<PAGE>
REGISTRATION NO. 333-08393
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 20, 1996
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO. 2
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------
VOXWARE, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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DELAWARE 7373 36-3934824
(STATE OR OTHER JURISDICTION (PRIMARY STANDARD (I.R.S. EMPLOYER
OF INCORPORATION OR INDUSTRIAL CLASSIFICATION IDENTIFICATION NO.)
ORGANIZATION) CODE NUMBER)
305 COLLEGE ROAD EAST
PRINCETON, NEW JERSEY 08540
(609) 514-4100
(ADDRESS, INCLUDING ZIP CODE AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
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MICHAEL GOLDSTEIN
VOXWARE, INC.
305 COLLEGE ROAD EAST
PRINCETON, NEW JERSEY 08540
(609) 514-4100
(NAME, ADDRESS, INCLUDING ZIP CODE AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
WITH COPIES TO:
PAUL JACOBS, ESQ. GREGORY D. SHEEHAN, ESQ.
FULBRIGHT & JAWORSKI L.L.P. ROPES & GRAY
666 FIFTH AVENUE ONE INTERNATIONAL PLACE
NEW YORK, NEW YORK 10103 BOSTON, MASSACHUSETTS 02110
TEL.: 212-318-3000 TEL.: 617-951-7000
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration number of the earlier effective registration statement for the
same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [X]
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CALCULATION OF REGISTRATION FEE
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<CAPTION>
PROPOSED PROPOSED
TITLE OF EACH CLASS OF MAXIMUM OFFERING MAXIMUM AMOUNT OF
SECURITIES AMOUNT TO BE PRICE AGGREGATE REGISTRATION
TO BE REGISTERED REGISTERED(1) PER SHARE(2) OFFERING PRICE(1)(2) FEE(3)
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<S> <C> <C> <C> <C>
Common Stock, $.001 par
value.................. 3,450,000 shares $13.00 $44,850,000 $15,466.00
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(1) Includes 450,000 shares of Common Stock which the Underwriters have the
option to acquire solely to cover over-allotments, if any.
(2) Estimated solely for purposes of calculating the registration fee.
(3) Of such $15,466.00 registration fee the Company has previously paid
$12,690.00.
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THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.
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<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF ANY OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED SEPTEMBER 20, 1996
3,000,000 SHARES
LOGO
VOXWARE
COMMON STOCK
All of the shares of Common Stock offered hereby are being sold by the
Company. Prior to this offering, there has been no public market for the Common
Stock of the Company. It is currently anticipated that the initial public
offering price of the Common Stock will be between $11.00 and $13.00 per share.
See "Underwriting" for a discussion of the factors to be considered in
determining the initial public offering price. The Common Stock has been
approved for quotation on the Nasdaq National Market, upon notice of issuance,
under the symbol VOXW.
THIS OFFERING INVOLVES A HIGH DEGREE OF RISK. SEE "RISK FACTORS" COMMENCING
ON PAGE 5 FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY
PROSPECTIVE PURCHASERS OF THE COMMON STOCK OFFERED HEREBY.
-----------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS.ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
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Price to Underwriting Proceeds to
Public Discount(1) Company(2)
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<S> <C> <C> <C>
Per Share........................ $ $ $
Total(3)......................... $ $ $
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(1) See "Underwriting" for information concerning indemnification of the
Underwriters and other matters.
(2) Before deducting expenses payable by the Company estimated at $750,000.
(3) The Company has granted the Underwriters a 30-day option to purchase up to
450,000 additional shares of Common Stock solely to cover over-allotments,
if any. If the Underwriters exercise this option in full, the Price to
Public will total $ , the Underwriting Discount will total $ and the
Proceeds to Company will total $ . See "Underwriting."
The shares of Common Stock are offered by the several Underwriters named
herein, subject to receipt and acceptance by them and subject to their right to
reject any order in whole or in part. It is expected that delivery of the
certificates representing such shares will be made against payment therefor at
the office of Montgomery Securities on or about , 1996.
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MONTGOMERY SECURITIES
ALEX. BROWN & SONS
INCORPORATED
OPPENHEIMER & CO., INC.
, 1996
<PAGE>
DESCRIPTION OF PHOTOGRAPH:
Under the caption "Voxware licenses its products broadly to software,
computing and communications companies. The logos of certain of the Company's
licensees are shown below." is a picture consisting of Voxware's logo
(consisting of a graphic of a face with the Company name underneath) in the
middle, surrounded in a circle by the logos of certain of the licensees of the
Company's products. The logos depicted are those of the following licensees:
Lucent Technologies Inc., Netscape Communications Corporation, Microsoft
Corporation, Mpath Interactive, Inc., Andrea Electronics Corporation, VDOnet
Corporation Ltd., InterVoice, Inc., Apple Computer, Inc., and America Online,
Inc.
On the left side of a fold out graphic is the caption:
"Voxware's Technology Enables a
New Generation of Speech Enhanced
Products for the Internet and Other
Bandwidth Constrained Environments"
Under the caption is Voxware's logo, consisting of a graphic of a face with
the Company name and "The Voice in Software(TM)" underneath. Emanating from
the mouth of the face in the logo, out to the right, is a bold line divided
into three sections. In the first section, under the caption "compress" are
arcs representing sound waves representing speech. The arcs are reduced to
just the bold line in the second section under the caption "METAVOICE(TM)",
the tradename of the Company's speech coding technology. In the third section,
the bold line is restored to arcs representing sound waves representing speech
under the caption "decompress."
The bold line then leads to the right side of the fold out graphic where it
divides into five bold lines, each leading to a box containing a picture of
persons using an application of the Company's MetaVoice speech coding
technology under a caption describing the application pictured. The five
captions are "Internet Conferencing, Chat, Interactive Games," "Internet
Broadcasting," "Convergence of Internet and Telecommunications," "Wireless
Telecommunications" and "Consumer Electronics/Toys."
On the bottom of the left side of the fold out graphic is the following:
"The applications depicted here include completed products and products
currently under development by the Company and its licensees." See "Business--
Products" and "--Research and Product Development."
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IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK
AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
2
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information, including "Risk Factors" and the financial statements and notes
thereto, appearing elsewhere in this Prospectus. Unless otherwise indicated,
all information in this Prospectus (i) gives effect to a stock split at the
rate of one share of Common Stock for every two shares of Common Stock effected
September 19, 1996, (ii) gives effect to the automatic conversion of all
outstanding shares of the Company's Series A Convertible Preferred Stock (the
"Series A Preferred Stock") into 3,000,000 shares of Common Stock effective
upon the closing of this offering and (iii) assumes no exercise of the over-
allotment option.
THE COMPANY
Voxware, Inc. (the "Company" or "Voxware") develops, markets, licenses and
supports a comprehensive, integrated set of digital speech processing
technologies which provide the ability to compress, model and transform speech.
MetaVoice(TM), the Company's innovative coding technology, is designed to
reproduce high quality speech while requiring very low communications bandwidth
and processing power. In addition to efficiently compressing speech, MetaVoice
enables a broad array of voice transformation capabilities. Voxware's
technologies enable its customers to create a new generation of speech-enhanced
communications and interactive products for the Internet and other bandwidth-
constrained environments. The Company licenses its technologies, including
speech coder/decoders ("codecs") and application programming interfaces, to
software, computing and communications companies and distributes its end-user
application software to consumers and businesses.
Digital speech technologies are increasingly being integrated into a variety
of applications including voice-enabled Web pages, Internet telephony and
conferencing, Internet broadcasting, interactive games, voice messaging,
wireless and satellite communications, multimedia computing and voice-enabled
devices. Speech applications on the Internet and in other environments in which
these speech applications are implemented are often constrained by a
combination of low bandwidth, low processing power, network congestion and
inconsistent data delivery. Voxware's speech coding and transmission quality
management technologies are designed to address these challenges and deliver
superior speech quality for a wide variety of applications.
To accelerate adoption of its technologies, the Company seeks to broadly
license its products and establish strategic relationships with market leaders.
The Company has established a strategic relationship with Netscape
Communications Corporation ("Netscape"). Netscape uses Voxware's speech coding
technology as a part of its LiveMedia(TM) multimedia framework to provide low
bandwidth speech functions with version 3.0 of Netscape Navigator(TM).
Navigator is the most widely used software application for the World Wide Web.
Netscape has also made a minority equity investment in the Company.
In addition to Netscape, the Company has licensed its products to America
Online, Inc., Andrea Electronics Corporation, Apple Computer, Inc., Farallon
Computing, Inc., InterVoice, Inc., Lucent Technologies Inc., Microsoft
Corporation, Mpath Interactive, Inc., Tribal Voice and VDOnet Corporation Ltd.,
among others.
Intel Corporation ("Intel") has made a minority equity investment in the
Company. Intel provides consulting support to Voxware for the optimization of
the Company's technologies on Intel processor platforms, consults with Voxware
on standards issues of mutual interest and supplies the Company with pre-
release versions of its advanced processors for development of the Company's
products.
Voxware was incorporated in Delaware in 1993. Its executive offices are
located at 305 College Road East, Princeton, New Jersey 08540, and its
telephone number is (609) 514-4100. Voxware's home page is located at
www.voxware.com on the World Wide Web.
3
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THE OFFERING
Common Stock offered by the Company...
3,000,000 shares
Common Stock to be outstanding after
the offering......................... 11,947,496 shares(1)
Use of proceeds....................... For general corporate purposes,
including working capital and capital
expenditures.
VOXW
Nasdaq National Market symbol....
SUMMARY FINANCIAL DATA
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<CAPTION>
PERIOD FROM
INCEPTION
(AUGUST 20, 1993) YEAR ENDED JUNE 30,
TO JUNE 30, -----------------------
1994 1995 1996
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STATEMENT OF OPERATIONS DATA:
Total revenues..................... $ -- $ -- $ 1,607,038
Gross profit....................... -- -- 1,561,624
Total operating expenses........... 215,508 1,233,720 4,560,793
Operating loss..................... (215,508) (1,233,720) (2,999,169)
Net loss........................... (215,508) (1,168,780) (2,867,312)
Pro forma net loss per share....... $ (0.33)
Shares used in computing pro forma
net loss per share(2)............. 8,704,201
</TABLE>
<TABLE>
<CAPTION>
JUNE 30, 1996
---------------------------
PRO FORMA
PRO FORMA(3) AS ADJUSTED(4)
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<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents.......................... $ 3,836,836 $36,566,836
Working capital.................................... 3,887,338 36,617,338
Total assets....................................... 5,336,453 38,066,453
Stockholders' equity............................... 4,862,847 37,592,847
</TABLE>
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(1) Based on shares outstanding as of June 30, 1996. Excludes (i) 885,000
shares of Common Stock reserved for issuance upon the exercise of
outstanding warrants at an exercise price of $1.50 per share, (ii)
1,261,150 shares of Common Stock issuable upon exercise of outstanding
options and (iii) 1,098,850 shares reserved for future grants under the
Company's 1994 Stock Option Plan. See "Management--1994 Stock Option Plan"
and "Description of Securities--Warrants."
(2) See Note 1 of "Notes to Financial Statements" for an explanation of the
determination of the number of shares and share equivalents used in
computing the pro forma per share amount.
(3) Reflects the conversion of all the outstanding shares of the Company's
Series A Preferred Stock into Common Stock upon the closing of this
offering.
(4) Represents the pro forma data as adjusted to give effect to the sale of
3,000,000 shares of Common Stock offered by the Company at an assumed
initial public offering price of $12.00 per share (after deducting
underwriting discounts and commissions and estimated offering expenses) and
the application of the estimated net proceeds therefrom. See
"Capitalization" and "Use of Proceeds."
