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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------------------
FORM 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarter ended March 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES ACT OF 1934
For the transition period from __________ to ___________
Commission File No. 1-11476
VOICE POWERED TECHNOLOGY INTERNATIONAL, INC.
(Name of small business issuer in its charter)
California 95-3977501
(State or other jurisdiction of (I.R.S.Employer
incorporation or organization) Identification Number)
18425 Burbank Boulevard, Suite 508 91356
Tarzana, California (Zip Code)
(Address of principal executive offices)
Registrant's telephone number, including area code: (818)757-1100
Check whether the issuer (l) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for
such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days.
Yes ____ No __X_
As of May 30, 1997, there were 15,949,072 shares of Voice Powered Technology
International, Inc. Common Stock $.001 par value outstanding excluding
outstanding options and warrants.
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VOICE POWERED TECHNOLOGY INTERNATIONAL, INC.
FORM 10-QSB
TABLE OF CONTENTS
PART I -- FINANCIAL INFORMATION PAGE NUMBER
-----------
Item 1. Financial Statements -- unaudited
Balance Sheet as of March 31, 1997 3
Statements of Operations for the three
months ended March 31, 1997 and 1996 4
Statements of Cash Flows for the three
months ended March 31, 1997 and 1996 5
Notes to Financial Statements 6
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of Operations 8
PART II -- OTHER INFORMATION
Item 5. Other Information 11
Item 6. Exhibits and Reports on Form 8-K 11
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PART 1. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
VOICE POWERED TECHNOLOGY INTERNATIONAL, INC.
BALANCE SHEET
(Amounts in Thousands)
(Unaudited)
Assets
<TABLE>
<CAPTION>
Pro forma
March 31, March 31, 1997
1997 (Notes 3 - 5)
------- --------------
<S> <C> <C>
Current assets
Cash and cash equivalents $ 315 $ 913
Restricted cash 75
Receivables, net of allowance for doubtful
accounts 418
Receivables sold to financial institution 742
Less initial payments received from financial
institution 526
--------
Net amount due from financial institution 216
Inventory 1,939 1,783
Prepaid expenses 49
-------- --------
Total current assets 3,012 3,454
Property and equipment
Equipment 1,951 1,854
Other 131
-------- --------
2,082 1,985
Less accumulated depreciation 1,445 1,418
-------- --------
Net property and equipment 637 567
Patents and technology rights, net of
amortization 252
Deferred costs, net of amortization 599 516
Other assets 134
-------- --------
Total assets $ 4,634 $ 4,923
======== ========
Liabilities and Stockholders' Equity
Current liabilities
Accounts payable $ 4,170 $ 522
Accrued expenses 774 689
Note payable (Note 2) 500 --
Current obligations under long term debt -- 400
-------- --------
Total current liabilities 5,444 1,611
Long term debt -- 1,300
-------- --------
Total liabilities 5,444 2,911
Commitments and contingencies (Note 6) -- --
Stockholders' equity (deficit)
Preferred stock, 10,000,000 shares authorized;
none issued (500,000 at $1.00 stated value) -- 500
Common stock, $.001 stated value - shares
authorized, 50,000,000; issued and
outstanding, 13,949,072 (15,949,072) 14 16
Additional paid-in capital 27,746 27,894
Accumulated deficit (28,570) (26,398)
-------- --------
Total stockholders' equity (deficit) (810) 2,012
-------- --------
Total liabilities and stockholders'
equity (deficit) $ 4,634 $ 4,923
======== ========
</TABLE>
See accompanying notes to financial statements.
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VOICE POWERED TECHNOLOGY INTERNATIONAL, INC.
STATEMENTS OF OPERATIONS
(Amounts in Thousands Except Per Share)
(Unaudited)
<TABLE>
<CAPTION>
Three months ended
March 31,
1996 1997
------- ------
<S> <C> <C>
Sales $ 2,199 $ 1,341
Less price protection -- 77
------- -------
Net sales 2,199 1,264
Cost of goods sold 1,361 981
------- -------
Gross profit 838 283
Operating costs
Marketing 435 577
General and administrative 680 652
Research and development 293 225
Warehouse 177 176
------- -------
Total operating costs 1,585 1,630
------- -------
Operating loss (747) (1,347)
Other expense, net (33) (39)
------- --------
Net loss $ (780) $(1,386)
======= ========
Net loss per common share $ (.06) $ (.10)
======= ========
Weighted average common
shares outstanding 13,034 13,949
====== ======
</TABLE>
See accompanying notes to financial statements
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VOICE POWERED TECHNOLOGY INTERNATIONAL, INC.
STATEMENTS OF CASH FLOWS
(Amounts in Thousands)
(Unaudited)
<TABLE>
<CAPTION>
Three months ended
March 31,
1996 1997
-------- --------
<S> <C> <C>
Increase (Decrease) in Cash and Cash Equivalents
Cash flows from operating activities:
Net loss $ (780) $(1,386)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Compensatory stock options 12 --
Depreciation and amortization 144 181
Changes in operating assets and liabilities:
Decrease in restricted cash -- 75
Decrease in receivables 1,782 1,167
(Increase) decrease in inventory 716 (108)
Decrease in prepaid expenses 17 52
Increase in deferred costs (168) (64)
Increase in other assets (105) (7)
Decrease in accounts payable (467) (171)
Decrease in accrued expenses (137) (83)
-------- -------
Net cash provided by (used in)
operating activities 1,014 (344)
-------- -------
Cash flows from investing activities:
Capital expenditures (58) (68)
-------- -------
Net cash used in investing activities (58) (68)
-------- -------
Cash flows from financing activities:
Proceeds from note payable -- 500
Payments on loan payable (1,692) --
Proceeds from exercise of stock options 15 --
-------- -------
Net cash provided by (used in)
financing activities (1,677) 500
-------- -------
Net increase (decrease) in cash and cash
equivalents (721) 88
Cash and cash equivalents at the beginning
of the year 2,095 227
-------- -------
Cash and cash equivalents, March 31 $ 1,374 $ 315
======== =======
Supplemental Disclosure
Interest paid $ 54 $ 43
======== =======
Non-cash financing and investing activities:
Issuance of compensatory stock options
to related party $ 50 $ --
Issuance of common stock to vendor 1,955 --
Conversion of accounts payable to note
payable 883 --
</TABLE>
See accompanying notes to financial statements
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VOICE POWERED TECHNOLOGY INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
NOTE 1 -- The accompanying unaudited financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information and the instructions to Form 10-QSB. Accordingly, they do not
include all of the information and footnotes required by generally accepted
accounting principles for complete financial statements. In the opinion of
management, all adjustments (consisting only of normal recurring accruals)
considered necessary for a fair presentation have been included. For further
information, refer to the financial statements, and footnotes thereto, included
in the Company's Annual Report on Form 10-KSB for the year ended December 31,
1996. Operating results for the three month period ended March 31, 1997 are not
necessarily indicative of the results that may be expected for the year ending
December 31, 1997.
NOTE 2 -- In February 1997, the Company entered into a Letter of Intent with
Franklin Electronic Publishers, Inc. ("Franklin"), setting forth the intention
of the companies to enter into an agreement regarding a merger of the Company
with Franklin upon certain terms and conditions including the Company's
shareholder approval. Under the terms of the Letter of Intent, in March 1997
Franklin loaned the Company $500,000, secured by a promissory note on which
interest accrues on the principal at 9% per year. The interest and principal on
the note is payable (whether or not a merger agreement is executed) on December
31, 1997, and is secured by all of the Company's tangible and intangible assets,
subordinate only to the financial institution with which the Company has an
accounts receivable transfer and purchase agreement. The letter of intent was
subsequently terminated, and the note was restructured as part of a May 1997
transaction (Note 3).
NOTE 3 -- Subsequent to the first quarter of 1997, in May 1997, the Company
consummated a transaction involving two agreements with Franklin. The first
agreement was a Purchase and Loan Agreement in which the two companies entered
into the following transactions: 1) The Company transferred and sold to Franklin
for $450,000 in cash its inventory, rights to work in process, manufacturing
assets, marketing assets, and software and hardware design assets for the
Company's IQ-VOICE(TM) Organizer Models 5150 and 5160 (IQ-VOICE Pocket
Organizers); 2) The Company sold to Franklin for $150,000 in cash 2,000,000
shares of the Company's common stock, par value $.001 per share, representing
the approximate market price of the Company's common stock at the time of the
transaction; and 3) Franklin loaned the Company cash equal to $1,200,000, in
addition to $500,000 previously loaned to the Company, and restructured the
payment terms of a new $1,700,000 promissory note. The new note carries interest
at a rate of 10% per year. The interest is payable monthly, with principal
payments of $400,000 due on April 30 of each year commencing April 30, 1998 and
ending April 30, 2001, with the final installment in the amount necessary to
repay the full balance of the loan. The second agreement was a Technology
Transfer Agreement in which the two companies entered into the following
transactions: 1) The Company granted to Franklin a non-exclusive perpetual
license for technology rights evidenced by the Company's patent related to
operation of Voice Organizer products as well as other technology and software
developed by the Company related to or used in the Model 5150 and 5160 for a
non-refundable advance royalty of $700,000; and 2) the Company assigned the
rights to VoiceLogic(TM) Technology to Franklin, and Franklin granted back to
the Company a non-exclusive perpetual license of the VoiceLogic Technology,
including the right to sublicense, for the development, manufacture, sale and
distribution of Voice Organizer products with recording times in excess of four
minutes and any other electronic products that are not Voice Organizers, subject
to the Company remaining obligated to pay royalties to Franklin at the same
rates for which the Company was obligated to the inventor of the VoiceLogic
Technology prior to its assignment to Franklin.
The pro forma amounts for March 31, 1997 presented in the accompanying
balance sheet include the effect of these transactions which resulted in an
increase to cash of $2,500,000; $309,000 in reduction of inventory, net
equipment, and net deferred costs; a decrease of $100,000 and an increase of
$1,300,000 in current and long term debt, respectively; a $150,000 increase in
common stock and additional paid-in capital; $700,000 in royalty revenues; and a
$141,000 gain on the sale of assets.
