable such certificates for the Registrable Securities to be in such
denominations or amounts as the case may be, as the Investors may reasonably
request, and, within three (3) business days after a Registration Statement
which includes Registrable Securities is ordered effective by the SEC, the
Company shall deliver, and shall cause legal counsel selected by the Company to
deliver, to the transfer agent for the Registrable Securities (with copies to
the Investors whose Registrable Securities are included in such Registration
Statement) an appropriate instruction and opinion of such counsel; and
(k) Take all other reasonable actions necessary to expedite and facilitate
disposition by the Investor of the Registrable Securities pursuant to the
Registration Statement.
4. Obligations of the Investors. In connection with the registration of
the Registrable Securities, the Investors shall have the following obligations:
(a) It shall be a condition precedent to the obligations of the Company to
complete the registration pursuant to this Agreement with respect to the
Registrable Securities of a particular Investor that such Investor shall furnish
to the Company such information regarding itself, the Registrable Securities
held by it, and the intended method of disposition of the Registrable Securities
held by it, as shall be reasonably required to effect the registration of such
Registrable Securities and shall execute such documents in connection with such
registration as the Company may reasonably request. At least five (5) days prior
to the first anticipated filing date of the Registration Statement, the Company
shall notify each Investor of the information the Company requires from each
such Investor (the "Requested Information") if such Investor elects to have any
of such Investor's Registrable Securities included in the Registration
Statement. If at least two (2) business days prior to the filing date the
Company has not received the Requested Information from an Investor (a
"Non-Responsive Investor"), then the Company may file the Registration Statement
without including Registrable Securities of such Non-Responsive Investor;
(b) Each Investor, by such Investor's acceptance of the Registrable
Securities, agrees to cooperate with the Company as reasonably requested by the
Company in connection with the preparation and filing of the Registration
Statement hereunder, unless such Investor has notified the Company in writing of
such Investor's election to exclude all of such Investor's Registrable
Securities from the Registration Statement; and
(c) Each Investor agrees that, upon receipt of any notice from the Company
of the happening of any event of the kind described in Section 3(e) or 3(f),
above, such Investor will immediately discontinue disposition of Registrable
Securities pursuant to the Registration Statement covering such Registrable
Securities until such Investor's receipt of the copies of the supplemented
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<PAGE>
or amended prospectus contemplated by Section 3(e) or 3(f) and, if so directed
by the Company, such Investor shall deliver to the Company (at the expense of
the Company) or destroy (and deliver to the Company a certificate of
destruction) all copies in such Investor's possession, of the prospectus
covering such Registrable Securities current at the time of receipt of such
notice.
5. Expenses of Registration. (a) All reasonable expenses (other than
underwriting discounts and commissions of the Investor) incurred in connection
with registrations, filings or qualifications pursuant to Section 3, but
including, without limitation, all registration, listing, and qualifications
fees, printers and accounting fees, the fees and disbursements of counsel for
the Company and a fee for a single counsel for the Investor not exceeding
$3,500, shall be borne by the Company.
(b) Except as and to the extent specifically set forth in Exhibit 1
attached hereto, neither the Company nor any of its subsidiaries has, as of the
date hereof, nor shall the Company nor any of its subsidiaries, on or after the
date of this Agreement, enter into any agreement with respect to its securities
that is inconsistent with the rights granted to the Holders in this Agreement or
otherwise conflicts with the provisions hereof. Except as and to the extent
specifically set forth in Exhibit 1 attached hereto, neither the Company nor any
of its subsidiaries has previously entered into any agreement granting any
registration rights with respect to any of its securities to any Person. Without
limiting the generality of the foregoing, without the written consent of the
Holders of a majority of the then outstanding Registrable Securities, the
Company shall not grant to any person the right to request the Company to
register any securities of the Company under the Securities Act unless the
rights so granted are subject in all respects to the prior rights in full of the
Holders set forth herein, and are not otherwise in conflict or inconsistent with
the provisions of this Agreement.
