<PAGE>
As filed with the Securities and Exchange Commission on September 30, 1998.
Registration No. 333-
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM F-2
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
VERONEX TECHNOLOGIES, INC.
(Exact name of Registrant as specified in its charter)
Not Applicable
(Translation of Registrant's Name into English)
British Columbia, Canada 95-4235375
- ------------------------ ----------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
#701 475 Howe Street 18023 Sky Park Circle, Suite E-2
Vancouver, British Columbia, Canada V6C 2B3 Irvine, California 92614
(604) 669-5650 (949) 253-9600
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
David A. Hite, Chief Executive Office
18023 Sky Park Circle, Suite E-2
Irvine, California 92614
(949) 253-9600
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
Copy to:
Randolf W. Katz, Esq., Arter & Hadden LLP
5 Park Plaza, Suite 1000, Irvine, California 92614
Approximate date of commencement of proposed sale to the public _______.
If the only securities being registered on this Form are to be offered
pursuant to dividend or interest reinvestment plans, check the following box.
[_]
If any securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act, check
the following box. [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering.
[_]_____________
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_] _______________
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_] _______________
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
Maximum Maximum Amount of
Title of each class Amount to be offering price aggregate registration
of securities to be registered registered per share offering price fee
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<S> <C> <C> <C> <C>
Common Stock, prior issues 502,000 $4.08(2) $2,048,160(2) $ 604.21
Common Stock issuable upon(1):
Contingency event (Additional Shares) 1,506,000 $0.00 $ 0 $ 0.00
Exercise of Unit Warrants 502,000 $8.00 $4,016,000 $1,184.72
Exercise of Additional Warrants 1,506,000 $2.00 $3,012,000 $ 888.54
Exercise of Placement Warrants 100,400 $4.00 $ 401,600 $ 118.47
Exercise of Additional Placement Warrants 301,200 $1.00 $ 301,200 $ 88.85
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Total Registration Fee 4,417,600 $9,778,960 $2,884.79
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</TABLE>
(1) Assumes the grant of additional warrants representing 1,807,200 shares of
Common Stock, the exercise of all Warrants, and the issuance of an
additional 1,506,000 shares of Common Stock, which are currently contingent.
(2) Estimated solely for purposes of computing the registration fee, based upon
the average of the closing bid and ask prices on September 24, 1998,
pursuant to Rule 457(c).
<PAGE>
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE
SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
________________
VERONEX TECHNOLOGIES, INC.
CROSS-REFERENCE SHEET
PURSUANT TO ITEM 501(B) OF REGULATION S-K SHOWING THE
LOCATION OF INFORMATION REQUIRED BY PART I OF FORM F-2
<TABLE>
<CAPTION>
Item of Form F-2 Prospectus' Caption or Location
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<S> <C>
1. Forepart of the Registration Statement and Outside Cover of Registration Statement; Cross Reference
Front Cover of Prospectus.............................. Sheet; Outside Front Cover of Prospectus
2. Inside Front and Outside Back Cover Page of Prospectus. Prospectus Summary
3. Summary Information, and Risk Factors.................. Prospectus Summary; Risk Factors
4. Use of Proceeds........................................ Use of Proceeds
5. Determination of Offering Price........................ The Offering; Description of Securities
6. Dilution............................................... Dilution
7. Selling Security Holders............................... Selling Shareholders
8. Plan of Distribution................................... Prospectus Summary; The Offering; Plan of
Distribution
9. Description of Securities to be Registered............. Prospectus Summary; The Offering; Description of
Securities
10. Interests of Named Experts and Counsel................. Legal Matters
11. Material Changes....................................... Recent Developments
12. Information with Respect to the Registrant............. Incorporation of Certain Documents by Reference
13. Disclosure of Commission Position on Indemnification
for Securities Act Liabilities......................... Not Applicable
</TABLE>
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE.
PROSPECTUS Subject to Completion, September 30, 1998
4,417,600 SHARES
VERONEX TECHNOLOGIES, INC.
COMMON STOCK
Veronex Technologies, Inc., a British Columbia corporation ("Veronex" or
the "Company"), is offering to sell up to 3,915,600 shares of its Common Stock,
no par value per share ("Common Stock"), as follows: (i) up to 1,506,000 shares
of Common Stock ("Additional Shares") to certain shareholders ("Unit Investors")
of the Company who purchased Units, each unit being comprised of one share of
Common Stock and one unit warrant ("Unit Warrants"), sold during November 1997
in a private placement; (ii) up to 502,000 shares of Common Stock underlying the
Unit Warrants ("Unit Warrant Shares"); (iii) up to an additional 1,506,000
shares of Common Stock underlying additional warrants ("Additional Warrants")
that, under certain circumstances, may be granted to the holders of the Unit
Warrants ("Additional Warrant Shares"); (iv) up to 100,400 shares of Common
Stock underlying warrants granted to Robb Peck McCooey Clearing Corp.
("Placement Warrants"), the Company's placement agent during its sale of the
Units ("Placement Warrant Shares"); and (v) up to an additional 301,200 shares
of Common Stock underlying additional warrants ("Additional Placement Warrants")
that may be granted to the holders of the Placement Warrants ("Additional
Placement Warrant Shares"). The foregoing Additional Warrants and Additional
Placement Warrants may be referred to hereinafter collectively as "Contingent
Warrants." The foregoing Unit Warrants, Additional Warrants, Placement Warrants,
and Additional Placement Warrants may be referred to hereinafter collectively as
"Warrants." The shares of Common Stock underlying the Warrants may be referred
to hereinafter collectively as "Warrant Shares." This Prospectus is also
offering for sale up to 502,000 shares of the Common Stock ("Selling Shareholder
Shares") for the account of certain of the Company's shareholders ("Selling
Shareholders"). The Company will not receive any proceeds from the sale of any
of the Selling Shareholder Shares. The foregoing Additional Shares and Selling
Shareholder Shares may be referred to hereinafter collectively as "Unit Shares."
The Company's Common Stock is quoted on the OTC Bulletin Board in the United
States of America under the symbol "VXTK."
_______________
THE SECURITIES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK. SEE "RISK
FACTORS" BEGINNING ON PAGE 6 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS.
_______________
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY
STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY
OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
_______________
THE DATE OF THIS PROSPECTUS IS SEPTEMBER __, 1998.
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NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATION SHOULD NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY OR THE SELLING SHAREHOLDERS. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER OF ANY SECURITIES OTHER THAN THE SECURITIES TO WHICH IT
RELATES OR AN OFFER TO ANY PERSON IN ANY JURISDICTION WHERE SUCH OFFER WOULD BE
UNLAWFUL. THE DELIVERY OF THIS PROSPECTUS AT ANY TIME DOES NOT IMPLY THAT THE
INFORMATION SET FORTH HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
_______________
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
Available Information.......................................................................2
Incorporation of Certain Documents by Reference.............................................3
Forward Looking Statements..................................................................3
Prospectus Summary..........................................................................4
The Offering................................................................................5
Risk Factors................................................................................6
Description of Securities...................................................................10
Dilution....................................................................................14
Use of Proceeds.............................................................................20
Recent Developments.........................................................................21
Selling Shareholders........................................................................26
Plan of Distribution........................................................................27
Legal Matters...............................................................................27
</TABLE>
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AVAILABLE INFORMATION
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The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form F-2 under the Securities Act of
1933, as amended (the "Securities Act"), with respect to the shares of Common
Stock offered in this Offering. For the purposes hereof, the term "Registration
Statement" means the original Registration Statement and any and all amendments
thereto. This prospectus (the "Prospectus"), which constitutes a part of a
Registration Statement, omits certain information contained in the Registration
Statement, and reference is hereby made to the Registration Statement and to the
schedules relating thereto. Each statement made in this Prospectus concerning
any document filed as an exhibit to the Registration Statement is not
necessarily complete, and each statement is qualified in its entirety by
reference to the copy of such document filed with the Commission.
The Registration Statement may be inspected and copied at the public
reference facilities maintained by the Commission at its principal office at 450
Fifth Street, N.W., Room 1024,
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Washington, D.C. 20549, or at its regional offices at 210 South Dearborn Street,
Room 1204, Chicago, Illinois 60604; and 7 World Trade Center, 13th Floor, New
York, New York 10048. Any interested party may obtain copies of all or any
portion of the Registration Statement at prescribed rates from the Public
Reference Section of the Commission at its principal office at 450 Fifth Street,
Room 1024, Washington, D.C. 20549.
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports and other information with the Commission. Such reports
and other information can be inspected and copied at the public reference
facilities maintained by the Commission at 450 Fifth Street, N.W., Room 1024,
Washington, D.C. 20549, or at its regional offices at 210 South Dearborn Street,
Room 1204, Chicago, Illinois 60604; and 7 World Trade Center, 13th Floor, New
York, New York 10048. Copies of such material can be obtained from the Public
Reference Section of the Commission at 450 Fifth Street, N.W., Washington, D.C.
20549, at prescribed rates.
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INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
- --------------------------------------------------------------------------------
The Company's Annual Report on Form 20-F, as amended, for the fiscal year
ended February 28, 1998 ("Form 20-F") and Report of Foreign Issuer on Form 6-K
for the fiscal quarter ended May 31, 1998 ("Form 6-K") are incorporated by
reference in this Prospectus and shall be deemed to be a part hereof, and are
delivered herewith.
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FORWARD LOOKING INFORMATION
- --------------------------------------------------------------------------------
This Prospectus contains certain forward looking information about the
Company, its business, and its anticipated future performance. This information
is based on various assumptions by the management of the Company and may not
prove to be correct. These assumptions include: (i) the receipt of adequate
additional capital on a timely basis to enable the Company to implement its
business plans; (ii) the commercial viability of the Company's year 2000
software and the related business application engineering and re-engineering
toolset; (iii) the success of the Company's marketing and partnering efforts in
respect of such software; and (iv) the continuation of favorable economic
conditions.
All of these assumptions are inherently subject to significant
uncertainties and contingencies, many of which are beyond the control of the
Company. Accordingly, there can be no assurance that actual results will meet
expectations or will not be materially lower than the results contemplated in
this Prospectus.
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PROSPECTUS SUMMARY
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The following summary is qualified in its entirety by reference to the
detailed information, financial statements and related notes appearing elsewhere
in the Prospectus including information under the caption "Risk Factors." Each
investor is urged to read the Prospectus in its entirety.
THE COMPANY
Veronex Technologies, Inc. is a corporation organized under the laws of the
Province of British Columbia, Canada and was incorporated on March 8, 1974 under
the name of Rockel Mines Ltd. The Company changed its name to Veronex Resources
Ltd. on May 1, 1979, International Veronex Resources Ltd. on October 21, 1992,
and to Veronex Technologies, Inc. on December 4, 1997.
In 1978, Veronex began a long-term strategy aggressively to acquire and
develop diversified natural resource properties. The acquisition of these new
natural resource opportunities was usually for a combination of cash and the
issuance of new shares of common stock. Generally, the issuance of a portion of
these new shares of common stock was contingent upon the discovery and
successful production of the desired natural resource. The Company's normal
business approach was to combine its own exploration and operational expertise
with the financial strength of a major partner.
