<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) AUGUST 27, 1996
(AUGUST 6, 1996)
ADVANCED VOICE TECHNOLOGIES, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 0-25480 62-1175379
(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification No.)
369 LEXINGTON AVENUE, 14TH FLOOR, NEW YORK, NEW YORK 10017
(Address of principal executive office)
(212) 885-0752
(Registrant's telephone number, including area code)
Not applicable
(Former name or former address if changed since last report)
<PAGE> 2
Item I. Changes in Control of Registrant
Not Applicable
Item 2. Acquisition or Disposition of Assets
Not Applicable
Item 3. Bankruptcy or Receivership
Not Applicable
Item 4. Changes in Registrant's Certified Accountants
Not Applicable
Item 5. Other Events
The Company has entered into a three-year agreement dated August 6,
1996 (the "Agreement"), with AT&T Corp., pursuant to which the Company will help
implement and support AT&T's program to offer voice messaging services to
primary and secondary schools across the United States. The Agreement provides,
among other things, that the Company will train administrators, teachers and
other school personnel to use the voice--messaging service, and that the Company
will also provide ongoing technical and education support to the schools that
enroll in the Program. Pursuant to the Agreement the Company has granted to AT&T
a non-exclusive, non-assignable, perpetual license to certain of its proprietary
software and to all written and audio visual materials created by the Company
relating to the voice-messaging service. In consideration of the license, AT&T
has paid the Company $1,800,000, and has agreed to pay $900,000 to the Company
on each of the first, second and, if the Agreement is extended beyond its
initial three-year term, third anniversaries of the date of the Agreement. The
Agreement also provides that AT&T will make lump sum payments to the Company
based on the number of schools enrolled in the service on particular dates, and
that AT&T will pay the Company commissions on gross revenues of the service
provided that certain enrollment thresholds are met.
In connection with the Agreement the Company has issued to AT&T a
warrant (the "Warrant") to purchase, for a nominal price, that number of shares
of the Company that would give AT&T ownership of 40% of the sum of the Company'
outstanding shares and the shares underlying the warrant. On the first
anniversary of the Agreement, a portion of the Warrant representing a 10%
ownership share in the Company will vest and become exercisable. The remainder
of the Warrant will vest in increments based on revenues received by the
Company, with full vesting contingent on the Company receiving $20,000,000 in
revenue. In general, any portion of the Warrant that remains unexercised upon
termination of the Agreement will lapse.
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Item 6. Resignation of Registrants' Directors
Not Applicable
Item 7. Financial Statements and Exhibits.
(a) Financial Statements
(i) Pro Forma Financial Statements (Unaudited)
(ii) Pro Forma Balance Sheet as of June 30, 1996 (Unaudited)
(iii) Pro Forma Statement of Operations for the Six Months
Ended June 30, 1996 (Unaudited)
(iv) Pro Forma Statement of Operations for the Year
Ended December 31, 1995 (Unaudited)
(v) Notes to Unaudited Pro Forma Statements
(b) Exhibits
(i) Agreement dated August 6, 1996
(ii) Warrant issued to ATT Corp.
Item 8. Change in Fiscal Year
Not Applicable
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ADVANCED VOICE TECHNOLOGIES, INC.
- --------------------------------------------------------------------------------
PRO FORMA FINANCIAL STATEMENTS [UNAUDITED]
- --------------------------------------------------------------------------------
The following pro forma balance sheet as of June 30, 1996, and the pro forma
statements of operations for the six months ended June 30, 1996 and the year
ended December 31, 1995 give effect to Advanced Voice Technologies, Inc. [the
"Company"] entering into a three-year co-marketing agreement on August 6, 1996
with AT&T to help implement and support AT&T's program to offer voice messaging
services to schools across the United States. As part of the agreement, AT&T
purchased for $1,800,000 rights to a non-exclusive non-assignable perpetual
license to use the Company's software and certain intellectual property rights.
The Company received this non-refundable fee on August 7, 1996. As of June 30,
1996, the Company expensed all costs in connection with the negotiation of this
agreement. For each year thereafter, AT&T will pay $900,000 per year for a
continuation of this license. In addition, the Company will provide program
management services to install Homework Hotline to schools designated by AT&T.
For each school, AT&T will pay installation fees to the Company plus reimburse
the Company for all expenses incurred by the Company in conjunction with the
additional revenue to be generated. In addition, subsequent to AT&T realizing
revenues from these installations, the Company will also receive a commission
fee. The pro formas do not reflect these additional revenues or reimbursable
expenses. In conjunction with this agreement, the Company issued a common stock
purchase warrant for 2,480,997 shares of the Company's common stock at a
purchase price of $.10 per share. It is anticipated that this would give AT&T
ownership of 40% of the sum of the Company's outstanding shares and the shares
underlying the warrant. On the first anniversary of the agreement, a portion of
the warrant representing a 10% ownership share in the Company will vest and
become exercisable. The remainder of the warrant will vest in increments based
on revenues received by the Company, with full vesting contingent on the
Company receiving $20,000,000 in revenue. In general, any portion of the
Warrant that remains unexercised upon termination of the agreement will lapse.
The Company has estimated the fair value of these warrants to be $12,000,000
and will amortize the deferred marketing cost over the life of the agreement of
three years.
The pro forma balance sheet assumes the agreement was consummated on June 30,
1996. The pro forma statements of operations assume that the agreement was
consummated at the beginning of the fiscal year presented. The historical
statements of operations will reflect the effects of this transaction from the
date on which it occurs. The pro forma financial statements are based on the
historical financial statements of the Company. These pro forma financial
statements may not be indicative of the results that actually would have
occurred if the transaction had taken place on the date indicated.
<PAGE> 5
ADVANCED VOICE TECHNOLOGIES, INC.
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PRO FORMA BALANCE SHEET AS OF JUNE 30, 1996.
[UNAUDITED]
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRO FORMA
HISTORICAL ADJUSTMENTS PRO FORMA
---------- ----------- ---------
<S> <C> <C> <C>
ASSETS:
CURRENT ASSETS:
Cash $ (7,600) $ 1,800,000 (A) $ 1,792,400
Accounts Receivable - Net 14,175 -- 14,175
Inventory 11,080 -- 11,080
Prepaid and Other Current Assets 102,578 -- 102,578
Miscellaneous Receivables - Related Party 3,154 -- 3,154
------------ ------------ ------------
TOTAL CURRENT ASSETS 123,387 1,800,000 1,923,387
------------ ------------ ------------
EQUIPMENT - NET 269,892 -- 269,892
------------ ------------ ------------
TRADEMARKS - NET 293 -- 293
------------ ------------ ------------
OTHER ASSETS:
Deposits 10,456 -- 10,456
Capitalized Software and Development Costs - Net 1,073,408 -- 1,073,408
Capitalized Promotional Items - Net 149,488 -- 149,488
Other Assets 176,167 -- 176,167
------------ ------------ ------------
TOTAL OTHER ASSETS 1,409,519 -- 1,409,519
------------ ------------ ------------
TOTAL ASSETS $ 1,803,091 $ 1,800,000 $ 3,603,091
============ ============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY:
CURRENT LIABILITIES:
Deferred Income $ 9,750 $ -- $ 9,750
Accounts Payable 781,821 -- 781,821
Accrued Payroll Taxes 150,303 -- 150,303
Accrued Expenses 54,405 -- 54,405
Accrued Expenses - Related Party 1,137 -- 1,137
Accrued Consulting Fees 90,000 -- 90,000
Loan Payable - Related Party 135,000 -- 135,000
------------ ------------ ------------
TOTAL CURRENT LIABILITIES 1,222,416 -- 1,222,416
------------ ------------ ------------
COMMITMENTS AND CONTINGENCIES -- -- --
------------ ------------ ------------
STOCKHOLDERS' EQUITY:
Common Stock 372 -- 372
Additional Paid-in Capital 13,514,044 12,000,000 (B) 25,514,044
Retained Earnings [Deficit] (12,933,741) 1,800,000 (A) (13,133,741)
(2,000,000)(C)
------------ ------------
Totals 580,675 11,800,000 12,380,675
Less: Deferred Marketing Costs -- (12,000,000)(B)
2,000,000 (C) (10,000,000)
TOTAL STOCKHOLDERS' EQUITY 580,675 1,800,000 2,380,675
------------ ------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 1,803,091 $ 1,800,000 $ 3,603,091
============ ============ ============
</TABLE>
See Notes to Unaudited Pro Forma Financial Statements.
<PAGE> 6
ADVANCED VOICE TECHNOLOGIES, INC.
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PRO FORMA STATEMENT OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 1996.
[UNAUDITED]
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
HISTORICAL
SIX MONTHS ENDED PRO FORMA
JUNE 30, 1996 ADJUSTMENTS PRO FORMA
---------------- ----------- ---------
<S> <C> <C> <C>
SALES - NET $ 244,848 $ 1,800,000 (A) $ 2,044,848
COST OF SALES 70,076 -- 70,076
----------- ------------- -----------
GROSS PROFIT 174,772 1,800,000 1,974,772
----------- ------------- -----------
OPERATING EXPENSES:
Selling Expenses 452,049 -- 452,049
General and Administrative Expense 727,286 -- 727,286
Depreciation and Amortization 30,568 -- 30,568
Compensation Expense - Issuance of
Stock and Options 3,450 -- 3,450
Marketing Expense - Issuance of Warrants -- 2,000,000 (C) 2,000,000
Rent and Other Expenses - Related Party 104,846 -- 104,846
Research and Development Expense 2,975 -- 2,975
----------- ------------- -----------
TOTAL OPERATING EXPENSES 1,321,174 2,000,000 3,321,174
----------- ------------- -----------
OPERATING [LOSS] (1,146,402) (200,000) (1,346,402)
----------- ------------- -----------
OTHER INCOME [EXPENSES]:
Interest Expense (5,587) -- (5,587)
Interest Income 1,125 -- 1,125
Interest Income - Related Party 4,846 -- 4,846
Miscellaneous Income [Expense] 1,196 -- 1,196
----------- ------------- -----------
OTHER [EXPENSE] INCOME - NET 1,580 -- 1,580
----------- ------------- -----------
NET [LOSS] $(1,144,822) $ (200,000) $(1,344,822)
=========== ============= ===========
NET [LOSS] PER SHARE $ (.31) $ (.22)
=========== ===========
WEIGHTED AVERAGE NUMBER OF SHARES
OUTSTANDING 3,724,497 6,205,494
=========== ===========
</TABLE>
See Notes to Unaudited Pro Forma Financial Statements.
<PAGE> 7
ADVANCED VOICE TECHNOLOGIES, INC.
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PRO FORMA STATEMENT OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1995.