NOTE 4 -- Also in May 1997, the Company entered into agreements with
Flextronics (Malaysia) SDN. BHD. ("Flextronics") and GSS/Array Technology, Inc.
("GSS"), the manufacturers of the Company's products, relating to the resolution
of outstanding liabilities and commitments. The Company entered into a
Settlement Agreement with Flextronics
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under which the Company made a cash payment and assigned the proceeds due
pursuant to a licensing agreement with Kong Wah Video for a voice operated
television remote control device to Flextronics as full and final settlement for
all outstanding liabilities and commitments other than approximately $260,000 in
inventory which has already been manufactured by Flextronics. The Company has
committed to purchase such inventory prior to June 30, 1997. The Company also
entered into a Discounted Payment and Adequate Assurance of Performance
Agreement with GSS under which the Company made a cash payment and issued
500,000 shares of non-voting, non-cumulative, convertible preferred stock, with
a $0.06 per share mandatory dividend payable annually in cash or common stock at
the option of the Company on the anniversary date of issuance, as full and final
settlement of outstanding liabilities. The preferred stock will have a $1.00 per
share liquidation preference and each share will be convertible into four (4)
shares of the Company's common stock. Further, at the option of GSS, for a one
year period the Company will agree to either appoint a representative of GSS to
the Board of Directors of the Company or to allow a representative to attend
Board of Directors meetings as a non-voting observer. Also under the Discounted
Payment and Adequate Assurance of Performance Agreement, GSS has agreed to
continue to manufacture pursuant to the terms of the original Manufacturing
Agreement for a period of not less than six months, and the Company has agreed
to provide GSS with a standby letter of credit to secure the Company's payments.
Lastly, on or about May 22, 1997, the Company entered into agreements with many
of its other trade creditors in which the trade creditors agreed to accept
discounted lump sum payments in full consideration of current obligations of the
Company.
The pro forma amounts for March 31, 1997 presented in the accompanying
balance sheet include the effect of these transactions which resulted in a
decrease to cash of $1,902,000; a reduction to accounts payable and accrued
expenses of $3,923,000; a $500,000 increase in preferred stock; and a $1,521,000
gain on forgiveness of debt.
NOTE 5 -- As of May 1, 1997, the Company entered into three agreements with
Edward M. Krakauer establishing the terms and conditions under which Mr.
Krakauer resigned as the Company's president and CEO. Under the first agreement,
a Termination Agreement, Mr. Krakauer's employment agreement was terminated and
a negotiated payment plan was established for accrued salaries of $52,000 owed
to the date of termination plus a discounted balance of the terminated
employment agreement of $190,000. Payments applicable to the foregoing will be
made at various intervals through June 30, 1998. Under the terms of the second
agreement, a Consulting Agreement, Mr. Krakauer would serve the Company as a
consultant through June 30, 1998, at an annual rate of $60,000 per year. Under
the third agreement, Mr. Krakauer was granted 75,000 stock options at an
exercise price of $.008 per share (which was 20% of the fair market value per
share at the time of the grant in accordance with previous options granted by
the Company for non-employee directors). Mr. Krakauer will remain The Chairman
of the Company's Board of Directors.
The pro forma amounts for March 31, 1997 presented in the accompanying
balance sheet include the effect of this transaction which resulted in an
increase to accrued expenses and an offsetting general and administrative
expense of $190,000.
NOTE 6 -- The Company had entered into a letter agreement dated May 2, 1996 with
Everen Securities Inc. ("ESI") regarding the retention of ESI's services as
financial advisor and agent. This agreement was terminated by the Company
February 3, 1997. ESI has subsequently asserted a claim against the Company for
fees due as a result of the Franklin transactions (Note 3) in the amount of
$450,000. The Company and ESI are presently in a dispute as to the validity of
this claim. The Company intends to vigorously defend its position on this
matter, however no assurances can be made as to the outcome. The Company has not
made any accruals relating to this matter at the present time.
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ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The results of the Company's first quarter performance as compared
to a year ago are primarily a reflection of the Company's continued efforts
to liquidate its older, higher cost products, including discontinued
inventory. These efforts, which include selling the older products at book
value; price protection costs to reduce the retail price of certain products
at retail stores in order to facilitate inventory movement; and entering into
additional advertising commitments with customers relating to both the older
products and the Company's newer products; have resulted in lower gross
profit margins and higher expenses as a percentage of sales.
These effects, however, were partially offset by sales of the
Company's new products, as well as the Company's efforts to streamline its
operations and reduce its expenses. Sales of the Company's new products,
which were introduced in the latter portion of 1996, have resulted in larger
gross margins and increased sales of the Company's core IQ-VOICE(TM) Organizer
products. Further, the streamlining of operations has enabled the Company to
begin decreasing fixed costs in all areas of operations. These decreases are
expected to become more evident in future quarters.
RESULTS OF OPERATIONS
For the three months ended March 31, 1997, the Company reported an
operating loss of $1,347,000, as compared to an operating loss of $747,000
for the three months ended March 31, 1996. After including other expenses,
the Company reported a net loss of $1,386,000, or $.10 per share, for the
three months ended March 31, 1997, and a net loss of $780,000, or $.06 per
share, for the three months ended March 31, 1996.
Sales for the three months ended March 31, 1997 were $1,341,000
while sales for the three months ended March 31, 1996 were $2,199,000. After
incurring price protection costs of $77,000 charged against sales during the
first quarter of 1997, net sales were $1,264,000. While the Company was able
to increase sales of its core business, IQ-VOICE Organizer product lines sold
through retail channels, by approximately $280,000, the net decrease in sales
was attributable to decreases in direct response sales of $90,000,
international sales of $250,000, sales of discontinued products of $345,000,
and licensing revenues of $450,000. Included in sales in the first quarter of
1997 was $715,000 in sales through retail channels of new, lower cost
IQ-VOICE Organizer products which were introduced in the latter portion of
1996. The price protection costs were incurred to reduce the retail price of
the IQ-VOICE Organizer/Pager. Accordingly, established retail accounts were
issued credits for on-hand inventory equal to the difference between the
wholesale price at which they had purchased the products and their new
wholesale price which is based on the reduced retail price.
Gross profit and gross profit percentage decreased to $283,000 and
21% for the three months ended March 31, 1997 from $838,000 and 38% for the
three months ended March 31, 1996. These decreases, as stated above, resulted
from the selling off of older products at book value, as well as the decrease
in licensing revenues which carry no related cost of sales. The decreases
were partially offset by sales of the newer products which carried a higher
gross profit percentage.
Total operating expenses for the three months ended March 31, 1997
and 1996 were $1,630,000 and $1,585,000, respectively. The increase in
expenses is primarily a result of increased marketing expenses incurred by
the Company through advertising commitments with retail customers to
stimulate sales of both newer and older product lines, partly offset by the
Company's continued efforts to decrease its costs in all areas of operations.
Marketing expenses for the three months ended March 31, 1997 and
1996 were $577,000 and $435,000, respectively. As stated, the increase in
marketing expenses is associated primarily with increased advertising
allowances for retail accounts to accelerate sales of both the older
inventory and the new products. The increase was partly offset by decreases
in direct response media costs and decreases in commissions associated with
the lower sales volume.
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General and administrative expenses decreased slightly to $652,000
for the three months ended March 31, 1997 from $680,000 for the three months
ended March 31, 1996. The decrease is primarily the result of decreased fixed
costs including salaries and legal expenses, as well as decreased variable
royalty costs associated with the lower sales volume. The decreases were
offset by costs and expenses associated with the Company's March 31, 1997
location change, which enabled the Company to significantly reduce its
subsequent monthly rent expense.
Research and development expenses decreased to $225,000 for the
three months ended March 31, 1997 from $293,000 for the three months ended
March 31, 1996. The decrease is primarily the result of decreased salaries,
partly offset by an increase in amortization expense, as the Company strives
to develop new products as well as enhance the VoiceLogic Technology.
Warehouse and distribution expenses remained consistent at $176,000
for the three months ended March 31, 1997 and $177,000 for the three months
ended March 31, 1996.
Other expense was $39,000 and $33,000 for the three months ended
March 31, 1997 and March 31, 1996, respectively, primarily relating to
interest expense.
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 1997, the Company had negative working capital of
$2,432,000. During the first quarter of 1997, the Company had been actively
seeking a strategic relationship, including merger opportunities, product
development joint ventures, and distribution agreements in order to grow and
strengthen the Company's financial base. Further, the Company had been seeking
funding, in the form of equity or debt in order to satisfy cash requirements in
the ordinary course of business during 1997, develop a major new voice
recognition product, and provide funding for costs that may be associated with
effecting such strategic relationship. The Company then entered into a Letter of
Intent in February 1997 to merge with Franklin Electronic Publishers, Inc.
("Franklin"), and under that Letter of Intent, received a loan of $500,000 to
fund operational cash flow shortages. The Letter of Intent was subsequently
terminated, and the note was restructured as part of the transaction described
in the following paragraph.
In May 1997, the Company consummated a transaction involving two
agreements with Franklin. The first agreement was a Purchase and Loan Agreement
in which the two companies entered into the following transactions: 1) The
Company transferred and sold to Franklin for $450,000 in cash its inventory,
rights to work in process, manufacturing assets, marketing assets, and software
and hardware design assets for the Company's IQ-VOICE(TM) Organizer Models 5150
and 5160 (IQ-VOICE Pocket Organizers); 2) The Company sold to Franklin for
$150,000 in cash 2,000,000 shares of the Company's common stock, par value $.001
per share, representing the approximate market price of the Company's common
stock at the time of the transaction; and 3) Franklin loaned the Company cash
equal to $1,200,000, in addition to the $500,000 previously loaned to the
Company, and restructured the payment terms of a new $1,700,000 promissory note.
