U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-SB
AMENDMENT NO. 1
General Form for Registration of Securities of Small Business Issuers
Under Section 12(b) or 12(g) of the Securities Act of 1934.
VOICE MOBILITY INTERNATIONAL, INC.
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(Name of Small Business Issuer in its Charter)
NEVADA 33-0777819
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(State or Other Jurisdiction of (I.R.S. Employer Identification Number)
Incorporation or Organization)
701-543 Granville Street, Vancouver, British Columbia, Canada V6C 1X8
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(Address of Principal Executive Offices) (Zip Code)
(604) 482-0000
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(Issuer's Telephone Number)
Securities to be registered under Section 12(b) of the Act:
Title of Each Class Name of Each Exchange on Which
to be so Registered Each Class is to be Registered
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Securities to be registered under Section 12(g) of the Act:
Common Stock, $.001 Par Value
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(Title of Class)
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INFORMATION REQUIRED IN REGISTRATION STATEMENT
PART I
ITEM 1. DESCRIPTION OF BUSINESS.
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CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
Certain statements contained in this Section and elsewhere in this
Registration Statement regarding matters that are not historical facts are
forward-looking statements (as such term is defined in the Private Securities
Litigation Reform Act of 1995). Because such forward-looking statements include
risks and uncertainties, actual results may differ materially from those
expressed or implied by such forward-looking statements. All statements which
address operating performance, events or developments that our management
expects or anticipates to incur in the future, including statements relating to
sales and earnings growth or statements expressing general optimism about future
operating results, are forward-looking statements. The forward-looking
statements are based on our management's current views and assumptions regarding
future events and operating performance. Many factors could cause actual results
to differ materially from estimates contained in our management's
forward-looking statements. The differences may be caused by a variety of
factors, including but not limited to adverse economic conditions, competitive
pressures, inadequate capital, unexpected costs, lower revenues, net income and
forecasts, the possibility of fluctuation and volatility of our operating
results and financial condition, inability to carry out marketing and sales
plans and loss of key executives, among other things.
Summary
We are the parent of Voice Mobility Inc. based in Vancouver and Victoria,
British Columbia, Canada. The predecessor of Voice Mobility, Inc. was
incorporated in 1993. Voice Mobility Inc.'s business concept was to develop and
market voice mailbox servers to voice service providers. The voice service
providers would then sell individual voice mailboxes to their customers.
In February, 1994, Voice Mobility, Inc., in conjunction with British
Columbia Telephone, installed the first Centrex ISDN line in British Columbia.
In July, 1994, it sold its first unified messaging system.
In May, 1998, Voice Mobility Inc. divested itself of its service portfolio
in order to focus on software development and the marketing of its message
management product. This decision has resulted in two full releases of the
software in 1998, one release in July, 1999 and one scheduled for the last
quarter of 1999. Over 95% of the Voice Mobility, Inc.'s latest software release
was developed internally.
We acquired Voice Mobility, Inc. on June 24, 1999. ("We" and "our" will
apply to Voice Mobility International, Inc., as a holding company, or Voice
Mobility Inc., our operating subsidiary, as appropriate.)
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We are engaged in the area of the telecommunications market known as
"unified messaging." We are concentrating the marketing of our unified messaging
platform, trademarked "e-go(tm)" to "Tier II" service providers that, in our
management's opinion, are the most aggressive of the local access providers.
Tier II service providers include Internet service providers (known as "ISPs"),
competitive local exchange carriers (known as "CLECs"), cable operators and
smaller incumbent local exchange carriers.
Our Product
The e-go product family is a state-of-the-art resilient message management
platform which has been produced to meet the evolving requirements of telephone
carriers and their customers. e-go facilitates the creation of a single personal
digital mailbox that can receive any type of communication regardless of its
incoming format or medium. Our voice and paging messaging products are based on
our management's perception that, presently, many different types of end users
and consumers must visit many communication locations in order to retrieve
information or messages destined for them. We believe that many of these end
users would subscribe to a service which simplifies the information retrieval
process. To meet this perceived need, we have developed the "Enhanced Services
Platform" as virtual post offices, each containing "cyber" mailboxes for
thousands of people. Each user "rents" a seven-digit virtual mailbox that can
receive, forward and contextualize stored information. e-go gives users easy
access to information and the ability to retrieve it through a variety of means.
For mobile workers, constant access to voice-mail and faxes over a network
has profound ramifications. Wireless providers offering unified messaging as a
value-added service could gain a huge benefit in the increase in per-minute
usage for airtime generated by the placing and receiving of phone calls and for
Internet access to downloaded e-mail, voice-mail and fax correspondence. Unified
messaging ensures that messages are never lost as it creates a web-based
reservoir of all incoming messages. Inbound cellular phone calls often do not
reach their recipients because the recipient's phone is off, the recipient is
out of range of the carrier's antennae, the volume of traffic is too high or for
other reasons. Increased messaging reliability is essential for business users
who generate or receive messages. Because service providers generate chargeable
airtime and create brand loyalty only when calls are completed, improved
reliability enhances the provider's income stream and competitive position.
Subscribers can call a universal number and have all of their messages
"played" back to them, in spoken words, if required. The e-go platform, with its
inter-working software modules, converts all incoming messages to electronic
records that can be spoken to the user over a telephone or accessed as e-mail.
Due to threads between the different software modules, a fax can be played and
forwarded as voice mail; e-mail likewise can be played and forwarded as voice
mail. Fax and e-mail messages can also be directed to a secondary fax machine or
a temporary fax machine such as one in a client's office or in a hotel. A number
of companies such as Nokia Corporation are developing hand-held devices which
can access e-mail. e-go is a suitable medium for such devices.
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An e-go user can connect securely to a web site and, at a glance, view the
following:
o number of voice mail messages
o telephone numbers of those persons who have left voice mail messages
o time at which each message was left
o number of fax messages
o number of pages of each fax
o number of e-mail messages sent to any of the user's e-mail addresses
o origin of each e-mail message
o subject of each e-mail message.
We have designed e-go to function on industry standard hardware such as
Intel processor-based servers. In addition, e-go uses peripheral hardware, such
as communication boards, based upon open system architectures, which support
basic standards. Thus, we have assured compatibility with legacy equipment and
adjunct hardware that may be designed to work in conjunction with the e-go
system.
Each of the independent software modules is described below:
e-go contact:
e-go contact is our full service unified communications solution, combining
all the features of e-go message, described below, with the convenience of one -
phone number service. With e-go contact, subscribers can merge all their wired
and wireless communications, cellular telephone, pager, fax, home and office
numbers, into a single phone number. e-go contact subscribers receive a single
e-contact phone number for voice, faxing and paging. Those upgrading from e-go
fax or e-go message service use their e-go fax number as their e-go contact
number. Callers dial one number; and the system "hunts" for them at the
subscriber's various telephone numbers. Subscribers retain complete control as
they preset the calling sequence of the various contact numbers and schedule
times of day when calls are directed to a specific number. Subscribers can
filter calls so that only specific calls (such as calls from specific phone
numbers) get through. This process creates fewer interruptions, while ensuring
that specific or urgent calls are never missed.
e-go message:
e-go message provides a single "unified e-mailbox" which enables a
subscriber to check for voice messages, faxes and e-mail. Through the use of
e-go message, subscribers no longer need to access faxes at the fax machine, or
listen on the phone to consecutive voice messages. A mouse-click starts, stops
or deletes a voice message, pops up a fax or displays an e-mail. The mailbox
stores a complete record of all messages; and these messages can be retained or
forwarded just as any other e-mail. Traveling subscribers can use their e-mail
program or their e-go Web page to send and receive messages anywhere in the
world, with complete confidentiality and without incurring long distance
charges. e-go message subscribers keep their phone numbers but forward their
messages to their unified mailbox. They receive an e-go fax number which they
also use to call e-go and retrieve their voice messages, faxes, and e-mail.
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e-go fax:
e-go fax is a private, secure fax-to-e-mail service. The e-go fax converts
faxes to e-mail attachments that subscribers can view on-screen, print, save, or
forward. Confidential faxes remain confidential, instead of sitting in a common
"in-box" for anyone to see. The subscriber has no need for fax machines or
dedicated fax lines, as faxes are as easy to manage as regular e-mail. e-go fax
subscribers receive an e-go fax number. Faxes sent to the e-go fax number are
converted into e-mail attachments that can be viewed, saved, printed, forwarded,
or sent to a local fax machine for printing. Finally, subscribers can receive
fax notification via pager.
Features of e-go
o Greeting. Subscribers can change their customized greetings at any time by
dialing their numbers, entering personal identification numbers and
following instructions.
o Fax. Users receive a dedicated e-fax phone number. Faxes can be forwarded
to a fax machine for printing or converted to graphic files and attached to
e-mail, accessible either through subscribers' e-mail or e-go Web page. In
addition, subscribers can dial in and listen to faxes via text-to-speech
technology.
o Voice. Voice messages can be heard by telephone in the usual way. In
addition, voice messages are converted to sound files and attached to
e-mail, accessible through subscribers' e-mail or e-go Web page.
o Internet/Web. Web access to all e-messages eliminates long-distance
charges. Web pages can be customized by the subscriber or ISP for branding,
advertising, promotions and revenue generation. Web-based "inbox" displays
a summary of waiting messages. Subscribers can forward or delete all
e-messages or save to electronic folders in their computer's hard drive.
Subscribers who find themselves without computer or Internet access can
employ the telephone, which through the use of innovative text-to-speech
technology can "read" e-mail messages over the phone.
o Pager Notification. As the e-go software can also communicate using
standard paging protocols, subscribers with a pager equipped with
alphanumeric capability can be advised upon the arrival of an e-mail, fax
or a voice mail. In addition, users can be informed not only of the number
of the faxing or calling party, but also the subject line of any incoming
e-mail. Further enhancements to this software, which are under development,
will allow for the header of a fax to be sent to the pager as well as the
name of the calling party from a voice mail.
Management's Market Analysis
According to OVUM, a market research firm, worldwide telecommunications
service revenues are projected to grow to well over $1.1 trillion by the end of
the century. (Throughout this registration statement, we refer to United States
dollars as "$" and to Canadian dollars as "Cdn$.") Our management believes that
voice processing services such as those provided by our products should become
an increasingly important element of this revenue growth. Voice processing is
already widely available in North American fixed-line services and is being
deployed worldwide in most mobile networks. In addition, fixed-line networks in
Europe and emerging markets are starting to deploy these services. Likewise, the
number of unified messaging mailboxes is predicted to grow from around 200,000
worldwide at the end of 1997 to more than $110 million by 2003. Worldwide
product revenue should increase rapidly from a negligible market to $9 billion
in 2003. Driving this expanding market is a change in professional culture. More
members of the business community are working in remote locations including
homes, hotel rooms and airports. Having one source for accessing information is
critical to increasing productivity and remaining competitive.
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Overall, the messaging market has been growing rapidly:
o Voice messaging markets are growing at 18% to 21% per year, in contrast to
the growth of the personal computer market which is estimated at
approximately 4% per year.
o The fax machine market is maintaining a growth rate of approximately 14%
per year.
o The number of e-mail users has been estimated to reach 200 million by 2000.
As global commerce and communications continue to evolve, the Internet is
beginning to be viewed more as a utility than a toy. This growing credibility
has placed upon the Internet builders and ISPs the responsibility to ensure the
Internet can be utilized with same ease as the global telephone network. E-mail
has become a pillar tool in the Internet with burgeoning uses in e-commerce,
research, and corporate and public communications. As e-mail props up the growth
of the Internet, our management believes that those connected will require
e-mail to provide a single communications interface carrying the electronic
equivalent of a postcard as well as faxes and voice mail. Thus, we believe that
Internet users will demand a single or "universal" inbox to introduce simplicity
to messages and to redirect calls from office to home or from home to mobile.
This functionality would be a huge step forward in easing complexity and
improving the power of the Internet.
We intend to continue to differentiate ourselves from other integrated
communication software developers and vendors on the basis of speed of
innovation and development as well as price/performance and ease of use. Unified
messaging, because it is among the first introductions of the "One Number"
concept is, we believe, an excellent place to start in the development of new
carrier software tools and applications. Our current research and development
initiatives are centered on the belief that there will exist a broad mix of
carriers and ISPs involved in communications service in the next few years.
Marketing Strategy
We are focusing our sales and development effort on building and selling
products to the Tier II telephone carriers and ISPs experiencing the greatest
level of growth. Our marketing strategy is focused on completely understanding
the needs of the mid-size companies in the following market segments:
o internet service providers
o competitive local exchange providers
o network service providers
o application service providers
o content providers (local, regional and national portals)
o cable companies
o wireless providers
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Data CLECs
Data CLECs, known as "DCLECs," base their business on the efficient
delivery of data services. Some DCLECs are regional, others are wider in
coverage, but most are focused on building high-speed data capacity and on
selling bandwidth to wholesale and/or retail customers. Many DCLECs have
developed divisions that sell Internet access, retail and wholesale, through
large modem pools. These modem pools are distributed as portals around their
network, serving multiple area codes or regions. For DCLECs, there is a rich
opportunity in offering Internet based technology. Internet based messaging to
current customers. Their primary corporate customers are already purchasing
high-speed data connections from them, and have already demonstrated a need for
a communications infrastructure. Thus, DCLECs are in a unique position to offer
combined services.
New exciting technologies, known as digital subscriber loops or more
commonly as "DSLs", are designed to transmit more information and very high
speed connections through the copper wire that connects most of the households
in North America. DSL is growing quite rapidly in the CLEC market. These
technologies have created an opportunity to allow for voice and fax
communications over the same lines to the advantage of the entire unified
messaging market. A DSL user would likely be quite motivated by the opportunity
to combine all of his required services onto one medium.
Voice CLECs
Voice CLECs have generated business by providing competitive choices to
business and residential users for the provisioning of local telephone lines. In
some cases, several voice CLECs have augmented low margin local business by
entering the long-distance business. Unified messaging offers the voice-based
CLEC the opportunity to offer alternatives to the local phone company, both for
provisioning the simple phone line and for enhanced service offerings.
In order to stave off competitive threats, many of the voice centered CLECs
are engaging in simple Internet service offerings for their customers. Unified
messaging offers such an opportunity. The process of connecting one type of
network to another is known as convergence. Typically this phrase is used to
describe the connection of the Internet to the voice network and ability of both
to carry information typically carried by the other. Convergent technology
connects to both the telephone network and the newer Internet network to allow
for unique and cost effective service offerings. This "bridging" technology
joins characteristics from one medium into the other.
Voice CLECs, principally based in the world of telephony, can add
substantial value to their clients by allowing for voice access to data, such as
voice mail that has originated on the Internet.
Wireless Providers
As competition continues to increase in the wireless market, wireless
providers are seeking innovative ways to increase profitability. Subscriber
turnover is one of the major factors in profitability. Subscribers often "churn"
so quickly that customer acquisition costs have not been recovered. In some
cases, it can take more than eighteen months for costs of acquiring a
subscriber's business to be recouped, and up to three years before a
subscriber's revenue provides an adequate return. Investing in customer loyalty
and network innovation are the most common defenses against churning. Although
each circumstance is unique, improving customer loyalty by as little as 5% has
been shown to improve overall profitability by almost 100%. In addition, all
subscribers are not equally profitable. As in many service businesses, a small
percentage of users accounts for the majority of revenues.
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Internet Service Providers
This market segment has recently been undergoing both consolidation and
re-engineering. With the increased competition for dial-up access, there is a
need for the major providers in this market to look for alternative ways to
increase business and to retain the current customer base.
With increasing consumer options for Internet access, many ISPs have begun
to focus on vertical marketing with specialization in certain marketplaces.
Other ISPs have begun to move in the direction of transmission of voice services
by partnering with a CLEC or, in many cases, applying for CLEC status
themselves.
International Markets
International markets should offer us particularly strong opportunities.
Advanced international markets are being fueled by rapid deregulation, the rise
of the Internet and competition. Emerging markets are being fueled by the very
basic need for high performance low cost telecommunications infrastructure. In
these developing markets, ongoing problems exist in delivering high capacity
phone or data services to the population. The problem is only now beginning to
be addressed.
We perceive a specific opportunity in jurisdictions where local telephone
access is measured and billed at a per-minute usage rate. ISPs within these
jurisdictions have begun to move toward providing free Internet service to their
subscribers preferring to gain revenue by taking a percentage of the telephone
usage charges. Thus, an ISP which is able to decrease the number of calls a
subscriber must make to access all of the incoming messages (i.e. voice-mail and
fax mail delivered by e-mail) will likely win a greater local market share.
In the interim, we have a particular opportunity as our e-go system can be
used in conjunction with a wireless data service to deliver voice mail and fax
services to users beyond the reach of common carrier voice services. While a
particular user may not have a phone connection, he may have a wireless Internet
connection. e-go can be used to provide a working phone number with voice mail
and fax services to this user despite the fact that the telephone carrier
cannot.
Competition
Segmentation of the unified messaging market has begun to take place. The
market has become divided into two main camps: service provider platforms and
enterprise platforms.
Service Provider Platforms: A service provider platform is built to meet
the high capacity and high resiliency needs of the carrier environment.
Typically, carrier grade systems will have fault tolerant fail-over capability
and be able easily to handle many thousands of subscribers. In addition, a fully
featured billing engine is often designed directly into a carrier grade product.
Enterprise Platforms: An enterprise platform is built to be affixed to a
PBX system already in place and is typically functions not with carrier grade
facilities but facilities more commonly found connecting to office systems.
Capacity is typically under 500 users.
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Vendors developing solutions for enterprise platforms are not considered by
management to be competitors. Only those participating in developing product for
ISPs are considered by management to be competition. In addition, the
marketplace contains many companies which are themselves providers of service
rather than developers of software solutions that are sold to providers.
Most of our competitors which offer integrated messaging solutions sell
their products at significantly higher prices and, thus, appear to target larger
communications companies than those we have selected. Such competitors include
Centigram Communications, Amteva Technologies, Inc., Call Sciences, Inc.,
Pulsepoint Communications, Inc. and Wildfire Communications, Inc. Centigram
markets only to major telephone companies. A subsidiary of Cisco Systems, Inc.
Amteva's services include Internet fax mail, single number reach, voice
messaging and electronic messaging. Amteva has established a testing and
implementation center that its customers can use as a staging ground while
developing in-house systems. We do not have such an implementation center.
Pulsepoint was acquired recently by Unisys Corp. It is difficult to speculate
how Unisys will orient Pulsepoint. Wildfire's marketing strategy has been to
introduce the unified messaging services in easy-to-consume bites under the
theory that once a subscriber is hooked on entry level features, he or she can
upgrade to more advanced features. We offer a package of features and believe
that our target market is dissimilar from that of Wildfire. Wildfire, as an
example, has elected to focus development and marketing efforts on a speech
enabled interface. However, it has not developed some of the features that we,
after extensive testing using focus groups, believe are needed by users.
Unique competitors that straddle the marketplace, in that they both develop
software and sell solutions to retail customers, also exist. Jfax.com, Inc. is
an example of a company which offers a fax and unified messaging service to
consumers while, at the same time, attempting to develop products to be sold to
ISPs and telecommunications companies. In the opinion our management, many of
the potential customers of Jfax and other such companies will view them as
competitors of their on the retail level.
Our management views Call Sciences as the competitor with the closest
strategic direction and product offerings directed at the Tier II providers. We
are successfully competing with Call Sciences due to our unique commercial
licensing program and through a successful international channel strategy.
In addition, through strategic alliances, we have the ability to offer
carrier to carrier consulting and training not only in the launching of a
unified messaging offering but also in its marketing.
Pricing Strategy
Our ongoing objective is to establish alliances with our component vendors
and, during the development and marketing of the initial e-go systems, we
invested significant effort to ensure that our vendors understood our long-term
goals. As a result, we created an environment in which excellent price points
for our system have been set. We have been able to achieve very high levels of
functionality and performance from our Microsoft NT-based servers, giving us a
wide price advantage compared to the competing systems which are Unix based.
Our management has developed a very unique, annuity based pricing strategy
that we believe will be likely to produce excellent result in the short term as
unified messaging starts to have an impact on broader consumer markets.
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The notion driving this pricing model enables us to remove significant
barriers to entry for service providers of any size. Many opportunities exist
for ISPs to re-label a wholesale product and generate revenue accordingly but,
given the entrepreneurial characteristics of most service providers, they would
all prefer to provide the offering themselves as a single element in a overall
integrated market strategy.
Typical Commercial Licencing contracts are signed for a two year term and
include volume price breaks. All software and support is included in the cost
per user license. In all cases, the provider is expected to purchase the
relevant hardware to launch the offering.
Risk Factors
In order to take advantage of the safe harbor provisions for
forward-looking statements adopted by the Private Securities Litigation Reform
Act of 1995, we are identifying important risks and uncertainties that could
affect our operating results and financial condition and could cause our actual
results to differ materially from our historical results.
Uncertainty of Additional Capital
We will need to raise additional capital either through the sale of equity
or debt securities in private or public financing or through strategic
partnerships, in order fully to market and upgrade our products. We cannot offer
assurance that funds will be raised when we require them or that we can raise
funds on suitable terms. We can offer no assurance that holders of our warrants
will exercise them.
Dependence on Key Personnel
We are highly dependent on key members of our management, sales and
marketing and engineering team. The loss of the services of one or more of our
team may adversely affect our ability to achieve our business plan. Recruiting
and retaining qualified technical personnel to carry out research and
development and technical support will be critical to our future success.
Although our management believes that we will continue to be successful in
attracting and retaining skilled personnel, we can offer no assurance that we
can accomplish this objective on acceptable terms.
Early-Stage Company
We are at an early stage of entering the commercial marketplace. As a
result, we can provide only limited financial information upon which a
prospective investor could make an evaluation to purchase or sell our
securities. Our future operating results are subject to a number of risks,
including our abilities to implement our strategic plan, to attract qualified
personnel and to raise sufficient financing as required. Our management's
inability to guide growth effectively (including implementing appropriate
systems, procedures and controls) could have an adverse effect on our financial
condition and operating results. (See "Item 7. Certain Relationships and Related
Transactions.")
Foreign Currency Exchange
We face foreign currency exchange risk as a majority of our revenue is
denominated in United States dollars and a majority of operating costs are
incurred in Canadian dollars. Significant fluctuations in the foreign exchange
between U.S. and Canadian currency will result in fluctuations in our annual and
quarterly results. We have minimized our exchange risk by adopting a hedging
program to minimize the possible fluctuations in our annual and quarterly
results. (See "Management's Discussion and Analysis of Financial Condition and
Results of Operations.")
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Technological Change
The telecommunications industry is characterized by rapidly changing
technology and evolving industry standards. Our success will depend heavily on
our continuing ability to develop and introduce enhancements to our existing
systems and new products that meet changing markets. We cannot provide assurance
that our technology or systems will not become obsolete due to the introduction
of alternative technologies. If we cannot continue to innovate successfully, our
business and operating results could be adversely affected.
Management of Rapid Growth and Limited Operating Experience
We anticipate that the management of rapid growth will be a key challenge.
Failure effectively to meet this challenge could have a material adverse effect
on our operating results. Successful commercialization of the e-go technology
will require management of a number of operational activities in which we have
little experience. There is no assurance that, if our business grows rapidly,
we will be able to manage such growth successfully.
No Patent Protection
We do not have and do not intend to apply for patents on our products.
Management believes that the patent application process in many countries in
which we intend to sell products would be time - consuming and expensive. In
addition, patents would have the effect of publicizing the source code or other
proprietary aspects of our products. Finally, we intend continually to improve
and upgrade our products. As a consequence, any patent protection may be out of
date by the time the patent is granted.
Dependence on Suppliers
Although we perform almost all of our software development in-house, we
subcontract the manufacture of all of the equipment, which constitutes a
significant part of our e-go product line. We do not have written supply
agreements with any of our suppliers. Although we believe that alternative
sources of supply will always be available and that the suppliers we have chosen
have sufficient capacity to meet any increase in demand resulting from our
projected expansion, a disruption in supply or degradation in quality could have
an adverse impact on our business and financial results, particularly at a time
when we are attempting to build brand identity and customer loyalty. In
addition, an increase in prices from our suppliers could also have an adverse
impact on our business and financial results.
Unforeseeable Events and Conditions
Unforeseeable events and conditions, many of which are outside our control,
can impact our business. There can be no assurance that our operations will not
be adversely affected by unforeseeable future events.
Government Regulation
Our business is subject to various federal, state and local government
regulations. While we do not expect to experience an inability to obtain or
maintain any necessary governmental licenses, permits or approvals, our failure
to acquire or maintain licenses could have a materially adverse effect on our
operating results.
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Minimal Trading History of Common Stock - Possible Stock Price Volatility
Our common stock trades on a limited basis on the Over-the-Counter Bulletin
Board. The market price of our common stock could fluctuate substantially due to
a variety of factors, including market perception of our ability to achieve our
planned growth, quarterly operating results of other telephony companies, the
trading volume in our common stock, changes in general conditions in the
economy, the financial markets or other developments affecting us or our
competitors. In addition, the stock market is subject to extreme price and
volume fluctuations. This volatility has had a significant effect on the market
prices of securities issued by many companies for reasons unrelated to their
operating performance.
Limitation on Officers' and Directors' Liabilities Under Nevada Law.
Our certificate of incorporation and our by-laws provide that we shall
indemnify any officer or director, or any former officer or director, to the
full extent permitted by law. In general, the Nevada Business Corporation Act
permits indemnification of officers and directors in those instances where the
officer or director acted in good faith and in a manner he or she reasonably
believed to be in, or not opposed to, the best interests of the corporation and,
with respect to any criminal action or proceeding, had no reasonable cause to
believe his or her conduct was unlawful.
Effect of Anti-Takeover Provisions.
Our authorized capital consists of 50,000,000 shares of common stock and
1,000,000 shares of preferred stock. Our board of directors, without any action
by shareholders, is authorized to designate and issue shares of preferred stock
in such classes or series as it deems appropriate and to establish the rights,
preferences and privileges of such shares, including dividends, liquidation and
voting rights. The rights of holders of shares of preferred stock that may be
issued may be superior to the rights granted to the holders of the existing
shares of our common stock. Further, the ability of our board of directors to
designate and issue such undesignated shares could impede or deter an
unsolicited tender offer or takeover proposal and the issuance of additional
shares having preferential rights could adversely affect the voting power and
other rights of holders of our common stock.
Penny Stock Regulation
Broker-dealer practices in connection with transactions in "penny stocks"
are regulated by certain penny stock rules adopted by the Securities and
Exchange Commission. Penny stocks generally are equity securities with a price
of less than $5.00 (other than securities registered on certain national
securities exchanges or quoted on Nasdaq provided that current price and volume
information with respect to transactions in such securities is provided by the
exchange or system) or to other than established customers or accredited
investors. [In general, "accredited investors" are defined as institutions with
assets in excess of $5,000,000 or individuals with net worth in excess of
$1,000,000 or annual income exceeding $200,000 or $300,000 with their spouses.]
The penny stock rules require a broker-dealer, prior to a transaction in a penny
stock not otherwise exempt from the rules, to deliver a standardized risk
disclosure document that provides information about penny stocks and the risks
in the penny stock market. The broker-dealer also must provide the customer with
current bid and offer quotations for the penny stock, the compensation of the
broker-dealer and its salesperson in connection with the transaction, and
monthly account statements showing the market value of each penny stock held in
11
<PAGE>
the customer's account. In addition, the penny stock rules generally require
that prior to a transaction in a penny stock, the broker-dealer must make a
special written determination that the penny stock is a suitable investment for
the purchaser and receive the purchaser's written agreement to the transaction.
These disclosure requirements may have the effect of reducing the level of
trading activity in the secondary market for a stock that becomes subject to the
penny stock rules. If our securities become subject to the penny stock rules,
investors may find it more difficult to sell their securities.
Year 2000 Issues
We have developed all of the e-go software internally and have ensured that
all date fields are compatible to the year 2000. However, certain sub-components
may not have been properly engineered to ensure date compatibility. Steps have
been taken to confirm sub-component compatibility, but this area still remains
one of moderate risk.
Significant Customers
In early 1998, Maritime Tel & Tel Limited, ("MTT") based in Halifax, Nova
Scotia, one of Canada's largest telephone companies, contracted with Voice
Mobility to deploy a province - wide technical and marketing trial of products
developed by Voice Mobility. MTT conducted extensive testing not only for
technical performance but also for customer preferences and requirements. MTT's
feedback enabled Voice Mobility to refine its products to improve function and
usability.
In January, 1999, both companies agreed to continue and expand the trials
to test more software and to conduct extensive user trials in an effort to
determine buyer behavior. This aspect of the trials was particularly useful as
the unified messaging market was embryonic and lacking tangible consumer derived
data. MTT agreed to continue the trials and Voice Mobility agreed to help
reimburse MTT some of its expenses. It was later agreed we would exchange
1,428,571 shares of our common stock for the reimbursable amount of Cdn$500,000.
MTT will also appoint a person from MTT to become a member of the board of
directors. An agreement embodying these terms was entered into on September 16,
1999.
One of our first opportunities to work together was in the preparation of a
joint proposal to Cable and Wireless Bartel located in Barbados. Bartel has
agreed to purchase and deploy e-go "version 4" in its business and consumer
marets. We will provide jointly with MTT training, implementation, planning and
marketing training and support.
Licenses, Patents and Trademarks
- - --------------------------------
We use component software form the following vendors:
Microsoft Corporation
Allaire Corporation
SendMail Inc.
12
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Where applicable, Voice Mobility has joined the developer programs of each
of the companies and will seek any opportunity to leverage partner programs or
developer relationship where possible. While we have written all of our software
to utilize component software from these developers, we have had extensive
experience with competitive offerings. Although the loss of one of these key
software vendors would represent some delay, our management does not consider
that a prolonged delay would result.
We have applied for trademark registrations in Canada for the e-go
tradename in conjunction with a stylized e-go mark inside a green circle. As of
June, 1999, Voice Mobility has been granted the trademark of both the name and
the visual of e-go in Canada. Further applications are pending for the United
States and Europe.
Employees.
- - ----------
As of September 30, 1999, we employed 31 people, 5 of whom are engaged in
marketing and sales, 17 in research and development, and 9 in management and
administration. Our employees are not represented by a collective bargaining
unit. We consider relations with our employees to be good.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
- - ------- ---------------------------------------------------------------
RESULTS OF OPERATIONS.
----------------------
The following discussion should be read in conjunction with Consolidated
Financial Statements and related notes.
Voice Mobility International, Inc. is a Vancouver-based unified messaging
company focused on emergent technologies for telecommunications providers. We
market our lead product, e-go, both to telephone companies and Internet service
providers. e-go allows subscribers to use a single electronic mailbox to store
and retrieve voicemail, faxes, and e-mail from many types of devices, including
wireline and wireless phones, e-mail or Web browsers. Commencing fiscal year
1999, we have changed our fiscal year end from March 31 to December 31.
Results of Operations for the six months ended June 30, 1999 and June 30,
1998
Revenue - Revenue was $83,262 compared to $64,400 for the six months ended
June 30, 1999 and 1998. This increase in revenue was primarily due our
management's decision in December 1997 to divest the entire service portfolio
and the sale of centrex lines, choosing instead to focus efforts on software
development and marketing unified messaging systems resulting in higher software
license sales.
Cost of Revenue - Cost of revenue is primarily comprised of software
licenses, telephony hardware, data and voice transmission costs, and
installation costs. Cost of revenue was $27,727 or 33% of revenue compared to
$42,705 or 66% of revenue for the six months ended June 30, 1999 and 1998. The
decrease in cost of revenue reflects our management's decision to divest the
entire service portfolio and the sale of centrex lines. We anticipate that our
data and voice transmission costs will decrease as a result of the divestiture.
In contrast, we anticipate that our software licenses, telephony hardware, and
installation costs, and related operating costs to grow for the foreseeable
future. Cost of revenue as a percentage of revenue decreased as a result of the
increases in revenue over the same period last year.
13
<PAGE>
Operating Expenses
Sales & Marketing - Our sales and marketing costs consist primarily of
sales and marketing personnel, advertising, promotions, public relations, trade
shows and business development. Sales and marketing expenses were $1,165,542 or
1400% of revenue and $23,318 or 36% of revenue for the six months ended June 30,
1999 and June 30, 1998. The increase of $1,142,224 in sales and marketing
expense between the two periods primarily reflects employee stock option
compensation cost of $908,750 that was determined using the intrinsic method in
accordance with APB25. The additional increase of $233,474 in sales and
marketing expense between the two periods are a result of an increase in sales
and marketing personnel, promotions, and participation in industry trade shows.