Voxware(TM), the Voxware logo, MetaVoice(TM), Telephony Network Toolkit(TM),
TeleVox(TM), ToolVox(TM) and VoiceFonts(TM) are trademarks of Voxware, Inc.
This Prospectus also contains trademarks and trade names of other companies.
4
<PAGE>
RISK FACTORS
In addition to the other information in this Prospectus, the following
factors should be considered in evaluating the Company and its business before
purchasing the Common Stock offered hereby. This Prospectus contains, in
addition to historical information, forward-looking statements that involve
risks and uncertainties. The Company's actual results could differ materially.
Factors that could cause or contribute to such differences include, but are
not limited to, those discussed below as well as those discussed elsewhere in
this Prospectus.
LIMITED OPERATING HISTORY; ACCUMULATED DEFICIT; EARLY STAGE OF DEVELOPMENT
The Company was founded in August 1993 and commenced shipment of its initial
products in July 1995. Accordingly, the Company has only a limited operating
history upon which an evaluation of the Company and its prospects can be
based. As of June 30, 1996, the Company had an accumulated deficit of
$4,258,563. The Company's prospects must be considered in light of the risks,
expenses and difficulties frequently encountered by companies in an early
stage of development, particularly companies in new and rapidly evolving
industries. To address these risks and achieve profitability and increased
sales levels, the Company must, among other things, establish and increase
market acceptance of its products, respond effectively to competitive
pressures, introduce on a timely basis products incorporating its technologies
and enhancements to its products and successfully market and support its
products and enhancements. There can be no assurance that the Company will
achieve or sustain significant sales or profitability in the future. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
UNCERTAINTY OF PRODUCT ACCEPTANCE IN DEVELOPING MARKETS; NEW PRODUCT
DEVELOPMENT RISKS
The markets for the Company's products have only recently begun to develop,
are rapidly evolving and are characterized by an increasing number of market
entrants who have introduced or developed products for enhancing and
facilitating the use of speech in new and existing applications, particularly
for the Internet. In addition, the Company's products are new and based on
novel technologies. As is typical in the case of new and rapidly evolving
industries, demand and market acceptance for recently introduced products are
subject to a high level of uncertainty. Virtually all of the Company's
products are based upon MetaVoice, its core speech compression technology.
Broad acceptance of the Company's products by customers and end users is
critical to the Company's success and ability to generate revenues. Acceptance
of the Company's products will be highly dependent on the functionality and
performance of the products and particularly on the success of the initial
implementation of its products. There can be no assurance that the Company
will be successful in obtaining market acceptance of its products. In
addition, the Company's products must be adapted in certain instances to meet
the specific requirements of the customer hardware or software in which it is
to be integrated. The adaptation process can be time consuming and costly to
both the Company and its customers and the acceptance of the end product may
depend, to a substantial extent, on the success of the adaptation. The Company
is in the process of porting its technologies to different platforms to meet
customer needs and, in certain of its license agreements, successful porting
is a condition to the continuation of the agreement and the receipt of fees
and royalties. Failure to successfully port products to desired platforms for
customers or to otherwise gain market acceptance of its products would have a
material adverse effect on the Company's business, operating results and
financial condition.
Furthermore, products offered by the Company may contain undetected errors
or defects when first introduced or as new versions are released. Introduction
by the Company of products with reliability, quality or compatibility problems
could result in reduced revenues, uncollectible accounts receivable, delays in
collecting accounts receivable and additional costs. There can be no assurance
that, despite testing by the Company or by its customers, errors will not be
found in the Company's products after commencement of commercial deployment,
resulting in product redevelopment costs and loss of, or delay in, market
acceptance. In addition, there can be no assurance that the Company will not
experience significant product returns in the future. Any
5
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such event could have a material adverse effect on the Company's business,
operating results and financial condition. See "Business--Products" and "--
Research and Product Development."
DEPENDENCE ON NETSCAPE
The Company is substantially dependent on its relationship with Netscape to
achieve widespread distribution and acceptance of its products and
technologies. During the year ended June 30, 1996, Netscape accounted for 31%
of the Company's revenues. Although the Company has entered into a software
license agreement with Netscape (the "Netscape License Agreement") in which it
has licensed certain of its products and technologies for use in Netscape's
products, Netscape is not obligated to use the Company's products or
technologies in Netscape's products and, therefore, there can be no assurance
that Netscape will include the Company's products and technologies in its
products in the future. Further, there can be no assurance that Netscape will
not choose to use other speech processing technologies, available either from
the Company's competitors or in the public domain, in its products. The
Netscape License Agreement may be terminated by Netscape for any reason at any
time on 90 days notice. In addition, Netscape has the right to terminate the
Netscape License Agreement upon a material default by the Company of its
material obligations under the Netscape License Agreement unless the default
is remedied within 30 days after notice of the default. If Netscape terminates
the Netscape license agreement or does not incorporate and distribute the
Company's products and technologies in its own products, the Company's
business, operating results and financial condition will be materially
adversely affected. The success of the Company is dependent on Netscape's
ability to continue to achieve widespread distribution and acceptance of
Netscape's products in the Internet market. Any failure by Netscape to
continue to achieve widespread distribution and acceptance of its products, or
any material decrease in Netscape's market share in the Internet market, may
have a material adverse effect on the Company's business, operating results
and financial condition. See "Business--Strategic Relationships and
Licensees."
UNCERTAIN ADOPTION OF INTERNET AS A MEDIUM FOR VOICE COMMUNICATIONS
The Company has targeted development of products and technologies for the
Internet as a strategic focus. Critical issues concerning the commercial use
of the Internet (including reliability, cost, security, ease of use and access
and quality of service) remain unresolved and may impact the growth of
Internet use. While the Company believes that its products potentially offer
significant advantages for voice communication over the Internet, it is
difficult to predict the future growth rate, if any, and size of this market.
There can be no assurance that the markets for the Company's products will
develop, that the Company's products will be adopted, or that personal
computer users in business or at home will use the Internet for voice
communication. In addition, the adoption of the Internet for telephony and
teleconferencing will require the acceptance by users of a new way of
conducting telephonic communications. If the market fails to develop, develops
more slowly than expected or becomes saturated with competitors, the Company's
business, operating results and financial condition will be materially
adversely affected. See "Business--Industry Background."
POTENTIAL FLUCTUATIONS IN OPERATING RESULTS
Significant annual and quarterly fluctuations in the Company's results of
operations may be caused by, among other factors, the timing and structure of
license agreements entered into with the Company's customers, the volume of
sales and revenue of the Company's licensees from sales of products
incorporating the Company's products and technologies, the mix of distribution
channels used by the Company, the timing of new product announcements and
releases by the Company and its competitors, and general economic conditions.
There can be no assurance that the level of sales and gross profits, if any,
achieved by the Company in any particular fiscal period will not be
significantly lower than in other, including comparable, fiscal periods. The
Company's expense levels are based, in part, on its expectations as to future
revenues. As a result, if future revenues are below expectations, net income
or loss may be disproportionately affected by a reduction in revenues as any
corresponding reduction in expenses may not be proportionate to the reduction
in revenues. As a result, the
6
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Company believes that period-to-period comparisons of its results of
operations may not necessarily be meaningful and should not be relied upon as
indications of future performance. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations."
ABILITY TO MANAGE GROWTH
The Company has been rapidly expanding and expects to continue to expand its
management, research and development, testing, quality control, marketing,
sales and customer service and support operations, as well as its financial
and accounting controls, all of which has and is expected to continue to place
a significant strain on the Company. The Company has grown from 12 employees
at June 30, 1995 to 58 employees at June 30, 1996. Failure to integrate new
personnel on a timely basis could have an adverse effect on the Company's
operations. Furthermore, the expenses associated with expanding the Company's
management team and hiring new employees have been and are being incurred
prior to the generation of any significant revenues. If the Company's
management is unable to manage growth effectively, the quality of the
Company's products, its ability to retain key personnel and its business,
operating results and financial condition could be materially adversely
affected.
RELIANCE ON THIRD PARTIES TO GENERATE RECURRING REVENUES
The Company's products are licensed primarily to software, computing and
communications companies which incorporate the Company's products and
technologies into their products. The Company's revenues derived from these
licensing arrangements will be based in large part upon the sale of its
licensees' products. The success of the Company will therefore be dependent to
a substantial degree on the efforts of these third parties in developing and
marketing products incorporating the Company's products and technologies. The
Company has entered into approximately 15 license agreements through June 30,
1996 which provide for recurring payments. Although the Company's revenues for
the year ended June 30, 1996 include a significant amount of recurring revenue
from these agreements, to date the Company has not received any royalty fees
based upon sales of its licensees' products. There can be no assurance that
any product incorporating the Company's products and technologies will be
marketed successfully by the Company's licensees. In addition, none of the
Company's licensees are contractually obligated to use the Company's products.
Furthermore, licensees of the Company may develop their own speech processing
products or technologies that compete with the Company's products and
technologies. There can be no assurance that these licensees will not replace
the Company's products with, or give higher priority to, the sales of these
competitive products or technologies. See "Business--Competition."
HIGHLY COMPETITIVE INDUSTRY
The market for voice processing software products and services is intensely
competitive. The Company expects competition to persist, intensify and
increase in the future. Many of the Company's current and potential
competitors have longer operating histories, greater name recognition, larger
customer bases and significantly greater financial, technical and marketing
resources than the Company. The Company's competition for voice processing
products is primarily emerging from two sources: developers of speech
compression algorithms and developers of software applications that
incorporate speech. Direct competitors include DSP Group, Inc., Lernout &
Hauspie Speech Products N.V. and Lucent Technologies Inc. in the speech coding
market and Electric Magic Co., FreeTel Communications, Inc., Macromedia, Inc.,
Netspeak Corp., PGP Inc., Progressive Networks, Inc., Quarterdeck Corporation,
Third Planet Publishing Inc., VocalTec, Ltd. and Xing Technology Corporation
in the Internet applications market. Several of these companies are developing
new products or enhancing existing products specifically to operate in low
bandwidth environments. Companies that have developed low bit rate parametric
speech compression technologies but do not currently compete with the Company
directly include Texas Instruments, Incorporated and Digital Voice Services,
Inc. The competition in the market for Internet telephony products, in
particular, is intense. Many companies, including for example Intel,
distribute free Internet telephony applications offering basic functionality.
The availability of such free Internet telephony applications may increase
pricing pressure on such applications, including the Company's TeleVox
products. In addition to
7
<PAGE>
the Company's current competitors, the Company expects other established
companies, including large software companies, such as Microsoft, and
telecommunications companies, such as interexchange carriers (for example,
AT&T Corp. and MCI Telecommunications), regional Bell operating companies and
cable companies, to compete in the markets for speech compression technologies
and digital speech applications, including Internet telephony. The ability of
certain of the Company's competitors to bundle other services and products
with voice products could put the Company at a competitive disadvantage.
NECESSITY TO DEVELOP AND INTRODUCE NEW AND ENHANCED PRODUCTS; RISKS OF RAPID
TECHNOLOGICAL CHANGE
The markets for the Company's products are characterized by rapidly changing
technology. The introduction of products incorporating new technologies could
render the Company's products obsolete and unmarketable and could exert price
pressures on existing products. Further, the markets for the Company's
products and, in particular, the market for voice and multimedia over the
Internet, are characterized by evolving industry standards and specifications.