During the early part of 1997, the Company began an effort to redirect it
focus to become a computer software development and publishing company with a
fully integrated business application engineering and re-engineering toolset.
Since then, the Company has completed acquisitions of the worldwide rights,
title, and interest in and to a new software product that (i) provides a
solution to the Millennium issue and Year 2000 computer incompatibilities ("Y2K
Solution") and (ii) provides non-technical personnel with the ability to
analyze, design, modify, document, and implement high quality, custom software
applications. The Company's recent name change to Veronex Technologies, Inc.
reflects its successful transition into the computer software industry and its
mission to become the leading software provider for business application systems
for the New Millennium.
The Company's Common Stock is registered under the Securities Exchange Act
of 1934, as amended, and its stock trades principally on the OTC Bulletin Board
in the United States of America under the symbol "VXTK." The Company's common
stock was also registered with and traded on the Vancouver Stock Exchange in
Canada under its previous name, International Veronex Resources Ltd., and symbol
"IVX," until the Company applied for a voluntary delisting from the Vancouver
Stock Exchange and as of July 4, 1997, the Company's common shares were delisted
from trading on the Vancouver Stock Exchange.
RISK FACTORS
Investment in the securities offered hereby involves a high degree of risk.
Purchasers of the securities should carefully review the factors under headings
"Risk Factors" and "Dilution."
4
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THE OFFERING
Securities Offered............. The 4,417,600 shares of Common Stock offered
hereby include up to 502,000 Selling
Shareholder Shares, and up to 1,506,000
Additional Shares, 502,000 Unit Warrant
Shares, 1,506,000 Additional Warrant Shares,
100,400 Placement Warrant Shares, and 301,200
Additional Placement Warrant Shares. (See
"Description of Securities," and Prospectus
Cover Page)
Shares of Common Stock
Outstanding:
Prior to Offering(1)...... 6,996,159
After Offering(2)......... 10,911,759
Use of Proceeds................ If the Contingent Warrants are granted and
the Warrants are exercised (as to which
exercise there can be no assurance), the net
proceeds therefrom have been allocated by the
Company for working capital and general
corporate purposes. Thus, holders of the
Warrants upon the exercise thereof will be
entrusting their funds with management
without any specific commitment on the part
of the Company for their use. The Company
will not receive any proceeds from the sale
of any of the Selling Shareholder Shares.
Risk Factors................... Investment in the securities offered hereby
involves a high degree of risk. Purchasers of
the securities should carefully review the
factors under headings "Risk Factors" and
"Dilution."
Other Information.............. This Prospectus incorporates certain other
documents and material information by
reference. See "Incorporation of Certain
Documents by Reference" and "Recent
Developments."
OTC Bulletin Board
Symbol....................... VXTK
____________________
(1) As of August 31, 1998.
(2) Assumes that all Contingent Warrants are granted, that all Warrants are
exercised, as to which exercise there can be no assurance, and that the
Additional Shares are issued.
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5
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RISK FACTORS
- --------------------------------------------------------------------------------
SUBSTANTIAL HISTORICAL OPERATING LOSSES; LACK OF SALES.
Since inception, the Company has generated a deficit of approximately
$45,000,000. As of May 31, 1998, the Company has generated approximately
$2,000,000 operating revenues from its Y2K Solution and Related Software. There
can be no assurance that any meaningful additional sales revenues will be
generated therefrom or that the Y2K Solution or Related Software will prove to
be commercially feasible.
NEED FOR ADDITIONAL FINANCING.
The development and commercialization of the Company's Y2K Solution and
Related Software may require the expenditure of substantial capital. Subsequent
to the Offering, the Company may require additional funding in order to achieve
its operating objectives. The timing of completion of the commercialization and
commercial acceptance of the Y2K Solution and Related Software may increase the
Company's requirements for capital. If additional capital is required, the
Company may seek to obtain such additional funds primarily through additional
public or private equity or debt financings. Such additional financings may
result in dilution to current shareholders. There can be no assurance that such
additional financing, if required, can be obtained on terms acceptable to the
Company, if at all. If additional funds are not available, the Company may be
required to curtail significantly or to eliminate some or all of its development
or sales and marketing programs or to obtain funds through arrangements with
corporate partners or others who may require the Company to relinquish certain
rights to its intellectual property. The Company currently has no established
bank credit arrangements.
LIMITED EXPERIENCE WITH Y2K SOLUTION AND RELATED SOFTWARE.
On January 14, 1997, the Company entered into a Property Purchase Agreement
(the "Purchase Agreement") with Thomas J. Price, a software developer, to
acquire certain software technology including, but not limited to, an
information management application system, including a source program analyzer.
Effective August 1, 1997, the Company acquired additional, complementary
technologies and expertise to assist its efforts in furthering the development
and marketing of its software products (collectively referred to as the "I|NOVA
System"). The Y2K Solution, I|NOVA System, software, and related technologies
are sometimes hereinafter referred to herein as the "Software" or "Y2K Solution
and Related Software."
Although management believes that the Company's software capabilities, and
the individual experience of the Company's key employees, are considerable, the
recent amalgamation of such individuals and their continued development work on
the Y2K Solution and Related Software leaves the Company subject to all risks
incident to the creation of a new business and the development of new products,
including the absence of a history of operations and of proven products that
have been produced, sold, and installed in quantity. Further, the Company is at
a commercial and strategic disadvantage to other companies that have already
commenced commercialization of their solutions to the year 2000 problem. Thus,
there can be
6
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no assurance that the Company will ultimately realize any material level of
revenues from the sale and installation of its products.
SUCCESSFUL SALES NOT ASSURED.
Notwithstanding the Company's belief that its new, proprietary Y2K Solution
and Related Software provides significant advantages over any other equivalent
products, the Company does not have resources sufficient to assure prospective
investors that the Company will be successful in its sales and marketing
efforts. Although the Company has certain experienced and highly regarded
personnel, the Company, as an enterprise, has limited experience in sales,
marketing, or distribution of software and related products and services. To
market the Y2K Solution and Related Software directly, the Company must develop
a marketing and sales force with technical expertise and support capability.
Alternatively, the Company may seek to obtain the assistance of various
enterprises through licensing or other methods of joint marketing. There can be
no assurance that the company will be able to establish sales and distribution
capabilities to obtain the assistance of one or more enterprises in such
efforts.
During 1998, the Company has entered into four Strategic Alliance
Agreements to license the I|NOVA System. Effective February 1, 1998, the Company
signed its first Strategic Alliance Agreement to license the I|NOVA System to
VentureTech 2000, Inc. The terms of the agreement provide for a license fee of
$2,500,000 to be paid out of the revenues generated by the use and/or sub-
licensing of the I|NOVA System by VentureTech 2000 to its clients. VentureTech
2000 is also required to share all gross revenues on a ratio of 65% to Veronex
and 35% to VentureTech 2000 until Veronex receives the entire $2,500,000 license
fee, thereafter, the revenues generated by the use and/or sub-licensing of the
I|NOVA System by VentureTech 2000 to its clients will be shared on a ratio of
65% of all gross revenues to VentureTech 2000 and the remaining 35% to Veronex.
Veronex has elected to treat this transaction as a non-revenue event until such
time as there are actual revenues generated by VentureTech 2000 by the use
and/or sub-licensing of the I|NOVA System and these revenues are received by
Veronex.
On June 1, 1998, the Company announced the execution of a second Strategic
Alliance Agreement for a five-year period with AGISS Corp. to license the use of
the Company's complete I|NOVA System. The AGISS Agreement provided for an
exclusive territory to AGISS for the Ontario and Quebec provinces of Canada for
the period up to December 31, 1999. AGISS is to pay a one-time license fee and
permit the Company to share in gross revenues generated from the use of the
I|NOVA System.
On June 4, 1998, the Company announced the execution of a third Strategic
Alliance Agreement with Kathpal Technologies, Inc. The terms of this agreement
provide for Kathpal to pay a one-time license fee and permit the Company to
share in gross revenues generated from the use of the I|NOVA System.
The execution of a fourth Strategic Alliance Agreement was announced on
July 2, 1998, with Crest Electronics, Inc. The terms of the agreement call for
Crest to pay a one-time license fee of $2,500,000 and to permit the Company to
share in gross revenues generated from the use of the I|NOVA System.
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PROPRIETARY TECHNOLOGY.
Although the Company recently filed a comprehensive patent application and
a continuation-in-part application for its Y2K Solution and Related Software,
and anticipates that its engineering activities will result in a number of
additional patent applications, there can be no assurance that any patents will
issue therefrom or, if issued, that they will provide significant commercial
protection. Moreover, third parties may have filed other patent applications and
patents may be issued on such inventions and such third parties may otherwise
claim proprietary rights to technology useful or necessary to the Company. The
extent to which the Company may be required to seek licenses under such other
patents or other proprietary rights, and the cost or availability of such
licenses, cannot now be predicted. There can be no assurance that others will
not independently develop superior know-how or obtain access to know-how used by
the Company that it now considers proprietary.
SUCCESS DEPENDENT UPON MANAGEMENT.
Success of the Company and its subsidiaries will depend, to a large extent,
upon the active participation of Messrs. David A. Hite, Thomas J. Price, Thomas
A. Speed, and Terry G. Goodbody, executive officers or senior product
development personnel of the Company. Although all of such individuals have
executed employment agreements with the Company, there can be no assurance that
each of such individuals will continue to be employed by the Company. There are
no key-man life insurance policies in effect in respect of any such individuals.
The loss of the services of any such individuals could materially and adversely
affect the continued development of the products of the Company and their
viability in the marketplace.
COMPETITION IN THE MARKETPLACE.
The concern raised by the seeming inability of significant numbers of
computers to function as of the turn of the century has generated material
governmental and industrial concern. In response thereto, numerous computer
hardware and software companies (both established and development stage) have
been devoting substantial resources to solving the problem. Veronex is one of
such companies. However, many of such competitors have greater financial and
other resources, experience, and reputation than the Company and, consequently,
the Company has been and may continue to be at a competitive disadvantage in
these areas. Many of such entities have exerted and will continue to exert
extensive research and development efforts that have resulted or may result in
the introduction of a multitude of sophisticated, commercially marketable
products and services for the markets. Notwithstanding management's belief that
the Company's Y2K Solution and Related Software represents a true, viable
solution to the problem, there can be no assurance that the Company will be able
to market and sell its products successfully in the marketplace.
RISKS OF INVESTING IN THE INDUSTRY.
An investment in any aspect of the computer hardware or software industry
is speculative and historically has involved a high degree of risk. This
industry has frequent introductions of new products and product enhancements.
While the Company has certain proprietary software technology, there can be no
assurance that it will be able to develop new products and enhance
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existing products in a timely manner in response to changing market demand and
competitive pressure. Success of the Company will depend on a number of factors
over which it has little or no control.
GENERAL ALLOCATION OF PROCEEDS.
The net proceeds, if any, of the Offering will be allocated for general
working capital of the Company. The Company will not receive any proceeds from
the sale of any of the Selling Shareholder Shares. Investors must entrust the
ultimate applications thereof to the judgment of management. (See "Use of
Proceeds.")