The new note carries interest at a rate of 10% per year. The interest is payable
monthly, with principal payments of $400,000 due on April 30 of each year
commencing April 30, 1998 and ending April 30, 2001, with the final installment
in the amount necessary to repay the full balance of the loan. The second
agreement was a Technology Transfer Agreement in which the two companies entered
into the following transactions: 1) The Company granted to Franklin a
non-exclusive perpetual license for technology rights evidenced by the Company's
patent related to operation of Voice Organizer products as well as other
technology and software developed by the Company related to or used in the Model
5150 and 5160 for a non-refundable advance royalty of $700,000; and 2) the
Company assigned the rights to the VoiceLogic(TM) Technology to Franklin, and
Franklin granted back to the Company a non-exclusive perpetual license of the
VoiceLogic Technology, including the right to sublicense, for the development,
manufacture, sale and distribution of Voice Organizer products with recording
times in excess of four minutes and any other electronic products that are not
Voice Organizers, subject to the Company remaining obligated to pay royalties to
Franklin at the same rates for which the Company was obligated to the inventor
of the VoiceLogic Technology prior to its assignment to Franklin. These
transactions resulted in an increase to cash of $2,500,000; $309,000 in
reduction of inventory, net equipment, and net deferred costs; a decrease of
$100,000 and an increase of $1,300,000 in current and long term debt,
respectively; a $150,000 increase in common stock and additional paid-in
capital; $700,000 in royalty revenues; and a $141,000 gain on the sale of
assets.
Also in May 1997, the Company entered into agreements with
Flextronics (Malaysia) SDN. BHD. ("Flextronics") and GSS/Array Technology, Inc.
("GSS"), the manufacturers of the Company's products, relating to the
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resolution of outstanding liabilities and commitments. The Company entered into
a Settlement Agreement with Flextronics under which the Company made a cash
payment and assigned the proceeds due pursuant to a licensing agreement with
Kong Wah Video for a voice operated television remote control device to
Flextronics as full and final settlement for all outstanding liabilities and
commitments other than approximately $260,000 in inventory which has already
been manufactured by Flextronics. The Company has committed to purchase such
inventory prior to June 30, 1997. The Company also entered into a Discounted
Payment and Adequate Assurance of Performance Agreement with GSS under which the
Company made a cash payment and issued 500,000 shares of non-voting,
non-cumulative, convertible preferred stock, with a $0.06 per share mandatory
dividend payable annually in cash or common stock at the option of the Company
on the anniversary date of issuance, as full and final settlement of outstanding
liabilities. The preferred stock will have a $1.00 per share liquidation
preference and each share will be convertible into four (4) shares of the
Company's common stock. Further, at the option of GSS, for a one year period the
Company will agree to either appoint a representative of GSS to the Board of
Directors of the Company or to allow a representative to attend Board of
Directors meetings as a non-voting observer. Also under the Discounted Payment
and Adequate Assurance of Performance Agreement, GSS has agreed to continue to
manufacture pursuant to the terms of the original Manufacturing Agreement for a
period of not less than six months, and the Company has agreed to provide GSS
with a standby letter of credit to secure the Company's payments. Lastly, on or
about May 22, 1997, the Company entered into agreements with many of its other
trade creditors in which the trade creditors agreed to accept discounted lump
sum payments in full consideration of current obligations of the Company. These
transactions resulted in a decrease to cash of $1,902,000; a reduction to
accounts payable and accrued expenses of $3,923,000; a $500,000 increase in
preferred stock; and a $1,521,000 gain on forgiveness of debt.
The effect of the transactions with Franklin, Flextronics, GSS, and
the other trade creditors have improved the Company's working capital position
and its stockholders' equity. However, the Company anticipates continued losses
from operations through the first nine months of 1997, and believes that such
losses will continue unless the Company is successful in its efforts to increase
sales from its current distribution channels and diversify its product line. As
a result, management continues to seek a strategic relationship including merger
opportunities, product development joint ventures, and distribution agreements
in order to grow and strengthen the Company's financial base. The Company also
continues to seek additional equity funding in order to satisfy cash
requirements for the remainder of 1997, inclusive of planned product development
activities and to further strengthen its working capital position. At present,
no definitive agreements exist, and failure to either consummate a strategic
relationship agreement or obtain additional funding could result in the
Company's having insufficient cash resources to meet its obligations in 1997.
These factors raise substantial doubt about the Company's ability to continue as
a going concern.
The decrease in accounts receivable of $1,167,000 is attributable
mainly to collections on customer receivables which existed at December 31,
1996. Such decrease was offset partially by new receivables from customers from
sales made in the first quarter of 1997.
The net decrease in accounts payable and accrued expenses of
$254,000 as of March 31, 1997 is mainly attributable to payments made to the
Company's contract manufacturer.
Except for the historical information, the matters discussed herein
are forward looking statements that involve risks to and uncertainties in the
Company's business, including, among other things, the availability of adequate
working capital, changes in technology, the impact of competitive products, the
Company's dependence on third party component supplies and manufacturers, and
other risks and uncertainties that may be detailed from time to time in this and
other of the Company's SEC reports.
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PART II. OTHER INFORMATION
The Company was not required to report any matters or changes for any items of
Part II except as disclosed below.
ITEM 5. OTHER INFORMATION
In March 1997, Mr. Ernest Townsend resigned as a director due to
personal commitments which would have limited his future availability to the
Company.
Subsequent to the first quarter 1997, in May 1997, Mr. Edward Krakauer
resigned as the Company's president and CEO, however, he remains Chairman of the
Company's Board of Directors. Mr. Krakauer will serve as a part-time consultant
to the Company through June 30, 1998.
Further in May 1997, Mitchell B. Rubin was appointed by the Board of
Directors to fill the positions of president and CEO.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibit 3(I) -- Articles of Incorporation
(b) Exhibit 11 -- Calculations of Earnings Per Share
(c) The Company filed a Current Report on Form 8-K, dated May 22,
1996, with the Commission, reporting information under Item 2 and Item 5 of
said Form.
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SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
VOICE POWERED TECHNOLOGY INTERNATIONAL, INC.
Date: July 3, 1997 By: /s/ Mitchell B. Rubin
--------------------------------
Mitchell B. Rubin, President and
Chief Executive Officer
In accordance with the Exchange Act, this report has been signed below by
the following persons on behalf of the registrant and in the capacities and on
the dates indicated.
Signature Title Date
/s/ Edward M. Krakauer
- ----------------------
Edward M. Krakauer Chairman of the Board July 3, 1997
/s/ Mitchell B. Rubin
- ---------------------
Mitchell B. Rubin President and Chief July 3, 1997
Executive Officer
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EXH. 3(I)
ENDORSED
FILED
In the office of the Secretary of State
of the State of California
JUN 19 1997
/s/ Bill Jones
------------------------------
BILL JONES, Secretary of State
CERTIFICATE OF DETERMINATION OF
PREFERENCE OF PREFERRED STOCK
OF
VOICE POWERED TECHNOLOGY INTERNATIONAL, INC.
a California corporation
Mitchell B. Rubin hereby certifies that:
ONE: He is the President and the Secretary of Voice Powered
Technology International, Inc., a California corporation.
TWO: Pursuant to authority given by this corporation's Restated
Articles of Incorporation, the Board of Directors of this corporation has duly
adopted the following resolutions:
WHEREAS, the Restated Articles of Incorporation of this
corporation provide for a class of shares known as Special Preferred Stock, par
value $.001 per share, issuable from time to time in one or more series; and
WHEREAS, the Board of Directors of this corporation is
authorized to determine or alter the rights, preferences, privileges and
restrictions granted to or imposed upon any wholly unissued series of Special
Preferred Stock, to fix the number of shares constituting any such series and
to determine the designation thereof; and
WHEREAS, this corporation has not issued any shares of Special
Preferred Stock and the Board of Directors of this corporation desires,
pursuant to its authority as aforesaid, to determine and fix the rights,
preferences, privileges and restrictions relating to the initial series of the
Special Preferred Stock and the number of shares constituting and the
designation of that series; and
WHEREAS, there are presently no issued and outstanding shares
of this corporation's Preferred Stock, Series B 14% Convertible Cumulative
Preferred Stock and Series C 12% Convertible Cumulative Preferred Stock
(collectively, the "Other Preferred Stock");
NOW, THEREFORE, BE IT RESOLVED, that the Board of Directors
hereby fixes and determines the designation of, the number of shares
constituting, and the rights, preferences, privileges and restrictions relating
to, the initial series of Preferred Stock as follows:
1. Designation of Series. The initial series of Special
Preferred Stock shall be designated "Series A Special Preferred."
2. Number of Shares. The number of shares constituting
the Series A Special Preferred stock shall be 500,000.
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3. Dividends. The holders of outstanding shares of Series A
Special Preferred stock shall be entitled to receive, when and as declared by
the Board of Directors, out of funds legally available therefore, dividends in
cash at the annual rate of $0.06 per share on the fifteenth day of June in each
year (the "Dividend Date"), beginning on June 15, 1998. Payment of dividend
pursuant to this Section 3 shall be mandatory: PROVIDED, however, that the Board
of Directors may, in its sole and absolute discretion, elect to pay any dividend
due under this Section 3 in shares of the corporation's Common Stock, par value
$.001 per share (the "Common Stock"). If the Board of Directors elects to pay
any dividend due under this Section 3 in Common Stock, the number of shares of
Common Stock to be delivered to the holders of Series A Special Preferred stock
shall be determined by (i) multiplying the number of shares of Series A Special
Preferred stock held by a holder as of the record date set by the Board of
Directors for the payment of the dividend, by $.06; and (ii) dividing that
amount by Dividend Price (as defined below). No fractional shares of Common
Stock shall be issued upon the payment of a dividend in shares of Common Stock.
In lieu of any fractional shares to which the holder would otherwise be
entitled, the corporation shall pay cash equal to such fraction multiplied by
the then effective Dividend Price. Dividends may be declared and paid on the
Common Stock and the Other Preferred Stock in any fiscal year of the corporation
only if the dividends required under this Section 3 shall have been paid in
cash, or shall have been declared and sufficient cash set aside for the payment
thereof.