As new standards or specifications are adopted, the Company may be required to
devote substantial time and expense in order to adapt its products. The
Company's ability to anticipate changes in technology and industry standards
and successfully develop and introduce new and enhanced products, as well as
additional applications for existing products, in each case in a cost
effective and timely manner, will be a critical factor in the Company's
ability to grow and be competitive. There can be no assurance that the Company
will successfully develop new or enhanced products, that any new or enhanced
products will achieve market acceptance, that the Company will be able to
adapt its products to comply with new standards or specifications, or that the
introduction of new products or technologies by others will not render the
Company's products obsolete. See "Business--Products" and "--Research and
Product Development."
The Company's technology and products have been developed and optimized to
operate in environments with low point-to-point bandwidth such as the
Internet. Current and potential Internet service providers ("ISPs"), including
telecommunications companies, cable companies, traditional ISPs and others,
are seeking to substantially increase the bandwidth of Internet access
connections and network infrastructure. Companies building network
infrastructure in other markets, such as wireless communications, are also
seeking to substantially increase available bandwidth. As the bandwidth of the
Internet and other communications networks increases, demand for the Company's
technologies and products may decrease substantially, which could have a
material adverse effect on the Company's business, operating results and
financial condition.
RISK OF GOVERNMENT REGULATION AND LEGAL UNCERTAINTIES
In the United States, there are currently few laws or regulations directly
applicable to communications and speech on the Internet or to access to, or
commerce on, the Internet generally. However, changes in the regulatory
environment, particularly in regulations relating to the telecommunications
industry, could have an adverse effect on the Company's business. Increased
acceptance of speech communications over the Internet could result in
intervention by governmental regulatory agencies in the United States or
elsewhere in the world under existing or newly enacted legislation and in the
imposition of fees or charges on users and providers of products and services
in this area. There can be no assurance that government intervention or
imposition of fees or charges would not have a material adverse impact upon
the acceptance of and growth in the market for Internet voice communications.
Additionally, legislative proposals from international, federal and state
government bodies could impose additional regulations and obligations upon
online service providers. The growing popularity and use of the Internet has
generally led to increased public awareness and could lead to increased
pressure on legislatures to impose regulations and fees. For example, several
states and municipalities have imposed taxes on Internet access services.
A Petition for Declaratory Ruling, Special Relief and Institution of a
Rulemaking (the "Petition") was filed by America's Carriers Telecommunications
Association with the Federal Communications Commission (the "FCC"). The
Petition alleges that providers of Internet telephone software are operating
as telecommunications carriers and, as such, should be subject to the FCC
regulatory framework applicable to traditional telecommunications companies.
The Petition seeks a declaratory ruling establishing the FCC's authority over
interstate and international communications using the Internet and an order
directing that persons providing
8
<PAGE>
Internet phone software comply with the regulatory requirements of The
Communication Act of 1934. Finally, the Petition urges the FCC to initiate a
rulemaking proceeding to consider rules governing the use of the Internet for
the provision of telecommunications services. The FCC issued a public notice
seeking comments with respect to the Petition. There can be no assurance that,
given the substantial investment by telecommunications providers in
traditional telephony infrastructure and services, these providers will not
pursue other avenues to regulate, restrict or increase the cost of Internet
telephony and other applications of voice on the Internet. The Company cannot
predict the likelihood that any future legislation will be enacted or that the
FCC or any other regulatory agency will not issue regulations directly
affecting the Company's business. There can be no assurance that any such
future regulations will not have a material adverse effect upon the Company's
business, operating results and financial condition.
RISKS OF INTERNET DISTRIBUTION
The Company distributes products through, among other channels, the
Internet. Distributing the Company's products through the Internet makes the
Company's software products more susceptible to unauthorized copying and use
than distribution through conventional means. The Company has allowed, and
currently intends to continue to allow, potential customers to electronically
download basic versions of its software for free over the Internet, in order
for them to become familiar with the Company's products and subsequently order
enhanced and other existing or future products. There can be no assurance
that, upon receiving orders for its enhanced products, the Company will be
able to collect payment from users that retain a copy of the Company's
enhanced and other existing or future products.
DEPENDENCE ON KEY PERSONNEL
The Company's performance is substantially dependent on the performance of
its executive officers and key employees, particularly Michael Goldstein, the
Company's President and Chief Executive Officer, and J. Gerard Aguilar, the
Company's Vice President, Research and Development. Given the Company's early
stage of development, the Company is dependent on its ability to retain and
motivate high quality personnel, especially its management and skilled
development teams. The loss of the services of any of its executive officers
or other key employees could have a material adverse effect on the Company's
business, operating results and financial condition. The Company's future
success also depends on its continuing ability to attract and retain
additional highly qualified technical personnel, in particular, speech coding
personnel. Competition for qualified personnel is intense and there can be no
assurance that the Company will be able to attract, assimilate or retain
qualified personnel in the future. The inability to attract and retain the
necessary technical and other personnel could have a material adverse effect
upon the Company's business, operating results and financial condition. See
"Business--Research and Product Development" and "--Employees" and
"Management."
UNCERTAINTY REGARDING PATENTS AND PROPRIETARY RIGHTS
The Company's success will depend in part on its ability to obtain patent
protection for its products, preserve its trade secrets and operate without
infringing the proprietary rights of other parties. There can be no assurance
that patent applications to which the Company holds rights will result in the
issuance of patents, or that any issued patents will provide commercially
significant protection to the Company's technology and products. In addition,
there can be no assurance that others will not independently develop
substantially equivalent proprietary information not covered by patents to
which the Company owns rights or obtain access to the Company's know-how, or
that others will not claim to have or will not be issued patents which may
prevent the sale of one or more of the Company's products. In particular, Elk
Industries, Inc. ("Elk Industries") has asserted in two letters to Voxware
that Voxware's "Internet-based streaming audio systems" infringe U.S. Patent
No. 4,124,773 owned by Elk Industries, and Elk Industries has offered Voxware
the opportunity to purchase a license. The Company does not believe that its
products infringe Elk Industries' patent because its technology is distinct
from and dissimilar to the claims contained in Elk Industries' patent.
Litigation, which could be costly and time consuming, may be necessary to
determine the scope and validity of others' proprietary rights, including Elk
Industries', or to enforce any patents issued to the Company, in either case,
in judicial or administrative proceedings. An adverse outcome could subject
the Company to significant liabilities to third
9
<PAGE>
parties, require the Company to obtain licenses from third parties or require
the Company to cease any related research and development activities or
product sales. There can be no assurance that a license from Elk Industries or
any licenses required under any other third-party patents or proprietary
rights would be made available on acceptable terms, if at all. In addition,
the laws of certain countries may not protect the Company's intellectual
property.
The software market has traditionally experienced widespread unauthorized
reproduction of products in violation of manufacturers' intellectual property
rights. Such activity is difficult to detect and legal proceedings to enforce
manufacturers' intellectual property rights are often burdensome and involve a
high degree of uncertainty and costs. The Company's success is also dependent
upon unpatented trade secrets which are difficult to protect. To help protect
its rights, the Company requires employees and consultants to enter into
confidentiality agreements that prohibit disclosure of the Company's
proprietary information and require the assignment to the Company of their
ideas, developments, discoveries and inventions. There can be no assurance
that these agreements will provide adequate protection for the Company's trade
secrets, know-how, or other proprietary information in the event of any
unauthorized use or disclosures. See "Business--Patents and Proprietary
Information."
CONCENTRATION OF STOCK OWNERSHIP
Upon completion of this offering, the present directors, executive officers
and their respective affiliates will beneficially own approximately 45.4% of
the Common Stock. As a result, these stockholders will be able to exercise
significant influence over all matters requiring stockholder approval,
including the election of directors and approval of significant corporate
transactions. The concentration of ownership may also have the effect of
delaying or preventing a change in control of the Company. See "Principal
Stockholders."
CERTAIN ANTI-TAKEOVER PROVISIONS
After this offering, the Board of Directors will have the authority to issue
up to 10,000,000 shares of Preferred Stock and to determine the price, rights,
preferences, privileges and restrictions, including voting rights of those
shares without any further vote or action by the stockholders. The rights of
the holders of Common Stock will be subject to, and may be adversely affected
by, the rights of the holders of any Preferred Stock that may be issued in the
future. The issuance of Preferred Stock, while providing desirable flexibility
in connection with possible acquisitions and other corporate purposes, could
have the effect of making it more difficult for a third party to acquire a
majority of the outstanding voting stock of the Company. The Company has no
present plans to issue shares of Preferred Stock. In addition, subject to, and
upon the consummation of, the offering, the Company's Certificate of
Incorporation will be amended to provide that directors of the Company shall
be divided into three classes. Furthermore, the Company is subject to the
anti-takeover provisions of Section 203 of the Delaware General Corporation
Law, which will prohibit the Company from engaging in a "business combination"
with an "interested stockholder" for a period of three years after the date of
the transaction in which the person became an interested stockholder, unless
the business combination is approved in a prescribed manner. The previously
described amendment to the Certificate of Incorporation and Delaware General
Corporation Law provision could deter, or make difficult, a merger or other
acquisition of the Company. See "Description of Securities--Preferred Stock"
and "--Delaware Anti-Takeover Law and Charter Provisions."
NO PRIOR PUBLIC MARKET; POSSIBLE VOLATILITY OF STOCK PRICE
Prior to this offering, there has been no public market for the Company's
Common Stock, and there can be no assurance that an active public market for
the Common Stock will develop or be sustained after the offering. The initial
public offering price will be determined by negotiation between the Company
and the Representatives of the Underwriters based upon several factors. See
"Underwriting" for a discussion of the factors to be considered in determining
the initial public offering price. The market price of the Company's Common
Stock is likely to be highly volatile and could be subject to wide
fluctuations in response to quarterly variations in
10
<PAGE>
operating results, losses of significant customers, announcements of
technological innovations or new products by the Company or its competitors,
changes in financial estimates by securities analysts, or other events or
factors, including the risk factors described herein. In addition, the stock
market has experienced significant price and volume fluctuations that have
particularly affected the market prices of equity securities of many high
technology companies and that often have been unrelated to the operating
performance of such companies. In the past, following periods of volatility in
the market price of a company's securities, securities class action litigation
has often been instituted against such a company. Such litigation could result
in substantial costs and a diversion of management's attention and resources,
which would have a material adverse effect on the Company's business,
operating results and financial condition. See "Underwriting."
SHARES ELIGIBLE FOR FUTURE SALE
Sales of a substantial number of shares of the Company's Common Stock could
have the effect of depressing the prevailing market price of its Common Stock.
Upon completion of this offering, the Company will have a total of 11,947,496
shares of Common Stock outstanding, assuming no exercise of stock options or
warrants after June 30, 1996. The Company believes that substantially all of
the warrants to purchase 885,000 shares of Common Stock outstanding as of June
30, 1996 will be exercised prior to or promptly following the closing of this
offering. Of the 11,947,496 shares outstanding, the 3,000,000 shares of Common
Stock offered hereby will be freely tradable without restriction under the
Securities Act of 1933, as amended (the "Securities Act"), by persons other
than "affiliates" of the Company, as defined under the Securities Act. The
remaining 8,947,496 shares of Common Stock outstanding are "restricted shares"
as that term is defined by Rule 144 as promulgated under the Securities Act.
None of these 8,947,496 shares will be immediately saleable in the public
market following the date of this Prospectus. Beginning 180 days after the
date of this Prospectus (or earlier with the written consent of Montgomery
Securities, on behalf of the Underwriters), 8,865,496 shares of Common Stock
will become eligible for sale upon the expiration of lock-up agreements
between the Underwriters and the holders of such shares, subject to compliance
with Rule 144 or Rule 701 of the Securities Act. See "Shares Eligible for
Future Sale."