The increase also reflects business development efforts that have resulted in a
key strategic relationship with MTT, the primary telecommunications common
carrier in the Canadian Province of Nova Scotia. Sales and marketing as a
percentage of revenue increased as a result of increases in related expenses
over the same period last year. We anticipate that our sales and marketing costs
will increase significantly in the foreseeable future as we continue to develop
and implement our marketing strategy and hire additional sales and marketing
personnel.
Research and Development - Our research and development costs consist
primarily of personnel, data and voice transmission, and the lease of office
space. Research and development costs were $1,555,984 or 1869% of revenue
compared to $64,411 or 100% of revenue for the six months ended June 30, 1999
and June 30, 1998. The increase of $ $1,491,573 in research and development
costs from 1998 to 1999 primarily reflects an employee stock option compensation
cost of $1,268,600 that was determined using the intrinsic method in accordance
with APB25. The additional increase of $222,973 in research and development
costs between the two periods is a result of increases in personnel and leased
office space. Research and development as a percentage of revenue increased as a
result of increases in related expenses over the same period last year. We
believe that research and development is a cornerstone of our business and
significant investments are required to enhance our products as well as develop
new products in order to remain competitive. We anticipate that our research and
development costs will continue to increase in the foreseeable future.
General and Administrative - Our general and administrative costs consist
primarily of personnel costs, professional and legal costs, consulting fees,
travel, and the lease of office space. General and administrative costs were
$1,571,753 or 1888% and $156,522 or 243% for the six months ended June 30, 1999
and June 30, 1998. The increase of $ 1,415,231 primarily reflects employee stock
option compensation cost of $1,283,188 that was determined using the intrinsic
method in accordance with APB25. The additional increase of $132,043 in general
and administrative costs between the two periods are a result of recruitment of
personnel which resulted in an increase of $53,850 from 1998 to 1999, as well as
an increase of $31,248 in consulting fees over the same period last year.
General and administrative costs as a percentage of revenue increased between
the two years as a result of increases in expenses over the same periods. We
anticipate that general and administrative costs will continue to grow in the
foreseeable future as we implement our market growth strategies.
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Interest Expense (Income), Net - Our interest expense is primarily related
to short-term debt. Interest expense (income), net was $37,800 or 45% of revenue
and $13,935 or 22% of revenue for the six months ended June 30, 1999 and June
30, 1998. We anticipate our interest expense to decrease in the foreseeable
future as the we agreed to debt settlement agreements with three major
creditors. Short-term debt of $250,000 and $33,000 due to shareholders was
settled for in exchange for 750,000 shares of our common stock and 101,000
common stock purchase warrants respectively. The loans were advanced to the us
over time beginning in 1995. In addition, $167,000 of long-term debt was settled
in exchange for 500,000 common stock purchase warrants.
Loss on sale of assets and settlement of liabilities - We, (as Equity
Capital Group, Inc.) incurred a loss of $11,965 or 14% of revenues in the six
months ending June 30, 1999. The transaction involved the sale of our assets and
liabilities to Pioneer Growth Corporation. We received common stock of Pioneer
Growth Corporation in consideration which we distributed ratably as a dividend
to our stockholders.
Income Taxes - As of December 31, 1997, we had non-capital losses of
$318,965 carried forward and available to offset income in the future. Such net
operating loss carryforwards will begin expiring in the year 2004. For
reconciliation to U.S. GAAP purposes, a valuation allowance was recognized for
the year ending December 31, 1998 to offset deferred tax assets arising from
temporary differences, tax credits and non-capital loss carryforwards, for which
realization is uncertain. The amounts of and benefits from our net operating
loss carryforwards when we operated as Equity Capital Group, Inc. have not been
included as the net operating loss carryforwards may be impaired or limited
following changes in the ownership of our common stock.
Years Ended December 31, 1998 and 1997
VOICE MOBILITY INC.
Condensed Statements of Operations
For the years ending December 31, 1998 and December 31, 1997
(Expressed in U.S. Dollars)
1998 1997 1998 1997
$ $ % %
- - --------------------------------------------------------------------------------
REVENUE
Sales 119,248 519,687 100% 100%
Less: cost of sales (75,439) (260,274) (63) (50)
- - --------------------------------------------------------------------------------
43,809 259,413 37 50
- - --------------------------------------------------------------------------------
EXPENSES
Sales and marketing 189,691 59,797 159 12
Research and development 283,918 66,126 238 13
General and administrative 460,911 236,158 387 45
- - --------------------------------------------------------------------------------
934,520 362,081 784 70
- - --------------------------------------------------------------------------------
Loss before other expenses (890,711) (102,668) (747) (20)
Other expenses
Loss on sale of marketable
securities - (39,098) 0 (8) 0
Interest expense (39,887) (26,973) (33) (5)
- - --------------------------------------------------------------------------------
(39,887) (66,071) (33) (13)
- - --------------------------------------------------------------------------------
Loss for the year (930,598) (168,739) (780%) (32%)
- - --------------------------------------------------------------------------------
Loss per share (0.11) (0.13)
- - --------------------------------------------------------------------------------
15
<PAGE>
Results of Operations for the Year ended December 31, 1998 and December,
31, 1997
Revenue - Revenue was $119,248 and $519,687 for the years ended December
31, 1998 and 1997. The decrease of $400,439 in revenue was primarily due to
management's decision in December 1997 to divest the entire service portfolio
and the sale of centrex lines.
Cost of Revenue - Cost of revenue is primarily comprised of software
licenses, telephony hardware, data and voice transmission costs and installation
costs. Cost of revenue was $75,439 or 63% of revenue and $260,273 or 50% of
revenue for the years ended December 31, 1998 and 1997, respectively. The
decrease of $184,835 in cost of revenue reflects management's decision to divest
the entire service portfolio and the sale of centrex lines, choosing instead to
focus efforts on software development and marketing unified messaging systems.
We anticipate that our data and voice transmission costs will decrease as a
result of the divestiture. In contrast, we anticipate that our software
licenses, telephony hardware, and installation costs, and related operating
costs to increase in the foreseeable future. Cost of revenue as a percentage of
revenue increased as a result of the decreases in revenue over the same period.
Operating Expenses
Sales & Marketing - Our sales and marketing costs consist primarily of
sales and marketing personnel, advertising, promotions, public relations, trade
shows and business development. Sales and marketing expenses were $189,691 or
159% of revenue and $59,797 or 12% of revenue for the years ended December 31,
1998 and 1997, respectively. The increase of $129,894 in sales and marketing
expense between the two periods primarily reflects an increase in sales and
marketing personnel, promotions, and participation in industry trade shows. The
increase also reflects business development efforts that have resulted in a key
strategic relationship with MTT. Sales and marketing as a percentage of revenue
increased as a result of increases in related expenses over the same period. We
anticipate that our sales and marketing costs will increase significantly in the
foreseeable future as we continue to develop and implement our marketing
strategy and hire additional sales and marketing personnel.
Research and Development - Our research and development costs consist
primarily of personnel, data and voice transmission, and the lease of office
space. Research and development costs were $283,918 or 238% of revenue and
$66,126 or 13% of revenue for the years ended December 31, 1998 and 1997. The
increase of $217,792 in research and development costs from 1997 to 1998
primarily reflects increases in personnel and leased office space. Research and
development as a percentage of revenue increased as a result of increases in
related expenses over the same period last year. We anticipate that our research
and development costs will continue to increase in the foreseeable future.
General and Administrative - Our general and administrative costs consist
primarily of personnel costs, professional and legal costs, consulting fees,
travel and the lease of office space. General and administrative costs were
$460,911 or 387% and $236,159 or 45% for the years ended December 31, 1998 and
1997. The increase of $224,752 from 1997 to 1998 includes the recruitment of
personnel which resulted in an increase of $74,258 from 1997 to 1998, as well as
an increase of $21,554 in regulatory fees and $20,662 in legal and accounting
fees over the same period. General and administrative costs as a percentage of
revenue increased between the two years as a result of increases in expenses
over the same periods. We anticipate that general and administrative costs will
continue to grow in the foreseeable future.
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<PAGE>
Interest Expense (Income), Net - Our interest expense is primarily related
to short-term debt. Interest expense (income), net was $39,887 or 33% of revenue
compared to $26,973 or 5% of revenue for the years ended December 31, 1998 and
1997. We anticipate our interest expense to decrease in the foreseeable future
as the Company agreed to debt settlement agreements with its three major
creditors.
Loss on Sale of Marketable Securities - A loss of $39,098 or 8% of revenues
was incurred on the sale of marketable securities in the year ended December 30,
1997.
Income Taxes - As of December 31, 1997, we had non-capital losses of
$318,965 carried forward and available to offset income in the future. Such net
operating loss carryforwards will begin expiring in the year 2004. For
reconciliation to U.S. GAAP purposes, a valuation allowance was recognized for
the year ending December 31, 1998 to offset deferred tax assets arising from
temporary differences, tax credits and non-capital loss carryforwards, for which
realization is uncertain.
Fluctuations in Annual and Quarterly Results
Our annual and quarterly operating results may fluctuate significantly in
the future as a result of numerous factors, including:
1. the amount and timing of expenditures required to develop strategic
relationships to enhance sales and marketing;
2. changes in the growth rate of Internet usage and acceptance by consumers of
unified messaging systems;
3. emergence of new services and technologies in the market in which we
compete; and
4. fluctuations of foreign currency exchange rates.
We have incurred substantial operating losses, net losses and negative cash
flow on both a quarterly and annual basis. For the years ende December 31, 1998
and 1997 we had an operating loss of $890,711 and $102,668 respectively. We had
a negative cash flow from operating and investing activities of $1,127,149 and
$35,603 for the years ended December 31, 1998 and 1997. For the six months ended
June 30, 1999 we had an operating loss of $4,237,743 and a negative cash flow
from operating and investing activities of $4,259,982. We expect to continue to
incur net losses for the remainder of the fiscal period ending December 31, 1999
and do not expect positive cash flow from operating and investing activities.
We also faces foreign currency exchange risk as a majority of our revenue
is denominated in U.S. currency and a majority of operating costs are incurred
in Canadian currency. Significant fluctuations in the foreign exchange between
U.S. and Canadian currency will result in fluctuations in our annual and
quarterly results. We have minimized our exchange risk by adopting a hedging
program to minimize the possible fluctuations in our annual and quarterly
results.
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<PAGE>
Our six months ended June 30, 1999 and June 30, 1998 results as well as our
annual results have fluctuated as a result of the time and dollar expenditures
required to develop our strategic relationships. We will continue to build on
our strategic relationship with MTT, as well as develop new relationships. Our
future quarterly and annual results will continue to fluctuate as we plan to
allocate significant resources to sales and marketing and continue on our growth
strategies.
Liquidity and Capital Resources
Since our decision to divest of our entire service portfolio the sale of
centrex lines in December 1997, we have financed our operations primarily
through the private placement of common stock, and short-term debt. At June 30,
1999, we had approximately $209,714 in cash and cash equivalents, increasing
$104,791 from the year-end balance of $104,923.
Net cash used for operating activities was $974,004 and $94,307 for the
years ended December 31, 1998 and 1997, respectively. The increase in net cash
used in operating activities between the years ended December 31, 1998 and 1997
is primarily a result of increasing net losses. Net cash used for operating
activities was $4,347,551 and $274,239 for the six months ended June 30, 1999
and June 30, 1998. The increase in net cash used in operating activities between
the six months ended June 30, 1999 and 1998 is also primarily a result of
increasing net losses.
Net cash provided in investing activities was $58,704 for the year ended
December 31, 1997 as a result of proceeds on sale of marketable securities of
$89,833. The difference of $31,129 was used in investing activities for the year
ended December 31, 1997 for the purchase of equipment. Net cash used in
investing activities was $153,145 for the year ended December 31, 1998 as a
result acquisition of equipment, furniture and fixtures.
Net cash used in investing activities for the six months ended June 30,
1999 and 1998 was $112,431 and $58,207, respectively. The increase in net cash
used in investing activities between the six months ended June 30, 1999 and 1998
is primarily a result of purchase of equipment, furniture, fixtures, as well as
leasehold improvements.
Net cash provided by financing activities increased by $1,127,553 between
from 1997 to 1998. The increase from $35,910 in 1997 to $1,163,463 in 1998
resulted primarily from an increase in notes payable of $717,183 and
subscriptions to private placements of $403,619.
Net cash provided by financing activities increased $4,071,907 from
$365,376 for the six months ended June 30, 1998 to $4,437,283 for the six months
ended June 30, 1999. The change in net cash provided by financing activities
consists of the settlement of short-term debt of $33,000 due to shareholders in
exchange for 101,000 common stock purchase warrants as well as the settlement of
long-term debt of $167,000 due to a shareholder in exchange of 500,000 common
stock purchase warrants. The warrants issued in exchange for the settlement of
debt each have an exercise price $0.50. The change in net cash provided by
financing activities also include the issuance of 750,000 shares of our common
stock in exchange for the settlement of short-term loans of $250,000. The loans
were advanced to the us over time beginning in 1995.
Net cash provided by financing activities for the six months ended June 30,
1999 also includes a stock option compensation cost of $3,406,538 which was
determined using the intrinsic method in accordance with APB25. No stock options
have been exercised to date.
18
<PAGE>
Over the next several months Voice Mobility International, Inc. will expect
to receive the proceeds of warrants being exercised. The warrants are expected
to generate $2,156,500 in capital that will be used as working capital. $173,333
was received prior to June 30, 1999 as a result of warrants exercised.
Subsequent to June 30, 1999 an additional $200,000 was received by the Company
as a result of warrants exercised.
Impact of Year 2000 Issue
Like many other companies, the Year 2000 issue creates risks for us. The
Year 2000 issue is the result of computer programs being written using two
digits rather than four digits to define the applicable year. Any computer
software program or hardware that has date-sensitive software of embedded chips
may recognize a date using "00" as the year 1900 rather than the year 2000 which
could result in system failures or miscalculations causing disruptions to
operations and normal business activities.
We are a comparatively new company and as a result, the software and
hardware we use to operate our business have all been purchased or developed in
the last several years. While we cannot guarantee that we have eliminated all
risks related to the Year 2000, we can state that steps have been taken to
minimize the risks associated to the Year 2000 issue.
We have developed and implemented Year 2000 compliance plans related to
both our internal business operations, as well as our product compliance. With
respect to our Year 2000 plan we have ensured all of our hardware equipment and
software used in normal business operations are certified as Y2K compliant. Our
strategy involves maintaining an extensive inventory of any and all
computer-related systems and software, whether initially thought to be exposed
to the Y2K bug or not. An assessment is made of each inventory item identifying
potential risks or uncertainties. All hardware that is not Year 2000 compliant
is disposed of, and all software used is certified to be Year 2000 compliant
through written documentation provided by the vendor.
We are committed to providing releases of our software which are certified
as being Year 2000 compliant. We have developed all of the e-go software
internally and have ensured that all date fields are compatible to the year
2000. However, certain subcomponents may not have been properly engineered to
ensure date compatibility. Steps have been taken to confirm sub-components
compatibility, but this area still remains one of moderate risk. Third party
products that are bundled into our unified messaging systems have been
researched for Year 2000 compliancy, and all of the vendors have released
statements indicating they are fully Year 2000 compliant.
ITEM 3. DESCRIPTION OF PROPERTY.
- - ------- ------------------------
Our United States office is located in shared modern office premises at
Suite 200, 5031 South Ulster Parkway, Denver Colorado 80237 under a month to
month arrangement with the lessor of the premises who is not affiliated with us.
We pay no rent under an oral understanding.
Our operating subsidiary, Voice Mobility Inc., occupies approximately 2,000
square feet at 701-543 Granville Street, Vancouver, British Columbia V6C 1X8.
The lease, with a non-affiliated party, expires March 30, 2002. Rent is $53,276
per year.
19
<PAGE>
Voice Mobility Inc. leases an engineering facility at 20 - 3318 Oak Street,
Victoria, BC, V8X 1R1, of 5,387 square feet, under a lease with an unaffiliated
party that expires on May 31, 2004, at $85,138 per year.
Voice Mobility Inc. also leases sales offices in Vancouver, BC, and
Mississauga, Ontario on a month to month basis.
We believe that existing facilities are adequate for our needs through at
least the end of 1999. Should we require additional space at that time, or prior
thereto, we believe that such space can be secured on commercially reasonable
terms and without undue operational disruption.
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
- - ------ ---------------------------------------------------------------
We have set forth in the following table certain information regarding our
common stock beneficially owned on September 30, 1999, for (i) each shareholder
we know to be the beneficial owner of 5% or more of our outstanding common
stock, (ii) each of the our executive officers and directors, and (iii) all
executive officers and directors as a group. In general, a person is deemed to
be a "beneficial owner" of a security if that person has or shares the power to
vote or direct the voting of such security, or the power to dispose or to direct
the disposition of such security. A person is also deemed to be a beneficial
owner of any securities of which the person has the right to acquire beneficial
ownership within 60 days. At September 30, 1999, 17,650,321 shares of our common
stock were outstanding.
NAME AND ADDRESS NUMBER OF SHARES OF COMMON PERCENT OF
OR IDENTITY OF GROUP STOCK BENEFICIALLY OWNED BENEFICIAL OWNERSHIP
- - -------------------- -------------------------- --------------------
Edith Marion Both(1) 2,700,000 15.3%
843 Ida Lane, Kamloops
BC, V2B 6V2
Canada
James Jay Hutton(2) 2,0555,000 11.5%
6442-180th St.
Surrey, BC, V3S 7K2
Canada
William E. Krebs(3) 2,443,897 13.6%
300 Stewart Road
Salt Spring Island
BC, V8K 2C4
Canada
Robert Cashman 250,000 1.5%
Mr. Robert L. Cashman
2100 West Orangewood Avenue
Orange, California 92868-1950
Jason Corless(4) 1,238,671 6.9%
312-3277 Glasgow Ave.
Victoria, BC, V8X 1M3
Canada
All Executive Officers and Directors 6,898,894 42.5%
as a Group (4 persons) (5)
- - -----------------------
20
<PAGE>
(1) Includes 50,000 Plan Options. These shares are owned by E. W. G.
Investments Ltd. of which Ms. Both is the sole shareholder.
(2) Includes 36,778 shares which are owned by Janice Gurney, his wife, over
which Mr. Hutton disclaims beneficial ownership. Includes 250,000 Plan
Options.
(3) Includes 2,000,000 shares owned by Pacific Western Mortgage Corp. of which
Mr. Krebs is the sole shareholder and 93,897 shares owned by Margit
Kristiansen, Mr. Krebs' wife. Mr. Krebs disclaims beneficial ownership of
the shares owned by his wife. Includes 250,000 Plan Options.
(4) Includes 114,671 shares owned by Cathie Stevens, his wife, over which Mr.
Corless disclaims beneficial ownership. Includes 250,000 Plan Options.
(5) Does not include Plan Options
ITEM 5. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS.
- - ------- -------------------------------------------------------------
The following table sets forth the names, positions and ages of our
executive officers and directors. All our directors serve until the next annual
meeting of shareholders or until their successors are elected and qualify.
Officers are elected by the board of directors and their terms of office are,
except to the extent governed by employment contract, at the discretion of the
board of directors.
Name Age Position
---- --- --------
James J. Hutton 33 President, Chief Executive Officer and a Director
William E. Krebs 52 Chairman of the Board of Directors, Secretary
and Treasurer
Edith Marion Both 66 A Director
Robert Cashman 66 A Director
Randy G. Buchamer 44 A Director
James J. Hutton has also served as President, Chief Executive Officer and a
Director of our subsidiary, Voice Mobility, Inc. since 1998. From 1990 to the
present, he has also served as Director and President of Sycamore Group
Holdings, a family company involved in diversified investments. Mr. Hutton
served as Canadian Regional Manager for Ascend Communications (1995-1998). He
served in various capacities for Gandalf Systems, Inc., from 1989 to 1995,
starting as a sales executive and becoming Western Regional Manager. From 1987
to 1989, Mr. Hutton was a Sales Trainee in the Automotive Electronics Group of
Amp of Canada. Mr. Hutton attended the University of British Columbia.
William E. Krebs has been Chairman of the board of directors of our
subsidiary, Voice Mobility, Inc. since its inception. He also has served as
President and a director of Pacific Western Mortgage Corp. since 1987 and served
as President and a Director of Pacific Western Capital Corp. from 1994 to 1995.
He has been a director of Waverider Communications, Inc., a public company
traded on the Over-the-Counter Bulletin Board since 1997 and was its Secretary
from 1997 through May, 1999. Mr. Krebs served as Director and President of
TelcoPlus Enterprises Ltd. and its wholly owned subsidiary, Intertec
Telecommunications Inc., from 1990 to 1995. Mr. Krebs is a Chartered Accountant
and practiced as such from 1970 to 1978. He served as a Director and President
of CT&T Telecommunications Inc. from 1990 to 1995. Mr. Krebs has been a member
of the Canadian Instititue of Chartered Accountants since 1973.
21
<PAGE>
Edith Marion Both was employed by Transport Canada from 1980 to 1995 and
served as its Resource Manager from 1985 to 1995. She presently serves as the
Regional President of the Elizabeth Fry Society of Canada, a society which
assists woman who have had problems with legal authorities, and was Treasurer of
its National Board. She serves on the board of directors of the Women's Future
Fund, a cross discipline entity adjudicating funding for women issues. Mollie
became a registered Cytotechnologist in 1973.
Robert Cashman has served, from 1993 to the present, as chairman and senior
partner of The Charleston Group, a business consulting and investment banking
firm. From 1975 to 1992, he was President of Pacific Envelope Company. From 1989
to 1992, Mr. Cashman was a director of Pacific Inland Bank. Mr. Cashman owned,
from 1960 to 1974, Cashman Insurance Counselors, a general insurance agency. In
addition, he serves as Secretary and a director of the following companies:
Homelife, Inc. (OTCBB: HMLF) since 1996, Pacific Ocean Restaurants, Inc. since
1998; and Aeromedical Group, Inc. since 1997. He served as President and a
director of our company when it was named Equity Capital Group, Inc., from its
inception in September, 1998 to June 30, 1999 and continues to serve as a
director. Mr. Cashman also is a Commissioner of the Orange County Airport, a
member of the MCAS El Toro Reuse Citizens Advisory Commission and City of
Anaheim Private Industry Council/Economic Development Council. He was a member
of the Los Angeles Olympic Organizing Committee from 1982 to 1984. Mr. Cashman
attended East Central State College, Oklahoma, Santa Ana College, California and
received his B.S. in Business Administration in 1956 from University of
California at Los Angeles
Randy G. Buchamer has served from 1996 as Vice President and Chief
Operating Officer of Mohawk Oil Retail SBU and from 1989 to 1996 as Vice
President Corporate Services and Chief Information Officer for Mohawk Oil
Company. From 1987 to 1988, he was Retail Market Specialist for Digital
Equipment of Canada Limited. Mr. Buchamer founded and served, from 1981 to 1988,
as President of Vartech Systems Corporation and RB Computer Products, an IBM
value added reseller and North American software publisher and distributer of
retail, distribution and manufacturing software solutions. From 1979 to 1981, he
was Sales Manager and, from 1978 to 1979, a Sales Representative for Micom
Canada Ltd. He received his MBA from Simon Fraser University's Executive
Management Development Program in 1994 and his BBA in Marketing and Finance from
the University of Illinois in 1978. He also has completed courses at the IBM
Canada Business Management School. He is a member of the Vancouver Board of
Trade and the Sales and Marketing Executives Association of Vancouver.
Key Management Employees of Voice Mobility, Inc., our operating subsidiary
are:
James J. Hutton, our President, is also President and a director.
William E. Krebs, our Secretary and Treasurer is Secretary and Treasurer
and a director.
William Gardiner (44 years old) has been Vice President - Business
Development since 1997 and served as a consultant from 1995 to 1997. At Voice
Mobility, he engineered the basic concept of the "follow me" number which is an
integral feature of the e-go platform and was responsible for introducing the
first e-mail to voice service in Canada, as well as call connect, same line fax,
fax to voice, and e-mail to voice. Mr. Gardiner earned a Diploma in Computer
Technology from Computer Data Institute in 1989.
22
<PAGE>
Jason Corless (29 years old) has served as Director of Engineering since
1997 and was a consultant to Voice Mobility from 1994 to 1997 where he assisted
in the design and development of prototypes of e-mail to speech, web paging, and
TNPP paging. Mr. Corless served as a software developer for Hughes Aircraft in
1994 where he was involved in network performance testing of the Canadian
Automated Air-Traffic Control System (known as "CAATS"). In 1991, he was a
software developer for Northern Telecom where he designed and developed software
for the "DSM 250" product line as part of the frame relay billing group. Mr.
Corless received a Bachelor of Science in Computer Science from the University
of Victoria in 1994 and a Master of Science in Computer Science from the
University of Victoria in 1995. His monograph entitled "Publication in Software"
was published in Practice and Experience Journal, Volume 28, Number 12, October
1998.
Budd Stewart (46 years old) has served as Vice President - Operations since
1999. From 1997 to 1999, he was Director of Operations at Enhanced Cellular
Systems Inc. where he was responsible for negotiating and maintaining various
U.S.A. carrier agreements and operating systems, as well as installation and
maintenance of the U.S.A.-based credit card cellular payphone network. From 1995
to 1996, he was Director of Customer Service for Prime Copy Office Systems where
his responsibilities included service, refurbishing and warehouse operations at
Canada's largest Mita copier and Panafax facsimile dealer. Mr. Steward served as
Director of Technical Operations, at Savin (Ricoh) Canada from 1994 to 1995 at
which firm he was in charge of ten branches in Western Canada with a staff of
over 90 service personnel. From 1989 to 1993, he was President and owner of
Stewart/Scotvold Holdings, a project manager for non-residents in custom home
construction. Mr. Stewart was employed by Bell Canada and Bell Canada
International from 1976 to 1989 in various capacities, successively Section
Manager - Repair Service Bureau, Director Operations - Customer Service and
Director Cost and Results. In this last capacity, he was responsible for
negotiating and tracking the $3 billion annual operating expense budget of the
seven business units of Bell Canada. Mr. Stewart received a Bachelor of Arts
from University of Toronto.
Geoff Heston (47 years old) has served as Senior Vice President of Sales
and Marketing since August, 1999. Prior to joining Voice Mobility, Mr. Heston
served, from 1997 to 1999 as Vice President - Wireless Marketing, for Diablo
Research Company, a contract engineering and consulting company. From 1994 to
1997, Mr. Heston was Vice President and General Manager, Canadian Operations, of
Metricom Inc. a provider of wireless Internet access. From 1989 to 1994, Mr.
Heston worked for Motorola successively as Senior Project Manager, Marketing
Manager - Public Wireless Networks and Major Account Manager. From 1984 to 1989,
he was Senior Applications Specialist for Gandalf Data Ltd. From 1976 to 1984,
Mr. Heston specialized in the operation and support of mainframe computers for
school administration and students successively for McGill University,
University of British Columbia and the Vancouver School Board. Mr. Heston
attended Mount Allison University and Marianopolis Collge.
23
<PAGE>
ITEM 6. EXECUTIVE COMPENSATION.
- - ------- -----------------------
CASH COMPENSATION.
- - ------------------
The following table shows, for the two-year period ended December 31, 1998,
the cash and other compensation we paid to our Chief Executive Officer and to
each of our executive officers who had annual compensation in excess of
$100,000.
SUMMARY COMPENSATION TABLE
--------------------------
NAME AND OTHER ANNUAL
PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION(1)
- - ------------------ ---- ------ ----- ---------------
Robert Cashman 1998 -0- -0- -0-
President and 1997
Chief Executive Officer
(resigned June, 1999)
James J. Hutton 1999 $72,600 -0- -0- (1)
President and
Chief Executive Officer
of Voice Mobility Inc.
and since June, 1999
of the Company
- - ------------------------
1. Compensation was paid to Mr. Hutton by Voice Mobility, Inc., our operating
subsidiary
OPTION GRANTS IN THE LAST FISCAL YEAR.
- - --------------------------------------
The following table sets forth information with respect to the grant of
options to purchase shares of common stock during the fiscal year ended December
31, 1998 (Voice Mobility Inc.) and March 31, 1999 (the Company), to each person
named in the Summary Compensation Table.
NUMBER OF % OF TOTAL
SECURITIES OPTIONS/SARS EXERCISE OR
UNDERLYING GRANTED TO BASE PRICE
OPTIONS/SARS EMPLOYEES IN ($/SHARES) EXPIRATION
NAME GRANTED (#) FISCAL YEAR DATE
---- ----------- ----------- ---------- ----------
Robert Cashman 0 0 N/A N/A
James J. Hutton 0 0 N/A N/A*
* Subsequent to the end of the 1998 fiscal year, we have issued 250,000
options to Mr. Hutton. The options are excercisable at $1.00 and expire
June 30, 2004
24
<PAGE>
1996 STOCK OPTION PLAN
- - ----------------------
In June 29, 1999, our board of directors adopted the Fiscal 2000 Stock
Option Plan (the "Plan") as a means of increasing employees', board of advisors,
consultants' and non-employee directors' proprietary interest and to align more
closely their interests with the interests of our stockholders. The Plan should
also maintain our ability to attract and retain the services of experienced and
highly qualified employees and non-employee directors.
Under the Plan, we have reserved an aggregate of 5,000,000 shares of common
stock for issuance pursuant to options ("Plan Options"). Our board of directors
or a committee of our board of directors (the "Committee") will administer the
Plan, including, without limitation, the selection of the persons who will be
granted Plan Options under the Plan, the type of Plan Options to be granted, the
number of shares subject to each Plan Option and the Plan Option price.
Plan Options granted under the Plan may either be options qualifying as
incentive stock options ("Incentive Options") under Section 422 of the Internal
Revenue Code of 1986, as amended, or options that do not so qualify
("Non-Qualified Options"). In addition, the Plan also allows for the inclusion
of a reload option provision ("Reload Option"), which permits an eligible person
to pay the exercise price of the Plan Option with shares of common stock owned
by the eligible person and receive a new Plan Option to purchase shares of
common stock equal in number to the tendered shares. Any Incentive Option
granted under the Plan must provide for an exercise price of not less than 100%
of the fair market value of the underlying shares on the date of such grant, but
the exercise price of any Incentive Option granted to an eligible employee
owning more than 10% of our common stock must be at least 110% of such fair
market value as determined on the date of the grant. The term of each Plan
Option and the manner in which it may be exercised is determined by our board of
directors or the Committee, provided that no Plan Option may be exercisable more
than 10 years after the date of its grant and, in the case of an Incentive
Option granted to an eligible employee owning more than 10% of our common stock,
no more than five years after the date of the grant. The exercise price of
Non-Qualified Options shall be determined by our board of directors or the
Committee.
The per share purchase price of shares subject to Plan Options granted
under the Plan may be adjusted in the event of certain changes in our
capitalization, but any such adjustment shall not change the total purchase
price payable upon the exercise in full of Plan Options granted under the Plan.
Our (and any of our subsidiary's) officers, directors, key employees and
consultants will be eligible to receive Non-Qualified Options under the Plan.
Only employees are eligible to receive Incentive Options.
Recipients of Plan Options may not assign or transfer them, except by will
or by the laws of descent and distribution. During the lifetime of the optionee,
an option may be exercised only by such optionee. If an optionee's employment is
terminated for any reason, other than his death or disability or termination for
cause, or if an optionee is not an employee but is a member of our board of
directors and his service as a director is terminated for any reason, other than
death or disability, the Plan Option granted to him or her shall lapse to the
extent unexercised on the earlier of the expiration date or 30 days following
the date of termination. If the optionee dies during the term of his employment,
the Plan Option granted to him shall lapse to the extent unexercised on the
earlier of the expiration date of the Plan Option or the date one year following
the date of the optionee's death. If the optionee is disabled, the Plan Option
granted to him or her lapses to the extent unexercised on the earlier of the
expiration date of the option or one year following the date of the disability.
25
<PAGE>
Our board of directors or the Committee may amend, suspend or terminate the
Plan at any time, except that no amendment shall be made which (i) increases the
total number of shares subject to the Plan, or (ii) changes the definition of an
Eligible Person under the Plan.
As of September 30, 1999, we granted 2,706,750 Plan Options pursuant to the
Plan. As of September 30, 1999, no Plan Options had been exercised.
OPTION EXERCISES AND HOLDINGS.
- - ------------------------------
The following table sets forth information with respect to the exercise of
options to purchase shares of our common stock during the fiscal year ended
March 31, 1999 to each person named in the Summary Compensation Table and the
unexercised options held as of the end of 1999 fiscal year.