6. Indemnification. In the event any Registrable Securities are included in
a Registration Statement under this Agreement:
(a) To the extent permitted by law, the Company will indemnify and hold
harmless each Investor who holds such Registrable Securities, the directors, if
any, of such Investor, the officers, if any, of such Investor, each person, if
any, who controls any Investor within the meaning of the Securities Act or the
Exchange Act (each, an "Indemnified Person" or "Indemnified Party"), against any
losses, claims, damages, liabilities or expenses (joint or several) incurred
(collectively, "Claims") to which any of them may become subject under the
Securities Act, the Exchange Act or otherwise, insofar as such Claims (or
actions or proceedings, whether commenced or threatened, in respect thereof)
arise out of or are based upon any of the following statements, omissions or
violations in the Registration Statement, or any post-effective amendment
thereof, or any prospectus included therein: (i) any untrue statement or alleged
untrue statement of a material fact contained in the Registration Statement or
any post-effective amendment thereof or 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, (ii) any untrue statement or alleged
untrue statement of a material fact contained in the final prospectus (as
amended or supplemented, if the Company files any amendment thereof or
supplement thereto with the SEC) or the omission or alleged omission
8
<PAGE>
to state therein any material fact necessary to make the statements made
therein, in light of the circumstances under which the statements therein were
made, 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 under the Securities Act, the Exchange Act or any state securities
law (the matters in the foregoing clauses (i) through (iii) being, collectively,
"Violations"). Subject to clause (b) of this Section 6, the Company shall
reimburse the Investors, promptly as such expenses are incurred and are due and
payable, for any legal fees or other reasonable expenses incurred by them in
connection with investigating or defending any such Claim. Notwithstanding
anything to the contrary contained herein, the indemnification agreement
contained in this Section 6(a) shall not (I) apply to a Claim arising out of or
based upon a Violation which occurs in reliance upon and in conformity with
information furnished in writing to the Company by or on behalf of any
Indemnified Person expressly for use in connection with the preparation of the
Registration Statement or any such amendment thereof or supplement thereto, if
such prospectus was timely made available by the Company pursuant to Section
3(c) hereof; (II) be available to the extent such Claim is based on a failure of
the Investor to deliver or cause to be delivered the prospectus made available
by the Company; or (III) apply to amounts paid in settlement of any Claim if
such settlement is effected without the prior written consent of the Company,
which consent shall not be unreasonably withheld. Each Investor will indemnify
the Company and its officers, directors and agents against any claims arising
out of or based upon a Violation which occurs in reliance upon and in conformity
with information furnished in writing to the Company, by or on behalf of such
Investor, expressly for use in connection with the preparation of the
Registration Statement, subject to such limitations and conditions as are
applicable to the Indemnification provided by the Company to this Section 6.
Such indemnity shall remain in full force and effect regardless of any
investigation made by or on behalf of the Indemnified Person and shall survive
the transfer of the Registrable Securities by the Investors pursuant to Section
9.
(b) Promptly after receipt by an Indemnified Person or Indemnified Party
under this Section 6 of notice of the commencement of any action (including any
governmental action), such Indemnified Person or Indemnified Party shall, if a
Claim in respect thereof is to be made against any indemnifying party under this
Section 6, 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 control of the
defense thereof with counsel mutually satisfactory to the indemnifying party and
the Indemnified Person or the Indemnified Party, as the case may be. In case any
such action is brought against any Indemnified Person or Indemnified Party, and
it notifies the indemnifying party of the commencement thereof, the indemnifying
party will be entitled to participate in, and, to the extent that it may wish,
jointly with any other indemnifying party similarly notified, assume the defense
thereof, subject to the provisions herein stated and after notice from the
indemnifying party to such Indemnified Person or Indemnified Party of its
election so to assume the defense thereof, the indemnifying party will not be
liable to such Indemnified Person or Indemnified Party under this Section 6 for
any legal or other reasonable out-of-pocket expenses subsequently incurred by
such Indemnified Person or Indemnified Party in connection with the defense
thereof other than reasonable costs of investigation, unless the indemnifying
party shall not pursue the action
9
<PAGE>
of its final conclusion. The Indemnified Person or Indemnified Party shall have
the right to employ separate counsel in any such action and to participate in
the defense thereof, but the fees and reasonable out-of-pocket expenses of such
counsel shall not be at the expense of the indemnifying party if the
indemnifying party has assumed the defense of the action with counsel reasonably
satisfactory to the Indemnified Person or Indemnified Party. The failure to
deliver written notice to the indemnifying party within a reasonable time of the
commencement of any such action shall not relieve such indemnifying party of any
liability to the Indemnified Person or Indemnified Party under this Section 6,
except to the extent that the indemnifying party is prejudiced in its ability to
defend such action. The indemnification required by this Section 6 shall be made
by periodic payments of the amount thereof during the course of the
investigation or defense, as such expense, loss, damage or liability is incurred
and is due and payable.