As of June 30, 1996, options to purchase a total of 1,261,150 shares of
Common Stock were outstanding and there were 1,098,850 shares of Common Stock
available for future option grants under the Company's 1994 Stock Option Plan.
917,500 of the shares issuable pursuant to outstanding options are subject to
lock-up restrictions for a period of 180 days as described above. In addition,
the Company has warrants outstanding as of June 30, 1996 to purchase an
aggregate of 885,000 shares of Common Stock for $1.50 per share, of which
867,500 shares are subject to the lock-up restrictions for a period of 180
days as described above. See "Management--1994 Stock Option Plan,"
"Description of Securities--Warrants," "Underwriting" and "Note 4 of "Notes to
Financial Statements."'
MANAGEMENT DISCRETION IN APPLICATION OF PROCEEDS
The Company has not designated any specific use for the net proceeds from
the sale by the Company of the Common Stock offered hereby. Rather, the
Company intends to use the net proceeds primarily for general corporate
purposes, including working capital and potential acquisitions and strategic
investments. See "Use of Proceeds."
BENEFITS OF OFFERING TO PRINCIPAL STOCKHOLDERS
The Company's principal stockholders will benefit from this offering as a
result of the creation of a public market for the shares of Common Stock
beneficially owned by them. The Company's principal stockholders currently own
5,609,000 shares of Common Stock for which they paid an aggregate of
approximately $6.1 million, or an average of $1.10 per share. These shares
would have a value of approximately $67.3 million at the initial public
offering price of $12.00 per share for an aggregate unrealized gain of
approximately $61.2 million.
11
<PAGE>
All of these principal stockholders have agreed not to offer to sell, sell or
otherwise dispose of any shares of Common Stock prior to the expiration of 180
days from the date of this Prospectus without the consent of the Underwriters.
Thereafter, approximately 2,579,000 shares held by such stockholders, with an
aggregate value of approximately $30.9 million at the initial public offering
price of $12.00 per share, will be available for sale in the public market
subject to compliance with Rule 144 under the Securities Act. See "Dilution,"
"Principal Stockholders" and "Shares Eligible for Future Sale."
DILUTION
Purchasers of the Common Stock offered hereby will suffer an immediate and
substantial dilution, in the amount of $8.85 per share, in the pro forma as
adjusted net tangible book value per share as of June 30, 1996, from the
initial public offering price. To the extent outstanding options and warrants
to purchase Common Stock are exercised, there will be further dilution. See
"Dilution."
USE OF PROCEEDS
The net proceeds to the Company from the sale of 3,000,000 shares of Common
Stock offered by the Company hereby at an assumed initial public offering
price of $12.00 per share are estimated to be $32,730,000 ($37,752,000 if the
over-allotment option is exercised in full) after deducting the estimated
underwriting discount and estimated offering expenses. The Company currently
anticipates that its available cash resources combined with the net proceeds
of the offering and funds from operations will be sufficient to meet its
working capital and capital expenditure requirements for at least the next 18
months.
The principal purposes of the offering are to increase the Company's equity
capital, to create a public market for the Company's Common Stock, to
facilitate future access by the Company to public equity markets and to
enhance the ability of the Company to use its Common Stock as a means of
attracting and retaining key employees.
The Company currently intends to use the net proceeds of this offering for
working capital and other general corporate purposes, including expanding its
sales and marketing operations and funding greater levels of research and
product development and capital expenditure. Furthermore, from time to time
the Company expects to evaluate possible acquisitions of or investments in
businesses, products and technologies that are complementary to those of the
Company, for which a portion of the net proceeds from this offering may be
used. While the Company engages from time to time in discussions with respect
to potential investments or acquisitions, the Company has no plans,
commitments, or agreements with respect to any such investments or
acquisitions. Pending the foregoing uses, the Company intends to invest the
net proceeds of this offering in investment grade, interest-bearing
instruments. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations--Liquidity and Capital Resources."
DIVIDEND POLICY
The Company has not paid any cash or stock dividends and does not expect to
declare or pay any cash or stock dividends in the foreseeable future, but
instead intends to retain all earnings, if any, to invest in the Company's
operations. The payment of future dividends is within the discretion of the
Board of Directors and will depend upon the Company's future earnings, if any,
its capital requirements, financial condition and other relevant factors.
12
<PAGE>
CAPITALIZATION
The following table sets forth as of June 30, 1996 (i) the actual
capitalization of the Company; (ii) the pro forma capitalization after giving
effect to the automatic conversion of all outstanding shares of the Company's
Series A Preferred Stock into Common Stock upon the closing of this offering;
and (iii) the pro forma capitalization as adjusted to give effect to the sale
of 3,000,000 shares of Common Stock offered by the Company (at an assumed
initial public offering price of $12.00 per share and after deducting the
underwriting discount and estimated offering expenses) and the application of
the net proceeds therefrom. The table should be read in conjunction with the
financial statements and the related notes appearing elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
JUNE 30, 1996
-------------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
----------- ----------- -----------
<S> <C> <C> <C>
Redeemable Series A Convertible Pre-
ferred Stock........................... $ 5,938,325 $ -- $ --
----------- ----------- -----------
Stockholders' equity (deficit):
Preferred Stock, $.001 par value,
10,000,000 shares authorized;
6,000,000 Redeemable Series A
Convertible shares (actual); no
shares (pro forma); no shares (pro
forma as adjusted) issued and
outstanding.......................... -- -- --
Common Stock, $.001 par value,
30,000,000 shares authorized;
5,947,496 shares (actual); 8,947,496
shares (pro forma); 11,947,496 shares
(pro forma as adjusted) issued and
outstanding(1)....................... 5,947 8,947 11,947
Additional paid-in capital............ 3,177,138 9,112,463 41,839,463
Accumulated deficit................... (4,258,563) (4,258,563) (4,258,563)
----------- ----------- -----------
Total stockholders' equity (defi-
cit)............................... $(1,075,478) $ 4,862,847 $37,592,847
----------- ----------- -----------
Total capitalization.............. $ 4,862,847 $ 4,862,847 $37,592,847
=========== =========== ===========
</TABLE>
- --------
(1) Based on shares outstanding as of June 30, 1996. Excludes (i) 885,000
shares of Common Stock reserved for issuance upon the exercise of
outstanding warrants at an exercise price of $1.50 per share, (ii)
1,261,150 shares of Common Stock issuable upon exercise of outstanding
stock options and (iii) 1,098,850 shares reserved for future grants under
the Company's 1994 Stock Option Plan. The weighted average exercise price
of all outstanding options is $2.66 per share. In addition, in September
1996 the Board of Directors adopted the 1996 Employee Stock Purchase Plan
pursuant to which 200,000 shares of Common Stock were reserved for
issuance. No shares have been issued under this Plan. See "Management--
1996 Employee Stock Purchase Plan."
13
<PAGE>
DILUTION
At June 30, 1996, the pro forma net tangible book value of the Common Stock
was $4,862,847 or $0.54 per share after giving effect to the automatic
conversion of the Company's Series A Preferred Stock into Common Stock upon the
closing of this offering. Pro forma net tangible book value per share is equal
to the Company's total tangible assets less total liabilities divided by the
total number of shares of Common Stock outstanding on a pro forma basis. After
giving effect to the sale of the 3,000,000 shares of Common Stock offered by
the Company hereby (at an assumed initial public offering price of $12.00 per
share and after deducting the underwriting discount and estimated offering
expenses) and the application of the estimated net proceeds therefrom, the pro
forma as adjusted net tangible book value of the Common Stock at June 30, 1996
would have been $37,592,847, or $3.15 per share. This represents an immediate
increase in the pro forma net tangible book value of $2.61 per share to
existing stockholders and an immediate dilution of $8.85 per share to
purchasers in this offering. The following table illustrates this per share
dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price............................. $12.00
Pro forma net tangible book value before the offering........... $0.54
Increase per share attributable to new investors................ 2.61
-----
Pro forma as adjusted net tangible book value per share after the
offering......................................................... 3.15
------
Dilution per share to new investors(1)............................ $ 8.85
======
</TABLE>
The following table summarizes, on a pro forma basis as of June 30, 1996, the
number of shares of Common Stock purchased from the Company, the total cash
consideration paid to the Company and the average price per share paid by
existing stockholders and by new investors in this offering based on an assumed
initial public offering price of $12.00 per share.
<TABLE>
<CAPTION>
AVERAGE
SHARES PURCHASED TOTAL CONSIDERATION PRICE
------------------ ------------------- PER
NUMBER PERCENT AMOUNT PERCENT SHARE
---------- ------- ----------- ------- -------
<S> <C> <C> <C> <C> <C>
Existing stockholders(2)........ 8,947,496 74.9% $ 9,121,410 20.2% $1.02
New investors................... 3,000,000 25.1 36,000,000 79.8 12.00
---------- ----- ----------- -----
Total......................... 11,947,496 100.0% $45,121,410 100.0%
========== ===== =========== =====
</TABLE>
- --------
(1) If all exercisable options and warrants to purchase Common Stock
outstanding as of June 30, 1996 with exercise prices less than the assumed
initial public offering price of $12.00 per share were to be exercised, the
pro forma net tangible book value after this offering would be $2.97 per
share and the dilution per share to new investors in this offering would be
$9.03.
(2) Includes 3,000,000 shares of Common Stock issuable upon conversion of
outstanding shares of the Company's Series A Preferred Stock which will be
converted upon the closing of this offering.
14
<PAGE>
SELECTED FINANCIAL DATA
The selected statement of operations data for the period from Inception
(August 20, 1993) to June 30, 1994 and the two years ended June 30, 1996 and
the selected balance sheet data as of June 30, 1995 and 1996 have been derived
from the financial statements of the Company, which have been audited by
Arthur Andersen LLP, independent public accountants, included elsewhere in
this Prospectus. The selected balance sheet data as of June 30, 1994 has been
derived from the Company's audited financial statements not included herein.
The selected statement of operations data set forth below should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the financial statements and notes thereto
included elsewhere in the Prospectus.
<TABLE>
<CAPTION>
PERIOD FROM
INCEPTION
(AUGUST 20, 1993) YEAR ENDED JUNE 30,
TO JUNE 30, ------------------------
1994 1995 1996
----------------- ----------- -----------
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
Product revenues................ $ -- $ -- $ 1,494,075
Service revenues................ -- -- 112,963
--------- ----------- -----------
Total revenues............... -- -- 1,607,038
--------- ----------- -----------
Cost of revenues:
Cost of product revenues........ -- -- 17,285
Cost of service revenues........ -- -- 28,129
--------- ----------- -----------
Total cost of revenues....... -- -- 45,414
--------- ----------- -----------
Gross profit................. -- -- 1,561,624
--------- ----------- -----------
Operating expenses:
Research and development........ 93,372 536,581 2,496,717
Sales and marketing............. 9,158 331,728 1,084,280
General and administrative...... 112,978 365,411 979,796
--------- ----------- -----------
Total operating expenses..... 215,508 1,233,720 4,560,793
--------- ----------- -----------
Operating loss............... (215,508) (1,233,720) (2,999,169)
Interest income................... -- 64,940 131,857
--------- ----------- -----------
Net loss.......................... $(215,508) $(1,168,780) $(2,867,312)
========= =========== ===========
Pro forma net loss per share...... $ (0.33)
===========
Shares used in computing pro forma
net loss per share(1)............ 8,704,201
===========
</TABLE>
<TABLE>
<CAPTION>
JUNE 30,
------------------------------------------
1996
----------------------
PRO
1994 1995 ACTUAL FORMA(2)
-------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents.......... $307,297 $1,523,054 $3,836,836 $3,836,836
Working capital.................... 254,828 1,417,964 3,887,338 3,887,338
Total assets....................... 358,700 1,666,827 5,336,453 5,336,453
Redeemable Series A Convertible
Preferred Stock................... -- -- 5,938,325 --
Stockholders' equity (deficit)..... 306,231 1,556,297 (1,075,478) 4,862,847
</TABLE>
- --------
(1) See Note 1 of "Notes to Financial Statements" for an explanation of the
determination of the number of shares and share equivalents used in
computing the pro forma per share amount.