<TABLE>
<CAPTION>
AGGREGATED OPTION/ EXERCISES IN
LAST FISCAL YEAR AND 1998 FISCAL YEAR END OPTION/VALUES
-------------------------------------------------------
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING IN-THE-MONEY OPTIONS/
UNEXERCISED OPTIONS SARS AT 1998 FISCAL
AT 1998 FISCAL YEAR YEAR END ($)
END (#) EXERCISABLE/ EXERCISABLE/
SHARES ACQUIRED ON VALUE UNEXERCISABLE UNEXERCISABLE
EXERCISE REALIZED
NAME (#) ($)
---- ------------------- ------------ -------------------- -------------------
<S> <C> <C> <C> <C>
Robert Cashman 0 0 0 0
James J. Hutton 0 0 0 0*
<FN>
- - -------------------
* Subsequent to the end of the 1998 fiscal year, we issued 250,000 options to
Mr. Hutton. The options are excercisable at $1.00 and expire June 30, 2004.
The intrinsic value of the options on September 30, 1999, is $375,000 Based
on our determination of fair market value of the purchased shares on the
option exercise date less the exercise price paid for the shares.
</FN>
</TABLE>
26
<PAGE>
<TABLE>
<CAPTION>
LONG-TERM INCENTIVE PLANS - AWARDS IN LAST FISCAL YEAR
------------------------------------------------------
NUMBER OF SHARES, PERFORMANCE OR ESTIMATED FUTURE PAYOUTS UNDER
UNITS OR OTHER OTHER PERIOD UNTIL NON-STOCK PRICE-BASED PLANS
RIGHTS MATURATION OR ------------------------------
(#) PAYOUT THRESHOLD TARGET MAXIMUM
NAME ($ OR #) ($ OR #) ($ OR #)
---- ---------------- ----------------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C>
Robert Cashman 0 0 0 0 0
James Jay Hutton 0 0 0 0 0
</TABLE>
EXECUTIVE EMPLOYMENT AGREEMENTS
- - -------------------------------
We have not entered into any employment agreements with our officers and
directors and have paid no compensation to them. Our operating subsidiary, Voice
Mobility Inc. has entered into employment agreements with its executive
employees. James Jay Hutton, President of Voice Mobility Inc., entered into an
employment agreement on April 1, 1998 which terminates on March 31, 2000. He
receives a salary of Cdn$100,000 per year plus 250,000 Plan Options exercisable
at $1.00 per share. William Gardiner, Vice-President - Business Development of
Voice Mobility, Inc., entered into an employment agreement on August 1, 1998
which terminates on August 1, 2001. He receives a salary of Cdn$60,000 per year
plus 200,000 Plan Options exercisable at $1.00 per share. Jason Corless,
Director of Engineering of Voice Mobility Inc., entered into an employment
agreement on October 1, 1998 which terminates on August 1, 2001. He receives a
salary of Cdn$60,000 per year plus 200,000 Plan Options exercisable at $1.00 per
share. (Options to purchase shares of Acrex Ventures Inc. as set in the
employment contracts of Messrs. Hutton, Gardiner and Corless, attached to this
registration statement as exhibits, were amended by resolution of our board of
directors to provide options in our company as stated above in this paragraph.)
Bud Stewart, Vice-President - Operations of Voice Mobility Inc., entered into an
employment agreement on June 20, 1999 which terminates on June 19, 2001. He
receives a salary of Cdn$100,000 per year plus 250,000 Plan Options exercisable
at $1.00 per share. Mr. Stewart may also receive an additional 250,000 Plan
Options pursuant to mutually agreeable performance criteria. Geof Heston, Senior
Vice-President of Sales and Marketing of Voice Mobility Inc., entered into an
employment agreement on August 7, 1998 which terminates on August 6, 2001. He
receives a salary of Cdn$100,000 per year plus 250,000 Plan Options exercisable
at $1.00 per share.
27
<PAGE>
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
- - ------- -----------------------------------------------
We were incorporated in the State of Nevada on October 2, 1997 under the
name Equity Capital Group, Inc. to serve as a merchant banking firm with a
business consulting/investment division and a real estate division. The initial
board of directors consisted of Robert Cashman, Yale Mizrahi and Georgia
Cashman.
Our initial certificate of incorporation authorized 10,100,000 shares of
capital stock divided into: 10,000,000 shares of common stock of $.001 par value
per share and 100,000 shares of preferred stock without par value. Our
certificate of incorporation was amended on June 24, 1999 to authorize the
issuance of 51,000,000 shares of capital stock divided into 50,000,000 shares of
common stock, $.001 par value each and 1,000,000 shares of preferred stock,
$.001 par value each.
On December 20, 1997, we entered into a Plan of Exchange Agreement with
Ward Enterprises, Inc., ("Ward") of which Robert Cashman was the sole
stockholder, for the exchange of all the capital stock of Ward Enterprises, Inc.
for 1,500,000 of our shares of common stock.
During the first quarter of 1998, we sold 100,000 shares of our common
stock under Rule 504 of Regulation D to the Securities Act of 1933 for a total
of $100,000.
On January 15, 1998 Robert Cashman was elected as the Chairman of the board
of directors and John Vilagi was elected to the board of directors upon the
resignation of Yale Misrahi and Georgia Cashman.
On June 15, 1998, we entered into an exchange agreement with HomeLife Inc.,
a Nevada Corporation trading on the Over the Counter Bulletin Board under the
symbol "HMLF". The agreement involved the exchange of 375,000 shares of HomeLife
Inc. common stock in exchange for 75,000 of our shares of our common stock.
In July, 1998, we sold 100,000 shares of HomeLife, Inc. common stock for
cash consideration of $100,000.
Prior to our acquisition of Ward, Ward had sold envelope manufacturing
equipment to Specialty Envelope Company ("Specialty") on credit terms. On
October 20, 1998, we entered into a settlement and mutual release agreement with
Specialty. We took back the equipment as well as inventory, spare parts, tools,
accounts receivable, deposits, pending orders, customer lists and released
Specialty from all liabilities to us. In January, 1999, we transferred the
repossessed assets to ASI Acquisition Corp. ("ASI") for 300,000 of its shares of
common stock representing 15% of its issued and outstanding shares, the
remaining 85% being owned by Robert Cashman. ASI is a private company and used
to equipment and other assets to enter the envelope printing business which it
has continued to the present time.
On November 12, 1998, we formed First Consolidated Securities, Inc. ("First
Consolidated") to acquire Tuschner Financial Group, Inc. ("Tuschner Financial")
which was the parent of Tuschner & Company, Inc., a broker-dealer. We agreed to
issue our common stock in four installments based on the broker-dealer meeting
certain performance criteria. We issued 27,240 of our shares of common stock on
signing. In May, 1999, the acquisition was mutually terminated and we did not
issue any additional shares. We also had transferred 87,000 shares of Time
Financial Services Inc. common stock (OTBB:TIMF) which were owed by Ward to
Consolidated Financial which Consolidated Financial had transfered to Tuschner
Financial; and, as part of the termination of the relationship, Consolidated
Financial transferred the shares to Tuschner Financial Tuschner Financial has
agreed to return these shares to Consolidated.
28
<PAGE>
In January, 1999, we issued, in consideration of a promissory note in the
principal amount of $350,000, 350,000 of our shares of common stock to Fun Kart
Holdings, Inc.
In March 9, 1999, we issued two promissory notes, one to John Vilagi, then
a director, in the principal amount of $25,000 and one Robert Cashman, a
director, then President, in the principal amount of $22,500 in exchange for
funds in the principal amounts of the promissory notes. The notes bear interest
at 15% and are payable in payable in monthly installments of principal and
interest of $835 and $2,000 respectively. Messrs. Vilagi and Cashman have agreed
release us from the repayment obligations of the notes and to look to Pioneer
Growth Corporation for payment.
On April 1, 1999, we reverse split our shares of common stock 4:1 and on
that date sold an aggregate of 8,293,000 shares of our common stock to 52
persons. On that date, we also entered into an agreement with Pioneer Growth
Corporation under which it received all our assets and assumed our liabilities.
Messrs. Vilagi and Cashman agreed to release us and to look to Pioneer Growth
Corporation for repayment of their promissory notes. Pioneer Growth Corporation
issued to us 2,174,000 of its common stock which we distributed ratably to our
stockholders of record on March 31, 1999.
On June 24, 1999, we changed our name through an amendment to our
certificate of incorporation to Voice Mobility International, Inc. and on June
30, 1999 changed our trading symbol from EQCG to VMII on the Over the Counter
Bulletin Board.
On September 15, 1993 "454581 B.C. Ltd." was incorporated under the laws of
British Columbia. and owned 100% by Ernest Weir Gardiner. Ernest Weir Gardiner
and Ernest William Gardiner constituted the initial board of directors. Ernest
Weir Gardiner was issued 100 Class "A" Common Shares. In June, 1994, he began to
finance operations through loans.
On July 20, 1994, the charter of "454581 B.C. Ltd." was amended to change
its name W.G.T. Teleserve Canada Inc.
In December, 1995, Pacific Western Mortgage Corporation, a company owned by
William E. Krebs, began to loan funds to W.G.T. Teleserve to fund operations.
On January 29, 1996, Ernest Weir Gardiner transferred 50 of his Class "A"
Shares in W.G.T. Teleserve to Pacific Western Mortgage Corporation.
On October 31, 1997, W.G.T. Teleserve purchased the 100 issued and
outstanding Class "A" common shares from Ernest Weir Gardiner and Pacific
Western Mortgage corp. for $1.00 per share and cancelled them. Concurrently, it
issued Class "B" common shares in the following numbers, for the price of $0.01
per share, as follows:
E.W.G. Investments Ltd. 3,750 shares
James Joseph Hutton 2,250 shares
Pacific Western Mortgage Corp. 1,500 shares
Jason David Corless 900 shares
On October 31, 1997, Ernest Weir Gardiner resigned as a director and
officer and Ernest Williams Gardiner, James Joseph Hutton and William Krebs were
appointed directors. The new board of directors elected Ernest William Gardiner
as President, James Joseph Hutton as Secretary, and William Krebs as Chairman of
the Board.
29
<PAGE>
On November 4th, 1997. W.G.T. Teleserve by special resolution subdivided
its authorized capital of 200,000 shares into 200,000,000 shares. Thus the
authorized capital was 200,000,000 shares divided into:
100,000,000 Preferred shares with a par value of $0.01 each; and
25,000,000 Class "A" voting common shares without par value
25,000,000 Class "B" voting common shares without par value
25,000,000 Class "C" voting common shares without par value
25,000,000 Class "D" non-voting common shares without par value
In December, 1997, W.G.T. Teleserve shareholders agreed to merge it into
Acrex Ventures Ltd. Acrex Ventures subsequently initiated its first private
placement of 1,500,000 shares at Cdn$0.26625 per unit pursuant to a prospectus
exempt securities offering in British Columbia, Canada. Each unit consisted of
one share and one warrant exercisable at Cdn $0.50 to purchase an additional
share of Acrex Ventures Ltd. The resulting proceeds were loaned to W.G.T.
Teleserve to fund research and development activities.
On June 10, 1998, W.G.T. Teleserve changed from being a British Columbia
corporation to a Canadian corporation and, simultaneously, changed its name to
Voice Mobility Inc.
In June, 1998, Voice Mobility Inc. began to conduct field trials of its
integrated messaging product with Maritime Tel & Tel Ltd. in Nova Scotia, at the
cost of MTT to be reimbursed by Voice Mobility. In addition, Voice Mobility and
MTT jointly developed new telecommunications applications for telecommunications
services providers.
On August 30, 1998, Voice Mobility and its shareholders entered into an
agreement to sell 100% of its shares to Acrex Ventures, a transaction requiring
the approval of the Vancouver Stock Exchange.
In June 1998, Acrex Ventures initiated its second private placement of
1,000,000 units at Cdn$0.50 per share pursuant to a prospectus exempt securities
offering in British Columbia, Canada. Each unit consisted of one share and one
warrant exercisable at Cdn$0.50. The resulting proceeds were loaned to Voice
Mobility to fund research and development activities.
In January, 1999, Acrex Ventures initiated its third private placement of
2,000,000 units at Cdn$0.50 pursuant to a prospectus exempt securities offering
in British Columbia, Canada. Each unit consisted of one share and one warrant
exercisable at Cdn$0.75. The resulting proceeds were loaned to Voice Mobility to
fund research and development activities.
In May, 1999, Acrex Ventures initiated its fourth private placement of
258,000 units at Cdn$0.50 per unit pursuant to a prospectus exempt securities
offering in British Columbia, Canada. Each unit consisted of one share and one
warrant exercisable at Cdn$0.75. The resulting proceeds were loaned to Voice
Mobility to fund research and development activities.
In June, 1999 Acrex and Voice Mobility mutually rescinded their agreement
whereby Acrex would acquire 100% of the capital stock of Voice Mobility Inc.
On June 24, 1999, we entered into an agreement with the shareholders of
Voice Mobility Inc. under which we agreed to acquire all the issued and
outstanding capital stock of Voice Mobility in exchange for 6,600,000 of our
shares of common stock. The shareholders of Voice Mobility listed below, agreed
that they would initially exchange their capital stock of Voice Mobility for
6,600,000 "exchange B" shares of a wholly-owned Canadian subsidiary in which
we would be the sole shareholder of "A" voting stock. From time to time, they
could exchange their shares of the subsidiary for an equal number of our shares
of common stock.
30
<PAGE>
The 6,600,000 "exchange" shares of the Canadian subsidiary were agreed to
be divided among the stockholders of Voice Mobility as follows:
1. E.W.G. Investments Inc. 2,650,000 shares
2. James Hutton 1,750,000 shares
3. Jason Corless 850,000 shares
4. Pacific Western Mortgage Corporation 1,250,000 shares
5. Corey Scholefield 100 000 shares
This agreement was expanded on September 30, 1999, when we entered into a
voting, support and exchange trust agreement with our newly-acquired subsidiary,
Voice Mobility Canada Limited, a Canadian corporation ("VM Canada"), and Owen,
Bird, barristers and solicitors, a British Columbia partnership, as trustee for
the shareholders of Voice Mobility Inc. Pursuant to that agreement, VM Canada
purchased all of the capital stock of Voice Mobility Inc. in consideration for
6,600,000 exchangeable preferred shares (the "Exchangeable Shares") of VM
Canada. Each Exchangeable Share may be exchanged for one share of our common
stock.
The Exchangeable Shares provide the former Voice Mobility Inc. shareholders
with a security of a Canadian issuer which has economic (including voting)
attributes that are, as nearly as practicable, equivalent to those of our shares
of common stock. Because the exchange of securities of Voice Mobility Inc. was
made with a taxable Canadian corporation, a deferral of Canadian income tax is
available to the shareholders of Voice Mobility Inc. all of whom are residents
of British Columbia. This deferral would not have been available in respect of
the tender of shares to us as we are not a Canadian corporation. Similarly, a
tax deferral would not be available to British Columbia residents if the shares
of Voice Mobility Inc. had been sold for cash.
In connection with the exchange, we agreed to issue a new non-participating
special voting share to the trustee for the benefit of the holders of the
Exchangeable Shares. The trustee will hold our special voting share. The trustee
will be entitled at our stockholder meetings, to a number of votes equal to that
number of votes which the holders of Exchangeable Shares outstanding at such
time would be entitled if they exchanged all of their Exchangeable Shares for
our shares of common stock. These voting rights will be exercised by the Trustee
only upon receipt of instructions from the holders of Exchangeable Shares.
Each Exchangeable Share is entitled to dividends from VM Canada payable at
the same time as, and in the same form as, dividends paid by us on each of our
shares of common stock and may be paid in stock or cash. Upon the liquidation,
dissolution or winding-up of VM Canada or any other distribution of assets of VM
Canada among its shareholders for the purpose of winding up its affairs, a
holder of Exchangeable Shares will be entitled to receive from VM Canada for
each such share an amount equal to the market price of one of our shares of
common stock on the business day prior to the liquidation date, which will be
satisfied by the delivery of shares of our common stock, together with an
additional amount equivalent to the full amount of all declared and unpaid
dividends on each Exchangeable Share and all dividends and distributions
declared on our shares of common stock that have not been declared on each
Exchangeable Share with a record date prior to the effective date of the
exchange. Notwithstanding, upon any proposed liquidation, dissolution or
winding-up of VM Canada, we and our subsidiary, VMI Sub, will have an overriding
call right to purchase outstanding Exchangeable Shares, at the same price in
cash.
31
<PAGE>
The Exchangeable Shares are non-voting and are "retractable" at the option
of the holder at any time. Upon retraction the holders will be entitled to
receive from VM Canada for each share an amount equal to the market price of one
of our shares of common stock on the business day prior to the retraction date,
which will be satisfied by the delivery of our shares of common stock together
with an additional amount equivalent to the full amount of all declared and
unpaid dividends on each retracted Exchangeable Share and all dividends and
distributions declared on our cdommon stock that have not been declared on each
Exchangeable Share with a record date prior to the effective date of the
exchange. Notwithstanding the foregoing, upon being notified by VM Canada of a
proposed retraction by a holder of Exchangeable Shares, we and VMI Sub will have
an overriding call right to purchase the Exchangeable Shares that are the
subject of the proposed retraction for the same price in cash.
VM Canada shall redeem all of the Exchangeable Shares remaining outstanding
on July 1, 2009. Upon such redemption, the holder of an Exchangeable Share will
be entitled to receive from VM Canada for each Exchangeable Share redeemed an
amount equal to the market price of one of our shares of common stock, which
will be satisfied by the delivery of our shares of common stock, together with
an additional amount equivalent to the full amount of all declared and unpaid
dividends on each Exchangeable Share and all dividends and distributions
declared on a our common stock that have not been declared on each Exchangeable
Share with a record date prior to the effective date of the exchange.
Notwithstanding, we and VMI Sub will have an overriding call right to purchase
on the last business day prior to the date of redemption all the Exchangeable
Shares, at the same price in cash.
In the event of our dissolution, liquidation or winding-up, the
Exchangeable Shares will be automatically exchanged for an equivalent number of
our shares of common stock so that the holders of Exchangeable Shares may
participate in the dissolution, liquidation or winding-up on the same basis as
our stockholders.
Upon the exchange of Exchangeable Shares, the holder will no longer be a
beneficiary of the trust that holds the special voting share.
Our special voting share, which we intend to issue shortly, will carry a
number of voting rights, including rights exercisable at any meeting of the
holders of our shares of common stock, equal to the number of Exchangeable
Shares outstanding on the record date established for any such meeting, subject
to adjustment. Our stockholders and the holders of Exchangeable Shares will vote
together as a single class on all matters unless otherwise required by
applicable law. The special voting share will not be entitled to dividends and
will not participate in any dissolution, liquidation or winding-up. At such time
as the special voting share has no votes attached to it because there are no
Exchangeable Shares outstanding, it will be cancelled. The special voting share,
upon issue, will be held by the trustee for the benefit of holders of
Exchangeable Shares from time to time and each voting right will be voted in
accordance with the instructions received by the trustee from such holders of
Exchangeable Shares. In the absence of any instructions received from such
holder of Exchangeable Shares, the voting rights to which such holder is
entitled will not be exercised. Upon the exchange of Exchangeable Shares for our
shares of common stock, the voting rights will terminate.
Pursuant to the Exchange Agreement, we have granted to the trustee for the
benefit of the holders of the Exchangeable Shares a put right, exercisable upon
the insolvency of VM Canada. This put right, when exercised, will require us to
purchase from a holder of Exchangeable Shares all or any part of the
Exchangeable Shares held by such holder. The purchase price for each
Exchangeable Share will be an amount equal to the market price of one of our
shares of common stock on the business day prior to the date of closing the
purchase under the put right, which will be satisfied by the delivery of our
shares of common stock, together with an additional amount equivalent to the
full amount of all declared and unpaid dividends on each Exchangeable Share and
all dividends and distributions declared on our shares of common stock that have
not been declared on each Exchangeable Share with a record date prior to the
effective date of the exchange.
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<PAGE>
The Exchange Agreement provides that we will:
(a) not declare or pay any dividends on our shares of common stock unless (i)
VM Canada has sufficient assets available to pay equivalent dividends on
the Exchangeable Shares, and (ii) VM Canada simultaneously declares or
pays, as the case may be, such equivalent dividends on the Exchangeable
Shares;
(b) take all actions and do all things as are necessary or desirable to enable
VM Canada to honour the redemption and retraction rights and dissolution
entitlements that are attributes of the Exchangeable Shares; and
(c) not reorganize our capital in a manner effecting our shares of common stock
or make certain distributions on our shares of common stock unless an
economically equivalent change is made to, or benefit is conferred upon the
holders of, the Exchangeable Shares.
The Exchange Agreement provides that in the event that a tender offer,
share exchange offer, issuer bid, take over bid or similar transaction with
respect to our shares of common stock is to be effected with the consent or
approval of our board of director, we will use all reasonable efforts
expeditiously and in good faith to take all such actions and do all such things
as are necessary or desirable to enable holders of Exchangeable Shares to
participate in such Offer on an economically equivalent basis as our
stockholders.
On June 29, 1999, we issued 750,000 shares of our common stock to Pacific
Western Mortgage Corp., owned by William Krebs, an officer and director, in full
satisfaction of consideration of the cancellation of indebtedness of $250,000 to
Voice Mobility Inc.
On June 29, 1999, Ibex Investments Ltd. forgave indebtedness of $167,000 in
consideration of the receipt of 500,000 warrants exercisable at $.50 per share.
On that date, Ernest Weir Gardiner forgave indebtedness of $33,000 in
consideration of the receipt of 101,000 warrants exercisable at $.50 per share.
On June 29, 1999, we issued an aggregate of 2,706,750 Plan Options to our
employees, directors and consultants. 1,625,000 were issued at $1.00; 1,041,750
at $.75 and 40,000 at $2.72. All options expire June 28, 2004.
On June 30, 1999, Acrex Ventures Ltd. agreed to transfer its loans
outstanding aggregating $1,123,472 from Voice Mobility Inc. to us, in
consideration of our issuing common stock warrants with terms and conditions
substantially identical to the warrants issued by Acrex Ventures to the
subscribers in its four private placements. All classes of warrant terminate on
December 29, 2000. On that date, we issued 1,600,000 Class "A" Warrants
exercisable at Cdn$0.26625; 1,000,000 Class "B" Warrants exercisable at Cdn$.50;
1,1940,000 Class "C" Warrants exercisable at Cdn$.50 per share; and 253,000
Class "D" Warrants exercisable at Cdn$.50 per share.
On June 30, 1999, we began trading on the Over-the-Counter Bulletin Board
under the name Voice Mobility International, Inc. and under the symbol VMII.
In June, July and August, 1999, an aggregate of 400,000 Class A Warrants,
380,000 Class B Warrants and 100,000 Class C Warrants were exercised for an
aggregate of $380,000 into restricted shares of our common stock.
On September 16, we entered into an agreement with MTT whereby we agreed to
issued to MTT 1,428,571 shares of our common stock in satisfaction of the
obligations of Voice Mobility Inc. to MTT and will permit MTT to appoint one of
our directors.
33
<PAGE>
ITEM 8. DESCRIPTION OF SECURITIES
- - ------ --------------------------
Under our amended certificate of incorporation, we are authorized to issue
up to 50,000,000 shares of common stock, par value $.001 per share, of which
16,221,750 shares were outstanding as of September 30, 1999. We are also
authorized to issue up to 1,000,000 shares of preferred stock, par value $.001
per share, of which no shares were issued and outstanding as of September 30,
1999. We intend to issue one special voting share of preferred stock to Owen,
Bird as trustee for the former shareholders of Voice Mobility Inc.(see Item 7 -
Certain Relationships and Related Transactions).
COMMON STOCK.
- - -------------
Each shareholder is entitled to one vote for each share of common stock
owned of record. The holders of shares of common stock do not possess cumulative
voting rights, which means that the holders of more than 50% of the outstanding
shares voting for the election of directors can elect all of the directors, and
in such event the holders of the remaining shares will be unable to elect any of
our directors. Holders of outstanding shares of common stock are entitled to
receive dividends out of assets legally available at such times and in such
amounts as our board of directors may determine. Upon our liquidation,
dissolution, or winding, the assets legally available for distribution to our
shareholders will be distributed ratably among the holders of the shares
outstanding at the time. Holders of our shares of common stock have no
preemptive, conversion, or subscription rights, and our shares of common stock
are not subject to redemption. All our outstanding shares of common stock are
fully paid and non-assessable.
PREFERRED STOCK.
- - ----------------
Under our amended certificate of incorporation, we are authorized to issue
preferred stock with such designations, rights and preferences as our Board of
Directors may from time to time determine. Accordingly, our board of directors
is empowered, without stockholder approval, to issue preferred stock with
dividend, liquidation, conversion, voting or other rights which could adversely
affect the voting power or other rights of the holders of our stock. We could
issue preferred stock as a method of discouraging, delaying or preventing a
change of control of our company. Our board of directors has created one series
of preferred stock, Series A Preferred Stock (see Item 7 - Certain Relationships
and Related Transactions).
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<PAGE>
WARRANTS
- - --------
On June 30, 1999, Acrex Ventures Ltd. agreed to transfer its loans
outstanding aggregating $1,123,472 from Voice Mobility, Inc. to us, in
consideration of our issuing common stock warrants with terms and conditions
substantially identical to the warrants issued by Acrex Ventures to the
subscribers in its four private placements. All classes of warrant terminate on
December 29, 2000. The warrants are immediately exercisable and are not
redeemable. All of our shares issuable upon exercise of the warrants will be
fully paid and nonassessable. We intend to register sufficient shares of our
common stock underlying each class of warrant; however, share certificates
issued to holders of warrants who exercise them prior to the effective date of a
registration statement will be legended to prevent sale, hypothecation or
transfer in the absence of an effective registration or an exemption from
registration. On June 30, 1999, we issued 1,600,000 Class "A" Warrants
exercisable at Cdn$0.26625; 1,000,000 Class "B" Warrants exercisable at Cdn$.50;
1,1940,000 Class "C" Warrants exercisable at Cdn$.50 per share; and 253,000
Class "D" Warrants exercisable at Cdn$.50 per share.
PART II
ITEM 1. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY AND
- - ------ --------------------------------------------------------------------
OTHER SHAREHOLDER MATTERS.
-------------------------
Our shares of common stock are traded over-the-counter and quoted on the
OTC Electronic Bulletin Board under the symbol "VMII". Prior to the third
calendar quarter of 1999, our shares of common stock were traded under the
symbol "ECGI". The reported high and low bid prices for the common stock are
shown below for the period from inception of trading in the fourth quarter of
1998 through June 30, 1999. All prices have been adjusted to reflect a 4:1
reverse split. The quotations reflect inter-dealer prices and do not include
retail mark-ups, mark-downs or commissions. The prices do not necessarily
reflect actual transactions.
HIGH BID LOW BID
-------- -------
1998
Fourth Quarter $18.00 $18.00
1999
First Quarter $18.00 $18.00
Second Quarter $18.00 $12.00
Third Quarter $ 3.00 $ 2.00
The closing price of our common stock on September 30, 1999, was $2.50, as
quoted on the OTC Electronic Bulletin Board. As of September 30, 1999, there
were 16,221,750 shares of common stock outstanding, 95 shareholders of record,
and approximately 95 beneficial holders.
Our transfer agent is OTR/Oxford Transfer, 317 Southwest Alder (Suite
1120), Portland Oregon 97204.
We have never paid cash dividends on our common stock and we presently
intend to retain future earnings, if any, to finance the expansion of our
business. We do not anticipate that any cash dividends will be paid in the
foreseeable future. Future dividend policy will depend on ours earnings, capital
requirements, expansion plans, financial condition and other relevant factors.
35
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ITEM 2. LEGAL PROCEEDINGS.
- - ------- ------------------
Not applicable.
ITEM 3. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS.
- - ------- ----------------------------------------------
Not applicable.
ITEM 4. RECENT SALES OF UNREGISTERED SECURITIES.
- - ------- ----------------------------------------
During the first quarter of 1998, we sold 100,000 shares of our common
stock under Rule 504 of Regulation D to the Securities Act of 1933 to 32
investors for a total of $100,000.
On April 1, 1999, we undertook a 4:1 reverse stock split of our common
stock. All figures set forth below give effect to the reverse split.
On April 1, 1999, we sold for an aggregate of $200,000 an aggregate of
8,293,000 shares of our common stock to 52 investors under Rule 504 of
Regulation D to the Securities Act of 1933.
On June 24, 1999 and September 20, 1999, we entered into agreements with
the stockholders of Voice Mobility, Inc., a Canadian corporation, under which
the stokholders exchanged all of the capital stock of Voice Mobility, Inc. for
6,600,000 "Exchange Shares" of our wholly-owned subsidiary, Voice Mobility
Canada Ltd. The former shareholders of Voice Mobility, Inc. have the right to
exchange the capital stock they own of our subsidiary into 6,600,000 of our
shares of common stock. (See "Item 7. Certain Relationship and Related
Transactions" for a complete description of this transaction.)
On July 1, 1999, 1999, we issued an aggregate of 4,793,000 Warrants in four
classes to 50 persons ("Warrantholders") in consideration of the release of an
aggregate of $1,123,472 of principal amount of loans which had been extended to
us by Acrex Ventures Ltd. and the simultaneous release of an equal principal
amount of indebtedness from Acrex Ventures Ltd. to the Warrantholders who were
its lenders. The warrants were issued in the same ratio as the principal amount
of the loans from the Warrantholders to Acrex Ventures Ltd.
ITEM 5. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
- - ------- ------------------------------------------
Chapter 78 of the Nevada Revised Statutes permits the indemnification of
directors, employees, officers and agents of Nevada corporations as follows:
Section 78.7502 Discretionary and mandatory indemnification of officers,
directors, employees and agents:
- - --------------------------------------------------------------------------------
General provisions.
1. A corporation may indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed
action, suit or proceeding, whether civil, criminal, administrative or
investigative, except an action by or in the right of the corporation, by
reason of the fact that he is or was a director, officer, employee or agent
of the corporation, or is or was serving at the request of the corporation
as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, against expenses,
including attorneys' fees, judgments, fines and amounts paid in settlement
actually and reasonably incurred by him in connection with the action, suit
or proceeding if he acted in good faith and in a manner which he reasonably
36
<PAGE>
believed to be in or not opposed to the best interests of the corporation,
and, with respect to any criminal action or proceeding, had no reasonable
cause to believe his conduct was unlawful. The termination of any action,
suit or proceeding by judgment, order, settlement, conviction or upon a
plea of nolo contendere or its equivalent, does not, of itself, create a
presumption that the person did not act in good faith and in a manner which
he reasonably believed to be in or not opposed to the best interests of the
corporation, and that, with respect to any criminal action or proceeding,
he had reasonable cause to believe that his conduct was unlawful.
2. A corporation may indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed
action or suit by or in the right of the corporation to procure a judgment
in its favor by reason of the fact that he is or was a director, officer,
employee or agent of the corporation, or is or was serving at the request
of the corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise against
expenses, including amounts paid in settlement and attorneys' fees actually
and reasonably incurred by him in connection with the defense or settlement
of the action or suit if he acted in good faith and in a manner which he
reasonably believed to be in or not opposed to the best interests of the
corporation. Indemnification may not be made for any claim, issue or matter
as to which such a person has been adjudged by a court of competent
jurisdiction, after exhaustion of all appeals therefrom, to be liable to
the corporation or for amounts paid in settlement 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 upon
application that in view of all the circumstances of the case, the person
is fairly and reasonably entitled to indemnity for such expenses as the
court deems proper.
3. To the extent that a director, officer, employee or agent of a corporation
has been successful on the merits or otherwise in defense of any action,
suit or proceeding referred to in subsections 1 and 2, or in defense of any
claim, issue or matter therein, the corporation shall indemnify him against
expenses, including attorneys' fees, actually and reasonably incurred by
him in connection with the defense.
Section 78.751 Authorization required for discretionary indemnification;
advancement of expenses; limitation on indemnification and advancement of
expenses.
- - --------------------------------------------------------------------------------
1. Any discretionary indemnification under NRS 78.7502 unless ordered by a
court or advanced pursuant to subsection 2, may be made by the corporation
only as authorized in the specific case upon a determination that
indemnification of the director, officer, employee or agent is proper in
the circumstances. The determination must be made:
(a) By the stockholders;
(b) By the board of directors by majority vote of a quorum consisting of
directors who were not parties to the action, suit or proceeding;
(c) If a majority vote of a quorum consisting of directors who were not
parties to the action, suit or proceeding so orders, by independent
legal counsel in a written opinion; or
(d) If a quorum consisting of directors who were not parties to the
action, suit or proceeding cannot be obtained, by independent legal
counsel in a written opinion.