7. Contribution. To the extent any indemnification by an indemnifying party
is prohibited or limited by law, the indemnifying party agrees to make the
maximum contribution with respect to any amounts for which it would otherwise be
liable under Section 6 to the fullest extent permitted by law; provided,
however, that (a) no contribution shall be made under circumstances where the
maker would not have been liable for indemnification under the fault standards
set forth in Section 6; (b) no seller of Registrable Securities guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any seller of Registrable
Securities who was not guilty of such fraudulent misrepresentation; and (c)
contribution by any seller of Registrable Securities shall be limited in amount
to the net amount of proceeds received by such seller from the sale of such
Registrable Securities.
8. Reports under Exchange Act. With a view to making available to the
Investors the benefits of Rule 144 promulgated under the Securities Act or any
other similar rule or regulation of the SEC that may at any time permit the
Investors to sell securities of the Company to the public without registration
("Rule 144"), the Company agrees to:
(a) make and keep public information available, as those terms are
understood and defined in Rule 144;
(b) 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
(c) furnish to each Investor so long as such Investor owns Registrable
Securities, promptly upon request, (i) a written statement by the Company that
it has complied with the reporting requirements of Rule 144, the Securities Act
and the Exchange Act, (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 to permit the
Investors to sell such securities pursuant to Rule 144 without registration.
10
<PAGE>
9. Assignment of the Registration Rights. The rights to have the Company
register Registrable Securities pursuant to this Agreement shall be
automatically assigned by the Investors to any transferee of the Registrable
Securities (or all or any portion of any Preferred Stock of the Company which is
convertible into such securities) only if: (a) the Investor agrees in writing
with the transferee or assignee to assign such rights, and a copy of such
agreement is furnished to the Company within a reasonable time after such
assignment, (b) the Company is, within a reasonable time after such transfer or
assignment, furnished with written notice of (i) the name and address of such
transferee or assignee and (ii) the securities with respect to which such
registration rights are being transferred or assigned, (c) immediately following
such transfer or assignment the further disposition of such securities by the
transferee or assignee is restricted under the Securities Act and applicable
state securities laws, and (d) at or before the time the Company received the
written notice contemplated by clause (b) of this sentence the transferee or
assignee agrees in writing with the Company to be bound by all of the provisions
contained herein. In the event of any delay in filing or effectiveness of the
Registration Statement as a result of such assignment, the Company shall not be
liable for any damages arising from such delay, or the payments set forth in
Section 2(c) hereof. Any preceding provision of this Section 9 to the contrary
notwithstanding, no assignment to a transferee contemplated by this Section 9
shall be for an amount less than the lower of (x) ten percent (10%) of the
Initial Investor's rights hereunder or (y) one hundred percent (100%) of the
rights hereunder then held by the Investor.
10. Amendment of Registration Rights. Any provision of this Agreement may
be amended and the observance thereof may be waived (either generally or in a
particular instance and either retroactively or prospectively), only with the
written consent of the Company and Investors who hold an eighty (80%) percent
interest of the Registrable Securities. Any amendment or waiver effected in
accordance with this Section 10 shall be binding upon each Investor and the
Company.
11. Miscellaneous.
(a) A person or entity is deemed to be a holder of Registrable Securities
whenever such person or entity owns of record such Registrable Securities. If
the Company receives conflicting instructions, notices or elections from two or
more persons or entities with respect to the same Registrable Securities, the
Company shall act upon the basis of instructions, notice or election received
from the registered owner of such Registrable Securities.
(b) Notices required or permitted to be given hereunder shall be in writing
and shall be deemed to be sufficiently given when personally delivered (by hand,
by courier, by telephone line facsimile transmission, receipt confirmed, or
other means) or sent by certified mail, return receipt requested, properly
addressed and with proper postage pre-paid (i) if to the Company, VOXCOM
HOLDINGS, INC., 8115 Preston Road, Eighth Floor-East, Dallas, TX 75225, ATTN:
Secretary, Telecopier No.: (214) 691-5984, with a copy to Glast, Phillips &
Murray, ATTN: Ronald L. Brown, Esq., Telecopier No.: (972) 419-8329; (ii) if to
the Initial Investor, at the address set forth under its name in the Securities
Purchase Agreement, with a copy to Samuel Krieger, Esq., Krieger
11
<PAGE>
& Prager, 319 Fifth Avenue, Third Floor, New York, NY 10016, Telecopier No.:
(212) 213-2077; and (iii) if to any other Investor, at such address as such
Investor shall have provided in writing to the Company, or at such other address
as each such party furnishes by notice given in accordance with this Section
11(b), and shall be effective, when personally delivered, upon receipt and, when
so sent by registered or certified mail, four (4) calendar days after deposit
with the United States Postal Service.
(c) Failure of any party to exercise any right or remedy under this
Agreement or otherwise, or delay by a party in exercising such right or remedy,
shall not operate as a waiver thereof.