(2) Reflects the conversion of all the outstanding shares of the Company's
Series A Preferred Stock into Common Stock upon the closing of this
offering.
15
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
From Inception (August 20, 1993) to June 30, 1995, the Company's operating
activities related primarily to performing research and development,
recruiting personnel, raising capital and purchasing operating assets. The
Company commenced product releases in July 1995 and, for accounting purposes,
emerged from development stage commencing in July 1995. Since Inception, the
Company has raised an aggregate of $8,838,440, net of offering costs, through
private placements.
The Company generates revenues from two sources: fees from product licenses
and fees for services provided. Product revenues account for a majority of the
Company's revenues. The Company's products are licensed primarily to software,
computing and communications companies who incorporate the Company's products
and technologies into their products. The Company generally negotiates
contract terms with customers on a case by case basis, with arrangements that
have historically included a combination of initial license fees, annual
license fees or royalties. The Company expects a significant portion of its
future revenues to be in the form of royalties or other recurring payments
based on the sale by licensees of products that incorporate the Company's
products. To date, the Company has entered into approximately 18 license
agreements which provide for recurring payments. It is the intention of the
Company to continue to pursue license opportunities that include a recurring
revenue component. Service revenues consist of customer support and
engineering fees. Customer support services include providing updates and
technical support to licensees of the Company's products. Engineering services
include providing technical resources to support customer specific development
efforts or porting the Company's technologies to specific customer platforms.
Software product revenues are generally recognized upon shipment, provided
that there are no significant post-delivery obligations and that payment is
due within one year. If an acceptance period is required, revenues are
recognized upon customer acceptance. Royalty revenues are recognized in the
period of customer shipment. To date, no royalty revenues have been
recognized. Customer support revenues, including amounts bundled with license
fees, are recognized over the term of the support period, which is typically
one year. Engineering fees are recognized upon customer acceptance or over the
period in which services are provided if customer acceptance is not required.
All research and development costs expended to date for development of new
software products and enhancements to existing software products have been
expensed as incurred. As a result, cost of product revenues do not include
amortization of capitalized software development costs. See Note 1 of "Notes
to Financial Statements."
The Company has only a limited operating history upon which an evaluation of
the Company and its prospects can be based. As of June 30, 1996, the Company
had an accumulated deficit of $4,258,563. Although the Company has experienced
revenue growth in recent periods, the limited operating history of the Company
makes the prediction of future results of operations impossible and,
therefore, the Company's recent revenue growth should not be taken as
indicative of the rate of revenue growth, if any, that can be expected in the
future. In addition, the Company's operating results may fluctuate
significantly in the future as a result of a variety of factors, including the
level of usage of the Internet, the budgeting cycles of potential customers,
the volume of, and revenues derived from, sales of products by the Company's
licensees that incorporate the Company's products, the amount and timing of
capital expenditures and other costs relating to the expansion of the
Company's operations, the introduction of new products or services by the
Company or its competitors, pricing changes in the industry, technical
difficulties with respect to the use of products developed by the Company and
general economic conditions. See "Risk Factors--Limited Operating History;
Accumulated Deficit; Early Stage of Development," "--Dependence on Netscape,"
"--Uncertain Adoption of Internet as a Medium for Voice Communications," "--
Potential Fluctuations in Operating Results," "--Highly Competitive Industry,"
"--Risks of Internet Distribution" and "--Reliance on Third Parties to
Generate Recurring Revenues."
16
<PAGE>
PERIOD TO PERIOD COMPARISONS
The following table presents selected financial information for the periods
indicated. This information has been derived from the Company's unaudited
financial statements which, in the opinion of management, reflect all
adjustments necessary to fairly present this information when read in
conjunction with the financial statements and notes thereto included elsewhere
in this Prospectus. The results of operations for any period are not
necessarily indicative of the results to be expected for any future period.
<TABLE>
<CAPTION>
PERIOD FROM
INCEPTION THREE MONTHS ENDED
(AUGUST 20, 1993) -----------------------------------------------------------------
TO JUNE 30, 1995 SEPTEMBER 30, 1995 DECEMBER 31, 1995 MARCH 31, 1996 JUNE 30, 1996
----------------- ------------------ ----------------- -------------- -------------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Revenues:
Product revenues...... $ -- $ 92,616 $ 107,705 $ 503,761 $ 789,993
Service revenues...... -- 91 681 2,335 109,856
----------- --------- --------- --------- -----------
Total revenues....... -- 92,707 108,386 506,096 899,849
----------- --------- --------- --------- -----------
Cost of Revenues:
Cost of product reve-
nues................. -- 3,109 3,109 3,397 7,670
Cost of service reve-
nues................. -- 1,655 3,310 4,508 18,656
----------- --------- --------- --------- -----------
Total cost of reve-
nues................ -- 4,764 6,419 7,905 26,326
----------- --------- --------- --------- -----------
Gross profit......... -- 87,943 101,967 498,191 873,523
----------- --------- --------- --------- -----------
Operating Expenses:
Research and develop-
ment................. 629,953 248,749 324,140 630,184 1,293,644
Sales and marketing... 340,886 107,449 198,801 331,489 446,541
General and adminis-
trative.............. 478,389 74,205 165,496 298,014 442,081
----------- --------- --------- --------- -----------
Total operating
expenses............ 1,449,228 430,403 688,437 1,259,687 2,182,266
----------- --------- --------- --------- -----------
Operating loss....... (1,449,228) (342,460) (586,470) (761,496) (1,308,743)
Interest income........ 64,940 17,330 16,342 50,782 47,403
----------- --------- --------- --------- -----------
Net loss............... $(1,384,288) $(325,130) $(570,128) $(710,714) $(1,261,340)
=========== ========= ========= ========= ===========
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-----------------------------------------------------------------
SEPTEMBER 30, 1995 DECEMBER 31, 1995 MARCH 31, 1996 JUNE 30, 1996
------------------ ----------------- -------------- -------------
<S> <C> <C> <C> <C>
AS A PERCENTAGE OF
REVENUES:
Revenues:
Product revenues...... 100% 99% 99% 88%
Service revenues...... -- 1 1 12
---- ---- ---- ----
Total revenues....... 100 100 100 100
---- ---- ---- ----
Cost of Revenues:
Cost of product reve-
nues................. 3 3 1 1
Cost of service reve-
nues................. 2 3 1 2
---- ---- ---- ----
Total cost of reve-
nues................ 5 6 2 3
---- ---- ---- ----
Gross profit......... 95 94 98 97
---- ---- ---- ----
Operating Expenses:
Research and develop-
ment................. 268 299 124 143
Sales and marketing... 116 183 65 50
General and adminis-
trative.............. 80 153 59 49
---- ---- ---- ----
Total operating ex-
penses.............. 464 635 248 242
---- ---- ---- ----
Operating loss....... (369) (541) (150) (145)
Interest income........ 18 15 10 5
---- ---- ---- ----
Net loss............... (351)% (526)% (140)% (140)%
==== ==== ==== ====
</TABLE>
17
<PAGE>
RESULTS OF OPERATIONS
Revenues
The Company had no revenues during the period from Inception to June 30,
1995. Total revenues for the year ended June 30, 1996 were $1,607,038,
consisting of $92,707, $108,386, $506,096 and $899,849 for the quarters ended
September 30, 1995, December 31, 1995, March 31, 1996 and June 30, 1996,
respectively. The quarter ended September 30, 1995 was the first full quarter
in which the Company's products and services were made commercially available.
The Company's largest customer accounted for 31% of total revenues in the year
ended June 30, 1996. Revenues increased each quarter from the quarter ended
September 30, 1995 through the quarter ended June 30, 1996 as the Company
entered into license agreements providing customers with the right to use the
Company's products and related services.
Product revenues accounted for 93% of total revenues in the year ended June
30, 1996, consisting of $92,616, $107,705, $503,761 and $789,993 for the
quarters ended September 30, 1995, December 31, 1995, March 31, 1996 and June
30, 1996, respectively. Product revenues increased each quarter from the
quarter ended September 30, 1995 through the quarter ended June 30, 1996
primarily due to the increased volume of licenses of the Company's products to
new customers.
Service revenues accounted for 7% of total revenues in the year ended June
30, 1996, consisting of $91, $681, $2,335 and $109,856 for the quarters ended
September 30, 1995, December 31, 1995, March 31, 1996 and June 30, 1996,
respectively. Services revenues were primarily attributable to customer
support and fees for engineering services.
Cost of Revenues
Cost of product revenues consists primarily of the cost of product media and
duplication, manuals and packaging materials. Cost of product revenues was
$17,285 in the year ended June 30, 1996, consisting of $3,109, $3,109, $3,397
and $7,670 for the quarters ended September 30, 1995, December 31, 1995, March
31, 1996 and June 30, 1996, respectively. For the year ended June 30, 1996,
cost of product revenues was 1% of product revenues.
Cost of service revenues consists primarily of the expenses associated with
the staffing of a customer support group and engineering services, which
consist primarily of employee compensation and equipment depreciation. Cost of
service revenues was $28,129 in the year ended June 30, 1996, consisting of
$1,655, $3,310, $4,508 and $18,656 for the quarters ended September 30, 1995,
December 31, 1995, March 31, 1996 and June 30, 1996, respectively. For the
year ended June 30, 1996, cost of service revenues was 25% of service
revenues. The dollar increase in cost of service revenues from the quarter
ended September 30, 1995 to the quarter ended June 30, 1996 was primarily
attributable to increased staffing of the Company's customer support and
engineering groups.
Operating Expenses
The Company's operating expenses have increased significantly since
Inception. This trend reflects the costs associated with the development of
infrastructure, rapid growth and increased efforts to commercialize the
Company's products and services. The Company believes that continued expansion
of its operations is essential to enhance the Company's products and services
and distribute them in targeted markets and expand the Company's installed
user base. As a consequence, the Company intends to continue to increase
expenditures in all operating areas.
Research and development expenses primarily consist of employee compensation
and equipment depreciation. Research and development expenses were $629,953
for the period from Inception to June 30, 1995 and $2,496,717 for the year
ended June 30, 1996, consisting of $248,749, $324,140, $630,184 and $1,293,644
for the quarters ended September 30, 1995, December 31, 1995, March 31, 1996
and June 30, 1996, respectively.
18
<PAGE>
The dollar increase in research and development expenses for the period from
Inception to June 30, 1995 compared to the year ended June 30, 1996 and from
quarter to quarter in fiscal 1996 was primarily due to increasing the research
and development staff from 6 at June 30, 1995 to 33 at June 30, 1996 and the
costs associated with developing and enhancing the functionality of the
Company's family of products. All research and development costs have been
expensed as incurred. The Company believes that significant investments in
research and development are required to establish and maintain competitive
advantage. As a consequence, the Company intends to increase the absolute
dollar level of research and development expenditures in future periods.