37
<PAGE>
2. The articles of incorporation, the bylaws or an agreement made by the
corporation may provide that the expenses of officers and directors
incurred in defending a civil or criminal action, suit or proceeding must
be paid by the corporation as they are incurred and in advance of the final
disposition of the action, suit or proceeding, upon receipt of an
undertaking by or on behalf of the director or officer to repay the amount
if it is ultimately determined by a court of competent jurisdiction that he
is not entitled to be indemnified by the corporation. The provisions of
this subsection do not affect any rights to advancement of expenses to
which corporate personnel other than directors or officers may be entitled
under any contract or otherwise by law.
3. The indemnification and advancement of expenses authorized in or ordered by
a court pursuant to this section:
(a) Does not exclude any other rights to which a person seeking
indemnification or advancement of expenses may be entitled under the
articles of incorporation or any bylaw, agreement, vote of
stockholders or disinterested directors or otherwise, for either an
action in his official capacity or an action in another capacity while
holding his office, except that indemnification, unless ordered by a
court pursuant to NRS 78.7502 or for the advancement of expenses made
pursuant to subsection 2, may not be made to or on behalf of any
director or officer if a final adjudication establishes that his acts
or omissions involved intentional misconduct, fraud or a knowing
violation of the law and was material to the cause of action.
(b) Continues for a person who has ceased to be a director, officer,
employee or agent and inures to the benefit of the heirs, executors
and administrators of such a person.
Section 78.752 Insurance and other financial arrangements against liability
of directors, officers, employees and agents.
- - ----------------------------------------------------------------------------
1. A corporation may purchase and maintain insurance or make other financial
arrangements on behalf of any person who is or was a director, officer,
employee or agent of the corporation, or is or was serving at the request
of the corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise for any
liability asserted against him and liability and expenses incurred by him
in his capacity as a director, officer, employee or agent, or arising out
of his status as such, whether or not the corporation has the authority to
indemnify him against such liability and expenses.
2. The other financial arrangements made by the corporation pursuant to
subsection 1 may include the following:
(a) The creation of a trust fund.
(b) The establishment of a program of self-insurance.
(c) The securing of its obligation of indemnification by granting a
security interest or other lien on any assets of the corporation.
(d) The establishment of a letter of credit, guaranty or surety.
38
<PAGE>
No financial arrangement made pursuant to this subsection may provide
protection for a person adjudged by a court of competent jurisdiction,
after exhaustion of all appeals therefrom, to be liable for intentional
misconduct, fraud or a knowing violation of law, except with respect to the
advancement of expenses or indemnification ordered by a court.
3. Any insurance or other financial arrangement made on behalf of a person
pursuant to this section may be provided by the corporation or any other
person approved by the board of directors, even if all or part of the other
person's stock or other securities is owned by the corporation.
4. In the absence of fraud:
(a) The decision of the board of directors as to the propriety of the
terms and conditions of any insurance or other financial arrangement
made pursuant to this section and the choice of the person to provide
the insurance or other financial arrangement is conclusive; and
(b) The insurance or other financial arrangement:
(1) Is not void or voidable; and
(2) Does not subject any director approving it to personal liability
for his action, even if a director approving the insurance or
other financial arrangement is a beneficiary of the insurance or
other financial arrangement.
5. A corporation or its subsidiary which provides self-insurance for itself or
for another affiliated corporation pursuant to this section is not subject
to the provisions of Title 57 of NRS.
Our Certificate of Incorporation provides as follows:
Article XI
The liability of the directors of the corporation for monetary damages
shall be eliminated to the fullest extent permissible under Nevada Law.
Article XII
The corporation is authorized to indemnify the directors and officers of
the corporation to the fullest extent permissible under Nevada Law.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933, as amended (the "Act"), may be permitted to directors, officers or
persons controlling the Company pursuant to the foregoing provisions, the
Company has been informed that, in the opinion of the Commission, such
indemnification is against public policy as expressed in the Act and is
therefore unenforceable.
39
<PAGE>
Our By-Laws provide as follows:
ARTICLE X - INDEMNIFICATION OF DIRECTORS AND OFFICERS
1. INDEMNIFICATION. The corporation shall indemnify any person who was or is a
party or is threatened to be made a party to any proceeding, whether civil,
criminal, administrative or investigative (other than an action by or in
the right of the corporation) by reason of the fact that such person is or
was a director, trustee, officer, employee or agent of the corporation, or
is or was serving at the request of the corporation as a director, trustee,
officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and
reasonably incurred by such person in connection with such action, suit or
proceeding if such person acted in good faith and in a manner such person
reasonably believed to be in or not opposed to the best interests of the
corporation, and with respect to any criminal action or proceeding, had no
reasonable cause to believe such person's conduct was unlawful. The
termination of any action, suit or proceeding by judgment, order,
settlement, conviction, or upon a plea of nolo contendere or its
equivalent, shall not, by itself, create a presumption that the person did
not act in good faith and in a manner which the person reasonably believed
to be in or not opposed to the best interest of the corporation, and with
respect to any criminal action or proceeding, had reasonable cause to
believe that such person's conduct was lawful.
2. DERIVATIVE ACTION. The corporation shall indemnify any person who was or is
a party or is threatened to be made a party to any threatened, pending or
completed action or suit by or in the right of the corporation to procure a
judgment in the corporation's favor by reason of the fact that such person
is or was a director, trustee, officer, employee or agent of the
corporation, or is or was serving at the request of the corpporation as a
director, trustee, officer, employee or agent of any other corporation,
partnership, joint venture, trust or other enterprise, against expenses
(including attorneys' fees), judgments, fines and amounts paid in
settlement actually and reasonably incurred by such person in connection
with such action, suit or proceeding if such person acted in good faith and
in a manner such person reasonably believed to be in or not opposed to the
best interests of the corporation; provided, however, that no
indemnification shall be made in respect of any claim, issue or matter as
to which such person shall have been adjudged to be liable for gross
negligence or willful misconduct in the performance of such person's duty
to the corporation unless and only to the extent that the court in which
such action or suit was brought shall determine upon application that,
despite circumstances of the case, such person is fairly and reasonably
entitled to indemnity for such expenses as such court shall deem proper.
The termination of any action, suit or porceeding by judgment, order,
settlement, conviction, or upon a plea of nolo contendere or its
equivalent, shall not, by itself, create a presumption that the person did
not act in good faith and in a manner which the person reasonably believed
to be in or not opposed to the best interest of the corporation.
3. SUCCESSFUL DEFENSE. To the extent that a director, trustee, officer,
employee or agent of the corporation has been successful, on the merits or
otherwise, in whole or in part, in defense of any action, suit or
proceeding referred to in paragraphs 1 and 2 above, or in defense of any
claim, issue or matter therein, such person shall be indemnified against
expenses (including attorneys' fees) actually and reasonably incurred by
such person in connection therewith.
40
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4. AUTHORIZATION. Any indemnification under paragraph 1 and 2 above (unless
ordered by a court) shall be made by the corporation only as authorized in
the specific case upon a determination that indemnification of the
director, trustee, officer, employee or agent is proper in the
circumstances because such person has met the applicable standard of
conduct set forth in paragarph 1 and 2 above. Such determination shall be
made (a) by the board of directors by a majority vote of a quorum
consisting of directrors who were not parties to such action, suit or
proceeding, (b) if by independent legal counsel (selected by one or more of
the directors, whether or not a quorum and whether or not disinterested) in
a written opinion, or by the shareholders. Anyone making such a
determination under this paragraph 4 may determine that a person has met
the standards therein set forth as to some claims, issues or matters but
not as to others, and may reasonably prorate amounts to be paid as
indemnification.
5. ADVANCES. Expenses incurred in defending civil or criminal actions, suits
or perceedings shall be paid by the corporation, at any time or from time
to time in advance of the final disposition of such action, suit or
proceeding as authorized in the manner provided in paragraph 4 above upon
receipt of an undertaking by or on behalf of the director, trustee,
officer, employee or agent to repay such amount unless it shall ultimately
be determined by the corporation that the payment of expenses is authorized
in this Section.
6. NONEXCLUSIVITY. The indemnification provided in this Section shall not be
deemed exclusive of any other rights to which those indemnified may be
entitled under any law, by-law, agreement, vote of shareholders or
disinterested director or otherwise, both as to action in such person's
official capacity and as to action in another capacity while holding such
office, and shall continue as to a person who has ceased to be a director,
trustee, officer, employee or agent and shall insure to the benefit of the
heirs, executors, and administrators of such a person.
7. INSURANCE. The Corporation shall have the power to purchase and maintain
insurance on behalf of any person who is or was a director, trustee,
officer, employee or agent of the corporation, or is or was serving at the
request of the corporation as a director, trustee, officer, employee or
agent of any corporation, partnership, joint venture, trust or other
enterprise, against any liability assessed against such person in any such
capacity or arising out of such person's status as such, whether or not the
corporation would have the power to indemnify such person against such
liability.
8. "CORPORATION" DEFINED. For purpose of this action, references to the
"corporation" shall include, in addition to the corporation, any
constituent corporation (including any constituent of a constituent)
absorbed in a consolidation or merger which, if its separate existence had
continued, would have had the power and authority to indemnify its
directors, trustees, officers, employees or agents, so that any person who
is or was a director, trustee, officer, employee or agent of such of
constituent corporation will be considered as if such person was a
director, trustee, officer, employee or agent of the corporation.
41
<PAGE>
PART F/S
The financial statements and supplementary data are included herein.
FINANCIAL STATEMENTS AND EXHIBITS
- - ---------------------------------
CONTENTS
PAGE
TABLE OF CONTENTS 1
ACCOUNTANTS' AUDIT REPORT 2
FINANCIAL STATEMENTS
Balance Sheets 3-4
Statements of Operations 5
Statements of Comprehensive Income/(Loss) 6
Statements of Stockholders' Equity 7
Statements of Cash Flows 8- 9
Notes to Consolidated Financial Statements 10-19
<PAGE>
Independent Auditors' Report
Board of Directors
Equity Capital Group, Inc. and Subsidiary
Orange, California
We have audited the accompanying balance sheets of Equity Capital Group,
Inc. and Subsidiary (a Nevada Corporation, successor to Ward Enterprises, Inc.,
(Note 1)) as of March 31, 1999 and 1998, and the related statements of
operations, comprehensive income, stockholders' equity, and cash flows for the
years then ended March 31, 1999, 1998, and 1997. 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 financial position of Equity Capital Group, Inc.
and Subsidiary at March 31, 1999 and 1998, and the results of its operations and
its cash flows for the years then ended March 31, 1999, 1998, 1997 in conformity
with generally accepted accounting principles.
Irvine, California
August 30, 1999
<PAGE>
Equity Capital Group, Inc. and Subsidiary
Balance Sheets
As of March 31, 1999 and 1998
ASSETS
March 31, March 31,
1999 1998
---------- -----------
Current Assets
Cash $ 1,454 $ 41,348
Accounts Receivable, net of allowance
for doubtful accounts of $155,215. 6,314 276,200
Accrued Interest Receivable (Note 5) - 30,327
Marketable Equity Securities (Note 3) 614 1,425,198
Notes Receivable - Current (Note 4) - 100,000
Lease Payments Receivable - Current (Note 5) - 7,508
---------- ----------
Total Current Assets $ 8,382 $ 1,880,581
Fixed Assets
Office Furniture & Equipment -
Net (Notes 1 & 2) $ 20,610 $ 21,755
---------- -----------
Total Fixed Assets $ 20,610 $ 21,755
Other Assets
Organization Costs - Net (Note 1) $ 1,073 $ 1,427
Notes Receivable -
Less Current Portion (Note 4) - 300,000
Lease Payments Receivable -
Less Current Portion (Note 5) - 311,469
Accrued Interest Receivable -
Less Current Portion (Note 5) - 112,623
------------ -----------
Total Other Assets $ 1,073 $ 725,519
----------- ----------
Total Assets $ 30,065 $2,627,855
=========== ==========
See accompanying notes and independent auditors' report
<PAGE>
Equity Capital Group, Inc. and Subsidiary
Balance Sheets
As of March 31, 1999 and 1998
LIABILITIES AND STOCKHOLDERS' EQUITY
March 31, March 31,
1999 1998
-------- --------
Current Liabilities
Accounts Payable $ 16,499 $ 5,057
Income Taxes Payable (Note 7) 1,600 13,869
Deposits - 14,000
Notes Payable (Note 9) - 4,640
---------- ---------
Total Current Liabilities $ 18,099 $ 37,566
Long Term Liabilities
Deferred Income Taxes (Note 7) $ - 196,829
Unearned Interest Income (Note 5) - 142,950
---------- ----------
Total Long Term Liabilities $ - $ 339,779
Total Liabilities $ 18,099 $ 377,345
---------- ---------
Stockholders' Equity
Common Stock, $.001 Par Value, $ 2,174 $ 1,675
10,000,000 Shares Authorized
2,174,000 Shares Issued and
Outstanding (Notes 1 & 6)
Additional Paid-in Capital 2,520,186 1,841,385
Less: Notes Received for Stock
Issued (Notes 4 & 6) (450,000) -
Retained Earnings/(Deficit) (1,682,295) 407,450
Accumulated Unrealized Holding
Loss on Securities (376,800) -
Treasury Stock,
300 Shares of Common Stock (1,299) -
---------- ---------
Total Stockholders' Equity $ 11,966 $ 2,250,510
---------- ---------
Total Liabilities and Stockholders' Equity $ 30,065 $ 2,627,855
========== =========
<PAGE>
Equity Capital Group, Inc. and Subsidiary
Statements of Operations
For The Years Ended March 31, 1999, 1998 and 1997
March 31, March 31, March 31,
1999 1998 1997
--------- -------- --------
Sales $ 303,213 $ 420,313 $ 15,000
Costs of Sales (269,400) (225,938) (65,000)
General & Administrative Expenses (1,253,187) (70,901) (11,015)
Other Income/(Expense) (1,079,469) 555,689 -
----------- ----------- ----------
Net Income/(Loss) Before Taxes (2,298,843) 679,163 (61,015)
----------- ----------- ----------
Benefit/(Provision)
For Income Taxes (Note 7) 209,098 (210,698) -
----------- ----------- ----------
Net Income/(Loss) $(2,089,745) $ 468,465 $ (61,015)
=========== =========== =========-
Net Income/(Loss)
Per Common Share (Note 1) $ (1.17) $ 1.17 $ (61.02)
========== =========== ==========
Weighted Average Shares Outstanding 1,783,530 400,750 1,000
=========== =========== ==========
<PAGE>
Equity Capital Group, Inc. and Subsidiary
Statements of Comprehensive Income/(Loss)
For The Years Ended March 31, 1999, 1998 and 1997
March 31, March 31, March 31,
1999 1998 1997
-------- --------- ---------
Net Income/(Loss) $ (2,089,745) $ 468,465 $ (61,015)
Other Comprehensive Income/(Loss)
Unrealized Holding Loss on Securities (376,800) - -
---------- ---------- ---------
Total Other Comprehensive Income/(Loss) (376,800) - -
---------- ---------- ---------
Total Comprehensive Income/(Loss) $ (2,466,545) $ 468,465 $ (61,015)
========== ========== ==========
<PAGE>
Equity Capital Group, Inc. and Subsidiary
Statements of Stockholders' Equity
For The Years Ended March 31, 1999, 1998, and 1997
<TABLE>
<CAPTION>
Retained
Earnings/
Common Common Addtn'l Accum. Total
Stock Stock Paid in Holding Stockholders'
Shares Amount Capital Loss Equity
------ ------ ------- -------- -------------
<S> <C> <C> <C> <C> <C>
Balances, at March 31, 1996 - - - - -
Stock Issued on 6-2-96 (Note 1) 1,000 1,000 228,500 - 229,500
Net Income/(Loss) $ (61,015) (61,015)
-------- ---------- ----------- ------------- ----------
Balances, at March 31, 1997 1,000 $ 1,000 $ 228,500 $ (61,015) $ 168,485
-------- ---------- ----------- ------------- ----------
Stock Retired on 12-31-97 (Note 1) (1,000) (1,000) - - (1,000)
Stock Issued on 12-31-97 (Note 1) 1,600,000 1,600 1,237,960 - 1,239,560
Stock Issued on 3-31-98 (Note 1) 75,000 75 374,925 375,000
Net Income/(Loss) $ 468,465 468,465
---------- ---------- ----------- ------------- ----------
Balances, at March 31, 1998 1,675,000 $ 1,675 $ 1,841,385 $ 407,450 $ 2,250,510
---------- ---------- ----------- ------------- ----------
Stock Issued on 1-7-99 (Note 6) 99,300 99 124,201 - 124,300
Stock Issued on 1-14-99 (Note 6) 360,000 360 359,640 - 360,000
Stock Issued on 2-4-99 (Note 6) 5,000 5 19,995 - 20,000
Stock Issued on 3-1-99 (Note 6) 35,000 35 174,965 - 175,000
Treasury Stock Acquired on 2-1-99 (300) - (1,299) - (1,299)
(Note 6)
Notes Received for Stock Issued - - (450,000) (450,000)
Net Income/(Loss) (2,089,745) (2,089,745)
Unrealized Holding Loss on Securities (376,800) (376,800)
----------- ---------- ----------- ------------- ----------
Balances, at March 31, 1999 2,174,000 $ 2,174 $2,068,887 $ (2,059,095) $ 11,966
=========== ========= =========== ============= ==========
</TABLE>
<PAGE>
Equity Capital Group, Inc. and Subsidiary
Statements of Cash Flows
For The Years Ended March 31, 1999, 1998 and 1997
<TABLE>
<CAPTION>
March 31, March 31, March 31,
1999 1998 1997
<S> <C> <C> <C>
Cash Flows Used In Operating Activities:
Net Income/(Loss) $ (2,089,745) $ 468,465 $ (61,015)
Non Cash Items Included in Net Income:
Depreciation 1,145 1,145 -
Amortization 356 357 66
Provision for Bad Debt 163,215 - -
Write-off of Accounts Receivable (8,000) - -
Realized Gain on Sale of Stock (4,454) - -
Unrealized Holding Loss on Securities 376,800 (527,236) -
Change in Unearned Interest Income (148,766) 142,950 -
Change in Accounts Receivable 114,671 (276,200) -
Change in Deposits (14,000) 14,000 -
Change in Deferred Income Taxes (196,829) 196,829 -
Change in Accrued Interest Receivable - (142,950) -
Change in Accounts Payable 11,442 1,614 3,443
Change in Income Tax Payable (12,269) 13,869 -
----------- ------------- -------------
Net Cash Used For Operating Activities $ (1,806,434) $ (107,157) $ (57,506)
Cash Flows Used In Investing Activities
Increase in Investments Receivable $ (52,500) $ - $ -
Change in Lease Payments Receivable 318,977 - -
Change in Organizational Costs - (850) (1,000)
Purchase of Furniture & Equipment - (22,900) -
Increase in Marketable Equity Securities (98,998) (734,462) (163,500)
----------- ------------- -------------
Net Cash Used For Investing Activities $ 167,479 $ (758,212) $ (164,500)
Cash Flows From Financing Activities
Issuance of Common Stock $ 30,000 $ 1,613,560 $ 229,500
Change in Notes Received for Stock Issued 350,000 - -
Increase in Note Payable (4,640) 4,640 -
Issuance of Lease Receivable - (318,977) -
Increase in Note Receivable 400,000 (400,000) -
Notes Receivable Written Off to Bad Debt 825,000 - -
Purchase of Treasury Stock (1,299) - -
----------- ------------- -------------
Net Cash Provided By Financing Activities $ 1,599,061 $ 899,223 $ 229,500
</TABLE>
<PAGE>
Equity Capital Group, Inc. and Subsidiary
Statement of Cash Flows
For The Years Ended March 31, 1999, 1998 and 1997
March 31, March 31, March 31,
1999 1998 1997
---------- ---------- ----------
Net Change In Cash $ (39,894) $ 33,854 $ 7,494
Cash At Beginning Of The Year $ 41,348 $ 7,494 $ -
------------- -------------- --------------
Cash At End Of The Year $ 1,454 $ 41,348 $ 7,494
------------- -------------- --------------
Supplemental Cash Flow
Information: Interest Paid $ (313) $ - $ -
============== ============== ==============
Income Taxes Paid $ - $ - $ -
=============== ============== ==============
PAGE>
Equity Capital Group, Inc. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(See Accountants' Audit Report)
For The Years Ended March 31, 1999, 1998, and 1997
NOTE 1 - ACCOUNTING POLICIES AND NATURE OF BUSINESS
Nature of Business
The Company will serve as a Merchant Banking Firm consisting of a business
consulting/investment division and a real estate division.
Company Formation
The Company was created on October 2, 1997 as an ultimate successor
corporation to Ward Enterprises, Inc. (Ward). The Company acquired all of the
shares of Ward in a tax-free reorganization pursuant to Internal Revenue Code
Section 368(a)(1)(B) and the regulations thereunder on December 31, 1997,
wherein 1,000 shares of no par value common stock of Ward were exchanged for
1,500,000 shares of $.001 par value common stock of the Company. Subsequently,
Ward was liquidated into its parent pursuant to Internal Revenue Code Section
332 and the regulations thereunder.
The transaction was accounted for as a reverse acquisition under the
pooling method of accounting since the shareholders of Ward had control of the
Company subsequent to the exchange.
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of
the Company and its wholly owned subsidiary, First Consolidated Securities, Inc.
All intercompany balances and transactions have been eliminated in
consolidation.
Income Taxes
The Company accounts for income taxes under the provisions of Statements of
Financial Accounting Standards No. 109, "Accounting for Income Taxes" (SFAS
109). SFAS 109 requires a company to recognize deferred tax liabilities and
assets for the expected future tax consequences of events that have been
recognized in a company's financial statements or tax returns. Under this
method, deferred tax assets and liabilities are determined based on the
difference between the financial statement carrying amounts and tax bases of
assets and liabilities using enacted tax rates.
Office Furniture and Equipment
Office furniture and equipment are stated at cost. Major renewals and
betterments are capitalized to the asset accounts while the cost of maintenance
and repairs is charged against income as incurred. At the time assets are
retired or otherwise disposed of, the cost and accumulated depreciation are
removed from the respective accounts and the resulting gain or loss is credited
to or charged against income.
<PAGE>
Equity Capital Group, Inc. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(See Accountants' Audit Report)
For The Years Ended March 31, 1999, 1998, and 1997
NOTE 1 - ACCOUNTING POLICIES AND NATURE OF BUSINESS (CONTINUED)
Depreciation for financial reporting purposes is calculated by both
straight-line and accelerated methods over the estimated useful lives of the
assets. The Modified Accelerated Cost Recovery System (MACRS) method is used for
income tax purposes.
Organization Costs
Organization costs, totaling $1,850 and $1,000, respectively, are being
amortized using the straight line method over five years. During the years ended
March 31, 1999 and 1998, amortization expense amounted to $356 and $357,
respectively.
Net Income/(Loss) Per Share
Net loss per share is computed based on the weighted average number of
shares of common stock outstanding.
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.
NOTE 2 - OFFICE FURNITURE AND EQUIPMENT
Office Furniture and Equipment
Office Furniture and Equipment are summarized below:
Estimated
useful life Amount
Office Furniture 5 years $ 11,450
Equipment 5 years 11,450
22,900
------------
Less: Accumulated Depreciation (2,290)
------------
$ 20,610
Depreciation expense for the year ended March 31, 1999 was $1,145.
<PAGE>
Equity Capital Group, Inc. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(See Accountants' Audit Report)
For The Years Ended March 31, 1999, 1998, and 1997
NOTE 3 - MARKETABLE EQUITY SECURITIES
Cost and fair value of marketable equity securities at March 31, 1999 and
1998 are as follows:
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
March 31, 1999
Available for Sale
Equity Securities $ 971,800 $ - $ 971,800 $ -
Trading
Equity Securities 609,350 - 608,736 614
Totals $ 1,581,150 $ - $ 1,580,536 $ 614
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
March 31, 1998
Available for Sale
Equity Securities $ 500,000 $ - $ - $ 500,000
Trading
Equity Securities 397,962 527,236 - 925,198
Totals $ 897,962 $ 527,236 $ - $1,425,198
Pursuant to Statement of Financial Accounting Standards No. 115 (SFAS 115),
the change in net unrealized holding losses on trading securities in the amount
of $608,736 has been included in earnings for the year ended March 31, 1999.
Further, there has been an impairment of value in the Equity Securities
available for sale in the amount of $595,000 which has also been included in
earnings for the year ended March 31, 1999. Finally, there has been a temporary
decline in value in the Equity Securities available for sale in the amount of
$376,800. This amount is shown as a decrease in the equity section of the
balance sheet. Thus, there is a total unrealized loss of $1,580,536 for the year
ended March 31, 1999.
<PAGE>
Equity Capital Group, Inc. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(See Accountants' Audit Report)
For The Years Ended March 31, 1999, 1998, and 1997
NOTE 4 - NOTES RECEIVABLE
Notes receivable consist of the following:
$350,000 Promissory Note secured by a UCC-1 financing statement on certain
assets. This note bears interest at 7% per annum. Interest only is to be
received until January 10, 2002. Thereafter, the entire balance becomes due and
payable. This note is currently in default. Further, since this note was issued
for stock and no cash was received, the amount is shown as a decrease in
additional paid in capital.
$100,000 Promissory Note secured by a UCC-1 financing statement on certain
assets. This note bears interest at 7% per annum. Interest only is to be
received until January 10, 2002. Thereafter, the entire balance becomes due and
payable. This note is currently in default. Further, since this note was issued
for stock and no cash was received, the amount is shown as a decrease in
additional paid in capital.
There were three notes receivable in the amounts of $300,000, $175,000, and
$250,000, for a total of $725,000, that were written off and charged to bad debt
during the current year.
NOTE 5 - LEASING ARRANGEMENTS
Direct Financing Lease
The Company was a lessor in a direct financing lease whereby an envelope
machine valued at $300,000 was repossessed. A loss in the amount of $20,202 was
incurred with the reacquisition of the machine. This machine was subsequently
sold to ASI Acquisition Corporation for 300,000 shares of ASI Acquisition
Corporation common stock. (Note 8)
No interest was accrued this year on account of foreclosure on direct
financing lease.
Operating Lease
The Company entered into a operating lease agreement with a related party
for office space. The lease term is month to month. Annual rent expense equaled
$18,000 and $7,500 for the years ended March 31, 1999 and 1998, respectively.
<PAGE>
Equity Capital Group, Inc. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(See Accountants' Audit Report)
For The Years Ended March 31, 1999, 1998, and 1997
NOTE 6 - STOCKHOLDERS EQUITY
Common Stock
On January 7, 1999, the Company issued 24,300 shares of its common stock to
the minority shareholders of the Tuschner Financial Group, Inc. in exchange for
24,300 shares of Tuschner Financial Group, Inc.
Also, on January 7, 1999, the Company issued 75,000 shares to Tuschner &
Company, Inc. in exchange for a note receivable for $100,000. This note is shown
as a decrease in additional paid in capital.
On January 14, 1999, the Company issued 350,000 shares of its common stock
to Fun Karts Holdings, Inc. in exchange for a note receivable in the amount of
$350,000. (Note 4) This note is shown as a decrease in additional paid in
capital.
Also, on January 14, 1999, the Company issued 10,000 shares of its common
stock to Northstar Partners in connection with commission due to them for the
promotion of shares previously issued. The shares were valued at $10,000.
On February 4, 1999, the Company issued, to an unrelated party, 5,000
shares of its common stock valued at $4 per share for $20,000 in cash.
On March 1, 1999, the Company issued 35,000 shares of its common stock
valued at $5 per share to an individual in exchange for a note receivable held
by that individual for $175,000 from Aeromedical Group, Inc. This note was
written off and charged to bad debt during the year.
Treasury Stock
In February 1999, the Company reacquired 300 shares of its common stock on
the open market for $1,299. The stock is accounted for using the cost method of
accounting.
NOTE 7 - DEFERRED INCOME TAXES
The Company has a tax net operating loss of $913,227 available for
carryback to March 31, 1998 and carryforward of up to 20 years for federal
purposes. Pursuant to Internal Revenue Code section 382 and the regulations
thereunder, the amount of utilizable carryover may be limited as a result of
ownership changes or even eliminated if business continuity requirements are not
met. No carrybacks are available for state purposes while carryforwards of 50%
of the loss are permitted for up to 5 years.
<PAGE>
Equity Capital Group, Inc. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(See Accountants' Audit Report)
For The Years Ended March 31, 1999, 1998, and 1997
NOTE 7 - DEFERRED INCOME TAXES (CONTINUED)
The tax effect of temporary differences giving rise to the Company's
deferred tax liability is as follows:
March 31, March 31,
1999 1998
Current Deferred Tax Liabilities $ - $ -
Total Current Deferred Tax Liabilities $ - $ -
Long-Term Deferred Tax Liabilities:
Tax Depreciation Expense in Excess of
Financial Depreciation $ (6,440) $ 6,440
SFAS 115 Change in Unrealized
Holding Gains (190,389) 190,389
Total Long-Term Deferred Tax Liabilities $ (196,829) $ 196,829
Components of Income Tax Expense are as follows:
March 31, March 31,
1999 1998
CURRENT
Federal $ (13,069) $ 13,069
State 800 800
$ (12,269) $ 13,869
DEFERRED
Tax Depreciation Expense in Excess of
Financial Depreciation (6,440) 6,440
SFAS 115 Change in Unrealized
Holding Gains (190,389) 190,389
$ (209,098) $ 196,829
Net Provision/(Benefit) For Income Taxes $ (209,098) $ 210,698
<PAGE>
Equity Capital Group, Inc. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(See Accountants' Audit Report)
For The Years Ended March 31, 1999, 1998, and 1997
NOTE 7 - DEFERRED INCOME TAXES (CONTINUED)
The provisions for income taxes differ from the amounts computed by
applying the Federal tax rate of 34% to income before tax. A reconciliation of
these differences is as follows:
Tax Provision (Benefit) Calculated at 34% $ (209,898) $ 210,170
State Income Taxes Net of Federal Benefit 800 528
-------------- -------------
Total $ (209,098) $ 210,698
NOTE 8 - ACQUISITIONS
On November 12, 1998, the Company acquired all the outstanding stock of a
newly formed corporation known as First Consolidated Securities, Inc. for
consideration of a note payable of $1,000. The acquisition was accounted for
under the purchase method of accounting.
On January 9, 1999, Equity Capital Group acquired 15% of the outstanding
common stock of ASI Acquisition Corporation in exchange for previously leased
machinery valued at $300,000. (Note 5) The Company accounts for its investment
in ASI in accordance with SFAS 115, whereby the entire amount was ultimately
written down to zero value. (Note 3)
On January 10, 1999, First Consolidated Securities, Inc. acquired 24.3% of
the outstanding common stock of Tuschner Financial Group, Inc. in exchange for
24,300 shares of Equity Capital Group Stock valued at $1 per share. The Company
accounts for this under the equity method of accounting. Following the
acquisition by the Company, Tuschner Financial Group, Inc. and its wholly owned
subsidiary Tuschner and Company, Inc. have fallen into extreme financial
distress. It is management's position that the value of the investment is
impaired and was written down to zero value pursuant to SFAS 115. (Note 3)
NOTE 9 - RELATED PARTY TRANSACTIONS
The Company has a lease agreement for office space with The Charleston
Group, Inc. for $1,500 per month plus utilities. Robert L. Cashman, who is the
President and Director of Equity Capital Group, Inc. and Subsidiary, is also the
President/Director of The Charleston Group, Inc.
<PAGE>
Equity Capital Group, Inc. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(See Accountants' Audit Report)
For The Years Ended March 31, 1999, 1998, and 1997
NOTE 9 - RELATED PARTY TRANSACTIONS (CONTINUED)
Robert L. Cashman was also the holder of two promissory notes as follows:
$49,000, 10% note payable, secured by stock in Pacific Ocean Restaurant
Group, Inc. (Note 3) Due on demand. This note was forgiven on March 31, 1999 by
the lender and recorded as Other Income, Debt Forgiveness.
$22,500, 15% note payable, unsecured, payable in monthly installments of
$2,000. Due March 9, 2000. This note was forgiven on March 31, 1999 by the
lender and recorded as Other Income, Debt Forgiveness.
John Vilagi, Secretary and Director of the Company, was the holder of the
following promissory note:
$25,000, 15% note payable, unsecured, payable in monthly installments of
$835. Due April 9, 2002. This note was forgiven on March 31, 1999 by the lender
and recorded as Other Income, Debt Forgiveness.
Management is of the opinion that these transactions were executed under
terms and conditions substantially equivalent to that which would have been
obtained between unrelated parties.