[UNAUDITED]
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
HISTORICAL
YEAR ENDED PRO FORMA
DECEMBER 31, 1995 ADJUSTMENTS PRO FORMA
----------------- ----------- ---------
<S> <C> <C> <C>
SALES - NET $ 651,452 $ 1,800,000 (A) $ 2,451,452
COST OF SALES 216,294 -- 216,294
----------- ----------- -----------
GROSS PROFIT 435,158 1,800,000 2,235,158
----------- ----------- -----------
OPERATING EXPENSES:
Selling Expenses 1,110,037 -- 1,110,037
General and Administrative Expense 1,771,405 -- 1,771,405
Bad Debt Expense 12,760 -- 12,760
Depreciation and Amortization 33,486 -- 33,486
Compensation Expense - Issuance of
Stock and Options 396,000 -- 396,000
Marketing Expense - Issuance of Warrants -- 4,000,000 (D) 4,000,000
Rent and Other Expenses - Related Party -- -- --
Research and Development Expense 64,930 -- 64,930
----------- ----------- -----------
TOTAL OPERATING EXPENSES 3,388,618 4,000,000 7,388,618
----------- ----------- -----------
OPERATING [LOSS] (2,953,460) (2,200,000) (5,153,460)
----------- ----------- -----------
OTHER INCOME [EXPENSES]:
Interest Expense 117,580 -- 117,580
Interest Income (13,472) -- (13,472)
Miscellaneous Income [Expense] 37,438 -- 37,438
----------- ----------- -----------
OTHER [EXPENSE] INCOME - NET 141,546 -- 141,546
----------- ----------- -----------
NET [LOSS] $(2,811,914) $(2,200,000) $(5,011,914)
=========== =========== ===========
NET [LOSS] PER SHARE $ (.78) $ (.83)
=========== ===========
WEIGHTED AVERAGE NUMBER OF SHARES
OUTSTANDING 3,582,716 6,063,713
=========== ===========
</TABLE>
See Notes to Unaudited Pro Forma Financial Statements.
<PAGE> 8
ADVANCED VOICE TECHNOLOGIES, INC.
NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
(A) To record the receipt of the non-refundable license fee from AT&T for
$1,800,000.
(B) To record the granting to AT&T of the warrant to purchase 2,480,997 shares
of common stock of the Company valued at $12,000,000 as deferred marketing
costs.
(C) To record an estimated average for six months amortization of $2,000,000
for deferred marketing
costs.
(D) To record an estimated average for annual amortization of $4,000,000
for deferred marketing costs.
<PAGE> 9
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned hereto duly authorized.
Advanced Voice Technologies, Inc.
Dated: August 27, 1996 By: S/Nancy Shalek
-------------------------------
Nancy Shalek, Chairman
<PAGE> 10
EXHIBIT INDEX
(i) Agreement dated August 6, 1996
(ii) Warrant issued to ATT Corp.
<PAGE> 1
EXHIBIT 7(b)(i)
AGREEMENT
This Agreement, dated August 6, 1996, sets forth the terms and conditions of the
agreement reached by AT&T and Advanced Voice Technologies, Inc. (sometimes known
as Homework Hotline(R) Educational Services, and for purposes hereof "HHES")
pursuant to which they will engage in the business described below. In entering
into this Agreement, each party is relying on the other party's good faith
commitment to support the business during the term set forth below (in
accordance with the terms and conditions set forth herein).
Summary Description of the Transaction
AT&T and HHES will work together in carrying out this Agreement to deploy AT&T's
Send a Message service ("SAM") to mutually agreed upon schools to be used alone
or in conjunction with certain training and support materials provided by HHES
to actualize HHES' Homework Hotline(R) programs in such schools (such programs,
coupled with SAM, are hereinafter collectively referred to as the "Program").
The literature (other than the customer contracts) relating to the Program (the
"Program Materials") provided or sold by AT&T or HHES to participating schools
will (subject to the approval process provided for in this Agreement) identify
both AT&T and HHES. HHES will be AT&T's sales/customer support representative
regarding the deployment of SAM to schools or school districts as may be agreed
upon by the parties. The parties will endeavor to enroll as many schools as both
parties agree is practical and economical during the 1996/1997, 1997/1998 and
1998/1999 school years, by providing
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such schools with the Program free for a trial period of at least three months
and currently anticipated to be a school year. Schools or school districts
participating in the trial shall bear the cost of the telephone calls made in
using SAM, and shall enter agreements concerning the SAM trial and the
post-trial period with AT&T. The parties will jointly determine and document in
writing in advance the schools and school districts in which they will endeavor
to enroll schools in the Program, subject to AT&T's SAM deployment plan. The
parties agree that the first schools to be enrolled in the Program will be in
parts of California, Connecticut and New Jersey. AT&T will compensate HHES on a
lump-sum payment-per-school basis for its schools that enroll in the Program and
successfully implement (as provided in this Agreement) AT&T's SAM service
through HHES and will reimburse HHES for certain expenses; HHES will be paid a
commission on SAM revenues from participating schools that enroll in the Program
through HHES as paying customers following the trial period. AT&T will acquire,
for the payments provided for in this Agreement, a non-exclusive license to
HHES' Licensed Property (as defined in Section 3) in connection with the
Program. AT&T and HHES intend to explore other cooperative ventures in the
school messaging and parent involvement areas including integration of customer
care for schools and school districts. The parties intend to explore in good
faith coordinating billing for their respective products and services. The
parties intend to meet on a monthly basis to review the implementation of the
Program, measure progress against goals and review budgets and other financial
arrangements between them. HHES will also issue warrants to AT&T for the
consideration set forth herein. Any conflict between this Summary and the
following provisions of the Agreement shall be resolved in favor of the latter.
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1. Conflicts of Interest
AT&T will not offer for sale or use, directly or through third parties, SAM
and/or SAM-Type Services (as defined below) to schools or school districts that
the parties hereafter jointly agree to enroll in the SAM service through HHES.
HHES will not offer for sale or use SAM and/or SAM-Type Services or other
school-home voice messaging products or services to schools or school districts
that the parties hereafter jointly agree to enroll in the SAM service through
HHES, nor will HHES offer for sale or use to any school or school district, in
the United States or its territories, non-AT&T long distance or local telephone
services, provided that HHES' performance of services for a third party or
parties, similar to the services contemplated to be performed by HHES under this
Agreement, shall not be deemed a breach of such prohibition. Each party will
discuss and consult with the other before selling any SAM and/or any SAM-Type
Services to schools or school districts not previously enrolled in the SAM
service hereunder, with a view (but with no obligation) toward including the
other party in such activities on the terms provided or contemplated herein. For
purposes of this paragraph, the terms "SAM and/or SAM-Type Services" means a
process of (i) recording and storing an oral communication, and (ii) enabling
such communication to be delivered over the telephone network to a designated
telephone number(s) by playing the recorded message to the party/parties
answering a call(s) to such number(s) or notifying such answering party/parties
that a recorded oral communication can be accessed by dialing a specified phone
number. The terms "SAM and/or SAM-Type Services" does not include any process
whereby a customer subscribes
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through AT&T (i) to a voice mailbox for incoming calls or (ii) to the capability
of leaving a communication for later attempted delivery when it encounters a
busy or no-answer condition. Further, the terms "SAM and/or SAM-Type Services"
do not include any products or services that involve wireless transmission,
broadband transmission, the Internet or any other form of transmission not
currently used for any AT&T SAM and/or SAM-Type Services.
2. Term of Agreement
Subject to the terms and conditions of this Agreement, the duration of this
Agreement is three years from the date hereof, with automatic one-year renewals
unless a party serves notice of intent not to renew not less than 180 days prior
to a renewal date. HHES will deliver a signed warrant in the form of Exhibit G
(the "Warrant") at the time AT&T delivers a check in the amount of $1.8 million.
In the event of a conflict between the provisions of the Warrant and the
provisions of this Agreement, the provisions of the Warrant shall control.
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3. Non-Exclusive License
a. For purposes of this Agreement, "Licensed Property" means (a) HHES list
management software as it exists on the date of this Agreement and as it may be
modified during the term hereof, (b) documentation related to such software, and
(c) all written and audio visual materials created solely or primarily by HHES
prior to the effective date of this Agreement and during the course of this
Agreement relating to the Program. HHES grants to AT&T a non-exclusive,
non-assignable license to use, modify, prepare derivative works based on,
reproduce, distribute, market, and publicly display and perform Licensed
Property for the purpose of selling SAM as provided in this Agreement and for
the purpose of serving the schools and school districts that enroll in the
Program during the term of this Agreement on a trial or paying basis. The
aforesaid license shall be a perpetual, irrevocable license with respect to
schools and school districts enrolled in the Program on a trial or paying basis
on the date of the termination of this Agreement, unless (x) this Agreement is
terminated by HHES pursuant to Section 10(a), in which event such license shall
terminate on the date of the termination of this Agreement, or (y) AT&T fails to
(i) pay the commissions due to HHES with regard to such schools and school
districts, (ii) comply in all material respects with the provisions of this
Agreement other than those relating to the enrollment of new schools and school
districts in the Program and within 30 days of notice from HHES fails to cure
such non-compliance, or (iii) make the Annual Payments, in which event such
license shall terminate upon the occurrence of such failure. In connection with
the list-management software HHES agrees to deliver its current software to
AT&T, and to use reasonable commercial efforts to (i) complete development of
the software,
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(ii) correct any "bugs" that may be discovered in such software, (iii) make such
improvements to the software as AT&T and HHES may jointly determine to be
necessary or desirable, and (iv) make its list-management software interoperable
with AT&T's Group List Administration Server. In the event that only one of the
parties desires to effect a change in the software, such party shall pay the
cost of effecting such change. If AT&T is the party desiring to effect such
change, HHES shall use reasonable commercial efforts to do so, and AT&T shall
own all intellectual property rights in such change, and hereby agrees to
license such rights under a non-exclusive, non-assignable, perpetual,
irrevocable license to HHES at a reasonable fee. If HHES is the party desiring
to effect such change, it shall do so only with the consent of AT&T, which
consent shall not be unreasonably withheld, and shall be deemed to have been
given if AT&T does not notify HHES to the contrary within 10 days of AT&T's
receipt of notice from HHES regarding its desire to effect such change, which
notice shall set forth in reasonable detail the change proposed to be made by
HHES.
b. Upon non-renewal or a termination of this Agreement, other than a termination
by HHES pursuant to Section 10(a), HHES shall deliver to AT&T the source code to
the HHES list management software, a compiler or similar computer program that
can convert the source code into object code, and all documentation then in the
possession of HHES and reasonably required by AT&T to maintain the list
management software for the schools and school districts enrolled in the Program
on a trial or paying basis on the date of the termination of this Agreement. All
of the items that shall be so delivered are Licensed Property under the above
license. HHES represents and warrants that it owns the Licensed Property and has
the right to grant the above
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license.
4. HHES' Responsibilities
a. Provide all "Program Management" services, including ongoing support services
to the schools and school districts that participate in the Program (regardless
of whether such schools and school districts use HHES' or a third party's list
management software). "Program Management" will include the performance of the
following functions by HHES: identification of target schools and school
districts in conjunction with AT&T; development, production, distribution and
implementation of Program Materials (currently intended to include the material
set forth on Exhibit A, but subject to modification by agreement of both
parties), with AT&T bearing only the cost of production for material audio or
video development, if any, such costs to be budgeted by HHES and approved in
advance by AT&T; development for AT&T's consideration of a draft agreement
between AT&T and the schools, districts, regions or other entities, as
appropriate (alternatively and upon AT&T's request, provide AT&T sample HHES
contracts with such parties), stipulating the absence of warranties and
liability regarding the operation of the Program during any trial period (being
the period in which the Program is provided free of charge); training for, and
set-up/installation support of, teachers, system administrators and committees;
ongoing post-sale support, including a help desk (the services and performance
of such help desk to be reasonably acceptable to AT&T) that will be available
free of charge to each school for the same period of time as the trial period
for such school, and thereafter free to each school and at a charge to AT&T
equal to HHES' actual costs of providing
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such post-sale support after the trial period; and enrolling trial period
customers as paying customers at rates determined by AT&T, which will be
substantially in accordance with those set forth on Exhibit B.
b. Provide its list management software free of charge to the schools and school
districts that participate in the Program, provided that HHES shall be under no
obligation to upgrade such software after it is installed. HHES agrees that such
schools and school districts may retain and continue to use such list management
software after the termination of this Agreement.
c. Promptly establish and train a direct sales team the individual members of
which shall be subject to AT&T approval, which will not be unreasonably
withheld. AT&T will be provided with each sales team member's resume and may
interview each at its own expense.
d. Be responsible for all expenses it incurs except for those AT&T has agreed to
pay pursuant to Sections 4(a), 4(e), 4(h), 5(e) and 6, and the expenses AT&T is
required to pay pursuant to Section 10(b).
e. Obtain, retain and provide to AT&T on a regular basis the market data and
customer information described on Exhibit C, and such other information
regarding the Program as AT&T may reasonably request, provided that such other
information may be obtained and provided without undue effort on the part of
HHES, and the cost of obtaining and providing such other information shall be
paid by AT&T.