Sales and marketing expenses consist primarily of employee compensation
(including direct sales commissions), travel expenses, trade shows and costs
of promotional materials. Sales and marketing expenses were $340,886 for the
period from Inception to June 30, 1995 and $1,084,280 for the year ended June
30, 1996, consisting of $107,449, $198,801, $331,489 and $446,541 for the
quarters ended September 30, 1995, December 31, 1995, March 31, 1996 and June
30, 1996, respectively. The dollar increase in sales and marketing expenses
for the period from Inception to June 30, 1995 compared to the year ended June
30, 1996 and from quarter to quarter in fiscal 1996 was primarily due to the
creation and expansion of the Company's direct sales force from 3 at June 30,
1995 to 8 at June 30, 1996 and increased expenses associated with the
promotion and marketing of the Company's products and services. The Company
intends to continue to intensify and expand its direct and tele-sales efforts
and, as a result, intends to increase the absolute dollar level of sales and
marketing expenses in future periods.
General and administrative expenses consist primarily of employee
compensation and fees for insurance, rent, office expenses and professional
services. General and administrative expenses were $478,389 for the period
from Inception to June 30, 1995 and $979,796 for the year ended June 30, 1996,
consisting of $74,205, $165,496, $298,014 and $442,081 for the quarters ended
September 30, 1995, December 31, 1995, March 31, 1996 and June 30, 1996,
respectively. The Company intends to increase the absolute dollar level of
general and administrative expenses in future periods.
Income Taxes
As of June 30, 1996, the Company had approximately $3,500,000 of federal net
operating loss carryforwards which will begin to expire in 2009 if not
utilized. Under the Tax Reform Act of 1986, the amounts of and the benefits
from net operating loss carryforwards may be impaired in certain
circumstances. Events which may cause such limitations in the amount of net
operating losses that the Company may utilize in any one year include, but are
not limited to, a cumulative ownership change of more than 50% over a three
year period. As of June 30, 1996, the effect of any limitation, if imposed, is
not expected to be material. As of June 30, 1996, the Company has provided a
full valuation allowance on the deferred tax asset because of the uncertainty
regarding realizability of these deferred assets, primarily as a result of
considering such factors as the Company's limited operating history, the
volatility of the market in which it competes, the operating losses incurred
to date and the operating losses anticipated in future periods. See Note 5 of
"Notes to Financial Statements."
LIQUIDITY AND CAPITAL RESOURCES
As of June 30, 1996, the Company had $3,836,836 in cash and cash
equivalents. Since Inception, the Company has primarily financed its
operations through the sale of equity securities. Cash of $1,268,152 and
$3,273,714 was used to fund operations for the period from Inception to June
30, 1995 and the year ended June 30, 1996, respectively. For the period from
Inception to June 30, 1995 and the year ended June 30, 1996, cash used in
investing activities was $149,379 and $586,366, respectively, and was
primarily related to purchases of office equipment. For the period from
Inception to June 30, 1995, cash provided by financing activities of
$2,940,585 was primarily attributable to two separate private placements of
equity securities. For the year ended June 30, 1996, cash provided by
financing activities of $6,173,862 was primarily attributable to the sale of
Series A Preferred Stock. All Series A Preferred Stock will convert into
Common Stock upon the closing of the offering.
19
<PAGE>
In September 1996, the Company signed a letter of intent with Silicon Valley
Bank pursuant to which Silicon Valley Bank indicated that, subject to the
completion by the bank of its due diligence review, committee approval and the
execution of definitive loan documentation, it would make available to the
Company a $2,000,000 revolving line of credit and a $500,000 equipment term
loan. Borrowings under the revolving line of credit would bear interest at a
rate of 1.0% over the bank's prime lending rate ("Prime") reducing to Prime
upon the consummation of this offering and borrowings under the equipment term
loan would bear interest at a rate of 1.0% over Prime. There can be no
assurance that the Company will receive a line of credit or equipment term
loan on these terms, on different terms or at all.
The Company has no material commitments other than those under normal
building and equipment operating leases. The Company anticipates a substantial
increase in its capital expenditures and operating lease arrangements in the
year ending June 30, 1997 consistent with its anticipated growth. The Company
anticipates major capital expenditures in the year ending June 30, 1997
primarily for additions to the Company's internal networking and computing
infrastructure. The Company believes that the net proceeds from this offering
and current cash balances will be sufficient to fund its working capital and
capital expenditures requirements, exclusive of cash required for possible
acquisitions of or investments in businesses, products and technologies, for
at least the next 18 months. For a discussion of factors that could cause
actual results to vary from this forward-looking statement, see "Risk
Factors."
EFFECT OF RECENT ACCOUNTING PRONOUNCEMENTS
In October 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" ("SFAS No. 123") which established financial accounting and
reporting standards for stock based employee compensation plans. Companies are
encouraged, rather than required, to adopt a new method that accounts for
stock compensation awards based on their fair value using an option pricing
model. Companies that do not adopt this new standard will have to make pro
forma disclosures of net income (loss) as if the fair value based method of
accounting established by this standard had been applied. The Company will
adopt SFAS No. 123 effective July 1, 1996. The Company has elected to adopt
the disclosure requirement of this pronouncement. The adoption of the
pronouncement is expected to have no impact on the Company's financial
position or results of operations.
20
<PAGE>
BUSINESS
OVERVIEW
Voxware develops, markets, licenses and supports a comprehensive, integrated
set of digital speech processing technologies which provide the ability to
compress, model and transform speech. MetaVoice, the Company's innovative
coding technology, is designed to reproduce high quality speech while
requiring very low communications bandwidth and processing power. In addition
to efficiently compressing speech, MetaVoice enables a broad array of voice
transformation capabilities. Voxware's technologies enable its customers to
create a new generation of speech-enhanced communications and interactive
products for the Internet and other bandwidth-constrained environments. The
Company licenses its technologies, including speech codecs and application
programming interfaces, to software, computing and communications companies
and distributes its end-user application software to consumers and businesses.
To accelerate adoption of its technologies, the Company seeks to broadly
license its products and establish strategic relationships with market
leaders. The Company has established a strategic relationship with Netscape.
Netscape uses Voxware's speech coding technology as a part of its LiveMedia
multimedia framework to provide low bandwidth speech functions with version
3.0 of Netscape Navigator. Navigator is the most widely used software
application for the World Wide Web. Netscape has also made a minority equity
investment in the Company.
In addition to Netscape, the Company has licensed its products to America
Online, Inc., Andrea Electronics Corporation, Apple Computer, Inc., Farallon
Computing, Inc., InterVoice, Inc., Lucent Technologies Inc., Microsoft
Corporation, Mpath Interactive, Inc., Tribal Voice and VDOnet Corporation
Ltd., among others.
Intel Corporation has made a minority equity investment in the Company.
Intel provides consulting support to Voxware for the optimization of the
Company's technologies on Intel processor platforms, consults with Voxware on
standards issues of mutual interest and supplies the Company with pre-release
versions of its advanced processors for development of the Company's products.
INDUSTRY BACKGROUND
Due to the emergence of powerful low-cost processors and the growth of the
Internet and other digital networks, the markets for digital speech
technologies are rapidly expanding beyond conventional telephony. Digital
speech technologies are increasingly being integrated into a variety of
applications, including voice-enabled Web pages, Internet telephony and
conferencing, Internet broadcasting, interactive games, voice messaging,
wireless and satellite communications, multimedia computing and voice-enabled
devices.
Voice on the Internet
The Internet is a collection of thousands of computer networks and millions
of computer connections that enables individuals, businesses and institutions
worldwide to communicate and to access and share information. Any computer
using the open standard Internet Protocol can communicate with any other
computer on the Internet. The universal, open connectivity of the Internet
enables computer users to communicate using a variety of digital data types,
including text, graphics, voice and video.
A combination of significant technological trends has led to the widespread
adoption of the Internet by a growing number of individuals and business
users. The proliferation of communication-enabled multimedia personal
computers, the availability of intuitive, graphical Web browsers and an
increasingly robust network infrastructure, have allowed widespread access to
the Internet and have increased the use of the World Wide
21
<PAGE>
Web (the "Web") by a large number of users for a broader range of
applications. The Web enables users to find, retrieve and link information on
the Internet through a consistent graphical interface that makes the
underlying complexities transparent to the user. In addition, the Web is an
interactive environment, which facilitates the exchange of multimedia-rich
information and entertainment content among users worldwide. As a result, the
Web is changing the way in which people exchange information and communicate
with each other. International Data Corporation ("IDC") has estimated that the
number of Internet users was approximately 38 million at the end of 1995 and
is expected to reach 199 million by the end of 1999.
The Company believes that adding voice communication capabilities to
existing text and graphic applications for the Internet can broaden and enrich
Internet users' communications. As multimedia and communications capabilities
become standard components of personal computer systems, a market for voice,
audio and video products for the Internet is emerging. Examples of emerging
Internet voice applications are multimedia Web pages incorporating pre-
recorded voice, point-to-point and multi-party telephony, telephony gateways
linking Internet users to public and private telephone networks, broadcasting
of live and pre-recorded content, voice messaging integrated with e-mail and
Web pages and multiplayer games which allow participants to speak to one
another.
The development of voice applications for the Internet is part of a larger
trend resulting in the convergence of standard voice communications and data
networks. Lowering of federal regulatory barriers to competition across
traditionally distinct sectors of the telecommunications industry has opened
new markets for and increased competitive pressures upon traditional
telecommunications companies. In response to these factors, major
telecommunications companies have begun to establish a presence in Internet
services, including online voice services. The Company believes that
telecommunications companies will require advanced digital speech processing
technology in order to provide high quality Internet voice services.
Voice in Other Markets
Given the natural preference for speech as a medium for communication and
expression, voice capabilities are being added to a wide array of products.
The rapidly declining cost and increasing power of digital signal processors
("DSPs") enable high quality voice using a fraction of the memory or bandwidth
historically required at prices that are acceptable for a range of business
and consumer applications.
Multimedia Productions. Multimedia productions involve the use of personal
computers to combine audio playback capabilities with some combination of
text, graphics, animation, video and data. Examples of primary multimedia
applications include packaged software for interactive entertainment and
information (i.e. games, education programs, reference works) and software
tools designed to allow users to create their own multimedia presentations.
Voice-Enabled Devices. The increasing power of low cost DSPs makes it
possible to record and transform voice for a wide variety of products aimed at
the consumer and business markets such as telephone answering machines,
personal electronic organizers and voice-enabled toys.
Wireless Communication. The growth of cellular telephony and improvements in
radio and satellite technology have enabled the development of new wireless
services. These services include voice paging systems, which are designed to
deliver voice messages directly to a paging device without the need for a user
to call in to receive a message, and hand-held satellite telephone systems,
which are designed to allow mobile telephone service to and from remote
locations.
THE CHALLENGE: HIGH QUALITY SPEECH PRODUCTS AND SERVICES
The Internet was originally designed for conventional text data applications
such as e-mail and file transfers. These applications can generally tolerate
the low effective bandwidth, network congestion and inconsistent data
22
<PAGE>
delivery characteristic of the Internet. By contrast, real-time speech
applications, which consume substantially higher bandwidth and suffer in the
presence of delays or gaps, must address these challenges to deliver high
quality speech over the Internet. Addressing these challenges effectively
requires a high degree of compression. Speech compression approaches, however,
are limited by the constraints of available processing power and represent a
trade-off between speech quality and the bandwidth required.
Effective bandwidth on the Internet is limited to the lowest bandwidth
component of the pathway taken by the data. Most individual users are limited
by the transmission rates of their modems, typically 14.4 kilobits per second
("kbps") or 28.8 kbps. Even on higher capacity connections, the effective
bandwidth is often reduced by the need to share available capacity across many
users. In addition, emerging multimedia applications on the Internet typically
comprise simultaneous voice, video and data streams, which must share the
available capacity, reducing the effective bandwidth available to voice data.