As used in this Section 3, "Dividend Price" shall mean the
average market price for the ten (10) consecutive trading days immediately
preceding the Dividend Date. The market price for each such trading day shall
be: (i) if the Common Stock is listed or admitted to trading on any national
securities exchange or NASDAQ, the closing price on such day, or if no such sale
takes place on such day, the average of the closing bid and asked prices on such
day, (ii) if the Common Stock is not listed or admitted to trading on any
national securities exchange or NASDAQ, the last reported sale price on such day
or, if no sale takes place on such day, the average of the closing bid and asked
prices on such day, as reported by a reliable quotation source designated by the
Company, or (iii) if the Common Stock is not listed or admitted to trading on
any national securities exchange or NASDAQ and no such last reported sale price
or closing bid and asked prices are available, the average of the reported high
bid and low asked prices on such day, as reported by a reliable quotation source
designated by the Company, or if there shall be no bid and asked prices on such
day, the average of the high bid and low asked prices, as so reported, on the
most recent day (not more than 10 days prior to the date in question) for which
prices have been so reported; provided that if there are no bid and asked prices
reported during the 10 days prior to the date in question, the Dividend price of
the Common Stock shall be determined by the Company acting in good faith on the
basis of such quotations and other information as it considers, in its
reasonable judgment, appropriate.
4. Liquidation Preference. In the event of a voluntary or
involuntary liquidation, dissolution, or winding up of the corporation, the
holders of Series A Special Preferred shares shall be entitled to receive, out
of the assets of the corporation, whether those assets are capital or surplus of
any nature, an amount equal to $1.00 per share of Series A Special Preferred
stock, and a further amount equal to any dividends thereon declared and
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unpaid on the date of that distribution, and no more, before any payment shall
be made or any assets distributed to the holders of Common Stock or the Other
Preferred Stock.
After payment or distribution to the holders of Series A Special
Preferred shares of the full preferential amounts, the holders of Series A
Special Preferred shares shall be entitled to no further distributions.
A consolidation or merger of the corporation with or into any
other corporation or corporations, or a sale of all or substantially all of the
assets of the corporation, shall not be deemed to be a liquidation,
dissolution, or winding up, within the meaning of this Section 4.
5. Redemption. Subject to the provisions of the California General
Corporation Law and to any other applicable restrictions on the right of a
corporation to redeem its own shares, the corporation, at the option of the
Board of Directors, may at any time or from time to time redeem the whole or any
part of the outstanding Series A Special Preferred shares. If less than all the
outstanding shares of Series A Special Preferred are redeemed pursuant to this
Section 5, such shares shall be redeemed pro rata among the holders thereof.
Upon redemption, the corporation shall pay cash in the amount
of $1.00 per share for each share redeemed, plus an amount equal to all
dividends thereon declared but unpaid on the date fixed for redemption. The
total amount payable per share is called the ""Redemption Price" below.
At least twenty days' previous notice by mail, postage prepaid,
shall be given to the holders of record of the Series A Special Preferred
shares to be redeemed as of the date of mailing or as of a record date lawfully
fixed. Such notice shall be addressed to each such shareholder at the address
of that holder appearing on the books of the corporation or given by that
holder to the corporation for the purpose of notice, or if no such address
appears or is so given, at the place where the principal office of the
corporation is located. The notice shall state the date fixed for redemption,
the redemption price, and shall call upon the holder to surrender to the
corporation on the date fixed and at the place designated in the notice the
holder's certificate or certificates representing the shares to be redeemed. On
or after the date fixed for redemption and stated in that notice, each holder
of Series A Special Preferred shares called for redemption shall surrender the
certificate evidencing the shares to the corporation at the place designated
in the notice and shall thereupon be entitled to receive payment of the
Redemption Price. If less than all the shares represented by any such
surrendered certificate are redeemed, a new certificate shall be issued
representing the unredeemed shares. If the notice of redemption shall have been
duly given, and if on the date fixed for redemption funds necessary for the
redemption shall be available to pay the Redemption Price, then,
notwithstanding that the certificates evidencing any Series A Special Preferred
shares so called for redemption shall not have been surrendered, the dividends
with respect to the shares so called for redemption shall cease to accrue after
the date fixed for redemption and all rights with respect to the shares so
called for redemption, shall after that date cease and determine, except
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<PAGE> 4
only the right of the holders to receive the Redemption Price without interest
upon surrender of their certificates.
6. Conversion. The holders of the Series A Special
Preferred shares shall have conversion rights as follows (the "Conversion
Rights"):
(a) Right to Convert. Each share of the Series A
Special Preferred shall be convertible, at the option of the holder thereof, at
any time after the date of issuance of such share, at the office of the
corporation or any transfer agent for the Series A Special Preferred shares,
into such number of fully paid and nonassessable shares of Common Stock, as is
equal to the Conversion Factor (as defined below). The "Conversion Factor," as
used in this Section 6, shall initially be four (4), but shall be subject to
adjustments as hereinafter provided.
Upon conversion, all declared and unpaid
dividends on the Series A Special Preferred shall be paid either in cash or in
shares of Common Stock of the corporation, at the election of the Board of
Directors as provided in Section 3.
(b) Mechanics of Conversion. No fractional shares of
Common Stock shall be issued upon conversion of the Series A Special Preferred
shares. In lieu of any fractional shares to which the holder would otherwise be
entitled, the corporation shall pay cash equal to such fraction multiplied by
the then effective Conversion Price. Before any holder of Series A Special
Preferred shares shall be entitled to convert the same into full shares of
Common Stock and to receive certificates therefor, the holder shall surrender
the certificate or certificates therefor, duly endorsed, at the office of the
corporation or of any transfer agent for the Series A Special Preferred shares,
or notify the corporation or its transfer agent that such certificates have
been lost, stolen or destroyed and execute an agreement satisfactory to the
corporation to indemnify the corporation from any loss incurred by it in
connection with such certificates, and shall give written notice to the
corporation at such office that the holders elects to convert the same;
provided, however, that the corporation shall, as soon as practicable after
such delivery, or such agreement and indemnification in the case of a lost
certificate, issue and deliver at such office to such holder of Series A
Special Preferred shares, a certificate or certificates for the number of
shares of Common Stock to which the holder shall be entitled as aforesaid and a
check payable to the holder in the amount of any cash amounts payable as the
result of a conversion into fractional shares of Common Stock. Such conversion
shall be deemed to have been made immediately prior to the close of business on
the date of such surrender of the shares of Series A Special Preferred to be
converted, and the person or persons entitled to receive the shares of Common
Stock issuable upon such conversion shall be treated for all purposes as the
record holder or holders of such shares of Common Stock on such date.
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<PAGE> 5
(c) Adjustment of Conversion Factor for Series A Special
Preferred Shares. The Conversion Factor shall be subject to adjustment from
time to time as follows:
(i) Adjustments for Subdivisions, Combinations or
Consolidation of Common Stock. Following the date that a Certificate of
Determination concerning the Series A Special Preferred stock is filed with the
Secretary of State of the State of California (the "Certificate"), in the event
the outstanding shares of Common Stock shall be subdivided by stock split,
stock dividends or otherwise, into a greater number of shares of Common Stock,
the Conversion Factor then in effect shall, concurrently with the effectiveness
of such subdivision, be proportionately increased. In the event the outstanding
shares of Common Stock shall be combined or consolidated, by reclassification
or otherwise, into a lesser number of shares of Common Stock, the Conversion
Factor then in effect shall, concurrently with the effectiveness of such
combination or consolidation, be proportionately decreased.
(ii) Adjustments for Reclassification, Exchange and
Substitution. Except as provided in Section 4, upon any liquidation,
dissolution or winding up of the corporation, if the Common Stock issuable upon
conversion of the Series A Special Preferred shares shall be changed into the
same or a different number of shares of any other class or classes of stock,
whether by capital reorganization, reclassification or otherwise (other than a
subdivision or combination of shares provided for above), each share of Series A
Special Preferred shall thereafter be convertible into the number of shares of
stock or other securities or property to which a holder of the number of shares
of Common stock of the corporation deliverable upon conversion of such share of
Series A Special Preferred shall have been entitled upon such reorganization.
(d) Adjustments for Stock Dividends and Other
Distributions. In the event the corporation at any time or from time to time
makes, or fixes a record date for the determination of holders of Common Stock
entitled to receive any distribution (excluding any repurchases of securities
by the corporation not made on a pro rata basis from all holders of any class
of the corporation's securities) payable in property or in securities of the
corporation other than shares of Common Stock, and other than as otherwise
adjusted in this Section 6, then and in each such event the holders of Series A
Special Preferred shares shall receive at the time of such distribution, the
amount of property or the number of securities of the corporation that they
would have received had their Series A Special Preferred shares been converted
into Common Stock on the date of such event.
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<PAGE> 6
(e) No Impairment. The corporation will not, by amendment of
its Restated Articles of Incorporation or the Certificate, or through any
reorganization, transfer of assets, consolidation, merger, dissolution, issue
or sale of securities or any other voluntary action, avoid or seek to avoid the
observance or performance of any of the terms to be observed or performed
hereunder by the corporation but will at all times in good faith assist in
carrying out all of the provisions of this Section 6 and in the taking of all
such action as may be necessary or appropriate in order to protect the
Conversion Rights of the holders of the Series A Special Preferred shares
against impairment.
(f) Certificate as to Adjustments. Upon the occurrence of each
adjustment or readjustment of the Conversion Factor pursuant to this Section 6,
the corporation at its expense shall promptly compute such adjustment or
readjustment in accordance with the terms hereof and furnish to each holder of
Series A Special Preferred stock a certificate setting forth such adjustment or
readjustment and showing in detail the facts upon which such adjustment or
readjustment is based.
(g) Notices of Record Date. In the event that this corporation
shall propose at any time: (i) to declare any dividend or distribution upon its
Common Stock, whether in cash, property, stock or other securities, whether or
not a regular cash dividend and whether or not out of earnings or earned
surplus; or (ii) to merge or consolidate with or into any other corporation, or
sell, lease or convey all or substantially all its property or business, or to
liquidate, dissolve or wind up; then, in connection with each such event, this
corporation shall send to the holders of Series A Preferred stock:
(1) at least 20 days' prior written notice of the
date on which a record shall be taken for such dividend or distribution (and
specifying the date on which the holders of Common Stock shall be entitled
thereto) or for determining rights to vote in respect of the matters referred
to in (i) and (ii) above; and
(2) in the case of the matters referred to in (i)
and (ii) above, at least 20 days' prior written notice of the date when the
same shall take place (and specifying the date on which the holders of Common
Stock shall be entitled to exchange their Common Stock for securities or other
property deliverable upon the occurrence of such event).