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f. Create and retain complete and accurate records of expenses and activities
for which payment or reimbursement from AT&T will be sought, and permit AT&T to
audit.
g. Maintain at their own expense general liability, auto and Workmen's
Compensation insurance protecting HHES and AT&T from claims, provided that the
premiums for any coverage requested by AT&T that is in excess of that which is
customarily requested of 3rd parties by AT&T shall be paid by AT&T.
h. Adhere to the following principles in providing SAM to schools:
- obtain AT&T's prior written approval for any materials it intends to
use in marketing and supporting SAM, such approval not to be unreasonably
withheld, with AT&T's desire to protect its brand by insisting on very high
quality and an adherence to its policies on display of its brand being deemed
reasonable.
- submit to customers only order forms and/or written contracts for SAM
approved in writing by AT&T, such approval not to be unreasonably withheld.
- refrain from making representations or warranties relating to SAM,
except as expressly permitted by AT&T in writing, and refrain from representing
that HHES has any relationship with AT&T other than the relationships described
in this Agreement.
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- devote commercially reasonable best efforts (and subject to the terms
and conditions set forth herein) to promote, market, sell and support SAM.
- maintain (after AT&T's approval of the personnel) a competent and
well trained sales team.
- ensure that customers do not confuse products and services provided
by HHES on its own behalf with SAM and other AT&T services and products.
- report promptly to AT&T all customer complaints regarding SAM and
provide AT&T the opportunity to participate in any of HHES' sales and marketing
contacts with customers.
- subject to the terms and conditions set forth herein, adhere to all
instructions received from AT&T concerning SAM prices and other SAM contract
terms, operating methods and procedures, use of AT&T trademarks, and marketing
practices.
5. AT&T's Responsibilities
a. AT&T will offer SAM in accordance with the terms of this Agreement, and will
handle the billing and collection for SAM and permit HHES to audit for purposes
of verifying that all commissions earned on revenues have been paid. AT&T will
be under no obligation to expand the capacity of its SAM infrastructure or to
meet market demand for SAM.
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b. In consideration of the license granted to AT&T pursuant to Section 3(a),
AT&T will pay HHES $1,800,000 as specified in Section 2, and will pay $900,000
on each of the first and second and, if this Agreement is extended beyond its
initial three-year term, third anniversaries of the date of the signing of this
Agreement (the "Annual Payments"), it being agreed that if this Agreement is
extended beyond its initial three-year term, no such annual payment shall be
payable after the third anniversary of this Agreement.
c. HHES will bill AT&T and AT&T will pay such bill within 60 days of its receipt
thereof (unless otherwise agreed by the parties) as provided on Exhibit D for
schools enrolled during the 1996/1997, 1997/1998 and 1998/1999 school years (for
the purposes of this section, enrollment means AT&T having an executed agreement
with the enrolled school or other appropriate educational body such that the
school is committed to utilizing SAM for a trial period). For schools enrolled
in the 1996/1997, 1997/1998 and 1998/1999 school years the amounts billed by
HHES to AT&T and the dates on which such bills will be sent, are set forth on
Exhibit D. If this Agreement is extended beyond its initial three-year term, for
schools enrolled in the 1999/2000 school year and all school years thereafter,
the parties will negotiate in good faith a lump sum payment per school based on
the principle that such lump sum payment should reflect the actual experience
gained by the parties in establishing and maintaining those schools previously
enrolled in the Program.
11
<PAGE> 12
d. If, on September 1 of each year during the term of this Agreement (including
any extensions thereof), at least 50% of the schools that have theretofore
completed a trial period have re-enrolled in the Program, AT&T will pay HHES a
commission on gross SAM revenues (not including revenues from common carrier
transport services) from each school that initiates SAM through HHES, as set
forth below:
<TABLE>
<CAPTION>
% of Re-enrollment Commission
------------------ ----------
<S> <C>
50% - 75% 15%
over 75% 20%
</TABLE>
Such commissions shall be payable on revenue received from September 1 of such
year through August 31 of the following year. If such commission is a greater
percentage than the largest percentage paid by AT&T to its representatives for
similar services, such percentage paid to HHES shall be reduced to such other
percentage.
e. AT&T shall reimburse HHES, upon receipt of adequate documentation, for
expenses approved in accordance with Sections 4(a), 4(e), 4(h) and 6, and the
expenses required to be paid by AT&T pursuant to Section 10(b).
f. AT&T will obtain, retain and provide to HHES on a regular basis the
information described on Exhibit C, and such other information regarding the
Program as HHES may reasonably request, provided that such other information may
be obtained and provided without undue effort on the part of AT&T, and the cost
of obtaining and providing such other information shall be paid by HHES.
12
<PAGE> 13
6. Budgets
AT&T shall pay for special promotional events and one-time creative charges only
in accordance with budgets approved in writing in advance by AT&T.
7. Dual Branding
All literature relating to the Program, other than customer contracts, will
identify both AT&T and HHES, subject to AT&T's guidelines and pre-publication
approval as to the use of the AT&T name, logo and trademark. AT&T's name, logo,
and trademark may not be placed on materials that refer solely to HHES' products
or services, and the literature identifying both companies must clearly
distinguish which entity is responsible for which products and services. AT&T's
name will appear first on all literature bearing both companies' names.
8. HHES Deliveries
a. HHES represents and warrants that its balance sheet and income statement
attached to this Agreement reflect its financial condition in all material
respects as of the date and for the period therein indicated, and that it has no
significant pending litigation. HHES will provide AT&T copies of all Form 10-Ks,
10-Qs and 8-Ks hereafter filed by HHES with the Securities and Exchange
Commission.
13
<PAGE> 14
b. HHES will deliver the following to AT&T simultaneously with the transactions
listed in the last sentence of Section 2 the items listed in Section 9 of the
Warrant.
9. AT&T Securities Laws Representations
AT&T hereby represents and warrants to HHES, that the Warrant and, if and to the
extent the Warrant is exercised, the shares acquired pursuant to such exercise,
are being acquired for investment and not with a view to the public distribution
thereof, and will not be transferred or otherwise disposed of except in a
transaction registered or exempt from registration under the Securities Act of
1933, as amended, and in compliance with any applicable state securities laws
and this Agreement. This representation shall be deemed to be remade and
ratified upon each exercise of the Warrant with respect to the shares acquired
upon such exercise.
10. Termination
a. Either party may terminate this Agreement upon a material breach of this
Agreement by the other party following a failure to correct the breach within 30
days of notice from the other party. In addition, AT&T or HHES may also
terminate this Agreement upon 60 days' advance written notice without liability
should the other fail to meet the performance goals provided on Exhibit E and
not take reasonable steps to correct such failure during such 60-day notice
period.
b. In the event that AT&T determines that it will no longer be providing SAM
and/or SAM-Type Services to schools or school districts, AT&T may terminate
this Agreement prior to the
14
<PAGE> 15
expiration of the stated or any renewal term hereof, but only if (i) AT&T
promptly notifies HHES of such determination and the date on which AT&T will
cease to provide such services, which notification to HHES shall in no event be
received by HHES less than 90 days prior to the date on which AT&T will cease to
provide such service, (ii) on the date that such notice is received by HHES,
AT&T pays HHES $500 per school for (A) all of the schools then enrolled in the
Program on a trial or paying basis, and (B) that number of additional schools
that the parties had theretofore agreed in writing to enroll in the Program, and
(iii) AT&T reimburses HHES, on the date that such notice is received by HHES,
for all reasonable expenses incurred by HHES prior to such date for which HHES
is entitled to reimbursement pursuant to the terms of this Agreement, and all
reasonable expenses incurred by HHES in the process of enrolling any agreed upon
additional schools in the Program for which HHES has not theretofore received
its lump sum payment pursuant to the terms of this Agreement. If AT&T complies
in all respects with the provisions of the foregoing clauses (i), (ii) and
(iii), this Agreement shall terminate on the date provided in the notification
referred to in the foregoing sentence, and such termination shall not be deemed
a breach of this Agreement by AT&T.
11. Effects of Termination
a. No further marketing of SAM by HHES, and no further marketing of HHES
products and services by AT&T.
b. Commissions regarding schools that have enrolled in the Program on a trial or
paying
15
<PAGE> 16
basis prior to termination that would be due to HHES under Section 5(d) if this
Agreement had not been terminated by AT&T (unless terminated by AT&T on account
of a material breach of this Agreement by HHES) will continue for the lesser of
(i) a period of 3 years, or (ii) such time, if ever, as the customer
discontinues services for a minimum of 12 consecutive months.
c. Except as provided in Section 11(i) below, for a period of 12 months after
termination neither party hereto may market a product or service of a third
party that is competitive with the products and services provided by the other
party hereto (i.e., SAM or SAM-Type Services in the case of AT&T, and support,
training, and materials provided under Section 4 in the case of HHES) to the
schools and school district participating in the Program, provided that each
party hereto may market its own services, and provided further that a party
hereto shall not be bound by the prohibition contained in this subsection (c) if
the termination of this Agreement is the result of a material breach of this
Agreement by the other party hereto.
d. Confidentiality provisions will remain in effect for two years following
termination.
e. Except as provided in Section 11(i) below, HHES will provide AT&T with a
final report regarding those items listed on Exhibit C that are regularly
provided by HHES to AT&T.
f. AT&T will provide HHES with a final report regarding those items listed on
Exhibit C that are regularly provided by AT&T to HHES.
16
<PAGE> 17
g. No additional HHES expenses will be reimbursed by AT&T, other than expenses
incurred by HHES while this Agreement was still in effect, and which remain
unpaid on the date of termination.
h. Except as provided for in Section 3(a), with regard to changes in list
management software paid for by AT&T, the intellectual property developed solely
or primarily by one party shall be owned by that party, and the intellectual
property jointly developed by the parties in support of the Program shall be
owned by both parties jointly. Any dispute concerning the ownership of
intellectual property developed while this Agreement was still in effect or
concerning the licensing of intellectual property pursuant to this Agreement
shall be resolved by binding arbitration in Manhattan, N.Y. in accordance with
the following procedures.