The design of the Internet is fundamentally different from the architecture
of conventional voice networks. The Internet is a "packet-switched" network
which breaks down data into a series of smaller, discrete "packets" for
transmission. Each packet of data travels independently through the network to
the destination address, where application software reassembles the packets to
recreate the original data set. Due to the tremendous growth of Internet usage
and the higher bandwidth demands of multimedia applications, congestion occurs
routinely on the Internet. As currently designed, the Internet handles
congestion by discarding or delaying packets or by sending packets from the
same source along different pathways, which can result in packets sent in
sequence arriving out of order. If the data packets represent a real-time
speech stream, the listener may perceive a gap or "choppiness" as a result of
missing, late-arriving or out-of-sequence packets.
In part, these challenges can be addressed by compressing the speech signal,
which decreases the number of bits required to encode and transmit the signal.
Reducing the effective bandwidth required to transmit the speech data
decreases the impact of congestion and inconsistent packet delivery. However,
speech compression technologies represent a trade-off between the quality of
speech delivered and the amount of bandwidth utilized. On the one hand,
technologies that achieve high speech quality generally require high
bandwidth, which can introduce unacceptable delays in delivery and make the
speech playback vulnerable to choppiness. On the other hand, technologies that
attempt to reduce bandwidth utilized typically offer unacceptable speech
quality or require the use of high power or specialty microprocessors. Speech
compression technologies are also limited by the constraints of the available
processing power, which in the case of typical Internet users consists of
general purpose microprocessors such as Intel's 486 and Pentium platforms.
Although the Internet is one of the fastest growing markets for speech
applications, several other significant markets also demand high-quality, very
low bandwidth speech. Diverse applications such as voice pagers, satellite
communications and low-cost electronic recording devices share many of the
same speech coding challenges as the Internet.
THE VOXWARE SOLUTION
Voxware has developed a comprehensive, integrated set of speech coding
technologies specifically to address the challenges associated with real-time
speech communication over the Internet and other low bandwidth media. The
Company's innovative MetaVoice coding technology is designed to alter the
trade-off between quality and bandwidth. MetaVoice is designed to deliver high
quality speech in a fraction of the bandwidth generally required by
conventional speech compression solutions and within the constraints of
available processing power. These characteristics are designed to make
MetaVoice a preferred solution for speech communications in environments such
as the Internet, wireless telephony and consumer and business products and
devices where transmission bandwidth, processing power and storage capacity
are limited. MetaVoice is designed to easily operate on a broad range of
application platforms and processors. Voxware's technologies enable its
customers to add new speech capabilities to their existing products and to
create a new generation of integrated speech-enabled products.
23
<PAGE>
TYPICAL COMMUNICATION BANDWIDTH REQUIREMENTS
<TABLE>
<CAPTION>
APPROXIMATE BANDWIDTH
APPLICATION REQUIRED (KBPS)
----------- ---------------------
<S> <C>
CD-Quality Audio (16 bits, 44.1 KHz sampling
rate) 706.0
Uncompressed Speech (16 bits, 8 KHz sampling
rate) 128.0
Ordinary Telephone (8 bits, 8 KHz sampling rate) 64.0
Typical Modem Internet Access (V.34) (less than or
equal to) 28.8
Voxware RT24 Codec 2.4
</TABLE>
The MetaVoice codec uses a complex mathematical model that can accurately
reproduce human speech based on a finite number of descriptive parameters.
MetaVoice is currently capable of compressing speech data from a rate of 128
kbps to 2.4 kbps, enabling the creation of very small packets which are
capable of flowing through the network more easily in the presence of
congestion and low bandwidth.
For Internet speech applications, Voxware's technologies exhibit the
following attributes, among others, relative to traditional technologies:
. More graceful handling of lost, delayed or out-of-sequence packets
through the Company's innovative transmission quality management
technologies.
. Enabling teleconferencing and other multiple voice stream applications
in a way that does not require mixing at a central distribution point,
resulting in lower cost and improved quality of service.
. Requiring very low processing power which permits operation on general
purpose microprocessors (e.g. Intel 486).
. Enhancing the ability to combine real-time speech with video and data
streams by permitting more bandwidth to be allocated to non-speech data
transmission.
The Company believes that the low bandwidth and processing requirements of
MetaVoice potentially have significant advantages in a variety of other
markets, such as wireless telephony and certain consumer and business
products. For instance, the efficient compression of MetaVoice could enable
telecommunications providers to expand the capacity of their network systems.
In addition, embedding MetaVoice on a wide variety of DSP chips could expand
memory for digital answering machines, personal data assistants, voice-enabled
toys and other products.
MetaVoice also incorporates powerful capabilities for speech manipulation
and special effects unique to its model of human speech. Based on these
additional characteristics, the Company is developing technologies for
manipulation of voice to modify voice identity, modulate pitch and alter
playback speed.
CORE TECHNOLOGY
MetaVoice Coding Technology
Voxware's innovative approach to speech coding, MetaVoice, is designed to
achieve high speech quality with very low bandwidth and processing power
requirements. The MetaVoice codec uses a mathematical model that can
accurately reproduce human speech based on a finite number of descriptive
parameters. To encode a speaker's voice, MetaVoice uses sophisticated
mathematical algorithms which analyze input speech and extract accurate
estimates of the model parameters. These parameters are converted into
discrete values which can be compressed to relatively few "bits" of
information for transmission. The receiving application converts these bits
back to model parameters which MetaVoice's speech synthesis model uses to
reconstruct a close perceptual
24
<PAGE>
approximation of the original speech. MetaVoice is currently capable of
compressing speech data from 128 kbps to 2.4 kbps while still maintaining good
quality speech.
Two principal design choices, in combination, underlie MetaVoice's ability
to produce high quality speech at low bandwidth:
. Speech specific vs. general audio coding--MetaVoice is designed
specifically to encode speech signals rather than music or other general
audio signals. Speech signals typically contain only one voice at a
time, whereas music and other general audio signals may contain dozens
of simultaneous "voices"--both human and instrumental. Also, as compared
to music signals, the rate at which speech signals change is limited by
the human vocal apparatus. MetaVoice exploits these characteristics of
speech to achieve greater compression than is generally achievable with
general audio coding technologies.
. Parametric vs. waveform coding--MetaVoice is a parametric codec, whereas
most conventional speech codecs are waveform codecs which use linear
prediction techniques to reduce the amount of information necessary to
represent the input speech signal. When the number of bits used to
represent the waveform is reduced below critical limits as the
compression is increased, the linear prediction approach can no longer
reproduce an accurate waveform, resulting in poor speech quality. At low
bit rates, a properly engineered parametric codec such as MetaVoice is
capable of delivering speech quality superior to that of a waveform
codec.
Despite the above advantages, few companies have developed or marketed a
commercial speech-specific parametric compression system because of the
technical challenge it presents. MetaVoice is designed (i) to operate within
the processing and memory constraints of standard personal computers and
embedded devices, (ii) to address real world challenges including variations
in microphones, sound cards and room acoustics and the presence of background
noise and (iii) to faithfully reproduce the widest possible range of voice
types. The Company believes MetaVoice is the first 2.4 kbps speech codec to
achieve widespread distribution on the Internet.
In addition, MetaVoice technology is highly tolerant of lost data packets,
making it well suited to Internet transmission. The codec is designed to
predict successive information segments. If a packet is lost, the codec
automatically interpolates across the information it has available, reducing
the perceptual impact of the missing information.
Transmission Quality Management
The Company has also developed an application programming interface suitable
for development of applications for transmission of high quality voice over
the Internet. This interface incorporates flow and error control, which
manages the incoming data from the codec, handles lost or late packets and
reorders out of sequence packets. Based on continuously updated measurements
of network performance, Voxware's transmission quality management technologies
adjust how data is "packetized" for transmission and decoded and played back
after reception.
When the Internet is congested and is losing or delaying a relatively high
percentage of packets, these technologies add error correction information
into each outgoing packet. At the point of reception, playback buffers are
dynamically shortened or lengthened and speech synthesis is manipulated to
minimize delay and reduce the perception of choppiness.
VoiceFonts(TM) and Voice Effects Technologies
MetaVoice's proprietary approach to coding the perceptually relevant
attributes of the human voice are being developed for use in transforming
voice attributes including pitch, timbre and timing. The three broad voice-
effects technologies the Company is developing are (i) VoiceFonts, a
technology to create a wide range of
25
<PAGE>
naturalistic voices, as well as creating "character" or "cartoon" voices; (ii)
technology to shift the pitch of singing or speech, preserving and/or
improving the naturalness, attractiveness and clarity of the original
articulation; and (iii) technology to speed up or slow down recorded speech
without distortion while preserving the original voice pitch and timbre.
THE VOXWARE STRATEGY
The Company's objective is to establish its core technologies as the
preferred solutions for speech communications in its target markets. The
Company's strategy incorporates the following key elements:
Extend Technological Leadership
The Company has been a leader in delivering low bandwidth speech compression
on the Internet. The Company intends to continue to extend the functionality
and uses of its core technologies. By continuing to invest in research and
development, the Company believes that it can further improve its
technologies, allowing it to deliver compression performance that is
meaningfully superior to competing technologies. In addition, the Company
intends to deepen its product offerings for its current applications and to
develop new applications in diverse areas such as voice effects.
Accelerate Adoption of Technology Through Strategic Relationships
The Company plans to establish and extend strategic relationships with
market leaders in order to rapidly achieve market penetration. The Company
believes these strategic relationships broaden the Company's user base and
accelerate adoption of the Company's core technologies. In the Internet
market, the Company has established a strategic relationship with Netscape,
which uses Voxware's RT24 codec as part of its LiveMedia multimedia framework
to provide low bandwidth speech capabilities with version 3.0 of Netscape
Navigator.
Deepen Market Penetration Through Broad Licensing Program
The Company seeks to broadly license its MetaVoice technology in market
segments where complementary applications incorporating speech can benefit
from MetaVoice's low bandwidth and processing requirements. Markets in which
the Company is licensing its technology include Internet conferencing,
interactive games and consumer chat applications. The Company intends to
leverage the low bandwidth and processing requirements of its technologies to
address a variety of applications beyond the Internet, such as wireless
telephony, voice pagers, digital answering machines, voice-enabled toys,
satellite communications and low-cost electronic recording devices.
Develop High Value-Added Software Applications in Key Market Segments
The Company focuses its internal development resources on developing high
value-added integrated software products for market segments that the Company
believes have significant potential for growth and that leverage its core
speech competencies. The Company has identified voice-enabled Web pages and
Internet telephony as its initial target product segments and has developed
two products, ToolVox and TeleVox, to address these markets.
Build Multiple Distribution Channels
The Company has established multiple channels for the distribution of its
products to a wide variety of targeted market segments. The Company's direct
sales force combines field sales and telemarketing to reach software,
computing and communications companies. Bundling agreements with OEMs serve as
indirect marketing channels. In addition, the Company engages in Internet-
based distribution via its Web site.
26
<PAGE>
Develop Recurring Revenue Through Royalty-Based Licensing
The Company expects a significant portion of its future revenues to be in the
form of royalties or other recurring payments based upon the sales of products
by the Company's licensees which incorporate the Company's technologies. The
Company has entered into license agreements providing for recurring payments
and it is the intention of the Company to continue to pursue license
opportunities that include a recurring revenue component.