DIVIDENDS.
The Company has not declared or paid any dividends on its Common Stock
since 1983. No dividends are contemplated at any time in the foreseeable future.
(See "Description of Securities.")
DILUTION.
Purchasers of shares of Common Stock offered hereby will suffer immediate
dilution in the net tangible book value of their shares of Common Stock. (See
"Dilution.")
REGULATION OF DESIGNATED SECURITIES.
The Commission has adopted rules that regulate broker-dealer practices in
connection with transactions in "designated securities." Designated securities
generally are equity securities with a price of less than $5.00 (other than
securities registered on certain national securities exchanges or quoted on the
Nasdaq Stock Market, provided that current price and volume information with
respect to transactions in such securities is provided by the exchange system).
The designated securities rules require a broker-dealer, prior to a transaction
in a designated security not otherwise exempted from the rules, to deliver a
standardized risk disclosure document prepared by the Commission that provides
information about designated securities and the nature and level of risks in the
designated securities market. The broker-dealer also must provide the customer
with bid and offer quotations for the designated security, the compensation of
the broker-dealer and its salesperson in the transaction, and monthly account
statements showing the market value of each designated security held in the
customer's account. In addition, the penny stock rules require that prior to a
transaction in a designated security not otherwise exempt from such rules, the
broker-dealer must make a special written determination that a designated
security 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 any secondary market for a
stock that becomes subject to the designated security. The Company's Common
Stock is subject to the designated security rules, and, accordingly, investors
in this offering may find it difficult to sell their shares of Common Stock, if
at all.
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DESCRIPTION OF SECURITIES
- --------------------------------------------------------------------------------
COMMON STOCK.
The Company's equity capital consists of one class of stock -- common. A
holder of Common Stock is entitled to one vote per share on all matters
submitted for action by the shareholders. All shares of Common Stock are equal
to each other with respect to the election of directors. The terms of the
directors are not staggered and the board is not classified. Directors are
elected annually to serve until the next annual meeting of shareholders and
until their successors are elected and qualified. There are no preemptive rights
to purchase any additional Common Stock or other securities of the Company. In
the event of liquidation or dissolution, holders of Common Stock are entitled to
receive, on a pro rata basis, the assets remaining after creditors and holders
of any class of stock having liquidation rights senior to holders of Common
Stock have been paid in full.
The Company has 100,000,000 shares of Common Stock authorized. As of August
31, 1998, the transfer ledgers maintained by the Company's transfer agent,
including individual participants in security position listings, indicated that
there were approximately seven million shares of Common Stock issued and
outstanding, which were held by approximately 3,500 persons.
As of August 31, 1998, there were approximately 1.9 million restricted
shares of Common Stock outstanding. Future sales of these shares under Rule 144
could depress the market price of the Common Stock. A majority of such shares
are eligible for sale pursuant to Rule 144; however, given the size of the
shareholdings, the volume limitations of Rule 144 would significantly limit
their resale.
CERTAIN MARKET INFORMATION.
The Common Stock is quoted on the OTC Bulletin Board. The following table
sets forth the high and low bid prices (expressed in U.S. Dollars on the OTC
Bulletin Board) for the Company's Common Stock for its most recent fiscal year
ended February 28, 1998 and fiscal quarters ended August 31, 1998, and May 31,
1998, respectively.
Period Ended High Low
------------ ---- ---
August 31, 1998 9.500 3.375
May 31, 1998 13.563 3.750
February 28, 1998 5.875 0.875
The above-stated quotations represent inter-dealer prices, without mark-ups
or commissions, and may not necessarily be indicative of actual sales prices. On
September 24, 1998, the closing price for the Common Stock, as reported on the
OTC Bulletin Board, was $4.125.
10
<PAGE>
DIVIDENDS.
The Company has not declared or paid any dividends on its Common Stock
since 1983. Further, no dividends are contemplated at any time in the
foreseeable future. There are no current or contemplated restrictions which will
limit the ability of the Company to declare and pay dividends. (See "Risk
Factors.")
UNITS.
During its 1998 Fiscal Year, the Company offered to sell, and sold, through
its exclusive placement agent, Robb Peck McCooey Clearing Corp. ("Placement
Agent"), 502,000 Units in a private placement ("Private Placement"). Each Unit
was offered at a price of $4.00 and was comprised of one share of Common Stock
and one redeemable Common Stock purchase warrant (as referred to earlier as a
Unit Warrant). Each Unit Warrant entitles the holder thereof to purchase one
share of Common Stock of the Company at an exercise price of $8.00 per share,
subject to adjustment in certain circumstances. The Unit Warrants are
redeemable, in whole or in part, at the option of the Company, for $.10 per Unit
Warrant on not less than 30 days' prior written notice, at any time, provided
that (i) the closing bid price of the Company's Common Stock is at least $10.00,
and the trading volume of the of the Common Stock is not less than 30,000 shares
per day, on each of the 20 consecutive trading days ending within 10 days of the
date of the notice of redemption; (ii) the Company's Common Stock is listed on a
national exchange or the Nasdaq Stock Market; and (iii) the shares of Common
Stock underlying the Unit Warrants have been registered for public distribution
under the Securities Act.
The Company granted certain registration rights to persons who purchase
Units, and also granted certain additional rights to the Placement Agent
regarding the constituent portions of the Placement Warrants. The Company also
agreed to use its best efforts to register the Unit Shares and the Warrant
Shares.
WARRANTS.
The Warrants contain general anti-dilution provisions to avoid dilution of
the equity interest represented by the Warrant Shares upon the occurrence of
certain events, e.g., Common Stock share dividends or splits and the issuance of
shares of Common Stock at less than the exercise price of the Warrants, with
certain exceptions. In the event of liquidation, dissolution, or winding up of
the Company, Warrant holders will not be entitled to participate in the assets
of the Company unless they exercise their Warrants. Warrant holders have no
voting, preemptive, liquidation, or other rights of holders of Common Stock, and
are not entitled to participate in dividends.
The Unit Warrants allow the registered holders thereof to acquire
additional shares of Common Stock at an exercise price of $8.00 per share for a
five-year period commencing after the closing of the Private Placement, unless
the Unit Warrants have been previously redeemed.
11
<PAGE>
REVENUE AMOUNT.
If the Company generates less than $24,000,000 in gross revenues from
November 7, 1997 to November 30, 1998 ("Revenue Amount"), then the Company is
required to issue additional shares of Common Stock to those persons who
purchased Units. Such additional issuances, if any, will be in accordance with
the schedule set forth below.
Additional Shares Gross Revenues of the Company
----------------- -----------------------------
(Per Warrant Share)
0 in excess of $24,000,000
.5 $20,000,000 -- $24,000,000
1.0 $16,000,000 -- $19,999,999
1.5 $12,000,000 -- $15,999,999
2.0 $8,000,000 -- $11,999,999
2.5 $4,000,000 -- $ 7,999,999
3.0 $0 -- $ 3,999,000
If the Company fails to generate the Revenue Amount on or before November
30, 1998, then the exercise price of each Unit Warrant will be reduced
automatically and permanently to $2.00, subject to further adjustment for stock
splits and recapitalizations. In addition, the Company has agreed to grant
Additional Warrants to the holders of the Unit Warrants (on terms identical to
the Unit Warrants) in accordance with the schedule set forth below.
Additional Warrants Gross Revenues of the Company
-------------------
(Per Unit Warrant)
0 in excess of $24,000,000
.5 $20,000,000 -- $24,000,000
1.0 $16,000,000 -- $19,999,999
1.5 $12,000,000 -- $15,999,999
2.0 $8,000,000 -- $11,999,999
2.5 $4,000,000 -- $ 7,999,999
3.0 $0 -- $ 3,999,000
The Company has reserved from its authorized but unissued shares a
sufficient number of shares of Common Stock for issuance on exercise of the Unit
Warrants and the Additional Warrants. During the period in which a Unit Warrant
or an Additional Warrant is exercisable, exercise of a Unit Warrant or an
Additional Warrant may be effected by delivery of a certificate therefor duly
endorsed for exercise and accompanied by payment of the exercise price.
The Warrant holders have no rights as shareholders until they exercise
their Warrants, and the Warrants are subject to the terms and conditions of a
Warrant Agreement between the Company and the Warrant holders.
12
<PAGE>
PLACEMENT WARRANTS.
The Company agreed to issue the Placement Warrants to the Placement Agent
allowing it or its permitted assigns to acquire, upon exercise, up to 100,400
shares of Common Stock at an exercise price of $4.00 per share for a five-year
period commencing after the final closing of the Private Placement, unless the
Placement Warrants are previously redeemed. The Placement Warrants contain
general anti-dilution provisions, and are subject to redemption by the Company,
under the same terms and conditions as the Unit Warrants.
If the Company fails to generate the Revenue Amount on or before November
30, 1998, then the exercise price of each Placement Warrant will be reduced
automatically and permanently to $2.00, subject to further adjustment for stock
splits and recapitalizations. In addition, the Company has agreed to grant
Additional Placement Warrants to the holders of the Placement Warrants in an
amount equal to 20% of the Additional Warrants, if any, granted to the Warrant
holders, which shall contain an exercise price of $1.00, but otherwise contain
terms identical to the Placement Warrants.
The Placement Warrants contain demand and incidental registration rights
provisions. The Company has reserved from its authorized but unissued shares a
sufficient number of shares of Common Stock for issuance on exercise of the
Placement Warrants and the Additional Placement Warrants.
REGISTRATION RIGHTS.
The Unit Shares and Warrant Shares are the subject of certain incidental
registration rights by virtue of an agreement entered into between the Company
and the Unit Investors and the Placement Agent, respectively (collectively, the
"Registration Rights Agreements"). The Registration Rights Agreements provide
for registration of such securities (collectively, the "Registrable Securities")
during the period in which the securities remain subject to the registration
requirements set forth under the Securities Act prior to sale, in the event that
the Company proposes to register any other shares of Common Stock under the
Securities Act.
The Company will be solely responsible for the costs and expenses of the
registrations (except or under certain circumstances set forth in the
Registration Rights Agreements). The Company has agreed to indemnify the
Placement Agent and any Warrant holder against any costs or liabilities incurred
by the Placement Agent or any Warrant holder by reason of misstatements or
omissions to state material facts in connection with statements made in the
registration statements required under the Registration Rights Agreements. The
Warrant holders have agreed to indemnify the Company against any liabilities by
reason of misstatements or omissions to state material facts on his/her/its part
in connection with the statements made in the registration statement based on
information furnished in writing by such Warrant holder.
13
<PAGE>
TRANSFER AGENT.
Montreal Trust, 510 Burrard Street, Vancouver, British Columbia, Canada V6C
3B9; and ChaseMellon Shareholder Services, Overpeck Center, 85 Challenger Road,
Ridgefield Park, New Jersey, USA 07660 serve as co-transfer agents for the
Common Stock. The Company acts as its own transfer agent for the Warrants.