(i) A notice of arbitration shall set out a clear and plain
statement of the matter that the party sending the notice (the "Instituting
Party") believes to be a breach or is in dispute. The demand (the "Demand")
shall reference principal provisions of this Agreement that the Instituting
Party views as controlling or out of the interpretation of which the dispute
arises, and shall attach copies of all pertinent documents and other things then
in its possession which the Instituting Party views as having direct bearing on
the relief sought under the Demand. The receiving party (the "Other Party")
shall, within 20 days of receipt of the Demand, provide the Instituting Party
and to the arbitrators a response (the "Answer"), referencing provisions of this
Agreement that the Other Party views as controlling, and shall attach copies of
all pertinent documents and other things (other than those attached to the
Demand) then in its possession
17
<PAGE> 18
which it views as having direct bearing to support the contentions of the
Answer. Each party shall appoint one person to hear and determine the dispute
within ten days after the Other Party's receipt of the Demand. (If a party fails
to so designate its arbitrator within said ten days, then the arbitrator shall
act as the sole arbitrator and shall be deemed to be the single,
mutually-approved arbitrator to resolve the controversy.) The two persons so
chosen shall, within 20 days, select a third, impartial arbitrator. If they fail
to do so within said 20 days, either party may petition the American Arbitration
Association (the "AAA") in New York, NY (or in any other jurisdiction to which
both parties may, in their discretion, agree) to appoint the third arbitrator.
The majority decision of the three-arbitrator panel (or the decision of the
single arbitrator) shall be final, binding, conclusive and non-appealable.
(ii) Each arbitrator, including any arbitrator appointed by
AAA, shall have substantial experience with intellectual property legal issues.
Each party shall pay the arbitrator it designated and shall share the cost of
the third (or, if applicable, the sole) arbitrator. In the event that the
parties are unable to agree upon a rate of compensation for the third (or sole)
arbitrator, the arbitrator shall be compensated for his or her services at a
rate to be determined by the AAA.
(iii) Discovery shall be liberally allowed by the arbitrators
as contemplated by the Federal Rules of Civil Procedure, subject, however, to
such limitations as the arbitrators determine to be appropriate under the
circumstances, it being the parties mutual desire to have a prompt and efficient
arbitration.
(iv) The arbitrators shall endeavor to promptly schedule the
hearings, and to hold the hearings (on consecutive days if practicable), and
shall have authority to award relief
18
<PAGE> 19
under legal or equitable principles, including interim or preliminary relief.
Nothing in this section shall impair the right of a party to seek interim or
preliminary relief in a court of competent jurisdiction sitting in New York, NY
(or in any other jurisdiction to which both parties may, in their discretion,
agree) before the arbitration panel is constituted and convened.
(v) Other than attorney's fees and expenses (which shall be
borne by the party incurring the same), the costs of the arbitration shall be
borne by the losing party or shall be allocated between the parties in such
proportions as the arbitrators decide.
(vi) The arbitrators shall, upon the request of either party,
promptly (and in all events within 30 days of the conclusion of the hearing)
issue a proposed written opinion of their findings of fact and conclusions of
law which shall become final and binding in accordance with the terms thereof
unless either or both parties seek reconsideration in accordance with subsection
(vii) below. In making their decision, the arbitrators shall be bound by the
terms of this Agreement.
(vii) Either party shall have the right, within 20 days of
receipt of the arbitrators' proposed opinion, to file with the arbitrators a
motion to reconsider (accompanied by a reasonable memorandum), and the other
party shall have 20 days to respond to that memorandum. After receipt of such
memorandum and response, if any, the arbitrators thereupon shall reconsider the
issues raised by said motion and, promptly, either confirm or change their
majority decision which shall then be final and conclusive upon both parties.
The costs of such a motion for reconsideration and written opinion of the
arbitrators shall be borne by the moving party, or shared equally by both
parties if both parties request such reconsideration.
19
<PAGE> 20
i. In the event that this Agreement terminates pursuant to Section 10(b) above,
(i) the provisions of Section 11(c) above shall be void and of
no force or effect with regard to HHES,
(ii) for a period equal to the longer of (A) 12 months from
the date of termination of this Agreement, or (B) the period of time remaining
in the term of this Agreement on the date of such termination, AT&T shall not
market a product or service (either on its own or with one or more other
parties) that is competitive with the products and services provided by HHES
under this Agreement (i.e., the support, training and materials provided under
Section 4), nor shall AT&T (directly or through third parties) market the SAM
and/or SAM-Type Services to schools or school districts other than with HHES
under the same terms and conditions as are provided in this Agreement, and
(iii) HHES shall have no obligation to provide AT&T with a
final report pursuant to Section 11(e) above.
12. Indemnity
Each party ("indemnitor") at its own expense will indemnify and hold harmless
the other party and its officers, directors and employees against third party
claims and related expenses (including reasonable attorney's fees) arising out
of this Agreement based on strict tort liability, breach of warranty, violation
or infringement of any patent, copyright, trade secret, license or other
property of any third party, or the intentional or negligent acts or omissions
of such
20
<PAGE> 21
indemnitor, provided that the indemnitor's obligation shall be reduced to the
extent the claim or expense is attributable to the other party with the
understanding that the other party's use of the indemnitor's intellectual
property shall not make such claim or expense attributable to the using party.
13. Scope of HHES Authority
HHES will market SAM and support the Program as an independent contractor and
not as a franchisee, agent, partner or joint venturer of AT&T. HHES is
authorized to receive orders but not to bind AT&T contractually. It may refer to
itself as "AT&T's Authorized Representative" only during the term of this
Agreement and only regarding the marketing of SAM in an educational context.
HHES will market and support SAM through its own employees; it may not
subcontract or appoint others to perform these functions without the prior
approval of AT&T. Subject to Section 1, HHES can continue to market and support
its own services and products.
14. Limitation of Liability
The aggregate total liability of either party to the other for any and all
claims in connection with this Agreement, from any cause whatsoever (excepting
personal injury and/or death) regardless of the cause of action, whether in
contract, tort, or otherwise shall in no event exceed $10 million; provided that
the losing party in any action shall pay the other party's reasonable legal
21
<PAGE> 22
fees and expenses with regard thereto.
15. Choice of Law
This Agreement shall be construed and governed in accordance with the laws of
the State of New York without giving effect to the choice of law principles
thereof. Any legal action arising from or in connection with this Agreement must
be brought within one (1) year after the cause of action arises.
16. Assignment
Neither party may assign this Agreement without the consent of the other party.
22
<PAGE> 23
17. Force Majeure
Neither party shall have any liability for any loss or for any failure to
perform any obligation hereunder due to a Force Majeure (as defined below),
except that failure to meet payment obligations shall not be excused by a Force
Majeure. If a Force Majeure delays a party's performance for more than 60
consecutive days, the other party may terminate this Agreement. Force Majeure
means one or more causes, which are beyond a party's control, including the
following: acts of God or the public enemy; acts of government or any agency
thereof; as regards HHES, extraordinary acts or omissions of the schools; as
regards AT&T, extraordinary acts or omissions of the Local Exchange Carriers;
fires; floods; epidemics; riots; quarantine restrictions; strikes or other work
stoppages; civil insurrections; freight embargoes; and unusually severe weather.
18. Amendments
Neither this Agreement nor any provisions hereof may be amended, modified,
waived, discharged or terminated orally. Amendments must be in writing and
subscribed by the parties.
19. Confidentiality
a. This Agreement and any information and data of any nature including, but not
limited to, proprietary, technical, marketing operating, performance, costs,
know-how, business pricing
23
<PAGE> 24
policies, programs, data systems, inventions, discoveries, trade secrets,
techniques, process, computer programming techniques and all record-bearing
media containing or disclosing such information and techniques furnished by one
party to the other in connection with this Agreement ("Confidential
Information") and all copies of Confidential Information made by the receiving
party: (a) shall be held in confidence and protected in accordance with the
security measures with which it protects its own proprietary and confidential
information which it does not wish to disclose; (b) shall be used by the
receiving party and its employees only to perform their responsibilities
pursuant to this Agreement; (c) shall not be reproduced or copied, in whole or
in part, except as necessary for its authorized use; and (d) shall be returned
to the originating party upon request or destroyed, together with all copies,
when it is no longer needed or upon termination or expiration of this Agreement.
Confidential Information shall not be disclosed to third parties, including but
not limited to the receiving party's dealers or distributors, without the prior
written consent of the originating party. Information disclosed pursuant to this
Agreement that either party considers Confidential Information and that is
provided in tangible form shall be marked confidential, proprietary or private.
The receiving party shall have no obligation to treat as proprietary or
confidential any information which: (a) is disclosed to third parties by the
disclosing party without restriction; (b) is or becomes publicly available other
than by the receiving party's breach of its obligations; or (c) is required by
law or legal process to be disclosed. The parties agree to adhere to the
requirements of this Article for three (3) years following the termination or
expiration of this Agreement.
b. Except as otherwise required by law, any Form 8-K disclosures required of
HHES in
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<PAGE> 25
connection with this Agreement will refer only to such press releases as may be
approved by both parties. AT&T will have primary responsibility for developing
press releases and related publicity in connection with this Agreement, and will
coordinate and discuss the same with HHES, it being agreed that no press release
will be issued by either party with regard to this Agreement without the
approval of the other party, such approval not to be unreasonably withheld, and
such approval to be deemed to have been given if a party does not notify the
other party to the contrary within three days of its receipt of a draft press
release from the other party. The initial press release regarding this Agreement
shall be in the form of Exhibit F, and shall be issued by HHES promptly after
the execution of this Agreement.
20. Trademarks and Trade Names
Except as expressly permitted hereunder, each party agrees not to display or
use, in advertising or otherwise, any of the other party's trade names, logos,
trademarks, trade devices, service marks, symbols, codes, specifications,
abbreviations or registered marks, or contractions or simulations thereof
(hereinafter referred to collectively as "Marks") and will not permit the same
to be used or displayed by third parties. Any use by a party of the other
party's Mark shall be subject to the other party's advance approval in writing.
Neither party shall claim ownership or any other rights in the other party's
Marks. Upon termination of this Agreement, any and all rights or privileges of
either party to use the other's Marks shall expire and each party shall
discontinue the use of the other's Marks.
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<PAGE> 26
21. Notices. All notices or other communications provided for under this
Agreement shall be in writing and delivered or sent by telegram, telex,
electronic mail, facsimile, reputable overnight courier or similar confirmed
communication and shall be addressed as follows:
To AT&T:
AT&T Corp.
295 North Maple Avenue
Room 7214 M2
Basking Ridge, New Jersey 07920
Attention: William Burger
Facsimile: (908) 630-1076
Voice: (908) 221-2562
Copy to:
AT&T Corp.
Room 3258 C1
295 North Maple Avenue
Basking Ridge, NJ 07920
Attention: Richard Cohen, Esq.
Facsimile: (908) 953-8360
Voice: (908) 221-7421
To HHES:
Advanced Voice Technologies, Inc.
369 Lexington Avenue, 14th Floor
New York, New York 10017
Attention: Gwyeth Smith, President
Facsimile: (212) 697-9236
Voice: (212) 885-0752
Copy to:
Sierchio & Albert, P.C.
41 East 57th Street
New York, New York 10022
Attention: Stephen A. Albert, Esq.
Facsimile: (212) 446-9504
Voice: (212) 446-9500
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<PAGE> 27
22. Waivers
A waiver of any claim, demand or right based on the breach of any provision of
this Agreement shall not be construed as a waiver of any other claim, demand or
right based on a subsequent breach of the same or any other provision. No waiver
by a party of any breach by the other party under this Agreement shall be
effective unless such waiver is set forth in a written instrument signed by the
non-breaching party. The failure of a party to enforce at any time any of the
provisions of this Agreement shall in no way be construed to be a waiver of any
such provision, nor in any way affect the validity of this Agreement, or any
part, or the right of any party hereafter to enforce each and every provision
hereof.