Tuschner & Company, Inc., a wholly owned subsidiary of Tuschner Financial
Group, Inc. (Note 8), is the holder of $52,500 of the Equity Capital Group,
Inc.'s marketable equity securities. These securities are valued as follows:
Trading
Time Financial Services, Inc. $ 52,500
Tuschner & Company, Inc. is registered as a broker and dealer of securities
with various regulatory agencies. As such, the Company is subject to the
Security and Exchange Commission's uniform net capital rule (Rule 15c3-1) which
requires a minimum net capital requirement and debt to equity ratio.
Equity Capital Group, Inc. agreed to pledge the $52,500, valued pursuant to
SFAS 115, to Tuschner & Company, Inc. to assist them in meeting the
aforementioned capital requirements. Due to Tuschner's poor financial situation,
the ultimate return of these securities is unlikely. Therefore, the entire
amount has been written off.
<PAGE>
Equity Capital Group, Inc. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(See Accountants' Audit Report)
For The Years Ended March 31, 1999, 1998, and 1997
NOTE 10 - LOSS ON SECURITIES
Trading
During the year, the company sold 303,500 of its 410,500 shares of
Homelife, Inc. (OTC BB:HMLF) for a gain of 96,404. However, during the year, the
remaining 119,500 shares of Homelife, Inc. bearer certificates, which were
endorsed and to be used as collateral for a bank loan, were stolen by one of the
Company's consultants. The cost basis of these shares was $91,950, thus
resulting in a net realized gain of $4,454.
In the prior year, the Company recorded an unrealized holding gain relating
to Homelife, Inc. in the amount of $595,236 and included it as income. Since all
the stock was sold/stolen during the year, management accordingly reversed the
gain and charged it back as an unrealized holding loss.
The company also recorded an unrealized holding loss on its investment of
84,000 shares in Time Financial Services, Inc. (OTC BB:TIMF) in the amount of
$13,500.
Available for Sale
At the close of the fiscal year, the Company held 145,000 shares of Pacific
Ocean Restaurants, Inc. These shares were valued at $595,000. However,
management decided that due to the numerous internal reporting and financial
problems that the company was experiencing, coupled with the company's uncertain
future, there was an impairment in value. Thus, an unrealized loss in the amount
of $595,000 was recorded on the entire investment.
The Company experienced an unrealized loss on Tuschner Financial Group,
Inc. stock in the amount of $24,300. In management's opinion, the Company has
experienced numerous personnel changes, legal problems, and its overall solvency
is in question. However, management feels that this is a temporary situation and
subsequently found a buyer for its interest. Accordingly, the loss was recorded
in the equity section of the balance sheet.
NOTE 11 - SUBSEQUENT EVENTS
On April 1, 1999, the Company entered into an agreement with Pioneer Growth
Corporation whereby all the remaining assets and liabilities of Equity Capital
Group, Inc. were transferred to Pioneer in exchange for all of the remaining
outstanding stock of Pioneer.
<PAGE>
Equity Capital Group, Inc. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(See Accountants' Audit Report)
For The Years Ended March 31, 1999, 1998, and 1997
NOTE 11 - SUBSEQUENT EVENTS (CONTINUED)
Also, on April 1, 1999 subsequent to the aforementioned transfer and
reverse split, the Company issued 8,293,000 shares of freely tradeable common
stock pursuant to the United States Securities Act of 1933, as amended, for
$200,000. At that time, the Company reverse split its issued and outstanding
stock, 1 for 4.
On June 30, 1999, the Company changed its name to Voice Mobility
International, Inc. and changed its trade symbol to OTC BB:VMII.
NOTE 12 - YEAR 2000 AWARENESS PROGRAM
The Company recognizes that the arrival of the year 2000 poses unique
challenges to the ability of all systems to recognize the date change from
December 31, 1999 to January 1, 2000 and has not adopted a plan designed to
address the issues related to this transition.
Ultimately, the potential impact of the year 2000 issues will depend not
only on corrective measures the Company undertakes, but also on the way in which
the year 2000 issue is addressed by governmental entities, vendors, customers,
counterparts, and other entities who provide or receive data and services from
the Company. Management is addressing these issues and believes they will
develop a year 2000 plan which will permit the Company to function effectively
into the year 2000.
<PAGE>
Financial Statements
Voice Mobility Inc.
December 31, 1998
<PAGE>
AUDITORS' REPORT
To the Shareholders of
Voice Mobility Inc.
We have audited the balance sheets of Voice Mobility Inc. as at December
31, 1998 and 1997 and the statements of earnings, shareholders' deficit and cash
flows for the years then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform an audit to obtain
reasonable assurance 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.
In our opinion, these financial statements present fairly, in all material
respects, the financial position of the Company as at December 31, 1998 and 1997
and the results of its operations and cash flows for the years then ended in
accordance with United States generally accepted accounting principles.
Vancouver, British Columbia,
March 29, 1999 Chartered Accountants
<PAGE>
Voice Mobility Inc.
BALANCE SHEET
(presented in United States dollars)
As at December 31
1998 1997
$ $
- - --------------------------------------------------------------------------------
ASSETS
Current
Cash 37,113 799
Accounts receivable (net of allowance for doubtful
debts $20,930; 1997 - $24,446) [note 3] 67,810 20,474
Prepaid expenses 17,116 2,882
Work-in-progress 14,919 -
- - --------------------------------------------------------------------------------
Total current assets 136,958 24,155
- - --------------------------------------------------------------------------------
Equipment and trademarks [note 4] 133,848 57,808
- - --------------------------------------------------------------------------------
270,806 81,963
- - --------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' DEFICIENCY
Current
Accounts payable and accrued liabilities 117,092 162,694
Deferred revenue - 26,257
Notes payable [note 5] 792,323 49,669
Due to ACREX Ventures Ltd. [note 6] 419,592 34,725
Due to shareholder [note 7] 239,642 233,568
- - --------------------------------------------------------------------------------
Total liabilities 1,568,649 506,913
- - --------------------------------------------------------------------------------
Commitments and contingencies [note 10]
Shareholders' deficiency
Share capital [note 8] 59 59
Deficit (1,373,141) (442,542)
Translation adjustment 75,239 17,533
- - --------------------------------------------------------------------------------
Total shareholders' deficiency (1,297,843) (424,950)
- - --------------------------------------------------------------------------------
270,806 81,963
- - --------------------------------------------------------------------------------
See accompanying notes
On behalf of the Board:
/s/ James Jay Hutton /s/ William E. Krebs
Director Director
<PAGE>
Voice Mobility Inc.
STATEMENT OF EARNINGS
(presented in United States dollars)
Years ended December 31
1998 1997
$ $
- - --------------------------------------------------------------------------------
REVENUE
Sales 119,248 519,687
Less: cost of sales (75,439) (260,274)
- - --------------------------------------------------------------------------------
43,809 259,413
- - --------------------------------------------------------------------------------
EXPENSES
Sales and marketing 189,691 59,797
Research and development 283,918 66,126
General and administrative 460,911 236,158
- - --------------------------------------------------------------------------------
934,520 362,081
- - --------------------------------------------------------------------------------
Loss before other expenses (890,711) (102,668)
Other expenses
Loss on sale of marketable securities - (39,098)
Interest expense (39,887) (26,973)
- - --------------------------------------------------------------------------------
(39,887) (66,071)
- - --------------------------------------------------------------------------------
Loss for the year (930,598) (168,739)
- - --------------------------------------------------------------------------------
Loss per share (0.11) (0.13)
- - --------------------------------------------------------------------------------
Weighted average number of shares outstanding 8,400,000 1,335,775
- - --------------------------------------------------------------------------------
See accompanying notes
<PAGE>
Voice Mobility Inc.
STATEMENTS OF SHAREHOLDERS' DEFICIT
(presented in United States dollars)
Years ended December 31
1998 1997
Ending Activity Ending Activity Beginning
Balance Balance Balance
Common stock shares
Isued and outstanding 8,400,000 - 8,400,000 8,399,900 100
Common stock, no par value $ 59 - 59 58 1
Accumulated deficit (1,373,141)(930,599) (442,542) (168,739 (273,803)
Accumulated foreign
currency translation 75,239 57,706 17,533 16,657 876
Accumulated comprehensive loss (1,297,902)(872,893) (425,009) (152,082)(272,927)
Total shareholders' deficit (1,297,843)(872,893) (424,950) (152,024)(272,926)
- - --------------------------------------------------------------------------------
See accompanying notes
<PAGE>
Voice Mobility Inc.
STATEMENT OF CASH FLOWS
(presented in United States dollars)
Years ended December 31
1998 1997
$ $
- - --------------------------------------------------------------------------------
OPERATING ACTIVITIES
Cash receipts from customers 44,047 456,997
Cash paid to suppliers and employees (1,014,350) (542,637)
Interest paid (3,701) (8,667)
- - --------------------------------------------------------------------------------
Cash used in operating activities (974,004) (94,307)
- - --------------------------------------------------------------------------------
INVESTING ACTIVITIES
Acquisition of equipment (153,145) (31,129)
Proceeds on sale of marketable securities - 89,833
- - --------------------------------------------------------------------------------
Cash provided by (used in) investing activities (153,145) 58,704
- - --------------------------------------------------------------------------------
FINANCING ACTIVITIES
Increase in notes payable 753,033 35,850
Increase in advances from ACREX Ventures Ltd. 403,619 -
Increase in advances from a shareholder 6,811 -
Shares issued - 60
- - --------------------------------------------------------------------------------
Cash provided by financing activities 1,163,463 35,910
- - --------------------------------------------------------------------------------
Increase (decrease) in cash 37,912 307
Cash, beginning of year 799 492
- - --------------------------------------------------------------------------------
Cash, end of year 37,113 799
- - --------------------------------------------------------------------------------
See accompanying notes
<PAGE>
Voice Mobility Inc.
NOTES TO FINANCIAL STATEMENTS
(presented in United States dollars)
December 31, 1998 and 1997
1. NATURE OF OPERATIONS
Voice Mobility Inc. is a private company registered under the laws of the
Canada Business Corporations Act.
The Company is in the business of developing and marketing a telephone
message platform that seamlessly integrates the user's telephones, e-mail, fax
and paging into a unified message service.
The Company incurred an operating loss of $930,598 [1997 - $168,739] for
the year ended December 31, 1998 and had a working capital deficiency of
$1,431,691 [1997 - 482,758] as at December 31, 1998. The ability of the Company
to continue as a going concern is dependent upon the ability of the Company to
obtain necessary financing to complete the research and development and to
attain future profitable production or proceeds from the disposition thereof.
2. SIGNIFICANT ACCOUNTING POLICIES
Use of estimates in the preparation of financial statements
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumption that affect the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date of the financial
statements and the reporting period. Actual results could differ from those
estimates.
Revenue recognition
Sales revenue on hardware installations is recognized when the equipment is
put in service. Fees billed as long-term service contracts are recognized over
the period of the contracts.
Advertising
Advertising costs are charged to income as incurred.
Work-in-progress
Work-in-progress represents only equipment and materials at cost.
<PAGE>
2. SIGNIFICANT ACCOUNTING POLICIES (cont'd.)
Equipment
Equipment is recorded at cost and depreciated over the estimated useful
lives of the assets, commencing in the year the assets are put into use, as
follows:
Computer equipment 30% declining balance method
Computer software 100% declining balance method
Office equipment and furniture 20% declining balance method
Leasehold improvements 5 year straight line
One-half of the above rates is applied in the year of acquisition.
Trademarks
Trademarks are recorded at cost and depreciated over a three year period.
Research and development costs
Research and development costs are expensed as incurred.
Financial instruments
The Company's financial instruments consists of cash, accounts receivable,
accounts payable, notes payable and a shareholder loan.
A portion of the notes payable is interest free. It is management's opinion
that the Company is not exposed to significant interest, currency or credit risk
arising from its other financial instruments mentioned and that their fair
values approximate their carrying values, unless otherwise noted.
Foreign currency translation
The functional currency of the Company is the Canadian dollar. Assets and
liabilities are translated into US dollars at the rates of exchange in effect at
the balance sheet dates and revenues and expenses are translated at average
exchange rate for the periods. Translation adjustments are not included in
determining net income but are accumulated in a separate component of
shareholders' deficiency.
<PAGE>
2. SIGNIFICANT ACCOUNTING POLICIES (cont'd.)
Segment information
The Company operates in one principal business segment in Canada. No other
foreign country or geographic area accounted for more than 10% of sales in any
of the years presented. There were no transfers between geographic areas during
the years ended December 31, 1998 and December 31, 1997.
Comprehensive income
The Company has adopted Statement of Financial Accounting Standards No.
130, "Reporting Comprehensive Income" ("SFAS No. 130") effective December 31,
1998. SFAS No. 130 establishes standards for reporting and display of
comprehensive income, its components and accumulated balances. Comprehensive
income is defined to include all changes in equity except those resulting from
investments by owners and distributions to owners. Among other disclosures, SFAS
No. 130 requires that all items that are required to be recognized under current
accounting standards as components of comprehensive income be reported in a
financial statement that is displayed with the same prominence as other
financial statements. For the years ended December 31, 1998 and 1997, there were
no material differences between comprehensive income and net income.
Loss per share
Basic loss per share excludes any dilutive effects of options. Basic loss
per share is computed using the weighted-average number of common shares
outstanding during the period. Diluted loss per share is equal to the basic loss
per share as the effect of the stock options is anti-dilutive. There are no
other dilutive common stock equivalent shares outstanding during the period.
Common stock equivalent shares are excluded from the computation if their effect
is anti-dilutive.
Cash and cash equivalents
The Company has defined cash and cash equivalents to include cash and time
deposits with original maturities of 90 days or less.
<PAGE>
2. SIGNIFICANT ACCOUNTING POLICIES (cont'd.)
Deferred income taxes
The Company follows the deferral method of accounting for income taxes.
Under U.S. GAAP, the liability method is used in accounting for income taxes
pursuant to Statement of Financial Accounting Standards No. 109 "Accounting for
Income Taxes" (SFAS 109). SFAS 109 requires recognition of deferred tax assets
and liabilities for the expected future tax consequences of events that have
been included in the financial statements or tax returns. Under this method,
deferred tax assets and liabilities are determined based on the difference
between the financial reporting and tax bases of assets and liabilities using
enacted tax rates that will be in effect for the year in which the differences
are expected to reverse.
A valuation allowance has been recognized to offset deferred tax assets
arising from temporary differences, tax credits and non-capital loss
carryforwards, for which realization is uncertain.
Effect of recently issued accounting standards
New accounting pronouncements having relative applicability to the Company
include Statements of Financial Accounting Standards No. 132, "Employers'
Disclosures about Pensions and Other Postretirement Benefits", effective for
fiscal years beginning after December 15, 1998 and No. 133, "Accounting for
Derivative Instruments and Hedging Activities", effective for fiscal years
beginning after June 15, 2000.
SFAS No. 132 revises employers' disclosures about pension and other
postretirement benefit plans.
SFAS No. 133 requires that all derivative instruments be recorded on the
consolidated balance sheets at their fair value. Changes in the fair value of
derivatives are recorded each period in current earnings or other comprehensive
income, depending on whether a derivative is designed as part of a hedge
transaction and, if it is, the type of hedge transaction.
The Company does not expect that the adoption of SFAS Nos. 132 and 133 will
have a material impact on its consolidated financial statements because the
Company does not provide for pension or other postretirement benefits, nor does
it currently hold any derivative instruments. Adoption of these statement will
not impact the Company's financial position, results of operations or cash flows
and any effect will be limited to the form and content of disclosures.
Additionally, the Accounting Standards Executive Committee of the American
Institute of CPA's issued Statement of Position 98-1, "Accounting for the Cost
of Computer Software Developed or Obtained for Internal Use" and Statement of
Position 98-5 "Reporting on the Costs of Start-up Activities", which are
effective for fiscal years beginning after December 15, 1998. Adoption of these
standards is not expected to have a material impact on the Company's financial
position, results of operations or cash flows.
3. ACCOUNTS RECEIVABLE
One customer represents 68% of the accounts receivable balance [1997 - two
customers represent 30% of the accounts receivable balance].
4. EQUIPMENT AND TRADEMARKS
Accumulated Net Book Value
Cost Depreciation 1998 1997
$ $ $ $
- - --------------------------------------------------------------------------------
Computer equipment 104,357 22,486 81,870 48,569
Computer software 32,345 16,265 16,080 1,637
Equipment and fixtures 19,937 6,210 13,728 17,602
Leasehold improvements 18,476 616 17,860 -
- - --------------------------------------------------------------------------------
175,115 45,577 129,538 57,808
Intangible property
Trademarks 4,310 - 4,310 -
- - --------------------------------------------------------------------------------
179,425 45,577 133,848 57,808
- - --------------------------------------------------------------------------------
5. NOTES PAYABLE
1998 1997
$ $
- - --------------------------------------------------------------------------------
Note payable - Interest at 10% per annum,
no fixed terms of repayment. Secured by a general
security agreement over the assets of the Company. 754,317 -
Note payable - Interest at the bank prime rate
[1997 - fixed rate of 10% per annum], unsecured
and no fixed terms of repayment. Bank prime at
December 31, 1998 was 6.75% [see note 11]. 38,006 49,669
- - --------------------------------------------------------------------------------
792,323 49,669
- - --------------------------------------------------------------------------------
6. DUE TO ACREX VENTURES LTD.
The advances from ACREX Ventures Ltd. are unsecured, interest free and have
no specific terms of repayment.
<PAGE>
7. DUE TO SHAREHOLDER
The amount due to shareholder is secured by a second fixed charge against
the Company's assets, with interest at the bank prime rate [1997 - fixed rate of
10% per annum]. Bank prime at December 31, 1998 was 6.75%.
8. CAPITAL STOCK
The authorized and issued share capital of the Company is as follows:
<TABLE>
<CAPTION>
Issued
- - -----------------------------------------------------------------------------------------------------
1998 1997
Authorized Number Amount Number Amount
# # $ # $
- - -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
A Common, voting, without par value 25,000,000 - - - -
B Common, voting, without par value 25,000,000 8,400,000 59 8,400,000 59
C Common, voting, without par value 25,000,000 - - - -
D Common, non-voting, without par value 25,000,000 - - - -
Preferred, non-voting, par value of $0.01 - - - -
- - -----------------------------------------------------------------------------------------------------
200,000,000 8,400,000 59 8,400,000 59
- - -----------------------------------------------------------------------------------------------------
</TABLE>
9. INCOME TAXES
The Company has non-capital and capital loss carryforwards, and credits in
respect of scientific research and development tax costs which may, subject to
certain restrictions, be available to offset future taxable income or taxes
payable. No future benefit of these losses and credits has been recognized in
these financial statements.
10. COMMITMENTS AND CONTINGENCIES
[i] Real estate lease commitments for the base rental payments for offices are
as follows:
$
- - --------------------------------------------------------------------------------
2000 42,470
2001 43,123
2002 41,163
2003 18,494
- - --------------------------------------------------------------------------------
128,716
- - --------------------------------------------------------------------------------
<PAGE>
10. COMMITMENTS AND CONTINGENCIES (continued)
[ii] The Company is subject to a claim that arose in the ordinary course of
business as a result of a signed contract by unauthorized personnel. It is
management's opinion that the total liability will not exceed $11,761. The
outcome of this matter is not presently determinable and will be recorded
in the accounts in the period of settlement.
11. RELATED PARTY TRANSACTIONS
A note payable to shareholder [Note 5] amounting to $38,006 [1997 - 49,669]
which bears interest at bank prime rate [1997 - fixed rate of 10% per annum] is
unsecured and has no fixed terms of repayment. Interest amounting to $2,086
[1997 - $4,708] was earned by the shareholder during the year.
The amount due to shareholder [Note 7] of $239,642 [1997 - $233,568] is
secured by a second fixed charge against the Company's assets, bearing interest
at the bank prime rate [1997 - fixed rate of 10% per annum]. Interest amounting
to $15,014 [1997 - $21,418] was earned by the shareholder during the year.
The advances from ACREX Ventures Ltd., which is controlled by two of the
companies directors, are unsecured, interest free and have no specific terms of
repayment.
12. YEAR 2000 ISSUE
The Year 2000 Issue arises because many computerized systems use two digits
rather than four to identify a year. Date-sensitive systems may recognize the
year 2000 as 1900 or some other date, resulting in errors when information using
year 2000 dates is processed. In addition, similar problems may arise in some
systems which use certain dates in 1999 to represent something other than a
date. The effects of the Year 2000 Issue may be experienced before, on, or after
January 1, 2000, and, if not addressed, the impact on operations and financial
reporting may range from minor errors to significant systems failure which could
affect the Company's ability to conduct normal business operations. It is not
possible to be certain that all aspects of the Year 2000 Issue affecting the
Company, including those related to the efforts of customers, suppliers, or
other third parties will be fully resolved.
13. SUBSEQUENT EVENT
Contingent obligation settlement
By an agreement dated March 26, 1999 between ACREX Ventures Ltd., Maritime
Tel & Tel Limited (MT&T) and the Company, the Company will assume an obligation
to pay MT&T $500,000 Canadian dollars for certain development work performed by
them on behalf of the Company. The obligation becomes payable on completion of
the acquisition of the Company by ACREX. In the event that the purchase does not
take place then the obligation is automatically extinguished.
<PAGE>
VOICE MOBILITY INTERNATIONAL, INC.
Consolidated Balance Sheets
As at June 30, 1999 and June 30, 1998
(Unaudited)
1999 1998
- - --------------------------------------------------------------------------------
Assets
Current Assets
Cash and cash equivalents $14,414 $35,262
Accounts receivable (net of allowance
for doubtful debts: 1999 - $21,766; 49,300 4,899
1998 - $23,843)
Notes Receivable - Acrex Ventures Ltd. 146,000
Prepaid expenses 14,605 4,946
Work-in progress 68,781
- - --------------------------------------------------------------------------------
293,099 45,106
Equipment and leasehold improvements
(net of accumulated depreciation 212,137 79,946
and amortization; 1999 - $79,719;
1998 - $59,894)
- - --------------------------------------------------------------------------------
$505,236 $125,052
================================================================================
Liabilities and Stockholders' Equity
Current Liabilities
Accounts payable and accrued liabilities 155,897 89,310
Other payables 40,692 30,043
Current portion on long-term debt 49,308
Notes payable 232,837
Due to Acrex Ventures Ltd. 148,087
Due to shareholder 286,394
- - --------------------------------------------------------------------------------
245,897 786,669
Long-term debt 514,721
- - --------------------------------------------------------------------------------
$760,618 $786,669
Stockholders' Equity
Common stock 16,222
60
Additional paid-in capital 7,430,875
Retained earnings (Deficit) (7,921,043) (679,034)
Share subscriptions 173,333
Currency translation gains (losses) 45,231 17,357
- - --------------------------------------------------------------------------------
(255,382) (661,618)
================================================================================
$505,236 $125,052
================================================================================
VOICE MOBILITY INTERNATIONAL, INC.
Consolidated Statements of Operations
For the six months ending June 30, 1999 and June 30, 1998
(Unaudited)
<TABLE>
<S> <C> <C> <C> <C>
1999 1998 1999 1998
- - ------------------------------------------------------------------------------------------------------------------------------
Sales 83,262 64,400 100% 100%
Less cost of sales (27,727) (42,705) (33%) (66%)
- - ------------------------------------------------------------------------------------------------------------------------------
55,535 21,694 67% 34%
Operating Expenses
Sales and Marketing 1,165,542 23,318 1400% 36%
Research and Development 1,555,984 64,411 1869% 100%
General and Administrative 1,571,753 156,522 1888% 243%
- - ------------------------------------------------------------------------------------------------------------------------------
4,293,278 244,252 5156% 379%
- - ------------------------------------------------------------------------------------------------------------------------------
Loss before other items (4,237,743) (222,557) (5090%) (346%)
Loss on disposition of assets & settlement of liabilities (211,965) (-255%)
Interest expense (37,800) (13,935) (-45%) (-22%)
- - ------------------------------------------------------------------------------------------------------------------------------
(249,765) (13,935) (-300%) (-22%)
- - ------------------------------------------------------------------------------------------------------------------------------
Net loss (4,487,508) (236,492) (-5390%) (-367%)
==============================================================================================================================
Loss per share (0.42)
(0.41)
==============================================================================================================================
Weighted average number of shares outstanding 10,800,079 578,750
==============================================================================================================================
</TABLE>
VOICE MOBILITY INTERNATIONAL, INC.
Consolidated Statements of Cash Flows
For the six months ending June 30, 1999 and June 30, 1998
(Unaudited)
1999 1998
- - --------------------------------------------------------------------------------
OPERATIONS
Net loss ($4,487,508) ($236,492)
Non cash items included in net loss
Loss on disposition of assets & settlement
of liabilities 11,965
Unrealized holding loss on securities
Depreciation and amortization 34,978 18,916
- - --------------------------------------------------------------------------------
(4,440,565)
(217,577)
Change in accounts receivable 47,738 11,322
Change in accounts payable 74,017 (19,344)
Change in work-in progress (53,862)
Change in prepaid expenses
2,512 (2,174)
Change in accrued liabilities (38,891) (44,164)
Change in taxes payable 12,192 (2,302)
Change in current portion of long-term debt 49,308
- - --------------------------------------------------------------------------------
(4,347,551)
(274,239)
INVESTING
Acquisition of equipment & leasehold improvements (112,431) (58,207)
FINANCING
Decrease in notes payable (277,602) 234,917
Decrease in advances from ACREX Ventures Ltd. (419,592) 116,355
Decrease in advances from shareholders (239,642) 14,719
Increase in notes receivable - Acrex Ventures Ltd. (146,000)
Increase in common stock 16,163
Change in currency translation gains/(losses) (30,008) (615)
Stock option compensation 3,460,538
Increase in share subscriptions 173,333
Increase in Paid-in Capital 1,900,093
- - --------------------------------------------------------------------------------
4,437,283 365,376
- - --------------------------------------------------------------------------------
Increase (decrease) in cash (22,699) 32,930
Cash, beginning of period 37,113 2,332
- - --------------------------------------------------------------------------------
Cash, end of period 14,414 35,262
================================================================================
VOICE MOBILITY INTERNATIONAL, INC.
Consolidated Statement of Stockholders' Equity
For the years ending December 31, 1993, 1994, 1995, 1996, 1997, 1998,
and six months ending June 30, 1999
(Unaudited)
<TABLE>
<CAPTION>
Accum.
Common Common Addtn'l Retained Total
Stock Stock Paid in Earnings Stockholders'
Issued Amount Capital (Deficit) Other Equity
<S> <C> <C> <C> <C> <C> <C>
- - -----------------------------------------------------------------------------------------------------------------------------
Stock Issued on September 15, 1993 100 1 1
- - -----------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1993 100 1 1
1994 Net loss (32,988) (32,988)
- - -----------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1994 100 1 (32,988) (32,987)
1995 Net loss (49,525) (49,525)
- - -----------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1995 100 1 (82,513) (82,512)
1996 Net loss (191,290) (191,290)
- - -----------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1996 100 1 (273,803) (273,802)
November 4, 1997 re-organization:
Redemption and cancellation (100) (1) (1)
New subscriptions 8,400 59 59
1:1,000 stock split 8,400,000
1997 Net loss (168,739) (168,739)
- - -----------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1997 8,400,000 59 (442,542) (442,483)
.
1998 Net loss (930,598) (930,598)
- - -----------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1998 8,400,000 59 (1,373,141) (1,373,082)
EQCG balances on April 1, 1999 2,174,000 2,174 2,070,185 (2,060,394) 11,965
EQCG subscribed stock issued on June 24, 1999 141,000 141 141
EQCG 1:4 consolidation on April 1, 1999 (1,736,250) (1,736) 1,736 0
Stock issued for cash on April 7, 1999 8,293,000 8,293 191,707 200,000
Stock issued on acquisition of VMI June 24, 1999 6,600,000 6,600 (6,600) 0
Adjust pre-acquisition balance of VMI (8,400,000) (59) 59 0
Stock issued on debt settlement on June 29, 1999 750,000 750 249,250 250,000
Warrants issued on debt settlement on June 29, 1999 200,000 200,000
Warrants exercised in June 1999 173,333 173,333
Warrants issued on assignment of VMI note payable 1,264,000 1,264,000
Currency translation gains (losses) 45,231 45,231
Stock option compensation 3,460,538 3,460,538
Net loss for 6 months ending June 30, 1999 (4,487,508) (4,487,508)
- - -----------------------------------------------------------------------------------------------------------------------------
Balances, at June 30, 1999 $ 16,221,750 16,222 $7,430,875 ($7,921,043) $218,564 ($255,382)
=============================================================================================================================
</TABLE>
VOICE MOBILITY INTERNATIONAL, INC.
Notes to Consolidated Financial Information
June 30, 1999
Note 1 - Basis of Presentation
The accompanying financial information should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the financial statements, related notes and other financial
information included elsewhere in this registration statement. By a reverse
takeover, control of the Company changed on June 24, 1999 as did the name of the
Company from Equity Capital Group, Inc.(EQGC) to Voice Mobility International,
Inc. (VMII). Consequently the Company now reports its operations and financial
position based on a December 31 fiscal year-end of the "acquirer", Voice
Mobility Inc. (VMI), as opposed to the March 31 fiscal year-end of EQCG. The
financial statements from which data has been selected or summarized are as
follows:
VMII - unaudited interim statements -
six month period ended June 30, 1999 and 1998
VMI - audited year-end - December 31, 1998 and 1997
EQCG - audited year-end - March 31, 1999, 1998 and 1997
In the opinion of management, these unaudited interim financial statements
include all adjustments, consisting only of normal recurring adjustments,
necessary for a fair presentation of the results of operations for such periods
and the financial position at such date. Historical results are not necessarily
indicative of future results, and results for any interim period are not
necessarily indicative of results for a full year.
Note 2 - Reverse Takeover
On June 24, 1999 the Company acquired, for consideration of 6,600,000
shares of the Company, all the outstanding shares of Voice Mobility Inc. (VMI),
a company that is developing certain telecommunications messaging systems. As a
result of the transaction the original shareholders of VMI became the
controlling shareholders of the Company. Generally accepted accounting
principles require that consolidated financial statements of a company prepared
after such a reverse takeover should be those of the "legal subsidiary", in this
case VMI, but issued under the name of the "legal parent", Voice Mobility
International, Inc.(VMII)(previously Equity Capital Group, Inc.). These
consolidated financial statements have therefore been prepared on the basis that
VMI was the acquirer and reflect a continuation of the financial statements of
VMI. The cost of the Company's investment in VMI has been treated as a reduction
in the amount of paid in capital in the consolidated financial statements. The
number of shares issued and outstanding reflects the number of VMII shares
issued and outstanding including the number of shares issued to reflect the
reverse takeover. Comparative amounts are as previously reported by VMI and have
not been restated to reflect the current method of consolidation.
Note 3 - Year-end
VMI has a December 31 year-end. Accordingly, as these consolidated
financial statements reflect a continuation of VMI, these financial statements
are for the six month period ended June 30, 1999 with the comparative figures
for the six month period ended June 30, 1998.
Note 4 - Currency
The financial information provided in these statements are reported in
United States dollars. Monetary assets and liabilities of the Company
denominated in foreign currencies are translated at the year end exchange rates.
Retained earnings are translated using the average exchange rate prevalent in
the respective periods, and any differences are recognized on the Balance Sheet
as currency translation gains or (losses). Other assets, liabilities, revenues
and expenses are translated at the rates prevailing on the respective
transaction dates. Exchange gains and losses are recognized on income.
Note 5 - Weighted Average Loss per share
The Company has adopted SFAS No 128, "Earnings Per Share." Basic net loss
per share is computed using the weighted-average number of common shares
outstanding during the period and includes common shares issued subsequent to
the period end for which all consideration had been received prior to the period
end and which no other contingencies existed. Basic loss per share excludes any
dilutive effects of options. Diluted loss per share is equal to the basic loss
per share as the effect of the stock options is anti-dilutive. There are no
other dilutive common stock equivalent shares outstanding during the period.