Each such written notice shall be delivered personally or given
by first class mail, postage prepaid, addressed to the holders of Series A
Special Preferred stock at the address for each such holder as shown on the
books of this corporation.
7. Voting Rights. Except as otherwise provided by law, by the
corporation's Restated Articles of Incorporation, or in the Certificate, the
holders of the Series A Special Preferred shares shall not be entitled to
notice of any shareholders' meetings or to vote upon the election of directors
or upon any other matter.
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8. Residual Rights. All rights accruing to the outstanding
shares of this corporation not expressly provided for to the contrary herein
shall be vested in the Common Stock.
9. Consent for Certain Repurchases of Common Stock Deemed
to be Distributions. Each holder of an outstanding share of Series A Special
Preferred shall be deemed to have consented, for purposes of Sections 502, 503
and 506 of the General Corporation Law, to distributions made by the
corporation in connection with the repurchase of shares of Common Stock issued
to or held by officers, directors, employees or consultants upon termination of
their employment or services pursuant to agreements or as otherwise set forth
in the Bylaws of the corporation providing for such right of repurchase between
the corporation and such persons.
THREE: That the authorized number of shares of Special Preferred Stock
of this corporation is 10,000,000 and the number of shares constituting Series
A Special Preferred Stock, none of which has been issued, is 500,000.
We further declare under penalty of perjury under the laws of the State
of California that the matters set forth in this Certificate are true and
correct of our own knowledge.
Executed at Tarzana, California, this 16th day of June, 1997.
/s/ MITCHELL B. RUBIN
------------------------------------------
Mitchell B. Rubin, President and Secretary
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ENDORSED
FILE
In the office of the Secretary of State
of the State of California
JUL 28, 1992
MARCH FONG EU, Secretary of State
A421223
RESTATED
ARTICLES OF INCORPORATION
OF
VOICE POWERED TECHNOLOGY INTERNATIONAL, INC.
W. MICHAEL BISSONNETTE and TOVA FEDER hereby certify that:
1. They are the President and the Secretary, respectively, of
VOICE POWERED TECHNOLOGY INTERNATIONAL, INC., a California corporation.
2. The Articles of Incorporation of the corporation are hereby
amended and restated to read as follows:
"RESTATED
ARTICLES OF INCORPORATION
OF
VOICE POWERED TECHNOLOGY INTERNATIONAL, INC.
I
The name of this corporation is VOICE POWERED TECHNOLOGY
INTERNATIONAL, INC.
II
The purpose of this corporation is to engage in any lawful act or
activity for which a corporation may be organized under the General Corporation
Law of California, other than the banking business, the trust company business
or the practice of a profession permitted to be incorporated by the California
Corporations Code.
III
(a) Preferred Stock, Series B 14% Convertible Cumulative Preferred
Stock, Series C 12% Convertible Cumulative Preferred Stock, Special Preferred
Stock and Common Stock. The corporation is authorized to issue five classes of
shares designated "Preferred Stock," "Series B 14% Convertible Cumulative
Preferred Stock," "Series C 12% Convertible Cumulative Preferred Stock,"
"Special Preferred Stock" and "Common Stock," respectively. The number of
shares of Preferred Stock authorized to be issued is 5,000,000 shares, $0.001
par value, the number of shares of
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<PAGE> 9
Series B 14% Convertible Cumulative Preferred Stock authorized to be issued is
2,000,000 shares, $0.001 par value, the number of shares of Series C 12%
Convertible Cumulative Preferred Stock authorized to be issued is 2,500,000
shares, $0.001 par value, the number of shares of Special Preferred Stock
authorized to be issued is 10,000,000 shares, $0.001 par value, and the number
of shares of Common Stock authorized to be issued is 50,000,000 shares of
$0.001 par value. The rights, preferences, provisions and restrictions imposed
upon the five classes of shares are set forth in the succeeding Sections of
Article III.
(b) Dividends. The Preferred Stock (hereinafter referred to as
"Preferred Stock") and Series B 14% Convertible Cumulative Preferred Stock
(hereinafter referred to as "Series B") are entitled to receive, out of funds
legally available therefore, cumulative dividends at the annual rate of
Fourteen Cents ($0.14) per share and no more, payable in one yearly installment
on the 1st day of May of each year commencing on May 1, 1992 when and as
declared by the Board of Directors provided, however, unless otherwise
prohibited by the California Corporations Code, the Board of Directors shall
timely declare and have the corporation pay such dividends. The Series C 12%
Convertible Cumulative Preferred Stock (hereinafter referred to an "Series C")
are entitled to receive, out of funds legally available therefore, cumulative
dividends at the annual rate of Twelve Cents ($0.12) per share and no more,
payable in two equal semi-annual installments on the 1st day of January and the
1st day of July of each year commencing on January 1, 1993 when and as declared
by the Board of Directors; providing, however, if by July 1, 1993, the
corporation has not effected a Public Event (as defined in subdivision (g)),
then beginning on July 1, 1993 and continuing until a share of Series C is
redeemed or repurchased by the Corporation, or if earlier, until after the next
dividend payment is due after a Public Event has occurred, each share of
Series C shall bear an annual cumulative dividend of Fifteen Cents ($0.15) per
share payable in two equal semi-annual installments on the 1st day of January
and the 1st day of July of each year; provided, further, unless otherwise
prohibited by the California Corporations Code, the Board of Directors shall
timely declare and have the corporation pay such dividends. All such dividends
shall accrue from the date of issuance whether or not earned so that no
dividends or other distributions shall be made with respect to the Common Stock,
and no Common Stock shall be purchased or redeemed until cumulative dividends on
the Preferred Stock, Series B and Series C for all past dividend periods and for
the then current year dividend period shall have been declared and paid or set
apart. After cumulative dividends on the Preferred Stock, Series B and Series C
for all past dividend periods and for the then current year dividend period
shall have been declared and paid or set apart, if
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the Board of Directors shall elect to declare additional dividends out of funds
legally available therefore, such additional dividends may be declared on the
Common Stock.
(c) Liquidation and Dissolution. Upon the voluntary or
involuntary liquidation, winding up or dissolution of the corporation, out of
the assets available for distribution to shareholders each share of Preferred
stock, Series B and Series C shall be entitled to receive, in preference to any
payment on the Common Stock only, an amount equal to One Dollar ($1.00) per
share, plus cumulative dividends as provided in subdivision (b) hereof accrued
and unpaid to the date payment is made available to the Preferred Stock,
Series B and Series C. After the full preferential liquidation amount has been
paid to, or determined and set apart for, Preferred Stock, Series B and Series
C, the remaining assets shall be payable to the common Stock. In the event the
assets of the corporation are insufficient to pay the full preferential
liquidation amount required to be paid to the Preferred Stock, Series B and
Series C, first the Preferred Stock shall receive all the assets pro rata on a
share for share basis until the full liquidation preference on the Preferred
Stock is paid in full, then, if any funds are still available, the Series B
shall receive such funds pro rata on a share for share basis until the full
liquidating preference or the Series B is paid in full, then, if any funds are
still available, the Series C shall receive such funds pro rata on a share for
share basis until the full liquidating preference or the Series C is paid in
full, and the balance, if any, to the Common Stock. A reorganization shall not
be considered to be a liquidation, winding up or dissolution within the meaning
of this subdivision (c) and the Preferred Stock, Series B and Series C shall be
entitled only to the rights provided in the plan of reorganization and Chapters
12 and 13 of the California General Corporation Law and elsewhere herein.
(d) Voting. A holder of a share of Preferred Stock, Series B,
Series C and Common Stock shall be entitled to one vote on any and all matters,
including the election of directors, and shall, except as otherwise may be
provided by law, vote as a single class.
(e) Conversion. The holders of Preferred Stock, Series B and
Series C have the following conversion rights (the "Conversion Rights"):
(i) Right to Convert. Each share of Preferred Stock
shall be convertible at the option of the holder thereof, at any time after the
date of issuance of such share, at the office of the corporation or any
transfer agent for such shares, into such number of fully paid and
nonassessable shares of Common Stock as is determined by dividing $1.00 by the
Conversion Price, determined as
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hereinafter provided in effect at the time of conversion. The price at which
shares of Common stock shall be deliverable upon conversion of the Preferred
Stock (the "Preferred Stock Conversion Price") shall be initially $1.00 per
share of Common Stock. Each share of Series B shall be convertible at any time
after the date of issuance of such share, at the office of the corporation or
any transfer agent for such shares, into such number of fully paid and
nonassessable shares of Common Stock as in determined by dividing $1.00 by the
Series B Conversion Price, determined as hereinafter provided, in effect at the
time of conversion. The price at which shares of Common Stock shall be
deliverable upon conversion of the Series B (the "Series B Conversion Price")
shall be initially $1.00 per share of Common Stock. Each share of Series C
shall be convertible on and after the Initial Public Offering (as defined in
subdivision (e)(xii)) has occurred until the close of business on the date
prior to the date set for redemption at the office of the corporation or any
transfer agent for such shares, into such number of fully paid and
nonassessable shares of Common Stock as is determined by dividing $1.00 by the
Series C Conversion Price, determined as hereinafter provided, in effect at the
time of conversion. The price at which shares of Common Stock shall be
deliverable upon conversion of a share of Series C (the "Series C Conversion
Price") shall be equal to Seventy Percent (70%) of the "Market Price," as
defined in subdivision (h) on the day before a notice of conversion. Such
initial Preferred Stock Conversion Price and initial Series B Conversion Price
shall be subject to adjustment as hereinafter provided. Notwithstanding the
above, each share of Series C may upon the Initial Public Offering be
convertible into the shares of common Stock (or Units, if such Units include a
share or shares of Common Stock, plus any other security) issuable on the
initial closing of such Initial Public Offering at a price equal to seventy
percent (70%) of the initial public offering price of such shares of Common
Stock (or Units) with each share of Series C being equal to $1.00 per share,
plus any accrued but unpaid dividends to the date of such closing, for purposes
of determining how many shares of Common Stock (or Units) that may be acquired.
(ii) Automatic Conversion. Each outstanding share of
Preferred Stock and Series B shall be converted automatically into fully paid
and nonassessable shares of Common Stock at the then effective Preferred Stock
Conversion Price or Series B Conversion Price, respectively, on May 2, 1993.