- --------------------------------------------------------------------------------
DILUTION
- --------------------------------------------------------------------------------
The net tangible book value of the Company as of May 31, 1998, was
$3,709,000 or $0.53 per share of Common Stock, based upon 6,977,501 shares of
Common Stock issued and outstanding. The cost to be paid by the Company for
registering the securities is estimated at $40,000 ("Offering Costs"). Net
tangible book value per share of Common Stock represents the amount of the
Company's tangible assets less the amount of its total liabilities, divided by
the number of shares of Common Stock outstanding.
The following discussion addresses the dilution that may occur as a result
of three different scenarios. The first scenario assumes that the Company
generates all of the Revenue Amount on or before November 30, 1998. The second
scenario assumes that the Company generates 50% of the Revenue Amount
($12,000,000) on or before November 30, 1998. The third scenario assumes that
the Company fails to generate any of the Revenue Amount on or before November
30, 1998.
If the Company generates the Revenue Amount, as to the occurrence of which
there can be no assurance, on or before November 30, 1998, it will not be
required to issue the Additional Shares, grant the Additional Warrants and
Additional Placement Warrants, or adjust the various strike prices associated
with the Warrants. Thus, if all of the Unit Warrants and Placement Warrants,
which represent shares of Common Stock being registered hereby, were exercised
(as to which exercise there can be no assurance), 602,400 shares of Common Stock
would be issued at an average price per share of $7.33, and the pro forma net
tangible book value of the Company as so adjusted at May 31, 1998, would be
$8,086,600 (net of Offering Costs), or $1.07 per share of Common Stock,
representing an immediate increase in net tangible book value of approximately
$0.54 per share to present holders of Common Stock and an immediate dilution of
$6.26 per share to new investors. (See "Risk Factors.")
14
<PAGE>
The following table illustrates the per share dilution if the shares of
Common Stock registered hereby are purchased by different groups of security
holders exclusively, assuming that the Company generates the Revenue Amount. It
does not include any shares of Common Stock registered for sale hereby for the
account of any of the Selling Shareholders. The Company will not receive any
proceeds from the sale of any of the Selling Shareholder Shares.
<TABLE>
<CAPTION>
============================================================================================================
Additional
Additional Unit Additional Placement Placement All New
Shares Warrants Warrants Warrants Warrants Investors(1)
------ -------- -------- -------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
Public offering
price per share(2) n/a $8.00(3) n/a $4.00(4) n/a $7.33(5)
=== ===== === ==== === ====
Net tangible
book value per
share prior to
offering(6) n/a $0.53 n/a $0.53 n/a $0.53
Change per share
attributable to
new investors(7) n/a $0.50 n/a $0.05 n/a $0.54(5)
--- ---- --- ---- --- ----
Pro forma net
tangible book
value per share
after offering(7) n/a $1.03 n/a $0.58 n/a $1.07(5)
=== ==== === ==== === ====
Dilution per
share to new
investors(7) n/a $6.97 n/a $3.42 n/a $6.26(5)
============================================================================================================
Total shares
outstanding(6) n/a 6,977,501 n/a 6,977,501 n/a 6,977,501
Shares offered to
new investors n/a 502,000 n/a 100,400 n/a 602,400
--- ------- --- ------- --- -------
Total shares
after purchase by
new investors n/a 7,479,501 n/a 7,077,901 n/a 7,579,901
============================================================================================================
Net tangible
book value(6) n/a $3,709,000 n/a $3,709,000 n/a $3,709,000
Investment by
new investors n/a $4,016,000 n/a $401,600 n/a $4,417,600
--- ---------- --- -------- --- ----------
Pro forma net
tangible book
value after
offering(7) n/a $7,685,000 n/a $4,070,600 n/a $8,086,600
=== ========== === ========== === ==========
</TABLE>
_________________
(1) Includes Additional Shares, Unit Warrants, Additional Warrants, Placement
Warrants, and Additional Placement Warrants.
(2) Before deducting the Offering Costs.
(3) Each Unit Warrant's initial exercise price is $8.00 per share but will be
reduced automatically and permanently to $2.00 if the Company fails to
generate the Revenue Amount on or before November 30, 1998. (See
"Description of Securities.")
(4) Each Placement Warrant's initial exercise price is $4.00 per share but will
be reduced automatically and permanently to $2.00 if the Company fails to
generate the Revenue Amount on or before November 30, 1998. (See
"Description of Securities.")
(5) Represents a weighted average.
15
<PAGE>
(6) As of May 31, 1998.
(7) Net of the Offering Costs.
================================================================================
If the Company generates 50% of the Revenue Amount ($12,000,00), as to
the occurrence of which there can be no assurance, on or before November 30,
1998, it will be required to issue 753,000 Additional Shares, grant 753,000
Additional Warrants and 150,600 Additional Placement Warrants, and the strike
prices associated with the Warrants shall be adjusted automatically and
permanently as set forth herein under the caption "Description of Securities."
Thus, if all of the Warrants, which represent shares of Common Stock being
registered hereby, were exercised (as to which exercise there can be no
assurance), 2,259,000 shares of Common Stock would be issued at an average price
per share of $1.27, and the pro forma net tangible book value of the Company as
so adjusted at May 31, 1998, would be $6,530,400 (net of Offering Costs), or
$0.71 per share of Common Stock, representing an immediate increase in net
tangible book value of approximately $0.18 per share to present holders of
Common Stock and an immediate dilution of $0.56 per share to new investors. (See
"Risk Factors.")
16
<PAGE>
The following table illustrates the per share dilution if the shares of
Common Stock registered hereby are purchased by different groups of security
holders exclusively, assuming that the Company generates 50% of the Revenue
Amount ($12,000,000). It does not include any shares of Common Stock registered
for sale hereby for the account of any of the Selling Shareholders. The Company
will not receive any proceeds from the sale of any of the Selling Shareholder
Shares.
<TABLE>
<CAPTION>
========================================================================================================================
Additional
Additional Unit Additional Placement Placement All New
Shares Warrants Warrants Warrants Warrants Investors(1)
------ -------- -------- -------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
Public offering
price per share(2) $0.00 $2.00(3) $2.00 $2.00(4) $1.00 $1.27(5)
===== ===== ===== ===== ===== =====
Net tangible
book value per
share prior to
offering(6) $0.53 $0.53 $0.53 $0.53 $0.53 $0.53
Change per share
attributable to
new investors(7) ($0.06) $0.09 $0.14 $0.02 $0.01 $0.18(5)
------- ----- ----- ----- ----- -----
Pro forma net
tangible book
value per share
after offering(7) $0.47 $0.62 $0.67 $0.55 $0.54 $0.71(5)
===== ===== ===== ===== ===== =====
Dilution per
share to new
investors(7) ($0.47) $1.38 $1.33 $1.45 $0.46 $0.56(5)
========================================================================================================================
Total shares
outstanding(6) 6,977,501 6,977,501 6,977,501 6,977,501 6,977,501 6,977,501
Shares offered to
new investors 753,000 502,000 753,000 100,400 150,600 2,259,000
------- ------- ------- ------- ------- ---------
Total shares after
purchase by
new investors 7,730,501 7,479,501 7,730,501 7,077,901 7,128,101 9,236,501
========================================================================================================================
Net tangible
book value(6) $3,709,000 $3,709,000 $3,709,000 $3,709,000 $3,709,000 $3,709,000
Investment by new
investors $0 $1,004,000 $1,506,000 $200,800 $150,600 $2,861,400
-- ---------- ---------- -------- -------- ----------
Pro forma net
tangible book
value after
offering(7) $3,669,000 $4,673,000 $5,175,000 $3,869,800 $3,819,600 $6,530,400
========== ========== ========== ========== ========== ==========
</TABLE>
_______________
(1) Includes Additional Shares, Unit Warrants, Additional Warrants, Placement
Warrants, and Additional Placement Warrants.
(2) Before deducting the Offering Costs.
(3) Each Unit Warrant's initial exercise price is $8.00 per share but will be
reduced automatically and permanently to $2.00 if the Company fails to
generate the Revenue Amount on or before November 30, 1998.
(See "Description of Securities.")
(4) Each Placement Warrant's initial exercise price is $4.00 per share but will
be reduced automatically and permanently to $2.00 if the Company fails to
generate the Revenue Amount on or before November 30, 1998.
(See "Description of Securities.") (5) Represents a weighted average.
(5) Represents a weighted average.
17
<PAGE>
(6) As of May 31, 1998.
(7) Net of the Offering Costs.
================================================================================
If the Company fails to generate the Revenue Amount on or before
November 30, 1998, and if all of the Additional Shares are issued, and if all of
the Unit Warrants and Placement Warrants, which represent shares of Common Stock
being registered hereby, were exercised (as to which exercise there can be no
assurance), and if all of the Additional Warrants and Additional Placement
Warrants, which represent shares of Common Stock being registered hereby, are
granted and exercised (as to which exercise there can be no assurance),
3,915,600 shares of Common Stock would be issued at an average price per share
of $1.15, and the pro forma net tangible book value of the Company as so
adjusted at May 31, 1998, would be $8,187,000 (net of Offering Costs), or $0.75
per share of Common Stock, representing an immediate increase in net tangible
book value of approximately $0.22 per share to present holders of Common Stock
and an immediate dilution of $0.40 per share to new investors. (See "Risk
Factors.")
18
<PAGE>
The following table illustrates the per share dilution if the shares of
Common Stock registered hereby are purchased by different groups of security
holders exclusively, assuming that the Company fails to generate any of the
Revenue Amount. It does not include any shares of Common Stock registered for
sale hereby for the account of any of the Selling Shareholders. The Company will
not receive any proceeds from the sale of any of the Selling Shareholder Shares.
<TABLE>
<CAPTION>
===================================================================================================================
Additional
Additional Unit Additional Placement Placement All New
Shares Warrants Warrants Warrants Warrants Investors(1)
------ -------- -------- -------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
Public offering
price per share(2) $0.00 $2.00(3) $2.00 $2.00(4) $1.00 $1.15(5)
===== ===== ===== ===== ===== =====
Net tangible
book value per
share prior to
offering(6) $0.53 $0.53 $0.53 $0.53 $0.53 $0.53
Change per share
attributable to
new investors(7) ($0.10) $0.09 $0.26 $0.02 $0.02 $0.22(5)
------- ----- ----- ----- ----- -----
Pro forma net
tangible book
value per share
after offering(7) $0.43 $0.62 $0.79 $0.55 $0.55 $0.75(5)
===== ===== ===== ===== ===== =====
Dilution per
share to new
investors(7) ($0.43) $1.38 $1.21 $1.45 $0.45 $0.40(5)
=================================================================================================================
Total shares
outstanding(6) 6,977,501 6,977,501 6,977,501 6,977,501 6,977,501 6,977,501
Shares offered to
new investors 1,506,000 502,000 1,506,000 100,400 301,200 3,915,600
--------- ------- --------- ------- ------- ---------
Total shares
after purchase by
new investors 8,483,501 7,479,501 8,483,501 7,077,901 7,278,701 10,893,101
=================================================================================================================
Net tangible
book value(6) $3,709,000 $3,709,000 $3,709,000 $3,709,000 $3,709,000 $3,709,000
Investment by
new investors $0 $1,004,000 $3,012,000 $200,800 $301,200 $4,518,000
-- ---------- ---------- -------- -------- ----------
Pro forma net
tangible book
value after
offering(7) $3,669,000 $4,673,000 $6,681,000 $3,869,800 $3,970,200 $8,187,000
========== ========== ========== ========== ========== ==========
</TABLE>
_________________
(1) Includes Additional Shares, Unit Warrants, Additional Warrants, Placement
Warrants, and Additional Placement Warrants.