Common stock equivalent shares are excluded from the computation if their effect
is anti-dilutive
Note 6 - Employee Stock Option Plan
On June 29, 1999 a stock option plan was adopted by the Company authorizing
an aggregate amount of 5,000,000 stock to be purchased pursuant to the exercise
of options. The following stock options were issued on June 29, 1999:
No of common shares issuable Exercise price ($)
Senior Management 1,150,000 $1.00
Employees 1,041,750 $0.75
Employee 40,000 $2.72
Total 2,706,750
The total options outstanding as at June 30, 1999 were 2,706,750 and were
exercisable upon this date. A stock option compensation cost of $3,406,538 was
determined using the intrinsic method in accordance with APB25. Had compensation
cost been determined based on the fair value at the grant dates for those
options issued to senior management and employees, consistent with the method
described in SFAS No. 123, the Company's loss and loss per share for the six
months ending June 30, 1999 would have been increased to the pro forma amount
indicated below:
Loss As reported $4,287,508
Pro Forma $5,791,094
The fair value of each option granted in the six months ended June 30, 1999
was estimated on the date of the grant using the Black Scholes option pricing
model with the following assumptions: no dividend yield; risk free interest rate
of 5.5%; expected volatility of 0.876 using the Company's closing stock price
for the 37 days traded beginning June 29, 1999; and an expected life of five
years.
No diluted loss per common share is provided as the options are considered
to be anti-dilutive.
Subsequent to June 30, 1999 the following employee stock options were
granted:
No. of common shares issuable Exercise price ($)
July 14, 1999 35,000 $2.81
August 3, 1999 70,000 $2.94
August 20, 1999 55,000 $2.63
September 1, 1999 25,000 $2.45
-------
Total 185,000
PART III
--------
ITEM 2. INDEX TO EXHIBITS.
- - ------- ------------------
EXHIBIT NO. DESCRIPTION OF DOCUMENT
- - ----------- -----------------------
3.1 Articles of Incorporation*
3.2 Articles of Amendment of Articles of Incorporation*
3.6 By-Laws*
4.1 Common Stock Certificate
4.2 Form of Warrant
10.1 Fiscal 2000 Stock Option Plan*
10.2 Employment Agreement of James Jay Hutton*
10.3 Employment Agreement of William Gardiner*
10.4 Employment Agreement of Jason Corless*
10.5 Employment Agreement of Bud Stewart*
10.6 Employment Agreement of Geof Heston*
10.7 Acquisition Agreement of Voice Mobility Inc.*
10.8 Agreement and Plan of Distribution of Equity Capital Group, Inc.*
10.9 List of Subsidiaries of Registrant (as amended)
10.10 Debt Settlement Agreement with Maritime Tel & Tel*
10.11 Voting, Support and Exchange Trust Agreement
23.1 Consent of Hoffski & Pisano*
23.2 Consent of Bedford Curry & Co.*
27.1 Financial Data Schedule*
- - ---------------------------------
* Previously submitted
** To be submitted by amendment
SIGNATURES
----------
In accordance with Section 12 of the Securities Exchange Act of 1934,
the registrant caused this registration statement to be signed on its behalf by
the undersigned, thereunto duly authorized.
VOICE MOBILITY INTERNATIONAL, INC.
Date: October 18, 1999 By: /S/James J. Hutton
-----------------------
James J. Hutton, President
VOICE MOBILITY INTERNATIONAL, INC.
(INCORPORATED UNDER THE LAWS OF THE STATE OF NEVADA)
This certifies that ----------
is the registered owner of ----------------
fully paid and nonassessable shares of common stock, $.001 par value each of
VOICE MOBILITY INTERNATIONAL, INC.
Transferable on the books of the Corporation in person or by attorney upon
surrender of this Certificate duly endorsed or assigned. This Certificate and
the shares representing hereby are subject to the lawws of the State of
Nevada, and to the Certificate of Incorporation and Bylaws of the Corporaiton,
as now or hereafter amended. This Certificate is not valuid undercountersigned
by the Transfrer Agent
WITNESS the facsimile seal of the Corporation and the rfacsimile signatures
of its duly authorized officers.
Dated: ----------------
VOICE MOBILITY INTERNATIONAL, INC.
/s/ William Krebs CORPORATE SEAL /s/James Jay Hutton
- - ---------------- 1997 --------------------
Secretary NEVADA President
Countersigned:
OTR, INC.
317 S. W. Alder, #1122, Portland, Oregon 97204
Transfer Agent
AUTHORIZED SIGNATURE
<PAGE>
The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM - as tenants in common
TEN ENT - as tenants by the entireties
JT TEN - as joint tenants with right of
survivorship and not as tenants
in common and not as community property
UNIFORM GIFTS TO MINORS ACT
( Custodian) (Minor)
under the Uniform Gifts of Minors Act of the State of ------------------
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers unto:
Please insert social security
or other identifying number: -----------------
(Insert name and address, including zip code):
- - ----------------------------------------------------
- - ----------------------------------------------------
- - --------------------------------------------- shares
of the Common Stock represented by the within Certificate and do hereby
irrevocably constitute and appoint
- - ----------------------------------------------------
to transfer the said shares on the books of the within named Corporation
with full power of substitution in the premises.
DATED: ------------- ---------------------------------------
NOTICE: The signature to this assignment must correspond with the name as
it is written upon the face of the Certificate in every particular without
alteration or enlargement or any change whatever.
SIGNATURE GUARANTEE:
THE WARRANTS EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED WITH
THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE
IN RELIANCE UPON EXEMPTIONS FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES
ACT OF 1933, AS AMENDED. THE WARRANTS MAY NOT BE SOLD, TRANSFERRED, PLEDGED OR
ASSIGNED OR A SECURITY INTEREST CREATED THEREIN, UNLESS THE PURCHASER,
TRANSFEREE, ASSIGNEE, PLEDGEE OR HOLDER OF SUCH SECURITY INTEREST REGISTERS THE
WARRANTS UNDER APPLICABLE STATE AND FEDERAL SECURITIES LAWS (OR AN EXEMPTION
FROM REGISTRATION IS AVAILABLE AND THE SELLER, TRANFEROR, ASSIGNOR, PLEDGOR OR
GRANTOR OF SUCH SECURITY INTEREST PROVIDES AN OPINION OF COUNSEL REASONABLY
SATISFACTORY TO THE COMPANY THAT THE TRANSACTION CONTEMPLATED WOULD NOT BE IN
VIOLATION OF THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY APPLICABLE STATE
SECURITIES LAWS).
VOICE MOBILITY INTERNATIONAL, INC.
Organized under the laws of the State of Nevada
Series -
CLASS "--" COMMON STOCK PURCHASE WARRANT
No.W--- WARRANT TO PURCHASE ----- SHARES
THIS CERTIFIES that, for value received or registered assigns -------------
(the "Warrantholder") is entitled to purchase from VOICE MOBILITY INTERNATIONAL,
INC., a Nevada corporation (the "Company"), at any time from the date of
issuance and during the period (the "Exercise Period") expiring 5:00 p.m.
Pacific Time, December 29 , 2000 (the "Expiration Date"), unless extended, the
number of fully paid, nonassessable shares shown above of the Company's common
stock. $.001 par value (the "Shares"), in the manner stated below, at the
purchase price of US$0. per Share (the "Exercise Price").
EXERCISE. Subject to the provisions of the Warrant Terms, the Warrant may
be exercised in whole or in part at any time during the Exercise Period for a
whole number of shares, by surrendering it with the Exercise Form on the reverse
side duly completed at the offices of the Company, or any successor, and by
paying in full the Exercise Price for all Shares being purchased, together with
all transfer fees and transfer taxes and other governmental charges due, if any.
Payment shall be made in lawful money of the United States of America, in cash
or by bank check, cashier's check, certified check, or postal or express money
order made payable to the order of the Company. Upon partial exercise hereof, a
new Warrant of like tenor shall be issued to the registered holder hereof
evidencing the number of Shares not purchased. No fractional shares or scrip
certificate evidencing fractional shares will be issued upon exercise hereof,
nor will any cash be paid in lieu of any fractional share not issued.
ASSIGNMENT. The Warrant may be assigned or transferred by the registered
holder or by attorney duly authorized in writing, in whole or in part, at the
offices of the Company with the Assignment Form on the reverse side duly
completed, upon payment of the applicable transfer fee and any transfer tax or
other governmental charges due, if any. Upon any such assignment or transfer, a
new Warrant Certificate or certificates of like tenor and representing in the
aggregate the right to purchase a like number of Shares, subject to any
adjustments made in accordance with the provisions of the Warrant Terms, will be
issued in accordance with the registered holder's lawful instructions.
EXCHANGE. The Warrant Certificate may at any time be exchanged for one or
more Warrant Certificates of like tenor and representing in the aggregate the
right to purchase a like number of Shares, subject to any adjustments made in
accordance with the provisions of the Warrant Terms, upon presentation therefor
at the offices of the Company and upon payment of the requisite fees.
ADJUSTMENTS. The Exercise Price is subject to adjustment if the Company
effects any stock split or combination (reverse stock split) or recapitalization
with respect to the Shares and in certain other circumstances. Any adjustment of
the Exercise Price will result in a corresponding adjustment of the number of
Shares purchasable hereunder. Further, the Exercise Price may be reduced,
irrespective of whether a stock split, combination or other adjustment is
effected, and the Expiration Date may be extended one or more time, from time to
time, for an indefinite period at the Company's discretion upon giving at least
two days' notice thereof to registered Warrantholders.
STATUS OF HOLDER. The Company may deem and treat the registered holder of
this warrant certificate as the absolute owner hereof for all purposes,
notwithstanding any notation of ownership or other writing made hereon by any
person, and the Company shall not be affected by any notice to the contrary. No
registered holder of the Warrants, as such, shall have any rights as a
shareholder of the Company, either at law or at equity, and the rights of each
such registered holder, as such, are limited to those expressly provided in the
Warrant Terms and this Certificate.
WITNESS the facsimile seal of the Company and the signatures of its duly
authorized officer.
DATED: VOICE MOBILITY INTERNATIONAL, INC.
-----------------------------
Secretary
<PAGE>
The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM - as tenants in common
TEN ENT - as tenants by the entireties
JT TEN - as joint tenants with right of
survivorship and not as tenants
in common and not as community property
UNIFORM GIFTS TO MINORS ACT
( Custodian) (Minor)
under the Uniform Gifts of Minors Act of the State of ------------------
EXERCISE
I or we hereby irrevocably elect to exercise the right of purchase
represented by this certificate to purchase ------ shares of the common stock of
the Company ("Shares") and hereby make payment of ----------------- (number of
shares purchased multiplied by US$0.50) payable to the order of VOICE MOBILITY
INTERNATIONAL, INC. in payment of the exercise price for such Shares, and
request that certificates for the Shares shall be issued in the name of:
Please insert social security or EIN number
or other identifying number: -------------------------
(Insert name address, including zip code):
- - ------------------------------------------------------
- - ------------------------------------------------------
And, if such number of Shares shall not be all of the shares purchasable
hereunder, that a new Warrant Certificate or like tenor for the balance of the
remaining Shares purchasable hereunder be delivered to the undersigned at the
address above. I hereby certify that I am not a "U.S. Person" as defined in
Regulation S under the Securities Act of 1933 and that I am not exercising this
Warrant to purchase shares for or on behalf of any U.S. Person. I understand
that the term "U.S. Person" includes, among other persons, and individual
resident in the United States, any corporation, partnership or other entity
organized under United States law, any agency or branch of a corporation,
partnership or other entity organized under the laws of a country other than the
United States which is located in the United States, any trust or state of which
any trustee, administrator or executor is a U.S. Person, and any account held
for the benefit of a U.S.. Person. IMPORTANT: The name of the person exercising
this warrant must correspond with the name of the Warrantholder written on the
face of this Certificate in every particular, without alteration or any change
whatever, unless it has been assigned by completing the Assignment form below.
DATED: ---------------- 19-- X---------------------------------------
Signature of Registered Holder
X---------------------------------------
Signature of Registered Holder
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers unto:
Please insert social security or EIN number
or other identifying number: -----------------
(Insert name and address, including zip code):
- - ----------------------------------------------------
- - ----------------------------------------------------
The right to purchase -------------- Shares evidenced by this Warrant, and
does hereby irrevocably constitute and appoint any officer of the Company or its
transfer agent and registrar as lawful Attorney to transfer such right on the
books of the Company with full power of substitution in the premises. I hereby
certify that, to the best of my knowledge, the person or persons to whom these
Warrants are being assigned in NOT a "U.S. Person" as defined in Regulation S.
DATED: -------------, 19-- X---------------------------------------
Signature of Registered Holder
X---------------------------------------
Signature of Registered Holder
IMPORTANT: Every registered owner of this Certificate must sign it to
assign or otherwise transfer Warrants. The above signature or signatures must
correspond with the name or names written on the face of this Certificate in
every particular, without alteration, enlargement or any change whatever. Each
signature should be "medallion" guaranteed by an eligible guarantor institution
(Banks, Stockbrokers, Savings and Loan Associations and Credit Unions) with
membership in an approved signature guarantee Medallion Program pursuant to Rule
17Ad-15 of the Securities Exchange Act of 1934.
SIGNATURE GUARANTEE:
EXHIBIT 10.9
Subsidiaries of Registrant
Voice Mobility Canada Limited existing under the laws of Canada.
VM Sub Limited existing under the laws of Canada.
Voice Mobility Inc., organized under the laws of the province of British
Columbia, Canada is a subsidiary of Voice Mobility Canada Limited
VOTING, SUPPORT AND EXCHANGE TRUST AGREEMENT
AGREEMENT dated for reference the 30th day of September, 1999
BETWEEN:
VOICE MOBILITY INTERNATIONAL, INC., a corporation existing
under the laws of the State of Nevada (the "Parent"),
AND:
VOICE MOBILITY CANADA LIMITED, a corporation existing under
the laws of Canada (the "Corporation"),
AND:
OWEN, BIRD, barristers and solicitors, a partnership existing
under the laws of the Province of British Columbia (the
"Trustee").
WHEREAS:
A. The Corporation has offered to acquire all of the outstanding Common
Shares of Voice Mobility Inc. in consideration for Preferred Shares
of the Corporation.
B. Holders of Preferred Shares will be entitled to require the Corporation
to redeem such Shares and upon such redemption each Preferred Share
shall be exchanged by the Corporation for one share of Parent Common
Stock (as hereinafter defined).
C. The Parent intends to grant to and in favour of Non-Affiliated Holders
(as hereinafter defined) from time to time of Preferred Shares the
right, in the circumstances set forth herein, to require the Parent or,
at the option of the Parent, VM Sub (as hereinafter defined) to
purchase from each Non-Affiliated Holder all or any part of the
Preferred Shares held by the Non-Affiliated Holder.
D. The parties desire to make appropriate provision and to establish a
procedure whereby certain voting rights in the Parent shall be
exercisable by Non-Affiliated Holders from time to time of Preferred
Shares by and through the Trustee, which will hold legal title to the
Voting Share (as hereinafter defined) to which voting rights attach for
the benefit of Non-Affiliated Holders and whereby the rights to require
the Parent or, at the option of the Parent, VM Sub to purchase
Preferred Shares from the Non-Affiliated Holders shall be exercisable
by Non-Affiliated Holders from time to time of Preferred Shares by and
through the Trustee, which will hold legal title to such rights for the
benefit of Non-Affiliated Holders.
<PAGE>
E. The parties desire to make appropriate provision and to establish a
procedure whereby the Parent will take certain actions and make certain
payments and deliveries necessary to ensure that the Corporation and VM
Sub will be able to make certain payments and to deliver or cause to be
delivered shares of Parent Common Stock in satisfaction of the
obligations of the Corporation and/or VM Sub under the Preferred Share
Provisions (as hereinafter defined) and this agreement.
F. These recitals and any statements of fact in this agreement are made by
the Parent and the Corporation and not by the Trustee.
NOW THEREFORE, in consideration of the respective covenants and agreements
provided in this agreement and for other good and valuable consideration (the
receipt and sufficiency of which are hereby acknowledged), the parties agree as
follows:
ARTICLE 1
DEFINITIONS AND INTERPRETATION
1.1 Definitions. In this agreement, unless something in the subject matter
or context is inconsistent therewith:
"Automatic Exchange Rights" means the automatic exchange of shares of
Parent Common Stock for Preferred Shares pursuant to Section 5.3 of the
Preferred Share Provisions.
"Board of Directors" means the board of directors of the Corporation.
"Business Day" means a day other than a Saturday, a Sunday or a day
when banks are not open for business in Vancouver, British Columbia.
"Canadian Dollar Equivalent" means in respect of an amount expressed in
a foreign currency (the "Foreign Currency Amount") at any date the
product obtained by multiplying (a) the Foreign Currency Amount by (b)
the official noon spot exchange rate on such date for such foreign
currency as reported by the Bank of Canada or, in the event such spot
exchange rate is not available, such exchange rate on such date for
such foreign currency as may be deemed by the Board of Directors to be
appropriate for such purpose.
"Company Redemption Date" has the meaning set out in Section 1.1 of the
Preferred Share Provisions.
<PAGE>
"Current Market Price" means, in respect of a share of Parent Common
Stock on any date, the Canadian Dollar Equivalent of the average
closing sales price of shares of Parent Common Stock during a period of
20 consecutive trading days ending not more than five trading days
before such date on Nasdaq or, if the shares of Parent Common Stock are
not then listed on Nasdaq, on such other stock exchange or automated
quotation system on which the shares of Parent Common Stock are listed
or quoted, as the case may be, as may be selected by the Board of
Directors for such purpose; provided, however, that if in the opinion
of the Board of Directors the public distribution or trading activity
of Parent Common Stock during such period is inadequate to create a
market that reflects the fair market value of the Parent Common Stock,
then the Current Market Price of a share of Parent Common Stock shall
be determined by the Board of Directors based upon the advice of such
qualified independent financial advisors as the Board of Directors may
deem to be appropriate, and provided further that any such selection,
opinion or determination by the Board of Directors shall be conclusive
and binding.
"Dividend Amount" has the meaning set out in Section 1.1 of the Pre-
ferred Share Provisions.
"Effective Date" means the date of closing of the purchase and sale of
the shares of Voice Mobility Inc. under the Offer.
"Exchange Right" has the meaning set out in section 5.1 hereof.
"Insolvency Event" means the institution by the Corporation of any
proceeding to be adjudicated a bankrupt or insolvent or to be dissolved
or wound up, or the consent of the Corporation to the institution of
bankruptcy, insolvency, dissolution or winding-up proceedings against
it, or the filing by the Corporation of a petition, answer or consent
seeking dissolution or winding up under any bankruptcy, insolvency or
analogous laws, including without limitation the Companies Creditors'
Arrangement Act (Canada) and the Bankruptcy and Insolvency Act
(Canada), and the failure by the Corporation to contest in good faith
any such proceedings commenced by a third party in respect of the
Corporation within 15 days of becoming aware thereof, or the consent by
the Corporation to the filing of any such petition or to the
appointment of a receiver, or the making by the Corporation of a
general assignment for the benefit of creditors, or the admission in
writing by the Corporation of its inability to pay its debts generally
as they become due, or the Corporation not being permitted, pursuant to
solvency requirements or other provisions of applicable law, to redeem
any Retracted Shares pursuant to Section 6.1(4) of the Preferred Share
Provisions.
"Liquidation Amount" has the meaning set out in Section 5.1(1) of the
Preferred Share Provisions.
"Liquidation Call Right" has the meaning set out in Section 5.2(1) of
the Preferred Share Provisions.
"List" has the meaning set out in section 4.6 hereof.
"Nasdaq" means the Nasdaq Small Cap or National Market System, an
electronic securities market operated by The Nasdaq National Market
Stock Market, Inc., a wholly-owned subsidiary of the National
Association of Securities Dealers, Inc.
<PAGE>
"Non-Affiliated Holder Votes" has the meaning set out in section 4.2
hereof.
"Non-Affiliated Holders" means the registered holders of Preferred
Shares other than the Parent and its Subsidiaries.
"Offer" means the offer by the Corporation to acquire all of the
outstanding Common Shares of Voice Mobility Inc.
"Officer's Certificate" means, with respect to the Parent or the
Corporation, as the case may be, a certificate signed by any one of the
Chairman of the Board, the President, any Vice-President or any other
executive officer of the Parent or the Corporation, as the case may be.
"Parent Board of Directors" means the board of directors of the Parent.
"Parent Common Stock" means the shares of Common Stock of the Parent,
par value US$0.001 per share, having voting rights of one vote per
share, and any other securities into which such shares may be changed
or for which such shares may be exchanged (whether or not the Parent
shall be the issuer of such other securities) or any other
consideration which may be received by the holders of such shares,
pursuant to a recapitalization, reconstruction, reorganization or
reclassification of, or amalgamation, merger, liquidation or similar
transaction, affecting such shares.
"Parent Consent" has the meaning set out in section 4.2 hereof.
"Parent Meeting" has the meaning set out in section 4.2 hereof.
"Parent Successor" has the meaning set out in section 11.1 hereof.
"Preferred Share Provisions" means the rights, privileges, restrictions
and conditions attaching to the Preferred Shares.
"Preferred Shares" means the Preferred shares to be issued by the
Corporation pursuant to the Offer.
"Redemption Call Right" has the meaning set out in Section 7.2(1) of
the Preferred Share Provisions.
"Redemption Price" has the meaning set out in Section 7.1(1) of the
Preferred Share Provisions.
"Retracted Shares" has the meaning set out in section 5.7 hereof.
"Retraction Call Right" has the meaning set out in Section 6.2(1) of
the Preferred Share Provisions.
<PAGE>
"Retraction Price" has the meaning set out in Section 6.1(1) of the
Preferred Share Provisions.
"Subsidiary" of the Parent means any corporation more than 50% of the
outstanding stock of which is owned, directly or indirectly, by the
Parent, by one or more other Subsidiaries of the Parent or by the
Parent and one or more other Subsidiaries of the Parent.
"Tender Offer" has the meaning set out in section 6.8 hereof.
"Trust" means the trust created by this agreement.
"Trust Estate" means the Voting Share, any other securities, the
Exchange Right and any money or other rights or assets that may be held
by the Trustee from time to time pursuant to this agreement.
"Trustee" means Owen, Bird, barristers and solicitors, a partnership
existing under the laws of the Province of British Columbia and,
subject to the provisions of Article 10 hereof, includes any successor
trustee or permitted assigns.
"VM Sub" means VM Sub Limited, a wholly-owned Subsidiary of the Parent
existing under the laws of Canada.
"Voting Rights" means the voting rights attached to the Voting Share.
"Voting Share" means the one share of Series B Special Voting Preferred
Share, par value US$0.001, issued by the Parent to and deposited with
the Trustee, which entitles the holder of record to a number of votes
at meetings of holders of Parent Common Stock equal to the number of
Preferred Shares outstanding from time to time that are held by
Non-Affiliated Holders.
1.2 Interpretation Not Affected by Headings, etc. The division of this agreement
into articles and sections and the insertion of headings are for reference
purposes only and shall not affect the interpretation of this agreement. Unless
otherwise indicated, any reference in this agreement to an article or section
refers to the specified article or section of this agreement.
1.3 Number, Gender and Persons. In this agreement, unless the context otherwise
requires, words importing the singular number include the plural and vice versa,
words importing any gender include all genders and words importing persons
include individuals, corporations, partnerships, companies, associations,
trusts, unincorporated organizations, governmental bodies and other legal or
business entities of any kind.
1.4 Date for Any Action. If any date on which any action is required to be taken
under this agreement is not a Business Day, such action shall be required to be
taken on the next succeeding Business Day.
<PAGE>
1.5 Payments. All payments to be made hereunder will be made without interest
and less any tax required by Canadian law to be deducted and withheld.
1.6 Currency. In this agreement, unless stated otherwise, all dollar amounts are
in Canadian dollars.
ARTICLE 2
TRUST
2.1 Establishment of Trust. One of the purposes of this agreement is to create
the Trust for the benefit of the Non-Affiliated Holders, as herein provided. The
Trustee will hold the Voting Share in order to enable the Trustee to exercise
the Voting Rights and will hold the Exchange Right in order to enable the
Trustee to exercise such right and will hold the other rights granted in or
resulting from the Trustee being a party to this agreement in order to enable
the Trustee to exercise or enforce such rights, in each case as trustee for and
on behalf of the Non-Affiliated Holders as provided in this agreement.
ARTICLE 3
VOTING SHARE
3.1 Issue and Ownership of the Voting Share. Simultaneously with the execution
and delivery of this agreement, the Parent will issue to and deposit with the
Trustee the Voting Share to be hereafter held of record by the Trustee as
trustee for and on behalf of, and for the use and benefit of, the Non-Affiliated
Holders, in accordance with the provisions of this agreement. The Parent hereby
acknowledges receipt from the Trustee as trustee for and on behalf of the
Non-Affiliated Holders of good and valuable consideration (and the adequacy
thereof) for the issuance of the Voting Share by the Parent to the Trustee.
During the term of the Trust and subject to the terms and conditions of this
agreement, the Trustee shall possess and be vested with full legal ownership of
the Voting Share and shall be entitled to exercise all of the rights and powers
of an owner with respect to the Voting Share, provided that the Trustee shall:
(a) hold the Voting Share and the legal title thereto as trustee solely
for the use and benefit of the Non-Affiliated Holders in accordance
with the provisions of this agreement; and
(b) except as specifically authorized by this agreement, have no power or
authority to sell, transfer, vote or otherwise deal in or with the
Voting Share and the Voting Share shall not be used or disposed of by
the Trustee for any purpose other than the purposes for which the
Trust is created pursuant to this agreement.
3.2 Legended Share Certificates. The Corporation will cause each certificate
representing Preferred Shares to bear an appropriate legend notifying the
Non-Affiliated Holders of their right to instruct the Trustee with respect to
the exercise of the Voting Rights with respect to the Preferred Shares held by a
Non-Affiliated Holder.
<PAGE>
3.3 Safekeeping of Certificate. The certificate representing the Voting Share
shall at all times be held in safe keeping by the Trustee or its agent.
ARTICLE 4
EXERCISE OF VOTING RIGHTS
4.1 Voting Rights. The Trustee, as the holder of record of the Voting Share,
shall be entitled to all of the Voting Rights, including the right to consent to
or to vote in person or by proxy the Voting Share, on any matter, question or
proposition whatsoever that may come before the shareholders of the Parent at a
Parent Meeting or in connection with a Parent Consent. The Voting Rights shall
be and remain vested in and exercised by the Trustee. Subject to section 7.14
hereof, the Trustee shall exercise the Voting Rights only on the basis of
instructions received pursuant to this Article 4 from Non-Affiliated Holders
entitled to instruct the Trustee as to the voting thereof at the time at which
the Parent Consent is sought or the Parent Meeting is held. To the extent that
no instructions are received from a Non-Affiliated Holder with respect to the
Voting Rights to which such Non-Affiliated Holder is entitled, the Trustee shall
not exercise or permit the exercise of the Voting Rights relating to such
Non-Affiliated Holder's Preferred Shares.
4.2 Number of Votes. With respect to all meetings of shareholders of the Parent
at which holders of shares of Parent Common Stock are entitled to vote (a
"Parent Meeting") and with respect to all written consents sought from the
holders of shares of Parent Common Stock (a "Parent Consent"), each
Non-Affiliated Holder shall be entitled to instruct the Trustee to cast and
exercise, in the manner instructed, one vote for each Preferred Share owned of
record by such Non-Affiliated Holder on the record date established by the
Parent or by applicable law for such Parent Meeting or Parent Consent, as the
case may be (the "Non-Affiliated Holder Votes") in respect of each matter,
question or proposition to be voted on at such Parent Meeting or to be consented
to in connection with such Parent Consent.
4.3 Mailings to Shareholders. With respect to each Parent Meeting and Parent
Consent, Parent will cause to be mailed (or otherwise communicate in the same
manner that the Parent utilizes in communications to holders of Parent Common
Stock) to each of the Non-Affiliated Holders named in the List on the same day
as the initial mailing or notice (or other communication) with respect thereto
is given by the Parent to its shareholders:
(a) a copy of such notice, together with any proxy or information
statement and related materials to be provided to shareholders of the
Parent;
(b) a statement that such Non-Affiliated Holder is entitled, subject to
the provisions of section 4.7 hereof, to instruct the Trustee as to
the exercise of the Non-Affiliated Holder Votes with respect to such
Parent Meeting or Parent Consent, as the case may be, or, pursuant and
subject to section 4.7 hereof, to attend such Parent Meeting and to
exercise personally the Non-Affiliated Holder Votes thereat;
<PAGE>
(c) a statement as to the manner in which such instructions may be given
to the Trustee, including, in the case of a Parent Meeting, an express
indication that instructions may be given to the Trustee to give:
(i) a proxy to such Non-Affiliated Holder or its duly
appointed designee to exercise personally such
holder's Non-Affiliated Holder Votes; or
(ii) a proxy to a duly appointed designated agent or other
representative of the management of the Parent to
exercise such Non-Affiliated Holder Votes;
(d) a statement that if no such instructions are received from the
Non-Affiliated Holder, the Non-Affiliated Holder Votes to which such
Non-Affiliated Holder is entitled will not be exercised;
(e) a form of direction whereby the Non-Affiliated Holder may so direct
and instruct the Trustee as contemplated herein; and
(f) a statement of (i) the time and date by which such instructions must
be received by the Trustee in order to be binding upon it, which in
the case of a Parent Meeting shall not be earlier than the close of
business on the second Business Day prior to such meeting, and (ii)
the method for revoking or amending such instructions.
The materials referred to above are to be provided by the Parent to the
Non-Affiliated Holders, but shall be subject to prior review and comment by the
Trustee. For the purpose of determining Non-Affiliated Holder Votes to which a
Non-Affiliated Holder is entitled in respect of any such Parent Meeting or
Parent Consent, the number of Preferred Shares owned of record by the
Non-Affiliated Holder shall be determined at the close of business on the record
date established by the Parent or by applicable law for purposes of determining
shareholders entitled to vote at such Parent Meeting or to give written consent
in connection with such Parent Consent. The Parent will notify the Trustee in
writing of any decision of the board of directors of the Parent with respect to
the calling of any such Parent Meeting or the seeking of any such Parent Consent
and shall provide all necessary information and materials to the Trustee in each
case promptly and in any event in sufficient time to enable the Trustee to
review and comment on such information and materials prior to the Parent
performing its obligations contemplated by this section 4.3.
4.4 Copies of Shareholder Information. The Parent will deliver to the
Non-Affiliated Holders copies of all proxy materials (including notices of
Parent Meetings but excluding proxies to vote shares of Parent Common Stock),
information statements, reports (including without limitation all interim and
annual financial statements) and other written communications that are to be
distributed from time to time to holders of Parent Common Stock at the same time
as such materials are first sent to holders of Parent Common Stock.
<PAGE>
4.5 Other Materials. Immediately after receipt by the Parent or any shareholder
of the Parent of any material sent or given generally to the holders of Parent
Common Stock by or on behalf of a third party, including without limitation
dissident proxy and information circulars (and related information and material)
and tender and exchange offer circulars (and related information and material),
the Parent shall use its best efforts to obtain and forward such material
(unless the same has been provided directly to Non-Affiliated Holders by such
third party) to each Non-Affiliated Holder as soon as practicable thereafter.
4.6 List of Persons Entitled to Vote. The Corporation shall, (a) prior to each
annual, general and special Parent Meeting or the seeking of any Parent Consent
and (b) forthwith upon each request made at any time by the Trustee in writing,
prepare or cause to be prepared a list (a "List") of the names and addresses of
the Non-Affiliated Holders arranged in alphabetical order and showing the number
of Preferred Shares held of record by each such Non-Affiliated Holder, in each
case at the close of business on the date specified by the Trustee in such
request or, in the case of a List prepared in connection with a Parent Meeting
or a Parent Consent, at the close of business on the record date established by
the Parent or pursuant to applicable law for determining the holders of Parent
Common Stock entitled to receive notice of and/or to vote at such Parent Meeting
or to give consent in connection with such Parent Consent. Each such List shall
be delivered to the Trustee promptly after receipt by the Corporation of such
request or the record date for such meeting or seeking of consent, as the case
may be. The Parent agrees to give the Corporation written notice (with a copy to
the Trustee) of the calling of any Parent Meeting or the seeking of any Parent
Consent, together with the record dates therefor, sufficiently prior to the date
of the calling of such meeting or seeking of such consent so as to enable the
Corporation to perform its obligations under this section 4.6.
4.7 Entitlement to Direct Votes. Any Non-Affiliated Holder named in a List
prepared in connection with any Parent Meeting or any Parent Consent will be
entitled (a) to instruct the Trustee in the manner described in section 4.3
hereof with respect to the exercise of the Non-Affiliated Holder Votes to which
such Non-Affiliated Holder is entitled or (b) to attend such meeting and
personally to exercise thereat (or to exercise with respect to any written
consent), as the proxy of the Trustee, the Non-Affiliated Holder Votes to which
such Non-Affiliated Holder is entitled or (c) to appoint a third party as the
proxy of the Trustee to attend such meeting and exercise thereat the
Non-Affiliated Holder's voting rights to which such Non-Affiliated Holder is
entitled except, in each case, to the extent that such Non-Affiliated Holder has
transferred the ownership of any Preferred Shares in respect of which such
Non-Affiliated Holder is entitled to Non-Affiliated Holder Votes after the close
of business on the record date for such meeting and the transferee establishes
ownership of the Preferred Shares and demands, not later than ten days before
the Parent Meeting, that the transferee be entitled to the Non-Affiliated Votes
attaching to such Preferred Shares at the Parent Meeting.