23. Unenforceability
If any part, term or provision of this Agreement shall, for any reason, be held
to be invalid, illegal or unenforceable, the validity, legality or
enforceability of the remaining parts, terms or provisions shall not be
affected. Such part, term or provision shall be ineffective only to the extent
of such invalidity, illegality or enforceability without invalidating the
remainder of such part, term or provision or the remaining portions of this
Agreement. The rights and obligations of the parties shall be construed as if
the Agreement did not contain the particular invalid, illegal or unenforceable
part, term or provision, unless such invalid or unenforceable part, term or
provision is material and essential to either one of the parties, in which event
the parties shall immediately negotiate a replacement therefor.
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<PAGE> 28
24. Headings
The Section headings are inserted for convenience only and are not intended to
affect the meaning or interpretation of this Agreement.
25. Entire Agreement
This Agreement constitutes the entire agreement between the parties hereto, and
supersedes any prior agreements and understandings between the parties
(including the document dated July 11, 1996).
[Signatures appear on following page]
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<PAGE> 29
IN WITNESS WHEREOF the undersigned have executed this Agreement as of the
date first set forth above.
AT&T CORP. Advanced Voice Technologies, Inc.
By: /s/ Illegible By: /s/ Illegible
---------------------------- ----------------------------
<PAGE> 30
EXHIBIT A
INTENDED IMPLEMENTATION & ON-GOING
PROGRAM MATERIALS
IMPLEMENTATION MATERIALS
FOR ADMINISTRATORS:
Leadership Strategies Kit
"Hot To Use The Hotline" Guide
Orientation Video
School Banner
FOR TEACHERS:
Motivational Video
Audio Training Tapes
Teacher Training Guides
Teacher Guide Cards
FOR PARENTS:
Magnets (or other Introductory Promotional Item)
Telephone Stickers (or other Introductory Promotional Item)
Introductory Booklet
ONGOING PROGRAM SUPPORT MATERIALS
FOR TEACHERS:
Quarterly Newsletters (at 3 grade levels-elementary, middle & high
school)
FOR PARENTS:
Bi-monthly Newsletters (at 3 grade levels in 3 languages, if necessary)
(English, Spanish & TBD based on Territory)
1 Additional Parenting booklet (at 3 grade levels in 3 languages, if
necessary)
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<PAGE> 31
EXHIBIT B
PER STUDENT ENROLLED
CHARGE FOR AT&T'S SAM SERVICE
AS ENVISIONED IN MAY OF 1996
<TABLE>
<CAPTION>
MONTHLY CHARGE
YR1 FREE
<S> <C>
YR2 and thereafter $1.00 to $2.00
</TABLE>
31
<PAGE> 32
EXHIBIT C
<TABLE>
<CAPTION>
HHES Reporting Responsibilities AT&T Reporting Responsibilities
<S> <C>
School Name System Utilization Reports and Raw Data
School District Research Data, as appropriate
School Contact Person
Primary Contact Person
School Principal
District Superintendent
Number of Teachers in School
Number of Students in School, by Grade
</TABLE>
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<PAGE> 33
EXHIBIT D
Critical Dates for Program Implementation and Billing
<TABLE>
<CAPTION>
Date Amount Billed Per School
- ---- ------------------------
<S> <C>
Enrollment Date(1) 50% of the amount provided in Exhibit D(1) for
each school enrolled in the Program on such date
Live Date(2) $0
Threshold Date(3) 50% of the amount provided in Exhibit D(1) for each
enrolled school for which an average of 5000
messages have been sent two consecutive months, 50%
of those messages having been sent by teachers.4
</TABLE>
- -------------------------
(1) Anticipated to be July 15 for the Fall semester and December 15 for the
Spring semester, but in any case at least 45 days prior to the Live Date.
(2) The "Live Date" shall mean the date on which service is first offered to a
given school or group of schools. Anticipated to be September 1 for the
Fall semester and February 1 for the Spring semester.
(3) Anticipated to be December 1 for the Fall semester and May 1 for the
Spring semester, but in any case 90 days after the Live Date.
(4) A message is defined by the number of addressed recipients (i.e., if a
teacher sends a message that may be "picked up" by 30 parents, the teacher
is deemed to have sent 30 messages). If AT&T has failed to offer service
for at least two consecutive months without undue interruption or poor
quality, AT&T will pay such $750 per school regardless of whether HHES
attains these thresholds, provided that HHES has provided prompt
notification to AT&T of such instance of undue interruption or poor
quality. At AT&T's election, HHES will use reasonable commercial efforts
to replace each school that does not attain the message sending thresholds
specified in the above table (unless such failure is the fault of AT&T)
without the payment of any additional Enrollment Date fee.
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<PAGE> 34
EXHIBIT D(1)
PAYMENT PER SCHOOL
<TABLE>
<CAPTION>
NUMBER OF SCHOOLS AMOUNT PAID PER SCHOOL
- ----------------- ----------------------
<S> <C>
For schools 1-200 $5,000 per school
For schools 201-700 $3,000 per school
For schools 701-1,700 $2,500 per school
For schools 1,701-3,200 $2,000 per school
For schools 3,201 and thereafter $1,500 per school
</TABLE>
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<PAGE> 35
EXHIBIT E
HHES PERFORMANCE GOALS:
1. To initially enroll the number of schools required to meet 75% of targets
agreed to by the parties.
2. To maintain an average of 5,000 messages sent per month per school at
schools participating in the Program, with an average of 50% of those
messages originating from teachers, after the third month of operation.
3. To re-enroll 50% of all schools participating in a trial period after the
trial period is over (as measured on September 1 of each year).
AT&T PERFORMANCE GOALS:
1. To make SAM available to 75% of schools enrolled for a trial period within
60 days of the target date as set on a case-by-case basis by the parties
and to make SAM available to 95% of such schools within 3 months after the
initial target date.
2. To maintain the SAM service without recurring interruption, disruption or
diminished quality of service, provided that allowance is made for
reasonable debugging of software during the first 3 months after release
of the original or any new version of SAM-related software. It is
understood that SAM does not include telecommunication transport services
or HHES software.
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<PAGE> 36
EXHIBIT F
PRESS RELEASE
New York, N.Y., August , 1996 -- Advanced Voice Technologies, Inc.
(NASDAQ Small Cap: HMWK) announced today that it has signed a co-marketing
agreement with AT&T to help implement and support AT&T's program to offer voice
messaging services to primary and secondary schools across the United States.
The program will initially be provided to selected schools in the cities served
by AT&T's voice messaging services. The AT&T services are being provided to
public and private schools as a component of the AT&T Learning Network
announced by AT&T Chairman Robert E. Allen in 1995.
Advanced Voice Technologies (AVT), better known as Homework Hotline(R)
Educational Services, will work with AT&T to help schools maximize the
educational benefits of AT&T's networked-based voice messaging service. AVT
will train administrators, teachers and other school personnel to use the
service as a tool to improve communication between the school and the home. The
Company will also provide ongoing technical and education support to the
schools enrolled in the program.
"We believe that Advanced Voice Technologies will provide us with
valuable expertise as we introduce this new service to the schools and homes of
America, said Mr. Waring Partridge, Vice President of AT&T's HomePlace services
group. "By offering voice mailboxes to parents and teachers in schools we
serve, AT&T will enable people to communicate in an entirely new way and give
them better control of their time. We've chosen to introduce the service to
schools and their communities first because the need is so great, and the
potential benefit is so large."
Nancy Shalek, Chairman of AVT, said, "We are thrilled to be working
with AT&T to tackle this ambitious project, and the agreement we have struck is
clearly the most important in our Company's 13 year history. It represents
millions of dollars in revenue for AVT, adding to the work we are already doing
with the State of New York, the County of Los Angeles and the American Business
Collaboration as one of the Company's key initiatives. Even more importantly,
it has the potential to significantly accelerate the fulfillment of AVT's
overriding objective: to improve the academic performance of students across
the country by facilitating increased parent involvement in their educational
process."
As part of the agreement, which has an initial term of three years,
AT&T has purchased rights to a non-exclusive license to use AVT's software and
certain intellectual property rights. The agreement also provides for the
issuance to AT&T of a warrant representing the right to purchase, for a nominal
price, that number of shares in AVT that would give AT&T ownership of 40% of the
sum of the outstanding shares and the shares that underlie the warrant. On the
first anniversary of the agreement, a portion of the warrant representing a 10%
ownership share in AVT will vest and become exercisable. The remainder of the
warrant will vest in increments as certain business hurdles are met, with full
vesting contingent on AVT's realizing $20 million
<PAGE> 37
or more in revenue from this agreement. In general, any portion of the warrant
that remains unexercised upon the termination of the agreement will lapse.
Based in New York City, Advanced Voice Technologies is a pioneering
provider of educational services to schools. Founded in 1983, AVT was one of
the first companies in the United States to apply voice-messaging technology to
schools with the intention of promoting better communications between the
schools and the home. Its systems have been installed at hundreds of schools in
more than 30 states.
<PAGE> 1
EXHIBIT 7(b)(ii)
THIS WARRANT HAS NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD OR TRANSFERRED
EXCEPT IN COMPLIANCE WITH SUCH ACT AND THE RULES AND
REGULATIONS PROMULGATED THEREUNDER AND APPLICABLE
STATE SECURITIES LAWS
Number of Shares: 2,480,997 shares (subject to adjustment as provided
herein)
Date of Issuance: August 6, 1996
ADVANCED VOICE TECHNOLOGIES, INC.
Common Stock Purchase Warrant
(Non-Transferable)
Advanced Voice Technologies, Inc., a Delaware corporation (the
"Company"), for value received, hereby certifies that AT&T Corp. ("AT&T"), is
entitled, subject to the terms set forth below, to purchase from the Company
2,480,997 shares of Common Stock, $.0001 par value per share, of the Company
(the "Common Stock"), at a purchase price of $.10 per share. The shares of
Common Stock purchasable upon exercise of this Warrant, and the purchase price
per share, each as adjusted from time to time pursuant to the provisions of this
Warrant, are hereinafter referred to as the "Warrant Shares" and the "Purchase
Price," respectively.
1. EXERCISE.
(a) The "First Tranche" of four hundred thirteen thousand and five
hundred (413,500) shares Warrant Shares shall vest and become exercisable on
August 6, 1997, and the balance of the Warrant Shares shall vest and become
exercisable as follows, in all cases without prejudice to AT&T's rights set
forth in Sections 2(a)-(f):
(1) The "Second Tranche" of five hundred sixteen thousand
eight hundred and seventy four (516,874) Warrant Shares
shall vest and become exercisable at such time as AT&T
has effected payments to the Company (including sales
commissions)
<PAGE> 2
pursuant to the terms of the Agreement dated August 6,
1996 between the Company and AT&T (the "Agreement") of
at least $12 million cumulatively;
(2) The "Third Tranche" of six hundred sixty four thousand
five hundred and fifty three (664,553) Warrant Shares
shall vest and become exercisable at such time as AT&T
has effected payments as aforesaid of at least $16
million cumulatively; and
(3) The "Fourth Tranche" of eight hundred eighty six
thousand and seventy (886,070) Warrant Shares shall
vest and become exercisable at such time as AT&T has
effected payments as aforesaid of at least $20 million
cumulatively.
In the event that there is a Change in Control of the Company on or before
August 6, 1997, then the First Tranche of four hundred thirteen thousand and
five hundred (413,500) Warrant Shares, as adjusted pursuant to Section 2(a)-(f),
shall immediately become exercisable.