(2) Before deducting the Offering Costs.
(3) Each Unit Warrant's initial exercise price is $8.00 per share but will be
reduced automatically and permanently to $2.00 if the Company fails to
generate the Revenue Amount on or before November 30, 1998.
(See "Description of Securities.")
(4) Each Placement Warrant's initial exercise price is $4.00 per share but will
be reduced automatically and permanently to $2.00 if the Company fails to
generate the Revenue Amount on or before November 30, 1998.
(See "Description of Securities.") (5) Represents a weighted average.
(5) Represents a weighted average.
19
<PAGE>
(6) As of May 31, 1998.
(7) Net of the Offering Costs.
- --------------------------------------------------------------------------------
USE OF PROCEEDS
- --------------------------------------------------------------------------------
The maximum net proceeds, if any, to be received by the Company from
the exercise of Warrants are estimated to be $7,730,800. The Offering Costs are
estimated to be approximately $40,000. The Offering Costs are the direct costs
and expenses that the Company has borne and estimates that it will subsequently
bear in conducting this offering, and include federal and state registration
fees, accounting and legal fees, engraving fees, and other fees and expenses
directly related to this offering. Due to the on-going nature of these fees, the
amount presented is an estimate.
The net proceeds, if any, received by the Company from the exercise of
the Warrants will be added to working capital and used for general corporate
operating purposes. These purposes may include the acquisition of complementary
business or product line; however the Company has not entered into an understand
or agreement for any such acquisition. Pending use, the proceeds will be
invested in short-term, interest-bearing securities. The Company will not
receive any proceeds from the sale of shares of Common Stock offered for the
account of the Selling Shareholders, or from the issuance of the Additional
Shares, or from the grant of the Contingent Warrants, unless some or all of the
Contingent Warrants are exercised. There can be no assurance that any Warrants
will be exercised.
Based on its current operating plan, the Company anticipates that the
proceeds of the Offering, if any, together with existing resources and cash
generated from operations, if any, will be sufficient to satisfy the Company's
contemplated cash requirements for at least 12 months. There can be no
assurance, however, that the Company's cash requirements during this period will
not exceed its available resources or that these funds will be sufficient to
meet the Company's longer term cash requirements for operations. In the event
the Company's plans or assumptions change or prove to be inaccurate, or the net
proceeds of the Offering, if any, together with cash generated from future
revenues, if any, prove to be insufficient to fund operations (due to
unanticipated expenses, problems, or other factors), the Company may find it
necessary and/or advisable to seek additional financing or curtail its
operations. There can be no assurance that additional funds will not be required
earlier than anticipated. The Company has no firm arrangements to obtain any
additional financing and there can be no assurance that the Company will be able
to do so at an acceptable cost, if at all. (See "Forward Looking Information,"
"Risk Factors," and "Plan of Distribution.")
20
<PAGE>
- --------------------------------------------------------------------------------
RECENT DEVELOPMENTS
- --------------------------------------------------------------------------------
LITIGATION.
Former Employees.
On April 13, 1998, the Company filed a Complaint for Damages,
Injunctive Relief and Possession of Personal Property in the Superior Court for
Orange County, California, styled Veronex Technologies, Inc., v. John F. Denman,
---------------------------------------------
Michael R. Benson, Li C. Zha, aka Charlie Zha; and Does 1 through 50, inclusive,
- --------------------------------------------------------------------------------
Case No. 792982. The named defendants in the action are three former employees
of the Company. The Company alleged that the named defendants wrongfully took
the Company's intellectual property for their own use. In related actions, on
July 7, 1998, Messrs. Denman and Zha filed a Demand for Arbitration with the
Orange County, California, office of JAMS/Endispute, Inc., in respect of certain
employment-related issues and the third named defendant filed a cross-complaint
alleging unfair competition in respect of the Company's intellectual property.
On or about February 20, 1998, Betty B. Lee, a former employee of the Company,
commenced an action against the Company by filing a Demand for Arbitration with
the Irvine, California, office of the American Arbitration Association, Case No.
80 160 00047 98X. Ms. Lee alleged that she was wrongfully terminated by the
Company and was seeking monetary damages. The Company filed a counterclaim, and
asserted that her termination was the result of numerous breaches by her of her
employment agreement, breaches of her fiduciary duty to the Company, and other
improper and actionable conduct in which she engaged.
On August 27, 1998, Messrs. Denman, Benson, and Zha, Ms. Lee, and the
Company entered into a settlement agreement and mutual general release, pursuant
to which (i) the Company dismissed, with prejudice, its lawsuit against Messrs.
Denman, Benson, and Zha, and its arbitration counterclaims against Ms. Lee; (ii)
Messrs. Denman and Zha dismissed, with prejudice, their arbitration proceedings
against the Company and all claims contained therein; (iii) Ms. Lee dismissed,
with prejudice, her arbitration proceedings against the Company and all claims
contained therein; and (iv) Mr. Benson dismissed, with prejudice, his
cross-complaint against the Company. The settlement agreement and mutual general
release also provided for the following: (i) the return of the Company's
intellectual property and an agreement by Messrs. Denman, Benson, and Zha and
Ms. Lee not to use, disclose, distribute, provide, or transmit, in any fashion,
the Company's confidential, proprietary or trade secret information; (ii)
Messrs. Denman, Benson, and Zha and Ms. Lee each acknowledged that any prior
statements made by any of them, or that were attributed or attributable to any
of them, to any person or entity concerning the Company's I/NOVA System
("System") were based upon their incomplete information concerning the System,
that each is unaware of the current functions and parameters of the System and
that each has no personal knowledge as to the current state of the System, and
each of them retracted each such prior statement; and (iii) confirmed the
cancellation of stock options granted by the Company to Ms. Lee for the purchase
of up to 40,000 shares of its Common Stock and confirmed the exercisability of
stock options granted by the Company to Ms. Lee for the purchase of up to 60,000
shares of its Common Stock.
21
<PAGE>
Shelley Lawsuit.
On June 26, 1998, Promax Conceptual Strategies, a California
corporation ("Promax"), and Gerald N. Shelley, an individual, filed a Complaint
for Damages and Injunctive Relief in the Superior Court for Orange County,
California, styled Promax Conceptual Strategies, a California corporation;
------------------------------------------------------
Gerald N. Shelley, an individual, v. International Veronex Resources Ltd.; Jack
- -------------------------------------------------------------------------------
Lazor, an individual; Tom Price, an individual; and Does 1 through 100,
- ----------------------------------------------------------------------
inclusive, Case No. 796168. On August 18, 1998, the plaintiffs filed a First
- ---------
Amended Complaint for Damages and Injunctive Relief in response to the
defendants' Motion to Strike and Demurrer. The plaintiffs in that amended action
alleged that (i) the Company and Does 1 through 100 interfered with the
plaintiffs economic relationship; (ii) the named defendants breached their
fiduciary duties owed to the plaintiffs; (iii) the named defendants hold certain
assets as constructive trustee for the benefit of the plaintiffs; (iv) an
accounting must be made of all amounts owed to Mr. Shelly by the Company and its
wholly owed subsidiary, PCS Acquisition Corp., a California corporation, and
Does 1 through 100; (v) the Company and Does 1 through 100 have engaged in
unfair competition; (vi) the Company and Does 1 through 100 have engaged in
false and misleading advertising; and (vii) a judicial determination of the
parties respective rights and duties and a declaration is necessary and
appropriate. The Company and the other named defendants vigorously deny the
plaintiffs' allegations and, on September 24, 1998, filed a Demurrer and a
Motion to Strike various causes of actions alleged in such first amended
complaint.
Malicious Prosecution Lawsuit.
On August 22, 1997, the Company, Nordell International Resources, Ltd.,
a wholly-owned subsidiary of the Company ("Nordell"), and David A. Hite ("Hite")
(collectively referred to as "Hite, et al.") filed a lawsuit in the Superior
Court of California in Los Angeles for, among other issues, malicious
prosecution, fraud and a net profits accounting from and against Triton Energy
Corp., Triton Energy Limited, Triton Indonesia, Inc. (a.k.a. Servoc Corp.)
(collectively referred to as "Triton") for the Enim Oil Field joint venture
project, styled Hite, et al. v. Triton Energy Corp., et al., Case No. CV 97-7146
-------------------------------------------
JMI(XCt) (Hite, et al. v. Triton). On September 27, 1997, Triton, through a
----------------------
"removal" procedure, transferred the case to the United States District Court
for the Central District of California.
In October 1997, Triton filed a Motion to Dismiss the Complaint. Hite,
et al. opposed Triton's Motion to Dismiss. The District Court ordered a stay of
the case pending the resolution of the Nordell v. Triton appeal and reserved its
-----------------
earlier ruling on Triton's motion to dismiss. After the Court of Appeals order
denying Nordell's appeal in the Nordell v. Triton case, the District Court in
-----------------
this Hite, et al. v. Triton action ordered both sides to submit supplemental
----------------------
briefing on what impact, if any, the Nordell v. Triton appellate decision has on
-----------------
the Hite, et al. v. Triton case. Both sides filed their supplemental briefs with
----------------------
the District Court.
On September 1, 1998, the District Court entered its Order granting in
part and denying in part Triton's Motion to Dismiss. As a result of this Order,
the District Court dismissed all of Nordell's claims, with prejudice. The
District Court also dismissed all of the Company's and Hite's causes of action
against Triton except for the Company's and Hite's individual causes of action
against Triton regarding malicious prosecution and abuse of process, pled as the
first and second causes of action respectively of the Complaint. The Company and
Hite plan to pursue
22
<PAGE>
vigorously these two remaining causes of action. The Company, Nordell, and Hite
may be precluded from appealing the District Court's dismissal of the remaining
claims until the entire case is resolved as to all parties.
Options to Purchase Securities From Registrant or Subsidiaries.