4.8 Voting by Trustee and Attendance of Trustee Representative at Meeting.
<PAGE>
(1) In connection with each Parent Meeting and Parent Consent, the
Trustee shall exercise, either in person or by proxy, in
accordance with the instructions received from a
Non-Affiliated Holder pursuant to section 4.3 hereof, the
Non-Affiliated Holder Votes as to which such Non-Affiliated
Holder is entitled to direct the vote (or any lesser number
thereof as may be set forth in the instructions); provided,
however, that such written instructions are received by the
Trustee from the Non-Affiliated Holder prior to the time and
date fixed by it for receipt of such instructions in the
notice given by Parent to the Non-Affiliated Holder pursuant
to section 4.3 hereof.
(2) The Trustee shall cause such representatives as are empowered
by it to sign and deliver, on behalf of the Trustee, proxies
for Voting Rights enabling a Non-Affiliated Holder to attend
each Parent Meeting. Upon submission by a Non-Affiliated
Holder (or its duly appointed designee) of identification
satisfactory to the Trustee or the Trustee's representatives,
and at the Non-Affiliated Holder's request, such
representatives shall sign and deliver to such Non-Affiliated
Holder (or its duly appointed designee) a proxy to exercise
personally the Non-Affiliated Holder Votes as to which such
Non-Affiliated Holder is otherwise entitled hereunder to
direct the vote, if such Non-Affiliated Holder either (i) has
not previously given the Trustee instructions pursuant to
section 4.3 hereof in respect of such meeting, or (ii) submits
to the Trustee's representatives written revocation of any
such previous instructions in accordance with the requirements
specified by the Parent in the materials provided to the
Non-Affiliated Holder pursuant to section 4.3(f)(ii) hereof.
At such meeting, the Non-Affiliated Holder exercising such
Non-Affiliated Holder Votes shall have the same rights as the
Trustee to speak at the meeting in respect of any matter,
question or proposition, to vote by way of ballot at the
meeting in respect of any matter, question or proposition and
to vote at such meeting by way of a show of hands in respect
of any matter, question or proposition.
4.9 Distribution of Written Materials. Any written materials to be distributed
by Parent or the Corporation to the Non-Affiliated Holders pursuant to this
agreement shall be delivered or sent by mail (or otherwise communicated in the
same manner as the Parent utilizes in communications to holders of Parent Common
Stock) to each Non-Affiliated Holder at its address as shown on the books of the
Corporation. The Corporation shall provide or cause to be provided to Parent for
this purpose, on a timely basis and without charge or other expense:
(a) current lists of the Non-Affiliated Holders; and
(b) upon the request of the Parent, mailing labels to enable the Parent to
carry out its duties under this agreement.
The materials referred to above which are to be provided by the Parent shall be
subject to prior review and comment by the Trustee.
<PAGE>
4.10 Termination of Voting Rights. All the rights of a Non-Affiliated Holder
with respect to the Non-Affiliated Holder Votes exercisable in respect of the
Preferred Shares held by such Non-Affiliated Holder, including the right to
instruct the Trustee as to the voting of or to vote personally such
Non-Affiliated Holder Votes, shall be deemed to be surrendered by the
Non-Affiliated Holder to the Parent and such Non-Affiliated Holder Votes and the
Voting Rights represented thereby shall cease immediately upon the delivery by
such Non-Affiliated Holder to the Trustee of the certificates representing such
Preferred Shares in connection with the exercise by the Non-Affiliated Holder of
the Exchange Right or the occurrence of the automatic exchange of Preferred
Shares for shares of Parent Common Stock, in either case as specified in Article
5 hereof, or upon the redemption of Preferred Shares pursuant to Article 6 or
Article 7 of the Preferred Share Provisions, or upon the effective date of the
liquidation, dissolution or winding-up of the Corporation or any other
distribution of the assets of the Corporation among its shareholders for the
purpose of winding up its affairs pursuant to Article 5 of the Preferred Share
Provisions, or upon the purchase of Preferred Shares from the holder thereof by
the Parent or VM Sub pursuant to the exercise by the Parent or VM Sub of the
Retraction Call Right, the Redemption Call Right or the Liquidation Call Right
(unless in any case the Corporation, the Parent or VM Sub shall not have
delivered the requisite shares of Parent Common Stock and cheque, if any,
deliverable in exchange therefor to the Trustee for delivery to the
Non-Affiliated Holders).
ARTICLE 5
EXCHANGE RIGHT AND PARENT SUPPORT
5.1 Grant and Ownership of the Exchange Right. The Parent hereby grants to the
Trustee as trustee for and on behalf of, and for the use and benefit of, the
Non-Affiliated Holders the right (the "Exchange Right"), upon the occurrence and
during the continuance of an Insolvency Event, to require the Parent to purchase
or to cause VM Sub to purchase from each or any Non-Affiliated Holder all or any
part of the Preferred Shares held by the Non-Affiliated Holder, all in
accordance with the provisions of this agreement. During the term of the Trust
and subject to the terms and conditions of this agreement, the Trustee shall
possess and be vested with full legal ownership of the Exchange Right and shall
be entitled to exercise all of the rights and powers of an owner with respect to
the Exchange Right, provided that the Trustee shall:
(1) hold the Exchange Right and the legal title thereto as trustee
solely for the use and benefit of the Non-Affiliated Holders
in accordance with the provisions of this agreement; and
(2) except as specifically authorized by this agreement, have no
power or authority to exercise or otherwise deal in or with
the Exchange Right, and the Trustee shall not exercise such
right for any purpose other than the purposes for which this
Trust is created pursuant to this agreement.
5.2 Legended Share Certificates. The Corporation will cause each certificate
representing Preferred Shares to bear an appropriate legend notifying the
Non-Affiliated Holders of their right to instruct the Trustee with respect to
the exercise of the Exchange Right in respect of the Preferred Shares held by a
Non-Affiliated Holder.
5.3 General Exercise of Exchange Right. The Exchange Right shall be and remain
vested in and exercisable by the Trustee. Subject to section 7.14 hereof, the
Trustee shall exercise the Exchange Right only on the basis of instructions
received pursuant to this Article 5 from Non-Affiliated Holders entitled to
instruct the Trustee as to the exercise thereof. To the extent that no
instructions are received from a Non-Affiliated Holder with respect to the
Exchange Right, the Trustee shall not exercise or permit the exercise of the
Exchange Right.
<PAGE>
5.4 Purchase Price. The purchase price payable by the Parent or VM Sub for each
Preferred Share to be purchased by the Parent or VM Sub under the Exchange Right
shall be an amount per share equal to (a) the Current Market Price of a share of
Parent Common Stock on the last Business Day prior to the day of closing of the
purchase and sale of such Preferred Share under the Exchange Right, which shall
be satisfied in full by causing to be delivered to such holder one share of
Parent Common Stock, plus (b) the Dividend Amount, if any. The purchase price
for each such Preferred Share so purchased may be satisfied only by the Parent
or VM Sub delivering or causing to be delivered to the Trustee, on behalf of the
relevant Non-Affiliated Holder, one share of Parent Common Stock and a cheque
for the balance, if any, of the purchase price, without interest.
5.5 Exercise Instructions. Subject to the terms and conditions herein set forth,
a Non-Affiliated Holder shall be entitled, upon the occurrence and during the
continuance of an Insolvency Event, to instruct the Trustee to exercise the
Exchange Right with respect to all or any part of the Preferred Shares
registered in the name of such Non-Affiliated Holder on the books of the
Corporation. To cause the exercise of the Exchange Right by the Trustee, the
Non-Affiliated Holder shall deliver to the Trustee, in person or by certified or
registered mail, at its address set out in section 14.3 or at such other place
as the Trustee may from time to time designate by written notice to the
Non-Affiliated Holders, the certificates representing the Preferred Shares which
such Non-Affiliated Holder desires the Parent to purchase, duly endorsed in
blank, and accompanied by such other documents and instruments as may be
required to effect a transfer of Preferred Shares under the Canada Business
Corporations Act and the by-laws of the Corporation and such additional
documents and instruments as the Trustee, the Parent or the Corporation may
reasonably require together with (a) a duly completed form of notice of exercise
of the Exchange Right, contained on the reverse of or attached to the Preferred
Share certificates, stating (i) that the Non-Affiliated Holder thereby instructs
the Trustee to exercise the Exchange Right so as to require the Parent or VM Sub
to purchase from the Non-Affiliated Holder the number of Preferred Shares
specified therein, (ii) that such Non-Affiliated Holder has good title to and
owns all such Preferred Shares to be acquired by the Parent or VM Sub free and
clear of all liens, claims and encumbrances, (iii) the names in which the
certificates representing Parent Common Stock issuable in connection with the
exercise of the Exchange Right are to be issued and (iv) the names and addresses
of the persons to whom such new certificates should be delivered and (b) payment
(or evidence satisfactory to the Trustee, the Corporation and the Parent of
payment) of the taxes (if any) payable as contemplated by section 5.8 of this
agreement. If only a portion of the Preferred Shares represented by any
certificate delivered to the Trustee are to be purchased by the Parent or VM Sub
under the Exchange Right, a new certificate for the balance of such Preferred
Shares shall be issued to the holder at the expense of the Corporation.
<PAGE>
5.6 Delivery of Parent Common Stock; Effect of Exercise. Promptly after receipt
of the certificates representing the Preferred Shares that a Non-Affiliated
Holder desires the Parent or VM Sub to purchase under the Exchange Right
(together with such documents and instruments of transfer and a duly completed
form of notice of exercise of the Exchange Right) duly endorsed for transfer to
the Parent or VM Sub, the Trustee shall notify the Parent and the Corporation of
its receipt of the same, which notice to the Parent and the Corporation shall
constitute exercise of the Exchange Right by the Trustee on behalf of the holder
of such Preferred Shares, and the Parent shall immediately thereafter deliver or
cause VM Sub to deliver to the Trustee, for delivery to the Non-Affiliated
Holder of such Preferred Shares (or to such other persons, if any, properly
designated by such Non-Affiliated Holder), a certificate for the number of
shares of Parent Common Stock deliverable in connection with such exercise of
the Exchange Right (which shares shall be duly issued as fully paid and
non-assessable and shall be free and clear of any lien, claim or encumbrance,
security interest or adverse claim) and a cheque for the balance, if any, of the
purchase price therefor, without interest; provided, however, that no such
delivery shall be made unless and until the Non-Affiliated Holder requesting the
same shall have paid (or provided evidence satisfactory to the Trustee, the
Corporation and the Parent of the payment of) the taxes (if any) payable as
contemplated by section 5.8 of this agreement. Immediately upon the giving of
notice by the Trustee to the Parent and the Corporation of the exercise of the
Exchange Right, as provided in this section 5.6, the closing of the transaction
of purchase and sale contemplated by the Exchange Right shall be deemed to have
occurred, and the Non-Affiliated Holder of such Preferred Shares shall be deemed
to have transferred to the Parent (or, at the Parent's option, to VM Sub) all of
its right, title and interest in and to such Preferred Shares and the related
interest in the Trust Estate and shall not be entitled to exercise any of the
rights of a holder in respect thereof, other than the right to receive its
proportionate part of the total purchase price therefor, unless the requisite
number of shares of Parent Common Stock (together with a cheque for the balance,
if any, of the total purchase price therefor, without interest) is not allotted,
issued and delivered by the Parent or VM Sub to the Trustee, for delivery to
such Non-Affiliated Holder (or to such other persons, if any, properly
designated by such Non-Affiliated Holder), within five Business Days of the date
of the giving of such notice by the Trustee, in which case the rights of the
Non-Affiliated Holder shall remain unaffected until such shares of Parent Common
Stock are so allotted, issued and delivered and any such cheque is so delivered
and paid. Concurrently with the closing of the transaction of purchase and sale
contemplated by the Exchange Right, such Non-Affiliated Holder shall be
considered and deemed for all purposes to be the holder of the shares of Parent
Common Stock delivered to it pursuant to the Exchange Right.
<PAGE>
5.7 Exercise of Exchange Right Subsequent to Retraction. In the event that a
Non-Affiliated Holder has exercised its right under Article 6 of the Preferred
Share Provisions to require the Corporation to redeem any or all of the
Preferred Shares held by the Non-Affiliated Holder (the "Retracted Shares") and
is notified by the Corporation pursuant to Section 6.1(4) of the Preferred Share
Provisions that the Corporation will not be permitted as a result of solvency
requirements of applicable law to redeem all such Retracted Shares, provided
that neither the Parent nor VM Sub shall have exercised its Retraction Call
Right with respect to the Retracted Shares and that the Non-Affiliated Holder
shall not have revoked the retraction request delivered by the Non-Affiliated
Holder to the Corporation pursuant to Section 6.1(5) of the Preferred Share
Provisions, the retraction request will constitute and will be deemed to
constitute notice from the Non-Affiliated Holder to the Trustee instructing the
Trustee to exercise the Exchange Right with respect to those Retracted Shares
that the Corporation is unable to redeem. In any such event, the Corporation
hereby agrees with the Trustee and in favour of the Non-Affiliated Holder
immediately to forward or cause to be forwarded to the Trustee all relevant
materials delivered by the Non-Affiliated Holder to the Corporation (including
without limitation a copy of the retraction request delivered pursuant to
Section 6.1(1) of the Preferred Share Provisions) in connection with such
proposed redemption of the Retracted Shares and the Trustee will thereupon
exercise the Exchange Right with respect to the Retracted Shares that the
Corporation is not permitted to redeem and will require the Parent or, at the
Parent's option, VM Sub, to purchase such shares in accordance with the
provisions of this Article 5.
5.8 Stamp or Other Transfer Taxes. Upon any sale of Preferred Shares to the
Parent or VM Sub pursuant to the Exchange Right, the share certificate or
certificates representing the Parent Common Stock to be delivered in connection
with the payment of the total purchase price therefor shall be issued in the
name of the Non-Affiliated Holder of the Preferred Shares so sold or in such
names as such Non-Affiliated Holder may otherwise direct in writing without
charge to the holder of the Preferred Shares so sold, provided, however, that
such Non-Affiliated Holder (a) shall pay (and none of the Parent, VM Sub, the
Corporation or the Trustee shall be required to pay) any documentary, stamp,
transfer or other similar taxes that may be payable in respect of any transfer
involved in the issuance or delivery of such shares to a person other than such
Non-Affiliated Holder or (b) shall have established to the satisfaction of the
Trustee, the Parent, VM Sub and the Corporation that such taxes, if any, have
been paid.
5.9 Notice of Insolvency Event. Immediately upon the occurrence of an Insolvency
Event or any event that with the giving of notice or the passage of time or both
would be an Insolvency Event, the Corporation and the Parent shall give written
notice thereof to each Non-Affiliated Holder of the Preferred Shares and to the
Trustee, which notice shall contain a brief statement of the rights of the
Non-Affiliated Holders with respect to the Exchange Right.
5.10 Parent Ownership of VM Sub. Notwithstanding any of the other provisions of
this agreement, so long as any Preferred Shares are outstanding, 100% of the
common shares of VM Sub shall be owned, directly or indirectly, by the Parent.
5.11 Call Rights. The Liquidation Call Right, the Redemption Call Right and the
Retraction Call Right are hereby agreed, acknowledged and confirmed, and it is
agreed and acknowledged that such rights are granted as part of the
consideration for the obligations of the Parent under this agreement.
5.12 Grant and Ownership of Automatic Exchange Rights. The Parent hereby grants
the Automatic Exchange Rights to the Trustee as trustee for and on behalf of,
and for the use and benefit of, the Non-Affiliated Holders. The Parent hereby
acknowledges receipt from the Trustee, as trustee for and on behalf of the
Non-Affiliated Holders, of good and valuable consideration (and the adequacy
thereof) for the grant of the Automatic Exchange Rights by the Parent to the
Trustee. During the term of the Trust and subject to the terms and conditions of
this agreement and the Preferred Share Provisions, the Trustee shall possess and
be vested with full legal ownership of the Automatic Exchange Rights and shall
be entitled to exercise all of the rights and powers of an owner with respect to
the Automatic Exchange Rights, provided that the Trustee shall:
(a) hold the Automatic Exchange Rights and the legal title thereto as
trustee solely for the use and benefit of the Non-Affiliated Holders
in accordance with the provisions of this agreement; and
<PAGE>
(b) except as specifically authorized by this agreement, have no power or
authority to exercise or otherwise deal in or with the Automatic
Exchange Rights, and the Trustee shall not exercise such rights for
any purpose other than the purposes for which this Trust is created
pursuant to this agreement.
5.13 Parent Common Stock. Parent hereby represents, warrants and covenants that
all such shares of Parent Common Stock issuable as described herein shall be
duly authorized and validly issued as fully paid, non-assessable, free of
pre-emptive rights and shall be free and clear of any lien, claim, encumbrance,
security interest or adverse claim.
ARTICLE 6
COVENANTS, REPRESENTATIONS AND WARRANTIES
6.1 Covenants of Parent Regarding Preferred Shares. So long as any Preferred
Shares owned by Non-Affiliated Holders are outstanding, the Parent will:
(a) not declare or pay any dividend on the Parent Common Stock unless (i)
the Corporation will have sufficient money or other assets or
authorized but unissued securities available to enable the due
declaration and the due and punctual payment in accordance with
applicable law, of an equivalent dividend on the Preferred Shares and
(ii) the Corporation shall simultaneously declare or pay, as the case
may be, an equivalent dividend (as provided for in the Preferred Share
Provisions) on the Preferred Shares;
(b) advise the Corporation sufficiently in advance of the declaration by
the Parent of any dividend on the Parent Common Stock and take all
such other actions as are necessary, in cooperation with the
Corporation, to ensure that the respective declaration date, record
date and payment date for a dividend on the Preferred Shares shall be
the same as the declaration date, record date and payment date for the
corresponding dividend on the Parent Common Stock;
(c) ensure that the record date for determining shareholders entitled to
receive any dividend declared on the Parent Common Stock is not less
than 10 Business Days after the declaration date for such dividend;
(d) take all such actions and do all such things as are necessary or
desirable to enable and permit the Corporation, in accordance with
applicable law, to pay and otherwise perform its obligations with
respect to the satisfaction of the Liquidation Amount in respect of
each issued and outstanding Preferred Share upon the liquidation,
dissolution or winding up of the Corporation or any other distribution
of the assets of the Corporation among its shareholders for the
purpose of winding up its affairs, including without limitation all
such actions and all such things as are necessary or desirable to
enable and permit the Corporation to cause to be delivered shares of
Parent Common Stock to the holders of Preferred Shares in accordance
with the provisions of Article 5 of the Preferred Share Provisions;
<PAGE>
(e) take all such actions and do all such things as are necessary or
desirable to enable and permit the Corporation, in accordance with
applicable law, to pay and otherwise perform its obligations with
respect to the satisfaction of the Retraction Price and the Redemption
Price, including without limitation all such actions and all such
things as are necessary or desirable to enable and permit the
Corporation to cause to be delivered shares of Parent Common Stock to
the holders of Preferred Shares, upon the redemption of the Preferred
Shares in accordance with the provisions of Article 6 or Article 7 of
the Preferred Share Provisions, as the case may be;
(f) take all actions and do all such things as are necessary or desirable
to enable and permit VM Sub, in accordance with applicable law, to
perform its obligations and exercise its rights with respect to the
satisfaction of the Liquidation Call Right, the Redemption Call Right
and the Retraction Call Right, including without limitation, all such
actions and all such things as are necessary or desirable to enable
and permit VM Sub to cause to be delivered Parent Common Stock to the
holders of Preferred Shares in accordance with the Preferred Share
Provisions. In furtherance of the foregoing obligations, upon notice
of any event which requires VM Sub to cause to be delivered shares of
Parent Common Stock to any holder of Preferred Shares, the Parent
shall, in any manner deemed appropriate by it, provide such shares or
cause such shares to be provided to VM Sub, which shall forthwith
deliver the requisite shares of Parent Common Stock to or to the order
of the former holder of the surrendered Preferred Shares; and
(g) not exercise its vote as a shareholder to initiate the voluntary
liquidation, dissolution or winding up of the Corporation or any other
distribution of the assets of the Corporation among its shareholders
for the purpose of winding up its affairs nor take any action or omit
to take any action that is designed to result in the liquidation,
dissolution or winding up of the Corporation or any other distribution
of the assets of the Corporation among its shareholders for the
purpose of winding up its affairs.
6.2 Segregation of Funds. The Parent will cause the Corporation to deposit a
sufficient amount of funds in a separate account and segregate a sufficient
amount of such other assets as is necessary to enable the Corporation to pay or
otherwise satisfy the applicable dividends, Liquidation Amount, Retraction Price
or Redemption Price, once such amounts become payable under the terms of this
agreement or the Preferred Share Provisions, in each case for the benefit of
Non-Affiliated Holders from time to time of the Preferred Shares, and to use
such funds and other assets so segregated exclusively for the payment of
dividends and the payment or other satisfaction of the Liquidation Amount, the
Retraction Price or the Redemption Price, as applicable.
6.3 Certain Representations. The Parent hereby represents, warrants and coven-
ants that:
<PAGE>
(a) it has irrevocably reserved for issuance and will at all times keep
available, free from pre-emptive and other rights, out of its
authorized and unissued capital stock such number of shares of Parent
Common Stock (or other shares or securities into which the Parent
Common Stock may be reclassified or changed as contemplated by section
6.7 hereof) (i) as is equal to the sum of (x) the number of Preferred
Shares issued and outstanding from time to time and (y) the number of
Preferred Shares issuable upon the exercise of all rights to acquire
Preferred Shares outstanding from time to time and (ii) as is now and
may hereafter be required to enable and permit each of the Corporation
and the Parent and VM Sub to meet its obligations hereunder, under the
Preferred Share Provisions and under any other security or commitment
pursuant to which the Corporation or the Parent or VM Sub may now or
hereafter be required to issue and/or deliver shares of Parent Common
Stock; and
(b) it is not as of the Effective Date, and has not been at any time
within the last year prior to the Effective Date, a "United States
real property holding corporation" within the meaning of Section 897
of the Internal Revenue Code of 1987, as amended.
6.4 Notification of Certain Events. In order to assist the Parent to comply with
its obligations hereunder, the Corporation will give the Parent notice of each
of the following events at the time set forth below:
(a) in the event of any determination by the Board of Directors to
institute voluntary liquidation, dissolution or winding-up proceedings
with respect to the Corporation or to effect any other distribution of
the assets of the Corporation among its shareholders for the purpose
of winding up its affairs, at least 60 days prior to the proposed
effective date of such liquidation, dissolution, winding up or other
distribution;
(b) immediately, upon the earlier of (i) receipt by the Corporation of
notice of, and (ii) the Corporation otherwise becoming aware of, any
threatened or instituted claim, suit, petition or other proceeding
with respect to the involuntary liquidation, dissolution or winding up
of the Corporation or to effect any other distribution of the assets
of the Corporation among its shareholders for the purpose of winding
up its affairs;
(c) immediately, upon receipt by the Corporation of a Retraction Request
(as defined in the Preferred Share Provisions);
(d) at least 130 days prior to any Company Redemption Date determined by
the Board of Directors in accordance with the Preferred Share
Provisions; and
(e) as soon as practicable upon the issuance by the Corporation of any
Preferred Shares or rights to acquire Preferred Shares.
<PAGE>
6.5 Delivery of Shares of Parent Common Stock. Upon notice of any event that
requires the Corporation to cause to be delivered shares of Parent Common Stock
to any holder of Preferred Shares, the Parent shall, in any manner deemed
appropriate by it, provide such shares or cause such shares to be provided to
the Corporation, which shall forthwith deliver the requisite shares of Parent
Common Stock to or to the order of the former holder of the surrendered
Preferred Shares, as the Corporation shall direct. All such shares of Parent
Common Stock shall be duly issued as fully paid, non-assessable, free of
pre-emptive rights and shall be free and clear of any lien, claim, encumbrance,
security interest or adverse claim.
6.6 Qualification of Shares of Parent Common Stock. The Parent covenants that it
will make such filings and seek such regulatory consents and approvals as are
necessary so that the shares of Parent Common Stock to be issued on the exchange
of Preferred Shares will be issued in compliance with the applicable securities
laws in Canada and the United States and may be freely traded (other than by
holders who are Affiliates of the Parent within the meaning of U.S. securities
laws) on Nasdaq or on such other United States exchange as such shares may be
listed, quoted or posted for trading from time to time.
6.7 Economic Equivalence.
(1) The Parent will not without the prior approval of the Corporation
and the prior approval of the holders of the Preferred Shares given in
accordance with Section 9.2 of the Preferred Share Provisions:
(a) issue or distribute shares of Parent Common Stock (or securities
Preferred for or convertible into or carrying rights to acquire shares
of Parent Common Stock) to the holders of all or substantially all of
the then outstanding Parent Common Stock by way of stock dividend or
other distribution, other than an issue of shares of Parent Common
Stock (or securities Preferred for or convertible into or carrying
rights to acquire shares of Parent Common Stock) to holders of shares
of Parent Common Stock who exercise an option to receive dividends in
Parent Common Stock (or securities Preferred for or convertible into
or carrying rights to acquire shares of Parent Common Stock) in lieu
of receiving cash dividends;
(b) issue or distribute rights, options or warrants to the holders of all
or substantially all of the then outstanding shares of Parent Common
Stock entitling them to subscribe for or to purchase shares of Parent
Common Stock (or securities Preferred for or convertible into or
carrying rights to acquire shares of Parent Common Stock); or
(c) issue or distribute to the holders of all or substantially all of the
then outstanding shares of Parent Common Stock (i) shares or
securities of the Parent of any class other than Parent Common Stock
(other than shares convertible into or Preferred for or carrying
rights to acquire shares of Parent Common Stock), (ii) rights, options
or warrants other than those referred to in section 6.7(1) (b) above,
(iii) evidences of indebtedness of the Parent or (iv) assets of the
Parent;
<PAGE>
unless (x) the Corporation is permitted under applicable law to issue or
distribute the economic equivalent on a per share basis of such rights, options,
securities, shares, evidences of indebtedness or other assets to holders of the
Preferred Shares and (y) the Corporation shall issue or distribute such rights,
options, securities, shares, evidences of indebtedness or other assets
simultaneously to holders of the Preferred Shares.
(2) The Parent will not without the prior approval of the Corporation
and the prior approval of the holders of the Preferred Shares given in
accordance with Section 9.2 of the Preferred Share Provisions:
(a) subdivide, redivide or change the then outstanding shares of Parent
Common Stock into a greater number of shares of Parent Common Stock;
or
(b) reduce, combine or consolidate or change the then outstanding shares
of Parent Common Stock into a lesser number of shares of Parent Common
Stock; or
(c) reclassify or otherwise change the shares of Parent Common Stock or
effect an amalgamation, merger, reorganization or other transaction
affecting the shares of Parent Common Stock;
unless (x) the Corporation is permitted under applicable law to simultaneously
make the same or an economically equivalent change to, or in the rights of
holders of, the Preferred Shares and (y) the same or an economically equivalent
change is made to, or in the rights of the holders of, the Preferred Shares.
(3) The Parent will ensure that the record date for any event referred
to in section 6.7(1) or 6.7(2) above, or (if no record date is applicable for
such event) the effective date for any such event, is not less than 20 Business
Days after the date on which such event is declared or announced by the Parent
(with simultaneous notice thereof to be given by the Parent to the Corporation).
(4) The Board of Directors shall determine, in good faith and in its
sole discretion (with the assistance of such reputable and qualified independent
financial advisors and/or other experts as the board may require), economic
equivalence for the purposes of any event referred to in section 6.7(1) or
6.7(2) and each such determination shall be conclusive and binding on the
Parent. In making each such determination, the following factors shall, without
excluding other factors determined by the board to be relevant, be considered by
the Board of Directors:
(a) in the case of any stock dividend or other distribution payable in
shares of Parent Common Stock, the number of such shares issued in
proportion to the number of shares of Parent Common Stock previously
outstanding;
(b) in the case of the issuance or distribution of any rights, options or
warrants to subscribe for or purchase shares of Parent Common Stock
(or securities Preferred for or convertible into or carrying rights to
acquire shares of Parent Common Stock), the relationship between the
exercise price of each such right, option or warrant and the current
market value (as determined by the Board of Directors in the manner
above contemplated) of a share of Parent Common Stock;
<PAGE>
(c) in the case of the issuance or distribution of any other form of
property (including without limitation any shares or securities of the
Parent of any class other than Parent Common Stock, any rights,
options or warrants other than those referred to in section 6.7(4)(b)
above, any evidences of indebtedness of the Parent or any assets of
the Parent), the relationship between the fair market value (as
determined by the Board of Directors in the manner above contemplated)
of such property to be issued or distributed with respect to each
outstanding share of Parent Common Stock and the current market value
(as determined by the Board of Directors in the manner above
contemplated) of a share of Parent Common Stock;
(d) in the case of any subdivision, redivision or change of the then
outstanding shares of Parent Common Stock into a greater number of
shares of Parent Common Stock or the reduction, combination or
consolidation or change of the then outstanding shares of Parent
Common Stock into a lesser number of shares of Parent Common Stock or
any amalgamation, merger, reorganization or other transaction
affecting the Parent Common Stock, the effect thereof upon the then
outstanding shares of Parent Common Stock; and
(e) in all such cases, the general taxation consequences of the relevant
event to holders of Preferred Shares to the extent that such
consequences may differ from the taxation consequences to holders of
shares of Parent Common Stock as a result of differences between
taxation laws of Canada and the United States (except for any
differing consequences arising as a result of differing marginal
taxation rates and without regard to the individual circumstances of
holders of Preferred Shares).
For purposes of the foregoing determinations, the current market value of any
security listed and traded or quoted on a securities exchange shall be the
weighted average of the daily trading prices of such security during a period of
not less than 20 consecutive trading days ending not more than five trading days
before the date of determination on the principal securities exchange on which
such securities are listed and traded or quoted; provided, however, that if in
the opinion of the Board of Directors the public distribution or trading
activity of such securities during such period does not create a market that
reflects the fair market value of such securities, then the current market value
thereof shall be determined by the Board of Directors, in good faith and in its
sole discretion (with the assistance of such reputable and qualified independent
financial advisors and/or other experts as the board may require), and provided
further that any such determination by the Board of Directors shall be
conclusive and binding on the Parent.
<PAGE>
6.8 Tender Offers, etc. In the event that a cash offer, share exchange offer,
issuer bid, take-over bid or similar transaction with respect to Parent Common
Stock (each, a "Tender Offer") is proposed by the Parent or is proposed to the
Parent or its shareholders and is recommended by the board of directors of the
Parent or is otherwise effected or to be effected with the consent or approval
of the board of directors of the Parent, the Parent will use reasonable efforts
(to the extent, in the case of a Tender Offer by a third party, within its
control) expeditiously and in good faith to take all such actions and do all
such things as are necessary or desirable to enable and permit holders of
Preferred Shares to participate in such Tender Offer to the same extent and on
an economically equivalent basis as the holders of shares of Parent Common
Stock, without discrimination. Without limiting the generality of the foregoing,
the Parent will use reasonable efforts expeditiously and in good faith to ensure
that holders of Preferred Shares may participate in all such Tender Offers
without being required to retract Preferred Shares as against the Corporation
(or, if so required, to ensure that any such retraction shall be effective only
upon, and shall be conditional upon, the closing of the Tender Offer and only to
the extent necessary to tender or deposit to the Tender Offer).
6.9 Ownership of Common Shares of the Corporation. Without the prior approval of
the Non-Affiliated Holders given in accordance with Section 9.2 of the Preferred
Shares Provisions, Parent covenants and agrees that, as long as any outstanding
Preferred Shares are owned by any Non-Affiliated Holder, Parent will be and
remain the direct or indirect beneficial owner of all the issued and outstanding
securities of the Corporation carrying or otherwise entitled to voting rights in
any circumstances, other than the Preferred Shares.