Upon automatic conversion provided for herein, the Secretary of the corporation
shall promptly deliver notice of such conversion to each holder of Preferred
Stock and Series B, who shall thereupon surrender the certificates representing
such shares at the office of the corporation or of any transfer agent for such
Preferred
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<PAGE> 12
Stock or Series B. The corporation shall, as soon as practicable thereafter,
issue and deliver at such office to such holder a certificate or certificates
for the number into which such shares of Preferred Stock or Series B, as the
case may be, have been automatically converted.
(iii) Mechanics of Conversion. Before any holder of shares
of Preferred Stock, Series B or Series C shall be entitled to convert the same
into full shares of Common Stock pursuant to subdivision (e)(i), he shall
surrender the certificate or certificates therefore, duly endorsed, at the
office of the corporation or of any transfer agent for such Preferred Stock,
Series B or Series C, as the case may be, and shall give written notice to the
corporation at such office that he elects to convert the same and shall state
therein his name or the name or names of his nominees in which he wishes the
certificate or certificates for shares of Common Stock to be issued. The
corporation shall, as soon as practicable thereafter, issue and deliver at such
office to such holder, or to his nominee or nominees, a certificate or
certificates for the number of full shares of Common Stock to which he shall be
entitled as aforesaid. Conversion pursuant to subdivision (e)(i) shall be
deemed to have occurred immediately prior to the close of business on the date
of such surrender of the shares of Preferred Stock, Series B or Series C to be
converted, and the person or persons entitled to receive the shares of Common
Stock issuable upon such conversion shall be treated for all purposes as the
record holder or holders of such shares of Common Stock on such date. Upon any
conversion pursuant to subdivision (e)(i) or (ii), cumulative dividends as
provided in subdivision (b), accrued and unpaid on the Preferred Stock or
Series B shall be disregarded and not paid. Notwithstanding anything to the
contrary in this subdivision (e)(iii), if conversion of Series C is to take
place on the closing of the Initial Public Offering pursuant to the last
sentence of subdivision (e)(1), a holder of Series C must agree to convert any
of his shares of Series C he desires to convert on such closing in writing
within ten days of being notified in writing of the possibility of such closing
by the corporation, and if such holder of Series C so desires to convert on
such closing, such conversion shall automatically deem to occur as of such
closing and such holder upon being notified by the corporation that the closing
and such automatic conversion has occurred, shall surrender such share at the
office of the corporation or of any transfer agent for such Series C he is so
converting. The corporation shall, as soon as practical thereafter, issue at
such office to such holder a certificate or certificates for the number of
shares of Common Stock (or Units) which Series C has been converted into.
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(iv) Adjustments to Preferred Stock Conversion Price,
Series B Conversion Price, and Series C Conversion Price.
(A) Special Definition. For purposes of this
subdivision (e)(iv), the following definition shall apply:
"Original Issue Date" shall mean, for Preferred
Stock, Series B or Series C, the original date on which a share of Preferred
Stock, Series B or Series C, respectively, was first issued.
(B) Adjustment for Stock Splits and Combinations.
If the corporation shall at any time or from time to time after the Original
Issue Date applicable to Preferred Stock or Series B effect a subdivision of the
outstanding Common Stock, the applicable Preferred Stock Conversion Price or
Series B Conversion Price then in effect immediately before that subdivision
shall be proportionately decreased and, conversely, if the corporation shall at
any time or from time to time after the Original Issue Date applicable to
Preferred Stock or Series B combine the outstanding shares of Common Stock, the
applicable Preferred Stock Conversion Price or Series B Conversion Price then in
effect immediately before the combination shall be proportionately increased.
Any adjustments under this subdivision (e)(iv)(B) shall become effective at the
close of business on the date the subdivision or combination becomes effective.
(C) Adjustment for Certain Dividends and
Distributions. In the event the corporation at any time, or from time to time
after the Original Issue Date applicable to Preferred Stock or Series B shall
make or issue, or fix a record date for the determination of holders of Common
Stock entitled to receive, a dividend or other distribution payable in shares
of Common Stock, then and in each such event the applicable Preferred Stock
Conversion Price or Series B Conversion Price then in effect shall be decreased
as of the time of such issuance or, in the event such a record date shall have
been fixed, as of the close of business on such record date, by multiplying the
applicable Preferred Stock Conversion Price or Series B Conversion Price then
in effect by a fraction:
(1) the numerator of which shall be the
total number of shares of Common Stock issued and outstanding immediately prior
to the time of such issuance or the close of business on such record date, and
(2) the denominator of which shall be
the total number of shares of Common Stock issued and outstanding immediately
prior to the time of such issuance or the close of business on such record date
plus the number
-6-
<PAGE> 14
of shares of Common Stock issuable in payment of such dividend or distribution;
provided, however, if such record date shall have been fixed and such dividend
is not fully paid or if such distribution is not fully made on the date fixed
therefore, the applicable Preferred Stock Conversion Price or Series B
Conversion Price shall be recomputed accordingly as of the close of business on
such record date and thereafter such Preferred Stock Conversion Price or Series
B Conversion Price shall be adjusted pursuant to this subdivision (e)(iv)(C) as
of the time of actual payment of such dividends or distributions.
(D) Adjustment for Other Dividend and
Distributions. In the event the corporation at any time or from time to time
after the Original Issue Date of Preferred Stock or Series B shall make or
issue, or fix a record date for the determination of holders of Common Stock
entitled to receive, a dividend or other distribution payable in securities of
the corporation other than shares of Common Stock, then and in such event
provisions shall be made so that the holders of Preferred Stock or Series B,
shall receive upon conversion thereof in addition to the number of shares of
Common Stock receivable thereupon, the amount of securities of the corporation
which they would have received had their Preferred Stock or Series B been
converted into Common Stock on the date of such event and had thereafter,
during the period from the date of such event to and including the conversion
date, retained such securities (together with any distributions payable thereon
during such period) receivable by them as aforesaid during such period, giving
application to all adjustments called for during such period under this
subdivision (a) with respect to the rights of the holders of the Preferred
Stock or Series D. In the event the corporation at any time or from time to
time after the original Issue Date of Series C shall make or issue, or fix a
record date for the determination of holders of Common Stock entitled to
receive, a dividend or other distribution payable in securities of the
corporation other than shares of Common Stock, then and in such event
provisions shall be made so that the holders of Series C, shall receive upon
conversion thereof in addition to the number of shares of common stock
receivable thereupon, the amount of securities of the corporation which they
would have received had the dividend or other distribution occurred on the date
of conversion.
(E) Adjustment for Reclassification.
Exchange, or Substitution. If the Common Stock issuable upon the conversion of
the Preferred Stock or Series B at any time or from time to time after the
Original Issue Date applicable to Preferred Stock or Series B, shall be changed
into the same or different number of shares of any class or classes of stock,
whether by capital reorganization,
-7-
<PAGE> 15
reclassification, or otherwise (other than a subdivision or combination of
shares or stock dividends provided for in subdivision (e) (iv) (B) and (C) or a
reorganization, merger, consolidation, or sale of assets provided for in
subdivision (e) (iv) (F)), then, and in each such event, provisions shall be
made (by adjustment to the Preferred Stock Conversion Price or Series B
Conversion Price or otherwise) so that the holder of each share of Preferred
Stock or Series B shall have the right thereafter to convert such shares into
the kind and amount of shares of stock and other securities receivable upon
such reorganization, reclassification, or other change, by holders of the
number of shares of Common Stock into which such share of Preferred Stock or
Series B might have been converted immediately prior to such reorganization,
reclassification, or change, all subject to further adjustment as provided
herein. If the Common Stock issuable upon the conversion of the Series C at
any time or from time to time after the original Issue Date applicable to
Series C, shall be changed into the same or different number of shares of any
class or classes of stock, whether by capital reorganization, reclassification,
or otherwise (other than a reorganization, merger, consolidation, or sale of
assets provided for in subdivision (e)(iv)(F)), then, and in each such event,
provisions shall be made (by adjustment to Series C Conversion Price or
otherwise) so that the holder of each share of Series C shall have the right
thereafter to convert such share into the kind of shares of stock and other
securities receivable upon such reorganization, reclassification, or other
change, by holders of the number of shares of Common Stock into which such
share of Series C might have been converted if such reorganization,
reclassification, or change had accrued on the date of conversion.
(F) Adjustment for Reorganization,
Merger, Consolidation or Sales of Assets. If at any time or from time to time
after the Original Issue Date of the Preferred Stock or Series B there shall be
a capital reorganization of the corporation (other than a subdivision,
combination, reclassification, exchange or substitution of shares provided for
in subdivision (e)(iv)(B) and (E)) or a merger or consolidation of the
corporation with or into another corporation, or the sale of all or
substantially all of this corporations properties and assets to any other
person, then, as a part of such reorganization, merger, consolidation, or sale,
provision shall be made (by adjustment to the applicable Preferred Stock
Conversion Price or Series B Conversion Price or otherwise) so that the holders
of the Preferred Stock or Series B shall thereafter be entitled to receive upon
conversion of the Preferred Stock or Series B, the number of shares of stock or
other securities or property of the corporation, or of any successor
corporation resulting from such merger or consolidation or sale, to which a
holder of Common Stock
-8-
<PAGE> 16
deliverable upon conversion of such shares would have been entitled on such
capital reorganization, merger, consolidation, or sale. In any such case,
appropriate adjustment shall be made in the application of the provisions of
this subdivision (e)(iv) with respect to the rights of the holders of the
Preferred Stock or Series B after the reorganization, merger, consolidation, or
sale to the end that the provisions of this subdivision (e) (iv) (including
adjustment of the applicable Preferred Stock Conversion Price or Series B
Conversion Price then in effect and the number of shares of stock or other
securities deliverable upon conversion of the Preferred Stock or Series B)
shall be applied after that event in as nearly an equivalent manner as may be
practicable. If at any time or from time to time after the Original Issue Date
of Series C there shall be a capital reorganization of the corporation (other
than a subdivision, combination, reclassification, exchange or substitution of
shares provided for in subdivision (e) (iv) (E) or a merger or consolidation of
the corporation with or into another corporation, or the sale of all or
substantially all of this corporations properties and assets to any other
person, then, as a part of such reorganization, merger, consolidation, or sale,
provision shall be made (by adjustment to the applicable Series C Conversion
Price or otherwise) so that the holders of the Series C shall thereafter be
entitled to receive upon conversion of the Series C, the kind of shares of
stock or other securities or property of the corporation, or of any successor
corporation resulting from such merger or consolidation or sale, to which a
holder of Common Stock deliverable upon conversion of such shares would have
been entitled as if such capital reorganization, merger, consolidation, or sale
accrued on the date of the conversion.