As at August 31, 1998, the following stock options to purchase the
Company's shares were outstanding to various directors and employees:
<TABLE>
<CAPTION>
Number of Exercise Expiration
Name Shares Price (Cdn.$) Date
----------------------------------------------------------------
<S> <C> <C> <C>
Betty Lee 60,000 $ 2.25 Jul. 31/1999
Philippe Niemetz 25,000 $ 8.45 Nov. 11/2002
Walter DeCanio 25,000 $ 8.45 Nov. 11/2002
Sandra M. Milligan 25,000 $ 6.58 Nov. 12/2002
J. Lewis Dillman 45,000 $ 6.58 Nov. 12/2002
Pru Zerny 10,000 $ 6.58 Nov. 12/2002
Peggy Martin 40,000 $ 6.58 Nov. 12/2002
David Wooldridge 50,000 $ 6.58 Nov. 12/2002
Jay Geier 25,000 $ 6.58 Nov. 12/2002
Gerald Lamont 20,000 $ 6.58 Nov. 12/2002
Tanuja deSilva 10,000 $ 6.58 Nov. 12/2002
Theodore G. Elser 25,000 $ 6.59 Nov. 13/2002
Wayne Walters 25,000 $ 6.59 Nov. 13/2002
Edward J. Mulleady 75,000 $ 5.44 Dec. 1/2002
Summerlyn Gorbould 15,000 $ 9.87 Aug. 13/2002
Michael Miller 25,000 $ 5.94 Mar. 23/2003
Rebecca Scott 10,000 $10.44 Jul. 15/2003
-------
510,000
=======
</TABLE>
23
<PAGE>
Contingent Options - Three-Year Term.
The following contingent, earn-out options are allocated from the Company's
1997 Contingent Stock Option Plan, the options for which shall vest on the same
contingent, earn-out basis as those reserved for contingent issuance to Promax:
<TABLE>
<CAPTION>
Number of Exercise Expiration
Name Shares Price (Cdn.$) Date
----------------------------------------------------------------------
<S> <C> <C> <C>
Terry Goodbody 100,000 $ 3.13 Aug. 1, 2000
Tony Speed 100,000 $ 3.13 Aug. 1, 2000
David Wilson 40,000 $ 3.13 Aug. 1, 2000
Mike Schaefer 25,000 $ 3.13 Aug. 1, 2000
Gary Caltharp 50,000 $ 3.13 Aug. 1, 2000
Jeanna Cobalis 20,000 $ 3.13 Aug. 1, 2000
Constance Cannon 25,000 $ 7.89 Oct. 6, 2000
Ed Mulleady 75,000 $ 5.44 Dec. 1, 2000
Robert E. Enright 200,000 $ 5.69 Feb. 13, 2001
Desiree Peterson 20,000 $ 5.60 Dec. 10, 2000
Phillip Harrington 40,000 $ 3.85 Jan. 22, 2001
Andrew Zide 40,000 $ 5.60 Jan. 16, 2001
Millie Egerton 20,000 $ 5.45 Mar. 13, 2001
Maxine English 20,000 $ 5.45 Mar. 13, 2001
Charles E. Armstrong 40,000 $10.33 May 27, 2001
Richard Williams 30,000 $ 9.71 Jun. 8, 2001
Gregg Puckett 30,000 $10.71 Jun. 22, 2001
Theodore G. Elser 40,000 $ 5.37 Mar. 6/2001
William P. Habig 40,000 $ 5.37 Mar. 5/2001
-------
955,000
=======
</TABLE>
24
<PAGE>
Earnout Options - Three-Year Term.
<TABLE>
<CAPTION>
Number of Exercise Expiration
Name Shares Price (Cdn.$) Date
--------------------------------------------------------------------
<S> <C> <C> <C>
John C. Lazor 20,000 $ 0.90 Jan. 14, 2000
Beverly Lazor-Bahr 20,000 $ 0.90 Jan. 14, 2000
Shirley Lazor 20,000 $ 0.90 Jan. 14, 2000
Siamak Elghanian 20,000 $ 0.90 Jan. 14, 2000
Eddie Lepkowski 20,000 $ 0.90 Jan. 14, 2000
Ralph T. McCabe 300,000 $ 0.90 Jan. 14, 2000
Art Kotowitz 20,000 $ 0.90 Jan. 14, 2000
Pat McNiff 20,000 $ 0.90 Jan. 14, 2000
Lorraine DeBaca-
Rodriguez 10,000 $ 0.90 Jan. 14, 2000
Pravin Parmar 20,000 $ 0.90 Jan. 14, 2000
Chelly D. Speed 12,000 $ 0.90 Jan. 14, 2000
Nina Alvarez-
Shumway 12,000 $ 0.90 Jan. 14, 2000
-------
494,000
=======
</TABLE>
EARNOUT PERIOD EXTENDED.
At the Company's Annual General Meeting of Stockholders held September 21,
1998, the stockholders of the Company voted to extend the deadline from November
30, 1998 until November 30, 1999, before which (i) shares of Common Stock are
available for earnout under the Purchase Agreement and under that certain Merger
Agreement made by and among the Company, Promax, and PCS Acquisition Corp., a
California corporation, respectively, and (ii) options may be granted and vest
under the Company's 1997 Contingent Stock Option Plan. The extension of the
earnout period applies to the 6,400,000 shares of Common Stock available for
earnout by Mr. Price under the Purchase Agreement, the 3,500,000 shares of
Common Stock available for earnout by Promax under the Merger Agreement, and the
2,000,000 shares allocated to the Company's 1997 Contingent Stock Option Plan.
25
<PAGE>
- --------------------------------------------------------------------------------
SELLING SHAREHOLDERS
- --------------------------------------------------------------------------------
The following table sets forth certain information with respect to the
Selling Shareholders' beneficial ownership of the Company's Common Stock as of
August 31, 1998. Other than Mr. Robert E. Enright, none of the Selling
Shareholders has had any material relationship within the past three years with
the Company or any of its predecessors or affiliates. Mr. Enright served as the
Company's Vice President of Sales between February and October 31, 1998.
<TABLE>
<CAPTION>
Beneficial Ownership Beneficial Ownership
Prior to Offering After Offering
-------------------- -----------------------
Number Shares to Number
Shareholder Name of Shares Percent be Sold(1) of Share Percent
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Jose Maria Salema Garcao 100,000 1.43% 100,000 0 0%
Fred C. Hoeppner & Margaret J. Hoepner 10,000 0.14% 10,000 0 0%
James L. Kurtz 25,000 0.36% 25,000 0 0%
George Scritchfield & Cynthia H. Scritchfield 10,000 0.14% 10,000 0 0%
Jay R. & Marshal L. Bloom 10,000 0.14% 10,000 0 0%
Jay Robert Bloom 5,000 0.07% 5,000 0 0%
Paul C. Kalvin & Irene Kalvin 11,000 0.16% 11,000 0 0%
Michael H. Male & Judith R. Male 5,000 0.07% 5,000 0 0%
Richard Adler & Marcella Adler Living Trust 10,000 0.14% 10,000 0 0%
Viola M. Enright & Robert E. Enright 50,000 0.71% 50,000 0 0%
Seaview Investment Group 50,000 0.71% 50,000 0 0%
Carlos J. Villaneuva 10,000 0.14% 10,000 0 0%
Viola M. Enright & Robert E. Enright 12,500 0.18% 12,500 0 0%
Frank K Kriz, Jr. MD 10,000 0.14% 10,000 0 0%
Frank K Kriz, Jr. MD PA Pension Plan Trust 10,000 0.14% 10,000 0 0%
John J. Yanapoulos 10,000 0.14% 10,000 0 0%
Rodolfo Hernandez 10,000 0.14% 10,000 0 0%
Armando J Guerra & Maria C. Guerra 10,000 0.14% 10,000 0 0%
Rodney R. Schomenn 10,000 0.14% 10,000 0 0%
Jose A. & Ileana Garcia 10,000 0.14% 10,000 0 0%
Hi Tel Group Inc. 20,000 0.29% 20,000 0 0%
Pablo Andrade 10,000 0.14% 10,000 0 0%
P. H. Walker Construction Corp. 10,000 0.14% 10,000 0 0%
Angela Joy Coppola 7,500 0.11% 7,500 0 0%
Paul Grover 1,000 0.01% 1,000 0 0%
Hathaway Partners Investments, L.P. 35,000 0.50% 35,000 0 0%
JLA Partners Ltd. 10,000 0.14% 10,000 0 0%
Roy & Cathleen Mollard 10,000 0.14% 10,000 0 0%
Jan Nordmark 5,000 0.07% 5,000 0 0%
Management Plus Inc. Pension Trust 5,000 0.07% 5,000 0 0%
Camalyn Randolph 10,000 0.14% 10,000 0 0%
------- ----- ------- - --
Total 502,000 7.12% 502,000 0 0%
======= ===== ======= = ==
</TABLE>
_______________________
(1) Assumes that all Selling Shareholders sell all of their Selling Shareholder
Shares.
26
<PAGE>
- --------------------------------------------------------------------------------
PLAN OF DISTRIBUTION
- --------------------------------------------------------------------------------
With respect to all securities offered hereby, the Company will not
employ the services of any person to offer for sale or purchase, sell, purchase,
distribute, or assist in any of the same. There may not be any direct relation
between the exercise price of the Warrants or the issuance price of the
Additional Shares and the assets, book value, shareholder's equity or net worth
of the Company. Neither the exercise price of the Warrants nor the issuance
price of the Additional Shares should be considered an indication of the actual
value of the Company or of the Common Stock. The Company does not participate in
determining the prices at which the Selling Shareholders may offer their shares
of Common Stock to the public. All costs and expenses incurred in the sale and
issuance of the securities registered hereby will be borne by the Company,
including all costs and expenses incurred by the Selling Shareholders in the
registration of the Selling Shareholder Shares.
- --------------------------------------------------------------------------------
LEGAL MATTERS
- --------------------------------------------------------------------------------
The validity of the securities offered hereby will be passed upon for
the Company by Arter & Hadden LLP, Irvine, California.
The consolidated balance sheet of Veronex Technologies, Inc. and its
subsidiaries as of February 28, 1998, and May 31, 1998, respectively, and the
related statements of operations, stockholders' equity, and cash flows for the
Company's fiscal year ended February 28, 1998, and fiscal quarter ended May 31,
1998, have been incorporated by reference herein in reliance upon the report of
Schvaneveldt & Company, independent auditors, and upon the authority of said
firm as experts in accounting and auditing.
The consolidated balance sheet of Veronex Technologies, Inc. and its
subsidiaries as of February 28, 1997, and the related statements of operations,
stockholders' equity, and cash flows for the Company's fiscal year ended
February 28, 1997, have been incorporated by reference herein in reliance upon
the report of Coopers & Lybrand, Chartered Accountants, independent auditors,
and upon the authority of said firm as experts in accounting and auditing.
27
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
Below is an itemized statement of all expenses in connection with the
issuance and distribution of the securities to be registered:
Registration Fee - Securities and Exchange Commission.......... $ 2,885
Printing and Engraving Expenses................................ $ --
Legal Fees and Expenses........................................ $ 25,000*
Accounting Fees and Expenses................................... $ 7,500*
Insurance Policy for Directors or Officers..................... $ --
Miscellaneous.................................................. $ 4,615*
--------
Total.......................................................... $ 40,000*
========
--------------
*Estimated and subject to amendment
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Except as hereinafter set forth, there is no charter provision, by law,
contract, arrangement or statute under which any director or officer of the
Company is insured or indemnified in any manner against any liability which he
may incur in his capacity as such.
STATUTORY PROVISIONS.