6.10 Parent Not to Vote Preferred Shares. The Parent covenants and agrees that
it will appoint and cause to be appointed proxyholders with respect to all
Preferred Shares held by the Parent and its Subsidiaries for the sole purpose of
attending each meeting of holders of Preferred Shares in order to be counted as
part of the quorum for each such meeting. The Parent further covenants and
agrees that it will not, and will cause its Subsidiaries not to, exercise any
voting rights that may be exercisable by holders of Preferred Shares from time
to time pursuant to the Preferred Share Provisions or pursuant to the provisions
of the Canada Business Corporations Act (or any successor or other corporate
statute by which the Corporation may in the future be governed) with respect to
any Preferred Shares held by it or by its direct or indirect Subsidiaries in
respect of any matter considered at any meeting of holders of Preferred Shares.
6.11 Due Performance. On and after the Effective Date, the Parent shall, and
shall cause VM Sub to, duly and timely perform all of its obligations provided
for herein and that may arise under the Preferred Share Provisions, and Parent
shall be responsible for the due performance of all of such obligations
hereunder and under the Preferred Share Provisions.
6.12 Issue of Additional Shares. During the term of this agreement, the Parent
will not issue any shares of Parent Series B Special Voting Preferred Shares,
par value US$0.001(the "Special Voting Share") in addition to the one Special
Voting Share to be issued to the Trustee.
ARTICLE 7
CONCERNING THE TRUSTEE
7.1 Powers and Duties of the Trustee. The rights, powers and authorities of the
Trustee under this agreement, in its capacity as trustee of the trust, shall
include:
(a) receipt and deposit of the Voting Share from the Parent as trustee for
and on behalf of the Non-Affiliated Holders in accordance with the
provisions of this agreement;
<PAGE>
(b) granting proxies and distributing materials to Non-Affiliated Holders
as provided in this agreement;
(c) voting the Non-Affiliated Holder Votes in accordance with the
provisions of this agreement;
(d) receiving the grant of the Exchange Right and the Automatic Exchange
Rights from the Parent as trustee for and on behalf of the
Non-Affiliated Holders in accordance with the provisions of this
agreement;
(e) exercising the Exchange Right in accordance with the provisions of
this agreement, and in connection therewith receiving from
Non-Affiliated Holders Preferred Shares and other requisite documents
and distributing to such Non-Affiliated Holders the shares of Parent
Common Stock and cheques, if any, to which such Non-Affiliated Holders
are entitled upon the exercise of the Exchange Right;
(f) holding title to the Trust Estate;
(g) investing any money forming, from time to time, a part of the Trust
Estate as provided in this agreement;
(h) taking action at the direction of a Non-Affiliated Holder to enforce
the obligations of the Corporation and/or the Parent under this
agreement and under the Preferred Share Provisions; and
(i) taking such other actions and doing such other things as are
specifically provided in this agreement.
<PAGE>
In the exercise of such rights, powers and authorities the Trustee shall have
(and is granted) such incidental and additional rights, powers and authority not
in conflict with any of the provisions of this agreement as the Trustee, acting
in good faith and in the reasonable exercise of its discretion, may deem
necessary, appropriate or desirable to effect the purpose of the Trust. Any
exercise of such discretionary rights, powers and authorities by the Trustee
shall be final, conclusive and binding upon all persons. For greater certainty,
the Trustee shall have only those duties as are set out specifically in this
agreement. The Trustee in exercising its rights, powers, duties and authorities
hereunder shall act honestly and in good faith with a view to the best interests
of the Non-Affiliated Holders and shall exercise the care, diligence and skill
that a reasonably prudent trustee would exercise in comparable circumstances.
The Trustee shall not be bound to give any notice or do or take any act, action
or proceeding by virtue of the powers conferred on it hereby unless and until it
shall be specifically required to do so under the terms hereof; nor shall the
Trustee be required to take any notice of, or to do or to take any act, action
or proceeding as a result of any default or breach of any provision hereunder,
unless and until notified in writing of such default or breach, which notice
shall distinctly specify the default or breach desired to be brought to the
attention of the Trustee and in the absence of such notice the Trustee may for
all purposes of this agreement conclusively assume that no default or breach has
been made in the observance or performance of any of the representations,
warranties, covenants, agreements or conditions contained herein.
7.2 No Conflict of Interest. The Trustee represents to the Corporation and the
Parent that at the date of execution and delivery of this agreement there exists
no material conflict of interest in the role of the Trustee as a fiduciary
hereunder and the role of the Trustee in any other capacity. The Trustee shall,
within 90 days after it becomes aware that such a material conflict of interest
exists, either eliminate such material conflict of interest or resign in the
manner and with the effect specified in Article 10 hereof. If, notwithstanding
the foregoing provisions of this section 7.2, the Trustee has such a material
conflict of interest, the validity and enforceability of this agreement shall
not be affected in any manner whatsoever by reason only of the existence of such
material conflict of interest. If the Trustee contravenes the foregoing
provisions of this section 7.2, any interested party may apply to the Supreme
Court of British Columbia for an order that the Trustee be replaced as trustee
hereunder.
7.3 Dealing with Trustees, Registrars, etc. The Corporation and the Parent
irrevocably authorize the Trustee, from time to time, to:
(a) consult, communicate and otherwise deal with the respective registrars
and transfer agents, and with any such subsequent registrar or
transfer agent, of the Preferred Shares and the Parent Common Stock;
and
(b) requisition, from time to time, from any such registrar or transfer
agent any information readily available from the records maintained by
it which the Trustee may reasonably require for the discharge of its
duties and responsibilities under this agreement. The Parent covenants
that it will supply, and will cause VM Sub to supply, the Trustee in a
timely manner with duly executed share certificates for the purpose of
completing the exercise from time to time of all rights to acquire
Parent Common Stock hereunder, under the Preferred Share Provisions
and under any other security or commitment given to the Non-Affiliated
Holders pursuant thereto, in each case pursuant to the provisions
hereof or of the Preferred Share Provisions or otherwise.
7.4 Books and Records. The Trustee shall keep available for inspection by the
Parent and the Corporation, correct and complete books and records of account
relating to the Trustee's actions under this agreement, including without
limitation all information relating to all transactions pursuant to the Voting
Rights and the Exchange Right for the term of this Agreement.
7.5 Income Tax Returns and Reports. The Trustee shall, to the extent necessary,
prepare and file on behalf of the Trust appropriate Canadian and United States
income tax returns and any other returns or reports as may be required by
applicable law and, in connection therewith, may obtain the advice and
assistance of such experts as the Trustee may consider necessary or advisable.
The Parent shall retain at its expense (and not at the expense of the Trustee)
such experts as may be required by the Trustee for the purposes of providing
such advice and assistance.
<PAGE>
7.6 Indemnification Prior to Certain Actions by Trustee. The Trustee shall
exercise any or all of the rights, duties, powers or authorities vested in it by
this agreement at the request, order or direction of any Non-Affiliated Holder
upon such Non-Affiliated Holder furnishing to the Trustee reasonable funding,
security and indemnity against the costs, expenses and liabilities that may be
incurred by the Trustee therein or thereby, provided that no Non-Affiliated
Holder shall be obligated to furnish to the Trustee any such funding, security
or indemnity in connection with the exercise by the Trustee of any of its
rights, duties, powers and authorities with respect to the Voting Share pursuant
to Article 4 hereof and with respect to the Exchange Right pursuant to Article 5
hereof, subject to the provisions of section 7.14 hereof. None of the provisions
contained in this agreement shall require the Trustee to expend or risk its own
funds or otherwise incur financial liability in the exercise of any of its
rights, powers, duties or authorities unless given funds, security and
indemnified as aforesaid.
7.7 Actions by Non-Affiliated Holders. No Non-Affiliated Holder shall have the
right to institute any action, suit or proceeding or to exercise any other
remedy authorized by this agreement for the purpose of enforcing any of its
rights or for the execution of any trust or power hereunder unless the
Non-Affiliated Holder has requested the Trustee to take or institute such
action, suit or proceeding and furnished the Trustee with the funding, security
and indemnity referred to in section 7.6 hereof and the Trustee shall have
failed to act within a reasonable time thereafter. In such case, but not
otherwise, the Non-Affiliated Holder shall be entitled to take proceedings in
any court of competent jurisdiction such as the Trustee might have taken; it
being understood and intended that no one or more Non-Affiliated Holders shall
have any right in any manner whatsoever to affect, disturb or prejudice the
rights hereby created by any such action, or to enforce any right hereunder,
including without limitation, under the Voting Rights or the Exchange Right,
except subject to the conditions and in the manner herein provided, and that all
powers and trusts hereunder shall be exercised and all proceedings at law shall
be instituted, had and maintained by the Trustee, except only as herein
provided, and in any event for the equal benefit of all Non-Affiliated Holders.
7.8 Reliance upon Declarations. The Trustee shall not be considered to be in
contravention of any of its rights, powers, duties and authorities hereunder if,
when required, it acts and relies in good faith upon lists, mailing labels,
notices, statutory declarations, certificates, opinions, reports or other papers
or documents furnished pursuant to the provisions hereof or required by the
Trustee to be furnished to it in the exercise of its rights, powers, duties and
authorities hereunder and such lists, mailing labels, notices, statutory
declarations, certificates, opinions, reports or other papers or documents
comply with the provisions of section 7.9 hereof, if applicable, and with any
other applicable provisions of this agreement.
7.9 Evidence and Authority to Trustee. The Corporation and/or the Parent shall
furnish to the Trustee evidence of compliance with the conditions provided for
in this agreement relating to any action or step required or permitted to be
taken by the Corporation, the Parent, VM Sub or the Trustee under this agreement
or as a result of any obligation imposed under this agreement, including,
without limitation, in respect of the Voting Rights or the Exchange Right and
the taking of any other action to be taken by the Trustee at the request of or
on the application of the Corporation and/or the Parent forthwith if and when:
<PAGE>
(a) such evidence is required by any other section of this agreement to be
furnished to the Trustee in accordance with the terms of this section
7.9; or
(b) the Trustee, in the exercise of its rights, powers, duties and
authorities under this agreement, gives the Corporation and/or the
Parent written notice requiring it to furnish such evidence in
relation to any particular action or obligation specified in such
notice.
Such evidence shall consist of an Officer's Certificate of the Corporation
and/or the Parent or a statutory declaration or a certificate made by persons
entitled to sign an Officer's Certificate stating that any such condition has
been complied with in accordance with the terms of this agreement. Whenever such
evidence relates to a matter other than the Voting Rights or the Exchange Right
and except as otherwise specifically provided herein, such evidence may consist
of a report or opinion of any solicitor, auditor, accountant, appraiser, valuer,
engineer or other expert or any other person whose qualifications give authority
to a statement made by such person, provided that if such report or opinion is
furnished by a director, officer or employee of the Corporation and/or the
Parent it shall be in the form of an Officer's Certificate or a statutory
declaration. Each statutory declaration, certificate, opinion or report
furnished to the Trustee as evidence of compliance with a condition provided for
in this agreement shall include a statement by the person giving the evidence:
(a) declaring that such person has read and understands the pro- visions
of this agreement relating to the condition in question;
(b) describing the nature and scope of the examination or investigation
upon which such person based the statutory declaration, certificate,
statement or opinion; and
(c) declaring that such person has made such examination or investigation
as such person believes is necessary to enable such person to make the
statements or give the opinions contained or expressed therein.
7.10 Experts, Advisers and Agents. The Trustee may:
(a) in relation to this agreement act and rely on the opinion or advice of
or information obtained from or prepared by any solicitor, auditor,
accountant, appraiser, valuer, engineer or other expert, whether
retained by the Trustee or by the Corporation and/or the Parent or
otherwise, and may employ such assistants as may be necessary to the
proper determination and discharge of its powers and duties and
determination of its rights hereunder and may pay proper and
reasonable compensation for all such legal and other advice or
assistance as aforesaid; and
<PAGE>
(b) employ such agents and other assistants as it may reasonably require
for the proper determination and discharge of its powers and duties
hereunder, and may pay reasonable remuneration for all services
performed for it (and shall be entitled to receive reasonable
remuneration for all services performed by it) in the discharge of the
trusts hereof and compensation for all disbursements, costs and
expenses made or incurred by it in the determination and discharge of
its duties hereunder and in the management of the Trust.
7.11 Investment of Money Held by Trustee. Unless otherwise provided in this
agreement, any money held by or on behalf of the Trustee which under the terms
of this agreement may or ought to be invested or which may be on deposit with
the Trustee or which may be in the hands of the Trustee may be invested and
reinvested in the name or under the control of the Trustee in securities in
which, under the laws of the Province of British Columbia, trustees are
authorized to invest trust money, provided that such securities are stated to
mature within two years after their purchase by the Trustee, and the Trustee
shall so invest such money on the written direction of the Corporation. Pending
the investment of any money as herein before provided, such money may be
deposited in the name of the Trustee in any chartered bank in Canada or, with
the consent of the Corporation, in the deposit department of any loan or trust
company authorized to accept deposits under the laws of Canada or any province
thereof at the rate of interest then current on similar deposits.
7.12 Trustee Not Required to Give Security. The Trustee shall not be required to
give any bond or security in respect of the execution of the trusts, rights,
duties, powers and authorities of this agreement or otherwise in respect of the
premises.
7.13 Trustee Not Bound to Act on Corporation's Request. Except as in this
agreement otherwise specifically provided, the Trustee shall not be bound to act
in accordance with any direction or request of the Corporation and/or the Parent
or of the directors thereof until a duly authenticated copy of the instrument or
resolution containing such direction or request shall have been delivered to the
Trustee, and the Trustee shall be empowered to act and rely upon any such copy
purporting to be authenticated and believed by the Trustee to be genuine.
7.14 Conflicting Claims. If conflicting claims or demands are made or asserted
with respect to any interest of any Non-Affiliated Holder in any Preferred
Shares, including any disagreement between the heirs, representatives,
successors or assigns succeeding to all or any part of the interest of any
Non-Affiliated Holder in any Preferred Shares resulting in conflicting claims or
demands being made in connection with such interest, then the Trustee shall be
entitled, at its sole discretion, to refuse to recognize or to comply with any
such claim or demand. In so refusing, the Trustee may elect not to exercise any
Voting Rights, the Exchange Right or other rights subject to such conflicting
claims or demands and, in so doing, the Trustee shall not be or become liable to
any person on account of such election or its failure or refusal to comply with
any such conflicting claims or demands. The Trustee shall be entitled to
continue to refrain from acting and to refuse to act until:
(a) the rights of all adverse claimants with respect to the Voting Rights,
Exchange Right or other rights subject to such conflicting claims or
demands have been adjudicated by a final judgment of a court of
competent jurisdiction and all rights of appeal have expired; or
<PAGE>
(b) all differences with respect to the Voting Rights, Exchange Right or
other rights subject to such conflicting claims or demands have been
conclusively settled by a valid written agreement binding on all such
adverse claimants, and the Trustee shall have been furnished with an
executed copy of such agreement.
If the Trustee elects to recognize any claim or comply with any demand made by
any such adverse claimant, it may in its discretion require such claimant to
furnish such surety bond or other security satisfactory to the Trustee as it
shall deem appropriate fully to indemnify it as between all conflicting claims
or demands.
7.15 Acceptance of Trust. The Trustee hereby accepts the Trust created and
provided for by and in this agreement and agrees to perform the same upon the
terms and conditions herein set forth and to hold all rights, privileges and
benefits conferred hereby and by law in trust for the various persons who shall
from time to time be Non-Affiliated Holders, subject to all the terms and
conditions herein set forth.
ARTICLE 8
COMPENSATION
8.1 Fees and Expenses of the Trustee. The Trustee will invoice the Parent for
its fees and expenses under this agreement. The Parent and the Corporation
jointly and severally agree to pay to the Trustee reasonable compensation for
all of the services rendered by it under this agreement and will reimburse the
Trustee for all reasonable expenses (including but not limited to taxes,
compensation paid to experts, agents and advisors and travel expenses) and
disbursements, including the cost and expense of any suit or litigation of any
character and any proceedings before any governmental agency reasonably incurred
by the Trustee in connection with its rights and duties under this agreement;
provided that the Parent and the Corporation shall have no obligation to
reimburse the Trustee for any expenses or disbursements paid, incurred or
suffered by the Trustee in any suit or litigation in which the Trustee is
determined to have acted in bad faith or with negligence or wilful misconduct.
ARTICLE 9
INDEMNIFICATION AND LIMITATION OF LIABILITY
<PAGE>
9.1 Indemnification of the Trustee. The Parent and the Corporation jointly and
severally agree to indemnify and hold harmless the Trustee and each of its
directors, officers, partners, employees and agents appointed and acting in
accordance with this agreement (collectively, the "Indemnified Parties") against
all claims, losses, damages, costs, penalties, fines and reasonable expenses
(including reasonable expenses of the Trustee's legal counsel) which, without
fraud, negligence, wilful misconduct or bad faith on the part of such
Indemnified Party, may be paid, incurred or suffered by the Indemnified Party by
reason of or as a result of the Trustee's acceptance or administration of the
Trust, its compliance with its duties set forth in this agreement, or any
written or oral instructions (when confirmed in writing) delivered to the
Trustee by the Parent or the Corporation pursuant hereto. In no case shall the
Parent or the Corporation be liable under this indemnity for any claim against
any of the Indemnified Parties if such claim is incurred or suffered by reason
of or as a result of the fraud, negligence, wilful misconduct or bad faith of an
Indemnified Party and unless the Parent and the Corporation shall be notified by
the Trustee of the written assertion of a claim or of any action commenced
against the Indemnified Parties, promptly after any of the Indemnified Parties
shall have received any such written assertion of a claim or shall have been
served with a summons or other first legal process giving information as to the
nature and basis of the claim. Subject to (ii), below, the Parent and the
Corporation shall be entitled to participate at their own expense in the defence
and, if the Parent or the Corporation so elect at any time after receipt of such
notice, any of them may assume the defence of any suit brought to enforce any
such claim. The Trustee shall have the right to employ separate counsel in any
such suit and participate in the defence thereof but the fees and expenses of
such counsel shall be at the expense of the Trustee unless: (i) the employment
of such counsel has been authorized by the Parent or the Corporation, such
authorization not to be unreasonably withheld; or (ii) the named parties to any
such suit include both the Trustee and the Parent or the Corporation and the
Trustee shall have been advised by counsel acceptable to the Parent or the
Corporation that there may be one or more legal defences available to the
Trustee that are different from or in addition to those available to the Parent
or the Corporation and that an actual or potential conflict of interest exists
(in which case the Parent and the Corporation shall not have the right to assume
the defence of such suit on behalf of the Trustee but shall be liable to pay the
reasonable fees and expenses of counsel for the Trustee). Such indemnification
shall survive the resignation or removal of the Trustee and the termination of
this agreement.
9.2 Limitation of Liability. The Trustee shall not be held liable for any loss
which may occur by reason of depreciation of the value of any part of the Trust
Estate or any loss incurred on any investment of funds pursuant to this
agreement, except to the extent that such loss is attributable to the fraud,
negligence, wilful misconduct or bad faith on the part of the Trustee.
ARTICLE 10
CHANGE OF TRUSTEE
10.1 Resignation. The Trustee, or any trustee hereafter appointed, may at
any time resign by giving written notice of such resignation to the Parent and
the Corporation (with a copy of such notice being given by such resigning
trustee to each Non-Affiliated Holder) specifying the date on which it desires
to resign, provided that such notice shall never be given less than 10 Business
Days before such desired resignation date unless the Parent and the Corporation
otherwise agree and provided further that such resignation shall not take effect
until the date of the appointment of a successor trustee and the acceptance of
such appointment by the successor trustee. Upon receiving such notice of
resignation, the Parent and the Corporation shall promptly appoint a successor
trustee by written instrument in duplicate, one copy of which shall be delivered
to the resigning trustee and one copy to the successor trustee. Failing
acceptance by a successor trustee, a successor trustee may be appointed by an
order of the Supreme Court of British Columbia upon application of one or more
of the parties hereto. If the retiring Trustee applies to the Supreme Court of
British Columbia for the appointment of a successor trustee, the retiring
Trustee's costs of such application shall be at the joint and several expense of
the Parent and the Corporation.
<PAGE>
10.2 Removal. The Trustee, or any trustee hereafter appointed, may be removed
with or without cause, at any time on 60 days' prior notice by written
instrument executed by the Parent and the Corporation, in duplicate, one copy of
which shall be delivered to the trustee to be removed (with a copy of such
written instrument being given by such trustee to each Non-Affiliated Holder as
soon as reasonably practicable after receipt) and one copy to the proposed
successor trustee, provided that such removal shall not take effect until the
date of appointment of a successor trustee and the acceptance of such
appointment by the successor trustee.
10.3 Successor Trustee. Any successor trustee appointed as provided under this
agreement shall execute, acknowledge and deliver to the Parent and the
Corporation and to its predecessor trustee an instrument accepting such
appointment. Thereupon the resignation or removal of the predecessor trustee
shall become effective and such successor trustee, without any further act, deed
or conveyance, shall become vested with all the rights, powers, duties and
obligations of its predecessor under this agreement, with like effect as if
originally named as trustee in this agreement. However, on the written request
of the Parent and the Corporation or of the successor trustee, the trustee
ceasing to act shall, upon payment of any amounts then due it pursuant to the
provisions of this agreement, execute and deliver an instrument transferring to
such successor trustee all the rights and powers of the trustee so ceasing to
act. Upon the request of any such successor trustee, the Parent and the
Corporation and such predecessor trustee shall execute any and all instruments
in writing for more fully and certainly vesting in and confirming to such
successor trustee all such rights and powers.
10.4 Notice of Successor Trustee. Upon acceptance of appointment by a successor
trustee as provided herein, the Parent and the Corporation shall cause to be
mailed notice of the succession of such trustee hereunder to each Non-Affiliated
Holder specified in a List. If the Parent or the Corporation shall fail to cause
such notice to be mailed within 10 days after acceptance of appointment by the
successor trustee, the successor trustee shall cause such notice to be mailed at
the expense of the Parent and the Corporation.
ARTICLE 11
PARENT SUCCESSORS
11.1 Certain Requirements in Respect of Combination, etc. The Parent shall not
enter into any transaction (whether by way of reconstruction, reorganization,
consolidation, merger, transfer, sale, lease or otherwise) whereby all or
substantially all of its undertaking, property and assets would become the
property of any other person or, in the case of a merger, of the continuing
corporation resulting therefrom unless:
(a) such other person or continuing corporation (the "Parent Successor"),
by operation of law, becomes, without more, bound by the terms and
provisions of this agreement or, if not so bound, executes, prior to
or contemporaneously with the consummation of such transaction a
agreement supplemental hereto and such other instruments (if any) as
are, in the opinion of the Trustee, necessary or advisable to evidence
the assumption by the Parent Successor of liability for all money
payable and property deliverable hereunder and the covenant of such
Parent Successor to pay and deliver or cause to be delivered the same
and its agreement to observe and perform all the covenants and
obligations of the Parent under this agreement; and
<PAGE>
(b) such transaction shall, in the opinion of the Trustee, be upon such
terms as substantially to preserve and not to impair in any material
respect any of the rights, duties, powers and authorities of the
Trustee or of the Non-Affiliated Holders hereunder.
11.2 Vesting of Powers in Successor. Whenever the conditions of section 11.I
hereof have been duly observed and performed, if required by section 11.1
hereof, the Trustee, the Parent Successor and the Corporation shall execute and
deliver the supplemental agreement provided for in Article 12 hereof and
thereupon the Parent Successor shall possess and from time to time may exercise
each and every right and power of the Parent under this agreement in the name of
the Parent or otherwise and any act or proceeding by any provision of this
agreement required to be done or performed by the board of directors of the
Parent or any officers of the Parent may be done and performed with like force
and effect by the directors or officers of such Parent Successor.
11.3 Wholly-Owned Subsidiaries. Nothing herein shall be construed as preventing
the amalgamation or merger of any wholly-owned Subsidiary of the Parent with or
into the Parent or the winding up, liquidation or dissolution of any
wholly-owned Subsidiary of the Parent provided that all of the assets of such
Subsidiary are transferred to the Parent or another wholly-owned Subsidiary of
the Parent, and any such transactions are expressly permitted by this Article
11.
ARTICLE 12
AMENDMENTS AND SUPPLEMENTAL AGREEMENTS
12.1 Amendments, Modifications, etc. This agreement may not be amended or
modified except by an agreement in writing executed by the Corporation, the
Parent and the Trustee and, unless the amendment or modification is expressly
authorized or permitted by this agreement, approved by the Non-Affiliated
Holders in accordance with Section 9.2 of the Preferred Share Provisions.
12.2 Amendments with the Approval of Non-Affiliated Holders. Notwithstanding the
provisions of section 12.1 hereof, the parties to this agreement may in writing,
at any time and from time to time, without the approval of the Non-Affiliated
Holders, amend, modify or supplement this agreement for the purposes of:
(a) adding to the covenants of any or all of the parties hereto for the
protection of the Non-Affiliated Holder hereunder;
(b) evidencing the succession of Parent Successors and the covenants of
and obligations assumed by each such Parent Successor in accordance
with the provisions of Article 11 and the succession of any successor
trustee in accordance with Article 10;
<PAGE>
(c) making such amendments or modifications not inconsistent with this
agreement as may be necessary or desirable with respect to matters or
questions which, in the opinion of the Board of Directors and the
board of directors of the Parent, having in mind the best interests of
the Non-Affiliated Holders as a whole, it may be expedient to make,
provided that such boards of directors shall be of the opinion that
such amendments and modifications will not be prejudicial in any
material respect to the interests of the Non-Affiliated Holders as a
whole; or
(d) making such changes or corrections which, on the advice of counsel to
the Corporation and the Parent, are required for the purpose of curing
or correcting any ambiguity or defect or inconsistent provision or
clerical omission or mistake or manifest error, provided that the
Board of Directors and the board of directors of the Parent shall be
of the opinion that such changes or corrections will not be
prejudicial in any material respect to the interests of the
Non-Affiliated Holders as a whole.
12.3 Meeting to Consider Amendments. The Corporation, at the request of the
Parent, shall call a meeting or meetings of the Non-Affiliated Holders for the
purpose of considering any proposed amendment or modification requiring approval
pursuant hereto. Any such meeting or meetings shall be called and held in
accordance with the by-laws of the Corporation, the Preferred Share Provisions
and all applicable laws.
12.4 Changes in Capital of Parent and the Corporation. At all times after the
occurrence of any event effected pursuant to section 6.7 or section 6.8 of this
agreement, as a result of which either the Parent Common Stock or the Preferred
Shares or both are in any way changed, this agreement shall forthwith be amended
and modified as necessary in order that it shall apply with full force and
effect, mutatis mutandis, to all new securities into which the Parent Common
Stock or the Preferred Shares or both are so changed and the parties hereto
shall execute and deliver a supplemental agreement giving effect to and
evidencing such necessary amendments and modifications.
12.5 Execution of Supplemental Agreements. No amendment to or modification or
waiver of any of the provisions of this agreement otherwise permitted hereunder
shall be effective unless made in writing and signed by all of the parties
hereto. From time to time the Corporation, the Parent and the Trustee may,
subject to the provisions of these presents, and they shall, when so directed by
these presents, execute and deliver by their proper officers, agreements or
other instruments supplemental hereto, which thereafter shall form part hereof.
In executing or accepting the supplemental trusts created by any supplemental
indenture permitted by this Article 12, the Trustee will be entitled to receive
and (subject to Article 7) will be fully protected in relying upon an Officer's
Certificate and opinions of counsel stating that the execution of such
supplemental indenture is authorized or permitted in this agreement.
ARTICLE 13
TERMINATION
13.1 Term. The Trust created by this agreement shall continue until the earliest
to occur of the following events:
<PAGE>
(a) no outstanding Preferred Shares are held by any Non-Affiliated Holder;
(b) each of the Corporation and the Parent elects in writing to terminate
the Trust and such termination is approved by the Non-Affiliated
Holders of the Preferred Shares in accordance with Section 9.2 of the
Preferred Share Provisions; and
(c) 21 years after the death of the last survivor of the descendants of
His Majesty King George VI of the United Kingdom of Great Britain and
Northern Ireland living on the date of the creation of the Trust.
13.2 Survival of Agreement. This agreement shall survive any termination of the
Trust and shall continue until there are no Preferred Shares outstanding held by
any Non-Affiliated Holder; provided, however, that the provisions of Articles 8
and 9 hereof and the representation contained in section 6.3(b) hereof shall
survive any such termination of this agreement.
ARTICLE 14
GENERAL
14.1 Severability. If any provision of this agreement is held to be invalid,
illegal or unenforceable, the validity, legality or enforceability of the
remainder of this agreement shall not in any way be affected or impaired thereby
and this agreement shall be carried out as nearly as possible in accordance with
its original terms and conditions.
14.2 Enurement. This agreement shall be binding upon and enure to the benefit of
the parties hereto and their respective successors and permitted assigns and to
the benefit of the Non-Affiliated Holders.
14.3 Notices to Parties. All notices and other communications between the
parties hereunder shall be in writing and shall be deemed to have been given if
delivered personally or by confirmed telecopy to the parties at the following
addresses (or at such other address for such party as shall be specified in like
notice):
(1 if to the Parent at: Suite 701
543 Granville Street
Vancouver, B.C.
V6C 1X 8
Attention: William E. Krebs
Telecopy: (604) 482-1169
(2 if to the Corporation at: Suite 701
543 Granville Street
Vancouver, B.C.
V6C 1X 8
Attention: William E. Krebs
Telecopy: (604) 482-1169
<PAGE>
(3 if to the Trustee at: Owen, Bird
Barristers and Solicitors
P.O. Box 49130
Three Bentall Centre
2900 - 595 Burrard Street
Vancouver, B.C.
V7X 1J5
Attention: Ian Muirhead
Telecopy: (604) 688-2827
Any notice or other communication given personally shall be deemed to have been
given and received upon delivery thereof and if given by telecopy shall be
deemed to have been given and received on the date of receipt thereof unless
such day is not a Business Day in which case it shall be deemed to have been
given and received upon the immediately following Business Day.
14.4 Notice to Non-Affiliated Holders. Any notice, request or other
communication to be given to a Non-Affiliated Holder shall be in writing and
shall be valid and effective if given by mail (postage pre-paid or by delivery
to the address of the holder recorded in the securities register of the
Corporation or, in the event of the address of any such holder not being so
recorded, then at the last known address of such holder. Any such notice,
request or other communication, if given by mail, shall be deemed to have been
given and received on the fifth day following the date of mailing and, if given
by delivery, shall be deemed to have been given and received on the date of
delivery. Accidental failure or omission to give any notice, request or other
communication to one or more holders of Preferred Shares, or any defect in such
notice, shall not invalidate or otherwise alter or affect any action proceeding
to be taken pursuant thereto.
14.5 Risk of Payments by Post. Whenever payments are to be made or certificates
or documents are to be sent to any Non-Affiliated Holder by the Trustee or by
the Corporation, the Parent or by such Non-Affiliated Holder to the Trustee or
to the Parent or the Corporation, the making of such payment or sending of such
certificate or document sent through the post shall be at the risk of the
Corporation, in the case of payments made or documents sent by the Trustee or
the Corporation or the Parent and the Non-Affiliated Holder, in the case of
payments made or documents sent by the Non-Affiliated Holder.
14.6 Effectiveness of Certain Provisions. Notwithstanding anything contained in
this Agreement, Articles 3, 4, 5 and 6 shall not be effective until all required
securities regulatory approvals have been obtained by the Parent and the
Corporation.
14.7 Counterparts. This agreement may be executed in counterparts, each of which
shall be deemed an original, but all of which taken together shall constitute
one and the same instrument.
14.8 Jurisdiction. This agreement shall be construed and enforced in accordance
with the laws of the Province of British Columbia and the laws of Canada
applicable therein.
<PAGE>
14.9 Attornment. The Parent agrees that any action or proceeding arising out of
or relating to this agreement may be instituted in the courts of British
Columbia, waives any objection which it may have now or hereafter to the venue
of any such action or proceeding, irrevocably submits to the jurisdiction of the
said courts in any such action or proceeding, agrees to be bound by any judgment
of the said courts and agrees not to seek, and hereby waives, any review of the
merits of any such judgment by the courts of any other jurisdiction and hereby
appoints the Corporation at its registered office in the Province of British
Columbia as its attorney for service of process.
IN WITNESS WHEREOF, the parties hereto have caused this agreement to be duly
executed as of the date first above written.
Voice Mobility International, Inc.
By: William Krebs
---------------------------------------
Name: William Krebs
Title: Secretary
Voice Mobility Canada Limited
By: /s/William Krebs
--------------------------------------
Name: William Krebs
Title: Secretary
Owen, Bird, a partnership
By: /s/ Ian Muirhead
---------------------------------------
Name: Ian Muirhead
Title: Partner
By: /s/ Patrick J.Haber
---------------------------------------
Name: Patrick J. Haber
Title: Barrister and Solicitor