(v) No Impairment. The corporation will not, by
amendment of its Articles of Incorporation or through any reorganization,
transfer of assets, consolidation, merger, dissolution, issue or sale of
securities or any other voluntary action, avoid or seek to avoid the observance
or performance of any of the terms to be observed or performed hereunder by the
corporation, but will at all times in good faith assist in the carrying out of
all the provisions of this subdivision (a) and in the taking of all such action
as may be necessary or appropriate in order to protect the conversion rights of
the holders of the Preferred Stock, Series B or Series C against impairment.
(vi) Certificate as to Adjustments. Upon the occurrence
of each adjustment or readjustment of the Preferred Stock Conversion Price,
Series B Conversion Price or Series C Conversion Price or any other adjustment
pursuant to this subdivision (e), the corporation at its expense shall promptly
compute such adjustment or
-9-
<PAGE> 17
readjustment in accordance with the terms hereof and furnish to each holder of
such Preferred Stock, Series B or Series C, as the case may be, a certificate
setting forth such adjustment or readjustment and showing in detail the facts
upon which such adjustment or readjustment is based. The corporation shall,
upon the written request at any time of any holder of such affected Preferred
Stock, Series B or Series C, furnish or cause to be furnished to such holder a
like certificate setting forth (i) such adjustments and readjustments, (ii) the
applicable Preferred Stock Conversion Price, Series B Conversion Price or
Series C Conversion Price at the time in effect, and (iii) the number of shares
of Common Stock and the amount, if any, of other property which at the time
would be received upon the conversion of a share of such Preferred Stock,
Series B or Series C.
(vii) Notice of Record Date. In the event that:
(1) this corporation shall set a record date for
the purpose of entitling the holders of its shares other Common Stock to
receive a dividend, or other distribution, payable otherwise than in cash;
(2) this corporation shall set a record date for
the purpose of entitling the holders of its shares of Common Stock to subscribe
for or purchase any shares of any class or to receive any other rights;
(3) there shall occur any capital reorganization
of this corporation, reclassification of the shares of this corporation (other
than a subdivision or combination of its outstanding Common Stock),
consolidation or merger of this corporation with or into another corporation,
or conveyance of all or substantially all of the assets of this corporation to
another corporation; or
(4) there shall occur a voluntary or involuntary
dissolution, liquidation or winding up of this corporation;
then, and in any such case, this corporation shall cause to be mailed to the
holders of record of the outstanding shares of the Preferred Stock, Series B
and Series C, at least fifteen (15) days prior to the date hereinafter
specified, a notice stating (a) the date which (x) has been set as the record
date for the purpose of such dividend, distribution, or rights, or (y) such
reclassification, reorganization, consolidation, merger, conveyance,
dissolution, liquidation or winding up is to take place and (b) the record date
as of which holders of Common Stock of record shall be entitled to other
property deliverable upon such reclassification reorganization, consolidation,
merger, conveyance, dissolution, liquidation or winding up.
-10-
<PAGE> 18
(viii) Notices. Any notice required by the provisions of
this subdivision (e) to be given to the holders of shares of Preferred Stock,
Series B or Series C shall be in writing and may be delivered by personal
service or sent by telegraph or cable or sent by registered or certified mail,
return receipt requested, with postage thereon fully prepaid. All such
communications shall be addressed to each holder of record at its address
appearing on the books of this corporation. If sent by telegraph or cable, a
conformed copy of such telegraphic or cabled notice shall promptly be sent by
mail (in the manner provided above) to the holders. service of any such
communication made only by mail shall be deemed complete on the date of actual
delivery as shown by the addressee's registry or certification receipt or at
the expiration of the fourth (4th) business day after the date of mailing,
whichever is earlier in time.
(ix) Fractional Shares. No fractional shares of Common
Stock shall be issued upon conversion of Preferred Stock, Series B or Series C.
In lieu of any fractional shares to which the holder would otherwise be
entitled, the corporation shall pay cash equal to the product of such fraction
multiplied by the fair market value of one share of the corporation's Common
Stock on the date of conversion, as determined in good faith by the Board of
Directors.
(x) Reservation of Common Stock. The corporation shall
at all times reserve and keep available, out of its authorized but unissued
shares of Common Stock, solely for the purpose of effecting the conversion of
the Preferred Stock, Series B or Series C, the full number of shares of Common
Stock deliverable upon the conversion of all shares of Preferred Stock, Series
B or Series C from time to time outstanding. The corporation shall from time
to time in accordance with the laws of the State of California, increase the
authorized number of shares of common Stock if the remaining unissued
authorized shares of common Stock shall not be sufficient to permit the
conversion of all of the Preferred Stock, Series B or series C at the time
outstanding.
(xi) Retirement of Preferred Stock. Series B or Series C
Converted. No shares of Preferred Stock, Series B or Series C that have been
converted shall ever again be reissued, and all such shares so converted shall,
upon such conversion, cease to be a part of the authorized shares of the
corporation.
(xii) Initial Public Offering. For purpose hereof, Initial
Public offering shall mean the first underwritten public offering of Common
Stock (or Units including the Common Stock) registered and effective under the
Securities Act of 1933, as amended, or any successor
-11-
<PAGE> 19
statute pursuant to which Common Stock (or Units) are actually sold.
(f) No Preemptive Rights. Except as provided in subdivision (e)
hereof, no holder of the Preferred Stock, Series B, series C and Common Stock
shall be entitled as of right to subscribe for, purchase, or receive any part
of any new or additional shares of any class, whether now or hereafter
authorized, or of bonds, debentures, or other evidences of indebtedness
convertible into or exchangeable for shares of any class, but all such new or
additional shares of any class, or bond, debentures, or other evidences of
indebtedness convertible into or exchangeable for shares, may be issued and
disposed of by the Board of Directors on such terms and for such consideration
(to the extent permitted by law), and to such person or persons as the Board of
Directors in their absolute discretion may deem advisable.
(g) Public Event. For the purpose hereof, a Public Event shall
be:
(i) The effectiveness of a registration statement under
the Securities Act of 1933, as amended, or any successor securities statute,
registering any of the Common Stock.
(ii) Any merger or corporate reorganization, or sale of
all or substantially all the corporation's assets, whereby the corporation's
Common Stock (or any securities exchanged for any such securities) become
subject to being eligible for broker/dealers to quote such securities under
Rule 15c-2(11) promulgated under the Securities Exchange Act of 1934, as
amended, or being registered under Section 12(b) or 12(g) of such Act, any
successor rule under such Act or any successor statute.
(iii) The corporation filing and the effectiveness of a
registration statement under Section 12(b) or 12(g) of the Securities Exchange
Act of 1934, as amended, or any successor statute.
(iv) The corporation publishing and disseminating the
information required by Rule 15c-2(11) under the Securities Exchange Act of
1934, as amended, or any successive rules and any successor statute.
(h) Market Price. For the purpose hereof "Market Price" for the
Common Stock shall be:
(i) If the Common Stock is listed on a National
securities Exchange or admitted to unlisted trading privileges on such exchange
or listed for trading on the NASDAQ Quotation System, the last reported sale
price of the Common Stock on such Exchange or System on the day prior to
-12-
<PAGE> 20
the date of the receipt by the corporation of a respective notice of
conversion, or if no such sale is made on such day, the average closing bid and
asked prices for such day on such Exchange or System; or
(ii) If the Common Stock is not listed or admitted to
unlisted trading privileges, the last reported bid and asked prices reported by
the National Quotation Bureau, Inc. on the day prior to the date of the receipt
by the corporation of a respective notice of conversion.
(i) Potential Mandatory Redemption of Series C.
(i) If a Public Event has not occurred by July 1, 1993,
then the corporation, for the purchase of Series C, shall set aside in cash out
of any moneys legally available therefore (hereinafter called the "Sinking
Fund"), after full payment or provision for payment of accumulated, but unpaid
dividends on the Preferred Stock, Series B and Series C dividends for all prior
periods through the end of the last preceding dividend period for such
respective shares, on January 1 and July 1 of each year (hereinafter called the
"Sinking Fund Payment Date") commencing on January 1, 1994 and ending with the
next January 1 or July 1, occurring simultaneously or immediately after a
Public Event occurs, a sum equal to Two Percent (2%) of the Net Sales (as
defined in subdivision (i)(iv)) for the immediately preceding two fiscal
quarters. If on any Sinking Fund payment date the funds of the corporation
legally available therefore shall be insufficient to discharge such Sinking
Fund requirements in full, funds to the extent legally available for such
purpose shall be set aside for the Sinking Fund. Such Sinking Fund
requirements shall be cumulative, so that if for any period or periods such
requirements shall not be fully discharged as they accrue, funds legally
available therefore, after such payment or provision for dividends as set forth
above, for each fiscal year thereafter shall be applied thereto until such
requirements are fully discharged.
(ii) At any Sinking Fund Payment Date, the cash in the
Sinking Fund shall be used to acquire shares of Series C at the price of One
Dollar ($1.00) per share of Series C, plus accrued dividends thereon to the
date of such purchase (herein called the "redemption price"), which dividends
shall be paid from the general fund of the corporation and not from the Sinking
Fund. Upon retirement of all Series C any cash remaining in the Sinking Fund
in excess of that required to complete payment for any shares purchased or
agreed to be purchased through the operation of the Sinking Fund, shall become
a part of the general funds of the Corporation. Redemptions from the Sinking
Fund shall be pro rata based on the amount of Series C which can be redeemed
times each holder's percentage of the total shares of Series C, provided,
however, fractional Series C shares
-13-
<PAGE> 21
shall not be redeemed but the amount to redeem such fractional shares shall
remain in the Sinking Fund. Amounts in the Sinking Fund may be invested by the
corporation and any earnings on such investments shall be retained in the
Sinking Fund and used to acquire shares of Series C.