Section 128 of the British Columbia Company Act of 1979, as amended (the
"Company Act"), provides that a company may, with the approval of the court,
indemnify a person who is a director or former director of the Company or a
director or former director of a corporation of which the company is or was a
shareholder, and the person's heirs and personal representatives, against all
costs, charges and expenses, including an amount paid to settle an action or
satisfy a judgment, actually and reasonably incurred by the person, including an
amount paid to settle an action or satisfy a judgment in a civil, criminal or
administrative action or proceeding to which the person is made a party because
of being or having been a director, including an action brought by the company
or corporation, if, the person acted honestly and in good faith with a view to
the best interests of the corporation, and in the case of a criminal or
administrative action or proceeding, the person had reasonable grounds for
believing that the person's conduct was lawful.
Upon application, the court may make an order approving an indemnity under
this section, the court may make any further order it considers appropriate, and
the court may order notice to be given to any interested person.
The provisions of Section 128 described above apply to officers or former
officers of a company or of a corporation of which the company is or was a
shareholder.
28
<PAGE>
A company may obtain insurance for the benefit of directors or officers
against any liability incurred by the person as a director or officer.
ARTICLES OF INCORPORATION.
Subject to the provisions of the Company Act, Part 19 of the Company's
Articles of Incorporation provides that the Company shall indemnify each person
serving or having served as a director, secretary or an assistant secretary of
the Company or any combination thereof and the heirs and personal
representatives of any such person against all costs, charges and expenses
whatsoever, including legal fees and any amount paid to settle any action or
proceeding or satisfy any judgment in respect of any threatened, pending or
completed civil, criminal or administrative action or proceeding to which he is
or they are or threatened to be made a party by reason of his being or having
been a director, secretary or an assistant secretary of the Company or by reason
of his serving or having served, at the request of the Company, as a director,
officer, employee or agent of the Company or any other corporation, partnership,
joint venture, trust or other enterprise or in any other capacity for any such
or other entity whatsoever, including any action whether brought by the Company
or any such entity as above described; provided that he shall have acted
honestly and in good faith in the best interests of the Company or such entity
and shall have exercised the care, diligence and skill of a reasonably prudent
person in respect of the matter or matters giving rise to such threatened,
pending or completed civil, criminal or administrative action or proceeding.
The determination of any action, suit or proceeding by judgment, order,
settlement, conviction or otherwise shall not, of itself, create presumption
that the person did not act honestly and in good faith and in the best interests
of the Company and did not exercise the care, diligence and skill of a
reasonably prudent person and, with respect to any criminal action or
proceeding, did not have reasonable grounds to believe that his conduct was
lawful.
The failure of a director or officer of the Company to comply with the
provisions of the Company Act or the Company's Articles of Incorporation shall
not invalidate any indemnity to which he is entitled under Part 19 of the
Articles of Incorporation.
Subject to the Company Act, the directors are authorized from time to time
to cause the Company to give indemnities to any director, officer, employee,
agent or other person who has undertaken or is about to undertake any liability
on behalf of the Company or any corporation controlled by it.
The directors may cause the Company to purchase and maintain insurance for
the benefit of any person for whom and against any liability for which the
directors shall or may cause the Company to provide indemnity pursuant to the
Articles of Incorporation.
The indemnification provided by Part 19 of the Articles of Incorporation
shall not be deemed exclusive of any other rights to which those seeking
indemnification may be entitled under any other part of the Articles of
Incorporation, or any valid agreement, and shall continue as to a person who has
ceased to be a director, officer, employee or agent and shall enure to the
benefit of the heirs, executors and administrators of such person. The
indemnification provided
29
<PAGE>
by Part 19 of the Articles of Incorporation shall not be exclusive of any
powers, rights, agreements or undertakings which may be legally permissible or
authorized by or under any applicable law.
REGISTRATION RIGHTS AGREEMENTS.
Section 5 of the Registration Rights Agreements entered into between the
Company and each of the Unit Investors provide as follows:
In connection with any registration statement relating to a sale of
Restricted Registrable Securities, each seller thereof will furnish to
the Company in writing such information and affidavits with respect to
such seller as the Company reasonably requests for use in connection
with any such registration statement (or prospectus contained therein)
and will indemnify, to the extent permitted by law, the Company, its
directors, its officers who sign the registration statement and each
person who controls the Company (within the meaning of the Securities
Act) against any losses, claims, damages, liabilities and expenses
resulting from any untrue or alleged untrue statement of material fact
or any omission or alleged omission of a material fact required to be
stated in such registration statement or prospectus or any amendment
thereof or supplement thereto or necessary to make the statements
therein (in the case of a prospectus, in the light of the circumstances
under which they were made) not misleading, in each case to the extent,
but only to the extent, that any such loss, liability, claim, damage or
expense arises out of or is based upon any such untrue statement or
alleged untrue statement or omission or alleged omission made therein
in reliance upon and in conformity with such written information or
affidavits relating to such seller furnished to the Company by such
seller expressly for use therein. Notwithstanding the provisions of
this Section 5(b), in no case shall any seller of Restricted
Registrable Securities be liable or responsible for any amount in
excess of the net proceeds received by such seller from the sale of the
Restricted Registrable Securities of such seller which are included in
any registration statement contemplated by this Agreement.
* * *
If the indemnification provided for in this Section 5 from the
indemnifying party is unavailable to an indemnified party hereunder in
respect of any losses, claims, damages, liabilities or expenses
referred to therein, then the indemnifying party, in lieu of
indemnifying such indemnified party, shall contribute (on the basis of
relative fault) to the amount paid or payable by such indemnified party
as a result of such losses, claims, damages, liabilities or expenses.
The relative fault of such indemnifying and indemnified parties shall
be determined by reference to, among other things, whether any action
in question, including any untrue or alleged untrue statement of a
material fact or omission or alleged omission to state a material fact,
has been made by, or relates to information supplied by, such
indemnifying or indemnified parties, and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent
such action. The amount paid or payable by a party as a result of the
losses, claims, damages, liabilities and expenses
30
<PAGE>
referred to above shall be deemed to include, subject to the
limitations set forth in Section 5(c), any legal or other fees or
expenses reasonably incurred by such party in connection with any
investigation or proceeding. Notwithstanding the provisions of this
Section 5(d)(i), in no case shall any seller of Restricted Registrable
Securities be liable or responsible for any amount in excess of the net
proceeds received by such seller from the sale of the Restricted
Registrable Securities of such seller which are included in any
registration statement contemplated by this Agreement.
* * *
No person guilty of fraudulent misrepresentation (within the meaning of
Section 8(f) of the Securities Act) shall be entitled to contribution
from any person who was not guilty of such fraudulent
misrepresentation.
* * *
If indemnification is available under this Section 5, the indemnifying
parties shall indemnify each indemnified party to the full extent
provided in Sections 5(a) and (b) without regard to the relative fault
of said indemnifying party or indemnified party.
PLACEMENT AGENT AGREEMENT.
Section 12 of the Placement Agent Agreement made between the Company
and the Placement Agent provides as follows:
[The Placement Agent] agrees to indemnify and hold harmless the
Company, its officers, directors, partners, employees, agents, and
counsel and each person, if any, who control the Company within the
meaning of Section 15 of the Act or Section 20(a) of the Exchange Act,
to the same extent as the foregoing indemnify from the Company to [the
Placement Agent], but only with respect to statements, if any, made in
the Confidential Offering Memorandum, or any amendment or supplement
thereto, in reliance upon and in conformity with written information
furnished to the Company by [the Placement Agent] concerning [the
Placement Agent] expressly for inclusion in the Confidential Offering
Memorandum, or any amendment or supplement thereto and violations or
breaches of any representation, warranty, covenant or agreement
contained or incorporated in the Agreement, provided, however, that
[the Placement Agent's] obligations to provide indemnification
hereunder shall be limited to the fees actually received by [the
Placement Agent] pursuant to this Agreement. If any action shall be
brought against the Company in respect of which indemnification may be
sought against [the Placement Agent] pursuant hereto, [the Placement
Agent] shall have the rights and duties given to the Company above, and
the Company shall have the rights and duties so given to [the Placement
Agent].
Section 12 of the Placement Agent Agreement also provides:
The Company, agrees to indemnify and hold harmless [the Placement
Agent], its officers, directors, partners, employees, agents, and
counsel, and each person, if
31
<PAGE>
any, who controls [the Placement Agent] within the meaning of Section
15 of the Act or Section 20(a) of the * * * Exchange Act * * * against
any and all losses, claims, damages, obligations, penalties, judgments,
awards, settlements, liabilities, costs, expenses and disbursements and
any and all actions, suits, proceedings and investigations in respect
thereof and any and all legal and other costs, expenses and
disbursements in giving testimony or furnishing documents in response
to a subpoena or otherwise), including, without limitation, the costs,
expenses and disbursements, as and when incurred, of investigating,
preparing or defending any such action, suit, proceeding or
investigation (whether or not in connection with litigation in which
[the Placement Agent] is a party), directly or indirectly, caused by,
relating to, based upon, arising out of, or in connection with (a) an
untrue statement or alleged untrue statem4ent of a material fact
contained in, or omissions from the Offering Documents, including any
amendment thereof or supplement thereto, or similar statements or
omissions in or from any other information furnished by the Company to
[the Placement Agent] or any prospective purchaser of the Securities in
the Offering; (b) violations or breaches of any representation,
warranty, covenant or agreement contained or incorporated in the
Agreement or in any instrument, document, agreement or certificate
delivered by the Company to [the Placement Agent] or any prospective
purchaser of the Securities in the Offering; [the Placement Agent's]
acting for the Company, including, without limitation, any act or
omission by [the Placement Agent] in connection with its acceptance of
or the performance or no-performance of its obligations under the
Agreement; and (d) the Offering. The Company also agrees that [the
Placement Agent] shall not have any liability, whether direct or
indirect, in contract or tort (excluding intentional torts) to the
Company for or in connection with the engagement of [the Placement
Agent], except as provided below with respect to [the Placement
Agent's] obligations to indemnify to the Company.
These indemnification provisions shall be in addition to any liability
which the Company may otherwise have to [the Placement Agent] or the
person indemnified below in this sentence and shall extend to the
following: [the Placement Agent], its affiliated entities, partners,
employees, legal counsel, agents and controlling persons (within the
meaning of the federal securities laws), and the officers, directors,
employees, legal counsel, agents and controlling persons of any of
them. All references to [the Placement Agent] in these indemnification
provisions shall be understood to include any and all of the foregoing.
In order to provide for just and equitable contribution, if a claim for
indemnification pursuant to these indemnification provisions is made
but it is found in a final judgment by a court of competent
jurisdiction (not subject to further appeal) that such indemnification
may not be enforced in such case, even though the express provisions
hereof provide for indemnification in such case, then the Company, on
the one hand, and [the Placement Agent], on the other hand, shall
contribute to the losses, claims, damages, obligations, penalties,
judgments, awards, liabilities, costs, expenses and disbursements to
which the indemnified person may be subject in accordance with the
relative benefits
32
<PAGE>
received by the Company, on the one hand, [the Placement Agent], on
the other hand, and also the relative fault of the Company, on the one
hand, and [the Placement Agent], on the other hand, in connection with
the statements, acts or omissions which resulted in such losses,
claims, damages, obligations, penalties, judgments, awards,
liabilities, costs, expenses or disbursements and the person found
liable for a fraudulent misrepresentation shall be entitled to
contribution from any person who is not also found liable for such
fraudulent misrepresentation. Notwithstanding the foregoing, [the
Placement Agent], shall not be obligation to contribute any amount
hereunder that exceeds the amount of fees previously received by [the
Placement Agent] pursuant to the Agreement.