(d) This Agreement shall be governed by and interpreted in accordance with
the laws of the State of New York for contracts to be wholly performed in such
state and without giving effect to the principles thereof regarding the conflict
of laws. Each of the parties consents to the jurisdiction of the federal courts
whose districts encompass any part of the City of New York or the state courts
of the State of New York sitting in the City of New York in connection with any
dispute arising under this Agreement and hereby waives, to the maximum extent
permitted by law, any objection, including any objection based on forum non
coveniens, to the bringing of any such proceeding in such jurisdictions. To the
extent determined by such court, the Company shall reimburse the Investor for
any reasonable legal fees and disbursements incurred by the Investor in
enforcement of or protection of any of its rights under this Agreement.
(e) If any provision of this Agreement shall be invalid or unenforceable in
any jurisdiction, such invalidity or unenforceability shall not affect the
validity or enforceability of the remainder of this Agreement or the validity or
enforceability of this Agreement in any other jurisdiction.
(f) Subject to the requirements of Section 9 hereof, this Agreement shall
inure to the benefit of and be binding upon the successors and assigns of each
of the parties hereto.
(g) All pronouns and any variations thereof refer to the masculine,
feminine or neuter, singular or plural, as the context may require.
(h) The headings in this Agreement are for convenience of reference only
and shall not limit or otherwise affect the meaning thereof.
(i) This Agreement may be executed in one or more counterparts, each of
which shall be deemed an original but all of which shall constitute one and the
same agreement. This Agreement, once executed by a party, may be delivered to
the other party hereto by telephone line facsimile transmission of a copy of
this Agreement bearing the signature of the party so delivering this Agreement.
12
<PAGE>
(j) The Company acknowledges that any failure by the Company to perform its
obligations under Section 3(a) hereof, or any delay in such performance could
result in loss to the Investors, and the Company agrees that, in addition to any
other liability the Company may have by reason of such failure or delay, the
Company shall be liable for all direct damages caused by any such failure or
delay, unless the same is the result of force majeure. Neither party shall be
liable for consequential damages.
(k) This Agreement constitutes the entire agreement among the parties
hereto with respect to the subject matter hereof. There are no restrictions,
promises, warranties or undertakings, other than those set forth or referred to
herein. This Agreement supersedes all prior agreements and understandings among
the parties hereto with respect to the subject matter hereof. This Agreement may
be amended only by an instrument in writing signed by the party to be charged
with enforcement thereof.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
13
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed by their respective officers thereunto duly authorized as of the day
and year first above written.
COMPANY:
VOXCOM HOLDINGS, INC.
By: Donald G. McLellan
----------------------------------
Donald G. McLellan, President
INITIAL INVESTORS:
DOMINION CAPITAL FUND, LTD.
By: Mark Valentine
----------------------------------
Mark Valentine, Agent
SOVEREIGN PARTNERS LIMITED PARTNERSHIP
By: Mark Valentine
----------------------------------
Mark Valentine, Agent
CONSULTING AGREEMENT
THIS AGREEMENT is made as of this the 30th day of April, 1998 by and
between Voxcom Holdings, Inc., a Nevada corporation (the "Company"), and Jande
International Holdings, LLC (referred to herein as the Consultant).
WHEREAS, Company desires to retain Consultant for a period of two years to
assist the Company in the development of the business of the Company,
NOW, THEREFORE, in consideration of the premises and the agreements
contained herein the Company and Consultant hereby agree as follows:
1. Consulting Services.
1.1 For a period of 24 months beginning the date hereof, the Company
hereby retains Consultant and Consultant hereby agrees to perform
consulting services for the Company as requested from time to time by the
President of the Company.
1.2 Consultant shall at all times be free to devote time to
occupations, employment and activities other than those provided for in
this Agreement. Consultant shall not be entitled to compensation for
consulting services other than the payment provided for in Section 2
hereof.
1.3 The relationship created between the Company and Consultant by
this Agreement is that of a hiring corporation and an independent
contractor. The methods and means of performing the work by Consultant
under this Agreement will be solely within the control of Consultant.
Consultant acknowledges and agrees that Company's worker's compensation
insurance does not cover Consultant or any employee of Consultant.
Consultant further acknowledges and agrees that because he is an
independent contractor, the Company has no responsibility for withholding
any employee related taxes including, without limitation, state or federal
income taxes, unemployment taxes, FICA taxes, and disability insurance
charges.