(iii) The corporation, at its option, shall be entitled to
use as a credit against its Sinking Fund requirement for any period, an amount
equal to One Dollar ($1.00) per share of Series C which the Corporation shall
have theretofore acquired by purchase or redemption, (including, as provided in
subdivision (j)) otherwise than through the operation of the Sinking Fund, and
for which credit shall not theretofore have been taken against any Sinking Fund
requirement.
(iv) For purposes of this subdivision (i), "Net Sales"
means the gross sales or licensing revenues of the corporation less any
discount, allowances, returns or taxes.
(v) The corporation shall mail a notice of redemption to
each holder of record of shares of Series C to be redeemed addressed to the
holder at the address of such holder appearing on the books of the corporation
or given by the holder to the corporation for the purpose of notice, or if no
such address appears or is given at the place where the principal executive
office of the corporation is located, not earlier than 60 nor later than 20
days before the date fixed for redemption. The notice of redemption shall
include (i) the shares of Series C to be redeemed, (ii) the date fixed for
redemption, (iii) the redemption price, (iv) the place at which the
shareholders may obtain payment of the redemption price upon surrender of their
share certificates, and (v) the last date prior to the date of redemption that
the right of conversion may be exercised, which is the close of business on the
day prior to the date fixed for redemption. If funds are available on the date
fixed for the redemption, then whether or not the share certificates are
surrendered for payment of the redemption price, the shares shall no longer be
outstanding and the holders thereof shall cease to be shareholders of the
corporation with respect to the shares redeemed on an after the date fixed for
redemption and shall be entitled only to receive the redemption price without
interest upon surrender of the share certificate. If less than all the shares
represented by one share certificate are to be redeemed, the corporation shall
issue a new share certificate for the shares not redeemed.
(vi) If, on or prior to any date fixed for redemption, the
corporation deposits with any bank or trust company in this State as a trust
fund a sum sufficient to redeem, on the date fixed for redemption thereof, the
shares called for redemption, with irrevocable instructions and
-14-
<PAGE> 22
authority to the bank or trust company to publish the notice of redemption
thereof (or to complete such publication if theretofore commenced) and to pay,
on and after the date fixed for redemption or prior thereto, the redemption
price of the shares to their respective holders upon the surrender of their
share certificates, then from and after the date of the deposit (although prior
to the date fixed for redemption) the shares so called shall be redeemed and
dividends on those shares shall cease to accrue after the date fixed for
redemption. The deposit shall constitute full payment of the shares to their
holders and from and after the date of the deposit the shares shall no longer
be outstanding and the holders thereof shall cease to be shareholders with
respect to such shares and shall have no rights with respect thereto except the
right to receive from the bank or trust company payment of the redemption price
of the shares without interest, upon surrender of their certificates therefore
and the right to convert the shares in accordance with subdivision (e). After
two years, the bank or trust company shall return to the corporation funds
deposited and not claimed and thereafter the holder of a share certificate for
shares redeemed shall look to the corporation for payment.
(j) Optional Redemption of Series C.
(i) On and after July 1, 1993, Series C is subject to
redemption, out of funds legally available therefore, in whole, or from time to
time in part, at the option of the board of directors of the Corporation. If
only a part of the shares of Series C is to be redeemed, the redemption shall
be carried out prorata subject to adjustment to avoid redemption of fraction
shares. The redemption price shall be One Dollar Twenty-five Cents ($1.25) per
share plus cumulative dividends as provided in subdivision (b) accrued and
unpaid to the date fixed for redemption (herein also called the "redemption
price").
(ii) The provisions of subdivisions (i) (v) and (vi) shall
also apply to redemption under this subdivision (j).
(k) Potential Mandatory Dividend of Series C. If a Public Event
has not occurred by July 1, 1993, the corporation shall pay a stock dividend to
record holders of Series C on such date of one-fifth (1/5) of a share of Series
C for each one (1) share of Series C outstanding on such date. Any fractional
shares resulting from such stock dividend owned by any record owner shall be
combined into whole shares and the resulting fractional share shall be rounded
up into a whole share.
(l) Reverse Stock Split of the Common Stock. Upon the filing of
these Restated Articles of Incorporation, each outstanding share of Common
Stock of the par value
-15-
<PAGE> 23
$0.001 per share is combined and converted into 0.33% shares of $0.001 par
value Common Stock. Any fractional shares resulting from such combination and
conversion owned by any record owner shall be combined into whole shares and
the resulting fractional share shall be rounded up into a whole share. As a
result of such reverse stock split of the Common Stock, upon the filing of
these Restated Articles of Incorporation, the Preferred Stock Conversion Price
and the Series B Conversion Price shall be adjusted to $0.33% and $0.331%,
respectively.
(m) Special Preferred Stock. The Special Preferred Stock may be
divided into such number of series as the Board of Directors may determine.
Subject to the rights granted to the Preferred Stock, Series B and Series C,
the Board of Directors is authorized to determine and alter the rights,
preferences, privileges and restrictions granted to or imposed upon any wholly
unissued series of Special Preferred Stock, and to fix the number of shares of
any series of Special Preferred Stock and the designation of any such series of
Special Preferred Stock. The Board of Directors, within the limits and
restrictions stated in any resolution or resolutions of the Board of Directors
originally fixing the number of shares constituting any series, may increase or
decrease (but not below the number of shares of such series then outstanding)
the number of shares of any series subsequent to the issue of shares of that
series.
IV
The liability of this corporation's directors for monetary damages
shall be eliminated to the fullest extent permissible under California law.
Any repeal or modification of this Article IV shall not adversely
affect any rights or protections to which this corporation's directors were
entitled prior to such repeal or modification.
V
This corporation is authorized to indemnify agents (as defined in
California Corporations Code Section 317) for breach of duty to this
corporation and its stockholders through bylaw provisions or through agreements
with the agents, or both, in excess of the indemnification otherwise permitted
by California Corporations Code Section 317, subject to the limits on such
excess indemnification set forth in California Corporations Code Section 204.
Any repeal or modification of this Article V shall not adversely
affect any rights or protections to which the corporation's agents were
entitled prior to such repeal or modification."
-16-
<PAGE> 24
3. The foregoing amendment and restatement of the Articles of
Incorporation have been duly approved by the Board of Directors of the
corporation.
4. The foregoing amendment and restatement of the Articles of
Incorporation have been duly approved by the required vote of the shareholders
of the corporation, in accordance with Section 903 of the California
Corporations Code. The total number of outstanding shares of the corporation
entitled to vote on the foregoing amendment is Fourteen Million One Hundred
Thirty-five Thousand Three Hundred Twenty-eight (14,135,328) shares, including
Ten Million Eleven Thousand Twenty-eight (10,011,028) shares of Common Stock,
Two Million Four Hundred Sixty-nine Thousand Eight Hundred (2,469,800) Shares
of Preferred Stock and One Million Six Hundred Fifty-four Thousand Five Hundred
(1,654,500) shares of Series B. The total number of shares voting in favor of
the amendments equaled or exceeded the vote required, which percentage vote
required was more than
-17-
<PAGE> 25
fifty percent (50%) of the outstanding voting shares, and fifty percent (50%)
of the outstanding Common Stock.
/s/ W. MICHAEL BISSONNETTE
-----------------------------------
W. MICHAEL BISSONNETTE
President
/s/ TOVA FEDER
-----------------------------------
TOVA FEDER
Secretary
The undersigned declares under penalty of perjury under the laws of
the State of California that the matters set forth in the foregoing Restated
Articles of Incorporation are true and correct of his or her own knowledge.
DATED: July 15, 1992
/s/ W. MICHAEL BISSONNETTE
-----------------------------------
W. MICHAEL BISSONNETTE
/s/ TOVA FEDER
-----------------------------------
TOVA FEDER
-18-
<PAGE> 1
EXHIBIT 11
VOICE POWERED TECHNOLOGY INTERNATIONAL, INC.
COMPUTATION OF LOSS PER COMMON SHARE
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Three Months Ended
3/31/96 3/31/97
------------------ ------------------
<S> <C> <C>
ENDING MARKET PRICE PER SHARE $ 1.56 $ .16
----------- -----------
AVERAGE MARKET PRICE PER SHARE $ 1.66 $ .27
----------- -----------
EARNINGS:
Net loss applicable to common stock $ (780,400) $(1,386,300)
=========== ===========
PRIMARY EARNINGS PER SHARE:
Weighted average number of common shares outstanding 13,034,429 13,949,072
Incremental shares assuming all dilutive options
and warrants exercised and proceeds used to
purchase shares in the market at the average
stock price during the period 0 0
----------- -----------
Total 13,034,429 13,949,072
=========== ===========
Primary loss per share $ (.06) $ (.10)
=========== ===========
FULLY DILUTED LOSS PER SHARE:
Weighted average number of common shares outstanding 13,034,429 13,949,072
Incremental shares assuming all dilutive options and
warrants exercised and proceeds used to purchase
shares in the market at the average stock price
during the period, or the stock price at the end
of the period, whichever is higher 0 0
----------- -----------
Total 13,034,429 13,949,072
=========== ===========
Fully diluted loss per share $ (.06) $ (.10)
=========== ===========
</TABLE>
Note: Common stock equivalents for 1996 and 1997 have not been considered as
their effect would be anti-dilutive.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S BALANCE SHEET AND STATEMENT OF OPERATIONS AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 390
<SECURITIES> 0
<RECEIVABLES> 634
<ALLOWANCES> 0
<INVENTORY> 1,939
<CURRENT-ASSETS> 3,012
<PP&E> 2,082
<DEPRECIATION> 1,445
<TOTAL-ASSETS> 4,634
<CURRENT-LIABILITIES> 5,444
<BONDS> 0
0
0
<COMMON> 14
<OTHER-SE> (810)
<TOTAL-LIABILITY-AND-EQUITY> 4,634
<SALES> 1,264
<TOTAL-REVENUES> 1,264
<CGS> 981
<TOTAL-COSTS> 1,630
<OTHER-EXPENSES> 39
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (1,386)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,386)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,386)
<EPS-PRIMARY> (0.10)
<EPS-DILUTED> (0.10)
</TABLE>