(b) Each exercise of this Warrant shall be effected by surrender of
this Warrant, with the purchase form appended hereto as Exhibit I duly executed
by AT&T, at the principal office of the Company, accompanied by payment in full,
by wire transfer, bank check or other method acceptable to the Company, of the
Purchase Price payable in respect of the number of Warrant Shares purchased upon
such exercise.
(c) AT&T may, at its option, elect to pay some or all of the Purchase
Price payable upon an exercise of this Warrant by canceling a portion of this
Warrant (to the extent then exercisable) with respect to such number of Warrant
Shares as is determined by dividing (i) the total Purchase Price payable in
respect of the number of Warrant Shares being purchased upon such exercise by
(ii) the excess of the Fair Market Value per share of Common Stock as of the
effective date of exercise, as determined below (the "Exercise Date"), over the
Purchase Price per share. The Fair Market Value per share of Common Stock shall
be determined as follows:
(i) If the Common Stock is listed on a national securities
exchange, the NASDAQ National Market or another nationally recognized exchange
or trading system as of the Exercise Date, the Fair Market Value per share of
Common Stock shall be deemed to be the last reported sale price per share of
Common Stock thereon on the Exercise Date, or, if no such price is reported on
such date, such price on the next preceding business day for which such price is
reported.
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<PAGE> 3
(ii) If the Common Stock is not listed on a national
securities exchange, the NASDAQ National market or another nationally recognized
exchange or trading system as of the Exercise Date, the Fair Market Value per
share of Common Stock shall be deemed to be the amount determined in good faith
by the Board of Directors to represent the value per share the Common Stock
would have if it were publicly traded on a nationally recognized exchange or
trading system, not as an initial public offering but on a seasoned basis and
without any unusual market conditions or any premium for control or discount for
minority interests, illiquidity or restrictions on transfer.
(d) Each exercise of this Warrant shall be deemed to have been effected
immediately prior to the close of business on the day on which this Warrant
shall have been surrendered to the Company as provided in Section 1(b) above. At
such time, AT&T shall be deemed to have become the holder of record of the
Warrant Shares issuable upon such exercise.
(e) As soon as practicable after the exercise of this Warrant in full
or in part, the Company, at its expense (including without limitation the
payment of any applicable stamp taxes), will cause to be issued in the name of,
and delivered to, AT&T:
(i) a certificate for the number of full Warrant Shares to
which AT&T shall be entitled upon such exercise plus, in lieu of any fractional
shares to which AT&T would otherwise be entitled, cash in an amount determined
pursuant to Section 3 hereof; and
(ii) in case such exercise is in part only, a new warrant
(dated the date hereof) of like tenor, calling on the face thereof for the
number of Warrant Shares equal to the number of such shares called for on the
face of this Warrant (as adjusted pursuant to the provisions of Section 2
hereof) minus the sum of (a) the number of such shares purchased by AT&T upon
such exercise plus (b) the number of Warrant Shares (if any) covered by the
portion of this Warrant canceled in payment of the Purchase Price payable upon
such exercise pursuant to Section 1(c) above.
(f) Any portion of this Warrant that becomes exercisable shall remain
exercisable until the termination of the Agreement (including any extensions
thereof); provided that any portion of this Warrant that remains unexercised at
the time of such termination shall lapse and be of no further force and effect
unless such termination is a termination of the Agreement by AT&T in accordance
with the provisions of Section 10(a) of the Agreement (a "Company Termination").
In the event of a Company Termination, this Warrant shall remain exercisable by
AT&T for a period of 180 days thereafter to the extent set forth below:
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<PAGE> 4
(i) the First Tranche of 413,500 Warrant Shares, as adjusted
by Section 2(a)-(f), shall automatically vest and become exercisable as
aforesaid; and
(ii) if such Company Termination occurs prior to the payment
by AT&T to the Company of $12 million cumulatively as provided in Section
1(a)(1), the number of Warrant Shares which shall automatically vest and become
exercisable as aforesaid shall be equal to the number derived by multiplying the
number of Warrant Shares in the Second Tranche of 516,874 Warrant Shares, as
adjusted by Section 2(a)-(f), by a fraction, the numerator of which shall be the
total payments made by AT&T to the Company under the Agreement and the
denominator of which shall be $12 million; and
(iii) if such Company Termination occurs on or after the date
by which AT&T has made payments of at least $12 million but less than $16
million cumulatively as provided in Section 1(a)(2), the number of Warrant
Shares which shall automatically vest and become exercisable as aforesaid shall
be equal to the number derived by multiplying the number of Warrant Shares in
the Third Tranche of 664,553 Warrant Shares, as adjusted by Section 2(a)-(f), by
a fraction, the numerator of which shall be the total payments in excess of $12
million made by AT&T to the Company under the Agreement and the denominator of
which shall be $4 million; and
(iv) if such Company Termination occurs on or after the date
by which AT&T has made payments of at least $16 million cumulatively as provided
in Section 1(a)(3), the number of Warrant Shares which shall automatically vest
and become exercisable shall be equal to the number derived by multiplying the
number of Warrant Shares in the Fourth Tranche of 886,070 Warrant Shares, as
adjusted by Section 2(a)-(f) below, by a fraction, the numerator of which shall
be the total payments in excess of $16 million made by AT&T to the Company under
the Agreement (but in no event greater than $4 million) and the denominator of
which shall be $4 million.
2. ADJUSTMENTS.
(a) If outstanding shares of Common Stock shall be subdivided into a
greater number of shares or a dividend in Common Stock shall be paid in respect
of Common Stock, the Purchase Price in effect immediately prior to such
subdivision or at the record date of such dividend shall simultaneously with the
effectiveness of such subdivision or immediately after the record date of such
dividend be proportionately reduced. If outstanding shares of Common Stock shall
be combined into a smaller number of shares, the Purchase Price in effect
immediately prior to such combination shall, simultaneously with the
effectiveness of such combination, be proportionately increased. When any
adjustment is required to be made in the Purchase Price, the number of Warrant
4
<PAGE> 5
Shares purchasable upon the exercise of this Warrant shall be changed to the
number determined by dividing (i) an amount equal to the number of shares
issuable upon the exercise of this Warrant immediately prior to such adjustment,
multiplied by the Purchase Price in effect immediately prior to such adjustment,
by (ii) the Purchase Price in effect immediately after such adjustment.
(b) If there shall occur any capital reorganization or reclassification
of the Common Stock (other than a change in par value or a subdivision or
combination as provided for in Section 2(a) above), or any consolidation or
merger of the Company with or into another corporation, or a transfer of all or
substantially all of the assets of the Company, then, as part of any such
reorganization, reclassification, consolidation, merger or sale, as the case may
be, lawful provision shall be made so that AT&T shall have the right thereafter
to receive upon the exercise hereof the kind and amount of shares of stock or
other securities or property which AT&T would have been entitled to receive if,
immediately prior to any such reorganization, reclassification, consolidation,
merger or sale, as the case may be, AT&T had held the number of shares of Common
Stock which were then purchasable upon the exercise of this Warrant. In any such
case, appropriate adjustment (as reasonably determined in good faith by the
Board of Directors of the Company) shall be made in the application of the
provisions set forth herein with respect to the rights and interests thereafter
of AT&T, such that the provisions set forth in this Section 2 (including
provisions with respect to adjustment of the Purchase Price) shall thereafter be
applicable, as nearly as is reasonably practicable, in relation to any shares of
stock or other securities or property thereafter deliverable upon the exercise
of this Warrant.
(c) If the Company distributes any rights, options or warrants to all
holders of Common Stock entitling them to purchase shares of Common Stock (the
"Offered Shares") at a price per share less than the Purchase Price on the
record date for the distribution (the "Current Price"), the Purchase Price will
be adjusted to the quantity determined by multiplying the Current Price by the
fraction equal to (i) the number of shares of Common Stock outstanding on the
record date (the "Outstanding Shares") plus the Adjusted Number of Offered
Shares divided by (ii) the number of Outstanding Shares plus the number of
Offered Shares. For the purposes of that calculation, the Adjusted Number of
Offered Shares shall be equal to the number of Offered Shares multiplied by the
ratio of the exercise price for the Offered Shares to the Current Price. The
adjustment shall be made successively whenever any such rights, options or
warrants are issued and shall become effective immediately after the record date
for the determination of shareholders entitled to receive the rights, options or
warrants. When any such adjustment is required to be made in the Purchase Price,
the number of Warrant Shares purchasable upon the exercise of this Warrant shall
be changed to the number determined by multiplying the number of shares issuable
upon the exercise of this Warrant immediately prior to such
5
<PAGE> 6
adjustment by the ratio of the Current Price to the Purchase Price in effect
immediately after such adjustment.
(d) If the Company distributes to all holders of Common Stock any of
its assets, including but not limited to cash, debt securities, preferred stock,
or any rights or other securities of the Company, the Purchase Price shall be
adjusted by multiplying the Purchase Price on the record date for such
distribution by a ratio (the "Ratio") equal to the quantity determined by
dividing (i) the Market Value of the Company on the record date less the fair
market value on the record date, as determined by the Board of Directors in good
faith, of the total assets to be distributed to the holders of Common Stock by
(ii) the Market Value of the Company on the record date. The Market Value of the
Company on the record date shall be equal to the Fair Market Value of a share of
Common Stock, determined as set forth in Section 1(c) above, times the total
number of shares of Common Stock outstanding on the record date. The adjustment
shall be made successively whenever any distribution is made and shall become
effective immediately after the record date for the determination of
shareholders entitled to receive the distribution. When any such adjustment is
required to be made in the Purchase Price, the number of Warrant Shares
purchasable upon the exercise of this Warrant shall be changed to the number
equal to the number of shares issuable upon the exercise of this Warrant
immediately prior to such adjustment divided by the Ratio.
(e) If (other than as provided in Section 2(f) below) the Company
issues any shares of Common Stock to any third party prior to the exercise in
full of the Warrant, the Company shall offer to AT&T a number of shares equal to
two-thirds of the number of shares of Common Stock issued to such third party at
the price and on the terms offered to such third party.
(f) If the Company has issued or issues to any third party any
securities which are in one or more transactions convertible into or exercisable
for Common Stock ("Securities"), the Company shall, upon such conversion or
exercise, offer to AT&T a number of shares equal to two-thirds of the number of
shares of Common Stock so converted or exercised. In the case of Securities
issued on or prior to the date hereof, the Common Stock shall be offered to AT&T
at a price of $.10 per share. In the case of Securities that are issued
subsequent to the date hereof, the Common Stock shall be offered to AT&T at the
price offered to the third party. In both cases, the Common Stock offered to
AT&T shall be allocated among the four tranches established in Section 1(a) in
proportion to the number of shares originally in each tranche and shall vest and
become exercisable in accordance with the terms applicable to each tranche.
(g) When any adjustment is required to be made in the Purchase Price,
the Company shall promptly mail to AT&T a certificate setting forth the Purchase
Price after such adjustment and setting forth a brief statement of the
6
<PAGE> 7
facts requiring such adjustment. Such certificate shall also set forth the kind
and amount of stock or other securities or property into which this Warrant
shall be exercisable following the occurrence of any of the events specified
above.
3. FRACTIONAL SHARES.
The Company shall not be required upon the exercise of this Warrant to issue any
fractional shares, but shall make an adjustment therefor in cash on the basis of
the Fair Market Value per share of Common Stock, as determined pursuant to
Section 1(c) above.
4. TRANSFER RESTRICTIONS.
(a) This Warrant may not, without the prior written consent of the
Company, be sold, exchanged, transferred, pledged, hypothecated or otherwise
disposed of, whether voluntarily or by operation of law.