2. Consideration. Company will issue to Consultant for the Consulting
Agreement set forth in Section 1 a total of 110,000 shares of Common Stock, par
value $0.001, in a transaction exempt under SEC Rule 504. Such shares shall be
unrestricted and fully tradeable. In addition, the Company shall reimburse
consultant for all expenses incurred by him in
- 1 -
<PAGE>
connection with his duties hereunder, provided that shall expenses shall be
incurred pursuant to Company policies in effect from time to time with the
advance consent of the President.
3. General.
3.1 This Agreement supersedes all prior agreements and understandings
between the Consultant and the Company with regard to the subject matter of
this Agreement.
3.2 No modification, termination, or waiver under this Agreement shall
be valid unless in writing and signed by the Consultant and the Company.
3.3 This Agreement shall inure to the benefit of and be binding upon
any successor or assign of the Company and shall inure to the benefit of
and be binding upon the Consultant's heirs, successors and assigns.
3.4 The waiver by the Company of a breach of any provision of this
Agreement by Consultant shall not operate or be construed as a waiver of
any subsequent breach of Consultant and the waiver by Consultant of a
breach of any provision of this Agreement by the Company shall not operate
or be construed as a waiver of any subsequent breach by the Company.
3.5 This Agreement shall be interpreted and construed under the laws
of the State of Texas.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
VOXCOM HOLDINGS, INC.
By: /s/ Don McLellan
-----------------------------
Don McLellan, President
JANDE INTERNATIONAL HOLDINGS, LLC
By: /s/ Ely Mandell
-----------------------------
Ely Mandell, President
- 2 -
CONSULTING AGREEMENT
THIS AGREEMENT is made as of this the 15th day of June, 1998 by and between
Voxcom Holdings, Inc., a Nevada corporation (the "Company"), and S.G.
Consulting, Inc. (referred to herein as the Consultant).
WHEREAS, Company desires to retain Consultant for a period of two years to
assist the Company in the development of the business of the Company,
NOW, THEREFORE, in consideration of the premises and the agreements
contained herein the Company and Consultant hereby agree as follows:
1. Consulting Services.
1.1 For a period of 24 months beginning the date hereof, the Company hereby
retains Consultant and Consultant hereby agrees to perform consulting services
for the Company as requested from time to time by the President of the Company.
1.2 Consultant shall at all times be free to devote time to occupations,
employment and activities other than those provided for in this Agreement.
Consultant shall not be entitled to compensation for consulting services other
than the payment provided for in Section 2 hereof.
1.3 The relationship created between the Company and Consultant by this
Agreement is that of a hiring corporation and an independent contractor. The
methods and means of performing the work by Consultant under this Agreement will
be solely within the control of Consultant. Consultant acknowledges and agrees
that Company's worker's compensation insurance does not cover Consultant or any
employee of Consultant. Consultant further acknowledges and agrees that because
he is an independent contractor, the Company has no responsibility for
withholding any employee related taxes including, without limitation, state or
federal income taxes, unemployment taxes, FICA taxes, and disability insurance
charges.
2. Consideration. Company will issue to Consultant for the Consulting
Agreement set forth in Section 1 a total of 30,000 shares of Common Stock, par
value $0.001, in a transaction exempt under SEC Rule 504. Such shares shall be
unrestricted and fully tradeable. In addition, the Company shall reimburse
consultant for all expenses incurred by him in connection with his duties
hereunder, provided that shall expenses shall be incurred pursuant to Company
policies in effect from time to time with the advance consent of the President.
- 1 -
<PAGE>
3. General.
3.1 This Agreement supersedes all prior agreements and understandings
between the Consultant and the Company with regard to the subject matter of this
Agreement.
3.2 No modification, termination, or waiver under this Agreement shall be
valid unless in writing and signed by the Consultant and the Company.
3.3 This Agreement shall inure to the benefit of and be binding upon any
successor or assign of the Company and shall inure to the benefit of and be
binding upon the Consultant's heirs, successors and assigns.
3.4 The waiver by the Company of a breach of any provision of this
Agreement by Consultant shall not operate or be construed as a waiver of any
subsequent breach of Consultant and the waiver by Consultant of a breach of any
provision of this Agreement by the Company shall not operate or be construed as
a waiver of any subsequent breach by the Company.
3.5 This Agreement shall be interpreted and construed under the laws of the
State of Texas.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
VOXCOM HOLDINGS, INC.
By: /s/ Don McLellan
---------------------------
Don McLellan, President
S.G.CONSULTING, INC.
By: /s/ Daniel Lezak
----------------------------
Daniel Lezak, President
- 2 -
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<NAME> Voxcom Holdings, Inc.
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<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-START> JUl-01-1997
<PERIOD-END> MAR-31-1998
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