ITEM 16. EXHIBITS.
5 Opinion of Arter & Hadden LLP, counsel to the Company.
10.1* Agreement of Sale dated July 12, 1995 between the Registrant and
Martin J. Garo, Barbara A. Garo, Daniel R. Garo, Kevin W. Garo,
Joe Jones, Damon Young, Lisa Anderson and Timothy O'Connor
whereby the Registrant acquired four placer mining claims, all
situate in Avawatz Mining District, County of San Bernardino,
State of California, United States of America is incorporated by
reference to the Registrant's Annual Report on Form 10-K for the
fiscal year ended February 28, 1995.
10.2* Director's Stock Option Agreement dated January 28, 1997 between
the Registrant and David A. Hite is incorporated by reference to
the Registrant's Annual Report on Form 10-K for the fiscal year
ended February 28, 1997.
10.3* Director's Stock Option Agreement dated January 30, 1997 between
the Registrant and Sandra M. Milligan is incorporated by
reference to the Registrant's Annual Report on Form 10-K for the
fiscal year ended February 28, 1997.
10.4* Director's Stock Option Agreement dated November 12, 1997 between
the Registrant and J. Lewis Dillman is incorporated by reference
to the Registrant's Annual Report on Form 20-F for the fiscal
year ended February 28, 1998, filed with the Securities &
Exchange Commission on July 20, 1998.
10.5* Director's Stock Option Agreement dated November 12, 1997 between
the Registrant and Pru Zerny is incorporated by reference to the
Registrant's Annual Report on Form 20-F for the fiscal year ended
February 28, 1998, filed with the Securities & Exchange
Commission on July 20, 1998.
_____________________
* Items so noted were previously filed.
[X] Items so noted are filed herewith.
33
<PAGE>
10.6* Director's Stock Option Agreement dated November 12, 1997 between
the Registrant and Sandra M. Milligan is incorporated by
reference to the Registrant's Annual Report on Form 20-F for the
fiscal year ended February 28, 1998, filed with the Securities &
Exchange Commission on July 20, 1998.
10.7* Employees Stock Option Agreement dated November 12, 1997 between
the Registrant and Peggy Martin is incorporated by reference to
the Registrant's Annual Report on Form 20-F for the fiscal year
ended February 28, 1998, filed with the Securities & Exchange
Commission on July 20, 1998.
10.8* 1997 Contingent Stock Option Planis incorporated by reference to
the Registrant's Annual Report on Form 20-F for the fiscal year
ended February 28, 1998, filed with the Securities & Exchange
Commission on July 20, 1998.
10.9* Agreement of Sale dated November 20, 1995 between the Registrant
and David A. Hite and Timothy Hite whereby the Registrant
acquired the Alexander Star #2 Claim, comprised of 160 acres and
located in San Bernardino, California is incorporated by
reference to the Registrant's Annual Report on Form 10-K for the
fiscal year ended February 29, 1996.
10.10* Agreement of Sale dated November 20, 1995 between the Registrant
and David A. Hite, Donna L. Hite, Timothy W. Hite and Bradley
Hite whereby the Registrant was granted an option to acquire
eight placer mining claims known as the Alexander Star #91-98
Claims, all l,280 acres and located in San Bernardino, California
is incorporated by reference to the Registrant's Annual Report on
Form 10-K for the fiscal year ended February 29, 1996.
10.11* Amending Agreement dated April 1, 1997 to the Property Purchase
Agreement dated January 14, 1997 between the Registrant and
Thomas J. Price, extending the date for receipt of all requisite
regulatory approvals from June 30, 1997 to December 31, 1997 is
incorporated by reference to the Registrant's Annual Report on
Form 10-K for the fiscal year ended February 28, 1997.
10.12* Property Purchase Agreement dated January 14, 1997 between the
Registrant and Thomas J. Price whereby the Registrant will
acquire a 100% interest in and to certain software technology and
intellectual property created by Thomas J. Price, known as the
Automated Information Management (the "AIM Technology") is
incorporated by reference to the Registrant's Annual Report on
Form 10-K for the fiscal year ended February 28, 1997.
___________________
* Items so noted were previously filed.
[X] Items so noted are filed herewith.
34
<PAGE>
10.13* Property Purchase Agreement effective August 1, 1997 between the
Registrant and Terry G. Goodbody whereby the Registrant acquired
a 100% interest in and to certain proprietary intellectual
property created by Goodbody, known as the Archidata Technology
is incorporated by reference to the Registrant's Annual Report on
Form 20-F for the fiscal year ended February 28, 1998, filed with
the Securities & Exchange Commission on July 20, 1998.
10.14* Stock Purchase Agreement dated the August 1, 1997 between the
Registrant and Thomas A. Speed whereby the Registrant acquired a
100% interest in and to Mainstream Technologies, Inc., a
California corporation is incorporated by reference to the
Registrant's Annual Report on Form 20-F for the fiscal year ended
February 28, 1998, filed with the Securities & Exchange
Commission on July 20, 1998.
10.15 Warrant Agreement dated November 7, 1997 among the Registrant and
each of the Unit Investors as part of the Registrant's Private
Placement.
10.16 Placement Agent Agreement dated November 7, 1997 between the
Registrant and the Placement Agent as part of the Registrant's
Private Placement.
10.17 Strategic Alliance Agreement dated as of May 21, 1998 between the
Registrant and AGISS Corporation, a Delaware corporation
("AGISS"), whereby the Registrant licensed to AGISS certain
rights with respect to the Registrant's Y2K Solution and Related
Software for a five-year period.
23.1 [X] Consent of Arter & Hadden LLP.
23.2 [X] Consent of Schvaneveldt & Company.
23.3 Consent of PriceWaterhouseCoopers.
24 [X] Power of Attorney.
___________________
* Items so noted were previously filed.
[X] Items so noted are filed herewith.
35
<PAGE>
ITEM 17. UNDERTAKINGS.
The undersigned registrant hereby undertakes to deliver or cause to be
delivered with the prospectus, to each person to which the prospectus is sent or
given, (i) the registrant's latest filing on Form 20-F, Form 40-F, or Form 10-K;
and any filing on Form 10-Q, Form 8-K or Form 6-K incorporated by reference into
the prospectus; (ii) the latest annual report to security holders that is
incorporated by reference in the prospectus and furnished pursuant to and
meeting the requirements of Rule 14a-3 or Rule 14c-3 under the Securities
Exchange Act of 1934; and, where interim financial information required to be
presented by Article 3 of Regulation S-X are not set forth in the prospectus, to
deliver, or cause to be delivered to each person to whom the prospectus is sent
or given, the latest quarterly report that is specifically incorporated by
reference in the prospectus to provide such interim financial information.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer, or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
36
<PAGE>
- --------------------------------------------------------------------------------
SIGNATURES
- --------------------------------------------------------------------------------
Pursuant to the requirements of the Securities Act of 1933, the registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form F-2 and has duly caused this registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Irvine, State of California, on September 29, 1998.
VERONEX TECHNOLOGIES, INC.
/s/ David A. Hite
By: ------------------------------------
David A. Hite,
Chairman of the Board,
Chief Executive Officer,
Chief Financial Officer, and Director
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
DATE SIGNATURE TITLE
---- --------- -----
September 29, 1998 /s/ DAVID A. HITE Chairman of the Board, Chief
-----------------------
David A. Hite Executive Officer, Chief
Financial Officer, Director
September 29, 1998 /s/ THOMAS J. PRICE President and Director
-----------------------
Thomas J. Price
September 29, 1998 /s/ SABDRA M. MILLIGAN Director
-----------------------
Sandra M. Milligan
September 29, 1998 /s/ J. LEWIS DILLMAN Director
-----------------------
J. Lewis Dillman
September 29, 1998 /s/ PRU ZERNY Director
-----------------------
Pru Zerny
37
<PAGE>
INDEX TO EXHIBITS
Number Description
- --------------------------------------------------------------------------------
23.1 Consent of Arter & Hadden LLP.
23.2 Consent of Schvaneveldt & Company.
24 Power of Attorney.
<PAGE>
EXHIBIT 23.1
CONSENT OF ARTER & HADDEN LLP
We hereby consent to the use of our name in this Registration Statement on
Form F-2 of Veronex Technologies, Inc. and to the reference to our firm under
the caption "Legal Matters" in the Prospectus.
ARTER & HADDEN LLP
Irvine, California
September 29, 1998
<PAGE>
EXHIBIT 23.2
Schvaneveldt and Company
Certified Public Accountant
275 E. South Temple, Suite 300
Salt Lake City, Utah 84111
(801) 521-2392
Darrell T. Schvaneveldt, C.P.A.
September 29, 1998
U.S. Securities & Exchange Commission
450 5th Street, N.W.
Washington, D.C. 20549
Re: Consent to be named in the F-2 Registration Statement of Veronex
Technologies, Inc.
Ladies and Gentlemen:
I hereby consent to the use of my report for the year ended February 28,
1998, dated July 14, 1998, and for the period ended May 31, 1998, dated August
10, 1998, in the above-referenced Registration Statement. I also consent to the
use of our name as an expert in such Registration Statement.
DARRELL SCHVANEVELDT
<PAGE>
EXHIBIT 24
POWER OF ATTORNEY
TO SIGN REGISTRATION STATEMENT AND AMENDMENTS
Each person whose signature appears below hereby constitutes and appoints
David A. Hite as his or her true and lawful attorney-in-fact and agent, with
full powers of substitution and resubstitution, for him or her and in his or her
name, place, and stead, in any and all capacities indicated below, to sign this
Form F-2 Registration Statement and any or all amendments, including post-
effective amendments, to this Form F-2 Registration Statement, and to file the
same, with all exhibits thereto, and other documents in connection therewith,
with the Securities and Exchange Commission, and applicable state securities
administrators, granting unto said attorney-in-fact and agent full power and
authority to do and perform each and every act and thing requisite necessary to
be done in connection therewith, as fully to all intents and purposes as he
might or could do in person, hereby ratifying and confirming all that said
attorney-in-fact and agent, or his or her substitute or substitutes, may
lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this Power of
Attorney for authorized signatures to this Form F-2 Registration Statement and
amendments thereto has been signed below by the following persons in the
capacities and on the dates indicated:
DATE SIGNATURE TITLE
---- --------- -----
September 29, 1998 /S/ THOMAS J. PRICE President and Director
---------------------------
Thomas J. Price
September 29, 1998 /S/ SANDRA M. MILLIGAN Director
---------------------------
Sandra M. Milligan
September 29, 1998 /S/ J. LEWIS DILLMAN Director
---------------------------
J. Lewis Dillman
September 29, 1998 /S/ PRU ZERNY Director
---------------------------
Pru Zerny