(b) Upon each and every exercise of this Warrant (whether an exercise
for cash or in a "cashless" exercise as permitted by Section 1(c) above), the
Warrant Shares may be sold or transferred if either (i) they first shall have
been registered under the Securities Act of 1933, as amended (the "Securities
Act"); or (ii) the Company first shall have been furnished with an opinion of
legal counsel, which opinion and counsel shall be reasonably satisfactory to the
Company, to the effect that such sale or transfer is exempt from the
registration requirements of the Securities Act and applicable Blue Sky laws; or
(iii) the holding period specified in paragraph (d) of Rule 144 under the
Securities Act has expired or, if the Securities and Exchange Commission (the
"SEC") amends Rule 144, such shorter holding period as has been established by
the SEC for the successor to Rule 144.
(c) All Warrant Shares issuable upon exercise of this Warrant shall
contain a legend, substantially similar to the legend set forth in this Warrant,
with respect to the transferability of such shares, until such time as the
Company shall have been advised by its counsel that such legend is no longer
required by law.
5. NO IMPAIRMENT.
In addition to the undertaking of the Company set forth in Section 7(i), the
Company will not, by amendment of its charter or through reorganization,
consolidation, merger, dissolution, sale of assets or any other voluntary
action, avoid or seek to avoid the observance or performance of any of the terms
of this Warrant, but will at all times in good faith assist in the carrying out
of all such terms and in the taking of all such action as may be necessary or
appropriate in order to protect the rights of AT&T against impairment.
7
<PAGE> 8
6. NOTICES OF RECORD DATE, ETC.
In case:
(a) the Company shall take a record of the holders of Common Stock (or
other stock or securities at the time deliverable upon the exercise of this
Warrant) for the purpose of entitling or enabling them to receive any dividend
or other distribution, or to receive any right to subscribe for or purchase any
shares of stock of any class or any other securities, or to receive any other
right; or
(b) of any capital reorganization of the Company, any reclassification
of the capital stock of the Company, any consolidation or merger of the Company
with or into another corporation (other than a consolidation or merger in which
the Company is the surviving entity), or any transfer of all or substantially
all of the assets of the Company; or
(c) of the voluntary or involuntary dissolution, liquidation or
winding-up of the Company, then, and in each such case, the Company will mail or
cause to be mailed to AT&T a notice specifying, as the case may be, (i) the date
on which a record is to be taken for the purpose of such dividend, distribution
or right, and stating the amount and character of such dividend, distribution or
right, or (ii) the effective date on which such reorganization,
reclassification, consolidation, merger, transfer, dissolution, liquidation or
winding-up is to take place, and the time, if any is to be fixed, as of which
the holders of record of Common Stock (or such other stock or securities at the
time deliverable upon the exercise of this Warrant) shall be entitled to
exchange their shares of Common Stock (or such other stock or securities) for
securities or other property deliverable upon such reorganization,
reclassification, consolidation, merger, transfer dissolution, liquidation, or
winding-up. Such notice shall be mailed at least ten (10) days prior to the
record date or effective date for the event specified in such notice.
7. COVENANTS.
(a) Exchange Listing. The Company will at all times that this Warrant
remains exercisable, in whole or in part, maintain the listing (or authorization
for quotation) of the Common Stock on a nationally recognized exchange or
trading system.
(b) Reservation of Shares. The Company will at all times reserve and
keep available, solely for issuance and delivery upon the exercise of this
Warrant, such number of Warrant Shares and other stock, securities and property,
as from time to time shall be issuable upon the exercise of this Warrant.
8
<PAGE> 9
(c) Rule 144 Information. The Company will at all times that this
Warrant can be exercised, in whole or in part, maintain "adequate current public
information" regarding the Company within the meaning of paragraph (c) of Rule
144.
(d) Piggy Back Registration. If the Company at any time proposes to
register any of its authorized but unissued shares of Common Stock under the
Securities Act on a form and in a manner that would permit registration of
Warrant Shares (other than a registration statement on Form S-4 or Form S-8 or
any successor Form) for sale to the public under the Securities Act, it will
each such time give prompt written notice to AT&T of its intention to do so,
describing such securities and specifying the form and manner and the other
relevant facts involved in such proposed registration (including, without
limitation, whether or not such registration will be in connection with an
underwritten offering of its Common Stock and, if so, the identity of the
managing underwriter and whether such offering will be pursuant to a "best
efforts" or "firm commitment" underwriting). Upon the written request of AT&T
delivered to the Company within 30 days after such notice shall have been given
(which request shall specify the Warrant Shares intended to be disposed of and
the intended method of disposition), the Company will use its best efforts to
effect the registration under the Securities Act (subject to the Company's
election not to pursue registration), as expeditiously as is reasonable, of all
Warrant Shares that the Company has been so requested to register, to the extent
requisite to permit the disposition (in accordance with the intended methods
thereof) of the Warrant Shares so to be registered under the procedures set
forth in this Section 7; provided, however, that if (i) the registration so
proposed by the Company involved an underwritten offering of the securities so
to be registered, and (ii) the managing underwriter of such underwritten
offering selected by the Company shall advise the Company that, in its judgment,
the number of securities proposed to be included in such offering by the Company
(the "Company Securities") and the number of shares of Warrant Shares proposed
to be included in such offering should be limited due to market conditions, then
the Company will promptly advise AT&T and may require, by written notice to
AT&T, that, to the extent necessary to meet such limitation, Warrant Shares be
excluded from such offering.
(e) Required Registration. If the Company fails to maintain "adequate
current public information" as required by Section 7(c), AT&T may request, in
writing, that the Company effect the registration on Form S-3, or if the Company
is not then eligible to use Form S-3 for such registration, on Form S-1, of the
Warrant Shares for resale of the Warrant Shares, provided that AT&T may not make
such a request within 180 days after the closing of a public offering
(regardless of whether AT&T shall have sold Warrant Shares as part of such
public offering) pursuant to Section 7(d). If AT&T intends to distribute the
Warrant Shares by means of an underwriting, AT&T shall so advise the
9
<PAGE> 10
Company in its request, provided that the managing underwriter shall be
reasonably acceptable to the Company and the underwriting agreement shall be in
customary form. Upon receipt of such request, the Company shall, as
expeditiously as possible, use its best efforts to effect the registration on
Form S- 3 or on Form S-1, as the case may be, of the Warrant Shares. The Company
shall not be required to effect more than one registration pursuant to this
Section 7(e).
(f) Registration Procedures. If the Company is required by the
provisions of this Agreement to effect the registration of the Warrant Shares
under the Securities Act, the Company shall:
(i) file with the SEC a Registration Statement with respect to
the Warrant Shares and use its best efforts to cause that Registration Statement
to become and remain effective until the earlier of (x) the time all Warrant
Shares have been sold pursuant thereto or otherwise; (y) the time all Warrant
Shares could be sold by AT&T within a three-month period without a registration
statement under Rule 144 or otherwise; or (z) 45 days from the date that such
Registration Statement is declared effective by the SEC;
(ii) as expeditiously as possible prepare and file with the
SEC any amendments and supplements to the Registration Statement and the
prospectus included in the Registration Statement as may be necessary to keep
the Registration Statement effective;
(iii) as expeditiously as possible furnish to AT&T such
reasonable numbers of copies of the prospectus, including a preliminary
prospectus, in conformity with the requirements of the Securities Act, and such
other documents as AT&T may reasonably request in order to facilitate the public
sale or other disposition of the Warrant Shares; and
(iv) as expeditiously as possible use its best efforts to
register or qualify the Warrant Shares covered by the Registration Statement
under the securities or "Blue Sky" laws of such states as AT&T shall reasonably
request, and do any and all other acts and things that may be necessary or
desirable to enable AT&T to consummate the public sale or other disposition in
such states of the Warrant Shares; provided, however, that the Company shall not
be required in connection with this paragraph (iv) to qualify as a foreign
corporation or execute a general consent to service of process in any
jurisdiction.
If the Company has delivered preliminary or final prospectuses to AT&T
and after having done so the prospectus is amended to comply with the
requirements of the Securities Act, the Company shall promptly notify AT&T and,
if requested, AT&T shall immediately cease making offers of Warrant Shares and
return all prospectuses to the Company. The Company shall promptly provide
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<PAGE> 11
AT&T with revised prospectuses and, following receipt of the revised
prospectuses, AT&T shall be free to resume making offers of the Warrant Shares.
(g) Prospectus Delivery Requirements. AT&T shall not make any sales
of Warrant Shares without causing the prospectus delivery requirements under the
Securities Act to be satisfied and AT&T shall promptly advise the Company of any
changes in the information concerning AT&T contained in any prospectus included
in any Registration Statement. AT&T acknowledges that occasionally there may be
times when the Company must suspend the use of the prospectus forming a part of
a Registration Statement until such time as an amendment to such Registration
Statement has been filed by the Company and declared effective by the SEC, or
until such time as the Company has filed an appropriate report with the SEC
pursuant to the Securities Exchange Act of 1934, as amended (the "Exchange
Act"). Without limiting the generality of the foregoing, the Company shall be
entitled to suspend the use of the prospectus forming a part of such
Registration Statement in any of the following periods:
(i) any period during which the Company is engaged in any
activity or transaction or preparations or negotiations for any activity or
transaction ("Company Activity") that the Company desires to keep confidential
for business reasons, if the Company determines in good faith that the public
disclosure requirements imposed on the Company under the Securities Act in
connection with the Registration Statement would require disclosure of the
Company Activity; or
(ii) any period during which the Company is offering or
selling shares of its capital stock pursuant to a registration statement (other
than a registration statement on Form S-4 or Form S-8, or any successor Form)
filed with the SEC under the Securities Act (with such period to begin three
weeks prior to the date established in good faith by the Company as its target
date for the pricing of such offering and terminate upon the closing of (or
decision to abandon) the sale of such shares), subject to a managing
underwriter's reasonable request for a different period.
AT&T hereby covenants that it will not offer or sell any Warrant Shares
pursuant to any prospectus during the period commencing at the time at which the
Company gives it notice of the suspension of the use of said prospectus and
ending at the time the Company gives it notice that AT&T may thereafter effect
sales pursuant to said prospectus.
(h) Allocation of Expenses. The Company shall pay all Registration
Expenses of any registration under this Section 7. The term "Registration
Expenses" shall mean all expenses incurred by the Company in complying with the
registration provisions of the Section 7, including without limitation all
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<PAGE> 12
registration and filing fees, exchange listing fees, printing expenses, fees and
expenses of counsel for the Company and state "Blue Sky" fees and expenses, but
excluding underwriting discounts, selling commissions and the fees and expenses
of AT&T's own counsel and, with respect to subsection (e) above, underwriters'
counsel.
(i) Certain Corporate Actions. The Company will not at any time that
this Warrant remains exercisable adopt any shareholder rights plan, "poison
pill" or other anti-takeover defense which does not "grandfather" AT&T's right
to acquire all or any portion of the Warrant Shares.
(j) Indemnification.
(i) In the event of registration of the Warrant Shares under
the Securities Act pursuant to this Agreement, the Company will indemnify and
hold harmless AT&T, each underwriter of such Warrant Shares, and each other
person, if any, who controls AT&T or such underwriter within the meaning of the
Securities Act or the Exchange Act against any losses, claims, damages or
liabilities, joint or several, to which AT&T or such underwriter or controlling
person may become subject under the Securities Act, the Exchange Act, state
securities or "Blue Sky" laws or otherwise, insofar as such losses, claims,
damages or liabilities (or actions in respect thereof) arise out of or are based
upon any untrue statement or alleged untrue statement of any material fact
contained in any Registration Statement under which such Warrant Shares were
registered under the Securities Act, any preliminary prospectus or final
prospectus contained in the Registration Statement, or any amendment or
supplement to such Registration Statement, or arise out of or are based upon the
omission or alleged omission to state a material fact required to be stated
therein or necessary to make the statements therein not misleading; and the
Company will reimburse AT&T and such underwriter and each such controlling
person for any legal or any other expenses reasonably incurred by AT&T and such
underwriter or controlling person in connection with investigating or defending
any such loss, claim, damage, liability or action; provided, however, that the
Company will not be liable in any such case to the extent that any such loss,
claim, damage or liability arises out of is based upon any untrue statement or
omission made in such Registration Statement, preliminary prospectus or final
prospectus, or any such amendment or supplement, in reliance upon and in
conformity with information furnished to the Company, in writing, by or on
behalf of AT&T or such underwriter or controlling person specifically for use in
the preparation thereof.
(ii) In the event of registration of the Warrant Shares under
the Securities Act pursuant to this Agreement, AT&T will indemnify and hold
harmless the Company, each of its directors and officers and each underwriter
(if any) and each person, if any, who controls the Company or any such
underwriter
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within the meaning of the Securities Act or the Exchange Act, against any
losses, claims, damages or liabilities, joint or several, to which the Company,
such directors and officers, underwriter or controlling person may become
subject under the Securities Act, the Exchange Act, state securities or "Blue
Sky" laws or otherwise, insofar as such losses, claims, damages or liabilities
(or actions in respect thereof) arise out of or are based upon any untrue
statement or alleged untrue statement of a material fact contained in any
Registration Statement under which such Warrant Shares were registered under the
Securities Act, any preliminary prospectus or final prospectus contained in the
Registration Statement, or any amendment or supplement to the Registration
Statement, or arise out of or are based upon any omission or alleged omission to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading, if the statement or omission was made in
reliance upon and in conformity with information relating to AT&T and furnished
in writing to the Company by or on behalf of AT&T specifically for use in
connection with the preparation of such Registration Statement, prospectus,
amendment or supplement; provided, however, that the obligations of AT&T
hereunder shall be limited to an amount equal to the proceeds to AT&T of the
Warrant Shares sold in connection with such registration.
(iii) Each party entitled to indemnification under this
Section 7(h) (the "Indemnified Party") shall give notice to the party required
to provide indemnification (the "Indemnifying Party") promptly after such
Indemnified Party has actual knowledge of any claim as to which indemnity may be
sought, and shall permit the Indemnifying Party to assume the defense of any
such claim or any litigation resulting therefrom; provided, that counsel for the
Indemnifying Party, who shall conduct the defense of such claim or litigation,
shall be approved by the Indemnified Party (whose approval shall not be
unreasonably withheld); and provided, further, that the failure of any
Indemnified Party to give notice as provided herein shall not relieve the
Indemnifying Party of its obligations under this Section 7(h) except to the
extent that it is actually prejudiced by the failure to give such notice. The
Indemnified Party may participate in such defense at such party's expense;
provided, however, that the Indemnifying Party shall pay such expense if
representation of such Indemnifying Party by the counsel retained by the
Indemnifying Party would be inappropriate due to actual or potential differing
interests between the Indemnified Party and any other party represented by such
counsel in such proceeding. No Indemnifying Party, in the defense of any such
claim or litigation shall, except with the consent of each Indemnified Party,
consent to entry of any judgment or enter into any settlement which does not
include as an unconditional term thereof the giving by the claimant or plaintiff
to such Indemnified Party of a release from all liability in respect of such
claim or litigation, and no Indemnified Party shall consent to entry of any
judgment or settle such claim or litigation without the prior written consent of
the Indemnifying Party.
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(k) Information by AT&T. AT&T shall furnish to the Company such
information regarding AT&T and the distribution proposed by AT&T as the Company
may reasonably request in connection with, and otherwise cooperate with the
Company in the filing of, any registration, qualification or compliance referred
to in this Agreement.
(l) Transfers of Rights. None of the rights set forth in this Section 7
may be transferred or assigned, whether voluntarily or by operation of law,
without the prior written consent of the Company.
(m) Updated Information. Upon AT&T's reasonable request and at
reasonable intervals not to exceed six months, the Company will provide written
updates, certified by the chief executive officer of the Company, of the
information referenced in Section 8(b) and/or listed in Exhibit II.
8. Representations and Warranties of the Company. The Company
represents and warrants, for the benefit of AT&T, as follows:
(a) the Company has been duly incorporated and is validly existing as a
corporation in good standing under the laws of the State of Delaware, with power
and authority (corporate and other) to own its properties and conduct its
business as currently owned and conducted, and has been duly qualified as a
foreign corporation for the transaction of business and is in good standing
under the laws of each other jurisdiction in which it owns or leases properties,
or conducts any business, so as to require such qualification, or is subject to
no material liability or disability by reason of the failure to be so qualified
in any such jurisdiction;
(b) the Company's authorized capitalization consists of 1,000,000
shares of "blank check" preferred stock, of which none are outstanding, and of
25,000,000 shares of Common Stock, of which 3,721,495 are outstanding, and all
of the issued shares of capital stock of the Company have been duly and validly
authorized and issued and are fully paid and non-assessable; the Company has not
issued or agreed to issue any bonds, notes, debentures or other evidences of
indebtedness directly or indirectly convertible into Common Stock; the Warrant
Shares issuable upon exercise of the Warrant have been duly and validly
authorized and reserved for issuance, and such shares, when issued and delivered
in accordance with the provisions of the Warrant against payment of the Purchase
Price therefor, will be duly and validly issued, fully paid and non-assessable;
attached hereto as Exhibit II is a true, correct and complete list of all
warrants, options and convertible securities of the Company providing for the
direct or indirect acquisition of shares of capital stock of the Company, or
other arrangements providing for such issuance, specifying in each case the
particular security or arrangement, the expiration date, the exercise, option or
conversion price, the number of shares that may be obtained upon exercise or
conversion
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and the number of shares issuable to AT&T on an aggregate and per-tranche basis.
(c) each of the Agreement and the Warrant has been duly authorized,
executed and delivered by the Company and constitutes a valid and legally
binding instrument, enforceable in accordance with its terms, subject, as to
enforcement, to bankruptcy, insolvency, reorganization and other laws of general
applicability relating to or affecting creditors' rights and to general equity
principles;
(d) the issue and sale of the Warrant, the issuance of the Warrant
Shares of the Company upon exercise of the Warrant, the compliance by the
Company with all of the provisions of the Agreement and the consummation of the
transactions herein and therein contemplated will not conflict with or result in
a breach of any of the terms or provisions of, or constitute a default under,
any indenture, mortgage, deed of trust, loan agreement or other agreement or
instrument to which the Company is a party or by which the Company is bound or
to which any of the property or assets of the Company or any statute or any
order, rule or regulation of any court or governmental agency or body having
jurisdiction over the Company or any of its properties, and no consent,
approval, authorization, order, registration or qualification of or with any
court or governmental agency or body is required for the issue and sale of the
Warrant or the Warrant Shares or the consummation of the other transactions
contemplated by the Agreement other than applicable Blue Sky laws; and
(e) there are no legal or governmental proceedings pending to which the
Company is a party or of which any property of the Company is the subject which,
if determined adversely to the Company would individually or in the aggregate
(after giving effect to any applicable insurance, reinsurance or reserves
therefor) have a material adverse effect on the consolidated financial position,
shareholders' equity or results of operations of the Company and, to the best of
the Company's knowledge, no such proceedings are threatened or contemplated by
governmental authorities or threatened by others.
9. Deliveries. The Company shall deliver, concurrent with the
transactions contemplated by Section 8 of the Agreement, the following items,
each dated the date on which the transactions referenced in Section 2 of the
Agreement shall have been consummated:
i) copies, certified by the Secretary of the Company, of all
resolutions of the Company's Board of Directors or committee thereof regarding
the Agreement, this Warrant and the Warrant Shares.
ii) a certificate of the Secretary of the Company as to the
incumbency of the Company officers executing the Agreement and this Warrant.
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iii) an opinion of counsel for the Company in form and
substance satisfactory to AT&T.
10. Replacement of Warrant. Upon receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction or mutilation of
this Warrant and (in the case of loss, theft or destruction) upon delivery of an
indemnity agreement (with surety if reasonably required) in an amount reasonably
satisfactory to the Company, or (in the case of mutilation) upon surrender and
cancellation of this Warrant, the Company will issue, in lieu therefor, a new
Warrant of like tenor.
11. Mailing of Notices. All notices and other communications in
connection herewith from the Company to AT&T shall be mailed by first-class
certified or registered mail, postage prepaid, to the address furnished to the
Company in writing by AT&T. All notices and other communications from AT&T in
connection herewith to the Company shall be mailed by first-class certified or
registered mail, postage prepaid, to the address furnished to AT&T in writing by
the Company.
12. No Rights as Stockholder. Until the exercise of this Warrant, AT&T
shall not have or exercise any rights by virtue hereof as a stockholder of the
Company.
13. Change or Waiver. Any term of this Warrant may be changed or waived
only by an instrument in writing signed by the party against which enforcement
of the change or waiver is sought.
14. Headings. The headings in this Warrant are for purposes of
reference only and shall not limit or otherwise affect the meaning of any
provision of this Warrant.
15. Definitions. The following terms as used in this Warrant shall have
the meanings set forth below:
Person means an individual, a partnership, a joint venture, a
corporation, an association, a trust or any other entity or organization,
including a government or any department or agency thereof.
Change in Control of the Company shall be deemed to have
occurred at such time as any Person or any group ("Group") of Persons within the
meaning of Section 13(d) of the Securities Exchange Act of 1934, as amended, and
the rules promulgated thereunder, other than AT&T, is or becomes the beneficial
owner, directly or indirectly, through a purchase, merger or other acquisition
transaction or series of transactions, of shares of capital
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stock of the Company entitling such Person or Group to exercise 20 percent or
more of the total voting power of all shares of capital stock of the Company
entitled to vote in elections of directors.
16. Governing Law. This Warrant will be governed by and construed in
accordance with the laws of the State of Delaware without giving effect to the
choice-of-law principles thereof.
ADVANCED VOICE TECHNOLOGIES, INC.
By: /s/ Illegible
-------------------------
Title: CHAIRMAN
AGREED:
AT&T CORP.
By: /s/ Illegible
---------------------------------
Title: VICE PRESIDENT
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EXHIBIT I
PURCHASE FORM
To: Advanced Voice Technologies, Inc.
Dated:_____________
The undersigned, pursuant to the provisions set forth in the attached
Warrant, hereby irrevocably elects to purchase ____________ shares of the Common
Stock covered by such Warrant. The undersigned herewith makes payment of
$_______________, representing the full purchase price for such shares at the
price per share provided for in such Warrant. Such payment takes the form of
(check applicable box or boxes):
$______ by wire transfer, bank check or other
method acceptable to Advanced Voice Technologies, Inc.
and/or
the cancellation of such portion of the attached Warrant as is
exercisable for a total of _______ Warrant Shares (using a
Fair Market Value of $_______ per share for purposes of this
calculation).
AT&T CORP.
By:__________________________
Title:_________________________