PRODUCTS
The Company has three product groups: MetaVoice codecs, application
programming interfaces ("APIs") and applications.
LOGO
VOXWARE PRODUCTS GRAPHIC
Applications........... ToolVox
........... TeleVox
High Level APIs........ TNT
MetaVoice Codecs....... RT24
....... HQ Codec Family
....... Multimedia Codec
MetaVoice Codecs
The Company currently offers three codecs incorporating its MetaVoice
technology. These codecs offer differing levels of functionality, as follows:
. RT24--The RT24 codec is a real-time voice codec compressing speech data
to 2.4 kbps. It is Voxware's "entry-level" codec, designed to utilize
minimal processing power, making it suitable for use on low-end personal
computers (e.g. 486 processors) and low-cost electronic devices such as
voice-enabled toys where processing power is limited. Netscape is using
the RT24 codec to provide low bandwidth speech capabilities with version
3.0 of Netscape Navigator.
. HQ Codec Family--The HQ codec family consists of a series of codecs
which are targeted at high-end processors such as the Pentium or Power
PC as well as DSP chips. These codecs are designed to achieve higher
speech quality than RT24. The codecs in this family include VR12HQ and
VR15HQ which are variable rate codecs averaging 1.2 and 1.5 kbps,
respectively, as well as RT24HQ and RT29HQ which are fixed rate codecs
operating at 2.4 and 2.977 kbps, respectively.
. Multimedia Codec--The multimedia codec was Voxware's first product
incorporating the Company's MetaVoice technology. It is optimized for
wideband output (11 KHz and 22 KHz playback) and extremely low playback
processing load. The Company's multimedia codec has been incorporated
into several software applications including Microsoft's Bookshelf 96.
The Company licenses its MetaVoice codecs to third parties for use in their
products. The codecs are generally delivered to licensees in the form of
software developer kits which provide a high level interface that simplifies
integration of the codec into the licensee's application. The licensee of a
codec receives an encoder to convert the audio files into the appropriate
format and a player to reconstruct the original speech.
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Voxware's codecs operate on a wide range of processors, such as Intel's 486,
Pentium, Pentium Pro and MMX; Motorola's PowerPC and 68040; SPARC; Digital's
Alpha; and other general purpose processors. The Company is currently porting
its codecs to popular DSP processors. Voxware's software developer kits
provide a uniform environment for most popular operating systems, including
Microsoft Windows 3.x, 95 and NT, Mac OS and several Unix platforms. The time
required for a licensee to incorporate the Company's codecs into its product
varies from as little as a few minutes in the case of preexisting software
applications using standard interfaces, to several weeks in the case of
devices requiring porting to new platforms or other adaptation of the codecs.
High-Level APIs
The Company is currently developing and has provided to developers of
Internet software the Telephony Network Toolkit ("TNT"). TNT is an Internet
telephone application programmer interface designed to simplify the
development of sophisticated Internet telephony applications. TNT provides a
standardized programming interface which provides a flexible session
management framework that can be used to implement a comprehensive list of
Internet telephony features. TNT is being developed to provide the following
benefits to developers of Internet software products:
. Reduces the time required to develop Internet telephony applications by
eliminating the need to create low-level audio and networking code.
These components are pre-packaged in component "building blocks" that
may be combined to implement basic connectivity and advanced telephony
features.
. Provides a migration path to emerging industry communication standards
such as Netscape's LiveMedia specification and the H.323 standard,
eliminating the need for applications developers to build and maintain
their own implementations of these standards.
. Incorporates error and delay handling procedures which maximize the
capabilities of Voxware's MetaVoice technology used in the RT24 and
RT29HQ codecs. These procedures are being designed to provide optimal
speech quality among TNT-based phones.
The Company licenses TNT on a limited basis to independent software vendors
who wish to incorporate Internet telephony into their products. The Company
uses TNT to develop new versions of TeleVox.
Applications
The Company has developed two applications which utilize MetaVoice
technology for communication on the Internet: ToolVox, an application for one-
way streaming audio recording and playback of speech files, and TeleVox, an
Internet telephone application.
TOOLVOX
The ToolVox system consists of an encoder, incorporating either the RT24 or
the RT29HQ codecs, which compresses recorded speech files into the ".vox" file
format and a player which decodes the speech data to reproduce the original
speech. The ToolVox system allows Web content providers to incorporate pre-
recorded voice as part of their multimedia Web pages. The player is designed
as a Netscape Navigator or Microsoft Internet Explorer(TM) plug-in (i.e. an
add-in application which supplements the basic browser functionality) and as a
helper application with other Web browsers. When configured as a plug-in, the
player receives streaming audio data from the Web server and begins playback
as soon as a small buffer is received, typically within a few seconds. In
addition, ToolVox can play back music transmitted in MIDI format. Speech and
MIDI data can stream simultaneously, allowing background music effects with
narration.
ToolVox delivers the following benefits to Web content providers and users:
BENEFITS TO CONTENT PROVIDERS
. No special server hardware or software required. Most standard Web
servers are adequate for streaming the low bandwidth data produced by
the RT24 or the RT29HQ codecs.
. Less access bandwidth required. Over a 1.5 Mbps T1 line, ToolVox is
designed to support over 400 simultaneous users, compared with competing
technologies which typically support 70-100 simultaneous listeners.
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BENEFITS TO USERS
. Faster start-up of playback and reduced gaps or pauses when used over
international links or in the presence of Internet congestion.
. Increased capacity to receive text, data and graphics simultaneously
with minimal impact on responsiveness.
. Operates through security "firewalls" that often block competing
products.
The Company is distributing version 1.0 of the "Basic" ToolVox encoder. The
Basic encoder incorporates the RT24 codec and operates on the Windows 3.x, 95
and NT and Mac OS platforms. The Basic version of the encoder is currently
available for free download from the Company's Web site.
A "Gold" version (version 2.0) of the ToolVox encoder is currently
available. The Gold encoder has all of the capabilities of the Basic version,
plus the RT29HQ codec, voice and sound effects capabilities and the ability to
process multiple audio files automatically. The Company plans to license the
Gold encoder to Web developers.
The ToolVox 2.0 player will play the output of either the Basic or the Gold
encoder. It is available free of charge from the Company's Web site and the
Company makes it available to licensees for bundling with their products.
TELEVOX
TeleVox, the Company's Internet telephone system, allows users to carry on
real-time, full-duplex audio conversations using their personal computers.
TeleVox, in addition to the benefits inherent in MetaVoice, offers (i) full-
duplex or half-duplex, hands free operation, (ii) directory and connection
services via an easy-to-use "chat" server and (iii) simultaneous file transfer
and text-chat capability. The Company currently distributes a beta version of
TeleVox over the Internet at no charge.
The Company is currently developing a "Gold" version of TeleVox with
additional features to be sold to end users. The Gold version is expected to
incorporate multi-person conferencing capabilities, the advanced RT29HQ codec
and enhanced VoiceFonts technology for voice and sound effects. Pricing has
not yet been determined.
The Company plans to provide interoperability between TeleVox and Netscape's
LiveMedia framework for real-time communication over the Internet. The Company
demonstrated a prototype TeleVox system interoperating with Netscape's
LiveTalk(TM) and Apple's QuickTime Conferencing(TM) based on the LiveMedia
framework in May 1996. The Company currently intends to distribute TeleVox
over the Internet and via bundling agreements with OEMs.
RESEARCH AND PRODUCT DEVELOPMENT
The Company believes that continued timely development and introduction of
new products are essential to establishing, maintaining and increasing its
competitive position. The Company currently conducts most of its product
development effort in-house. The Company also employs independent contractors
to assist with certain product development and testing activities. The Company
has aggressively expanded its Research and Development group from 6 engineers
as of June 30, 1995 to 33 engineers as of June 30, 1996. Total spending on
research and development has grown from $536,581 in fiscal 1995 to $2,496,717
in fiscal 1996. The Company intends to continue to emphasize core research and
development.
The Company has recently strengthened its speech coding research group with
the addition of Robert J. McAulay, Ph.D. who joined the Company in August 1996
as Senior Scientist and Juin-Huey (Raymond) Chen, Ph.D. who has agreed to join
the Company in October 1996 as Director of Research. From 1967 until July
1996, Dr. McAulay was with the Massachusetts Institute of Technology's Lincoln
Laboratory where he directed research in Speech Systems Technology. Since 1984
he has focused on the development and application of the Sinusoidal Speech
Model. From 1988 until September 1996, Dr. Chen was engaged in speech coding
research at AT&T Bell Laboratories where his work focused on development of
several speech codecs and speech quality enhancement techniques.
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The Company has several products under development as follows:
Future Codecs
The Company is developing enhanced implementations of its MetaVoice
technology which are designed to achieve speech quality equivalent to its
existing codecs at lower bandwidth. The Company is also developing other
implementations that deliver higher speech quality at slightly higher bandwidth
than its existing codecs.
Gateways between the Internet and the Public Switched Telephone Network (PSTN)
The Company believes that as telecommunication service providers enter the
market for voice services via packet-switched networks, there will be a growing
market for connectivity between PC-based Internet telephone software such as
TeleVox and the public telephone network or corporate PBX systems. For example,
a call could be placed from a user on a personal computer connected to the
Internet and complete the long-distance segment of the connection via the
Internet. By connecting through a gateway server, the call could be connected
to any ordinary telephone in the world accessible by such a server for the
price of a local call. The Company has begun a development effort with hardware
and software vendors to develop such systems.
The Company has recently strengthened its telephony and IP networking
expertise with the addition of Michael A. Ramalho, Ph.D. who joined the Company
in August 1996 as Lead Telephony Technologist. Immediately prior to joining
Voxware, Dr. Ramalho was with Bell Communications Research, Inc. ("Bellcore")
and served as Program Manager responsible for Bellcore's analysis of the impact
of the Internet on the Public Switched Telephone Network. Dr. Ramalho's other
recent activities involved the measurement, characterization and simulation of
high-speed packet or cell-based transport technologies, including ATM, Frame
Relay and IP.
Enhanced VoiceFonts
The Company will be releasing an enhanced implementation of VoiceFonts with
the ToolVox Gold encoder. Future versions of TeleVox will also incorporate this
technology. The Company is investing resources in further enhancing and
extending the VoiceFonts technology and expects to provide increasingly
powerful voice modification tools to consumers, Web developers and audio
engineers.
STRATEGIC RELATIONSHIPS AND LICENSEES
The Company plans to establish and extend strategic relationships with market
leaders in order to rapidly achieve market penetration. The Company believes
these strategic relationships will broaden the Company's user base and
accelerate adoption of the Company's core technologies. The Company believes
that such strategic relationships can provide early insight into and influence
on future industry standards, offer access to leading edge technology and
support optimization of the Company's technology on key computing platforms.
The Company and Netscape are parties to a software license agreement pursuant
to which Netscape has a license to use and distribute certain of Voxware's
products, including the RT24 codec. Netscape is using Voxware RT24 codec as
part of its Livemedia multimedia framework to provide low bandwidth speech
capabilities with Netscape Navigator 3.0. The Company believes that its
technologies will achieve market penetration faster than would be possible
without the Netscape relationship. The two companies consult each other on
areas of common interest including standards setting, future product
development, enhancements to existing technologies and joint product
development. Netscape has also made a minority equity investment in the Company
and has a representative on the Company's board.
The Netscape License Agreement provides for Netscape to pay quarterly license
fees to the Company for certain "basic" products. The Netscape License
Agreement further provides Netscape with access to certain enhanced products of
the Company. In the event Netscape ships products containing the Company's
enhanced products, Netscape will pay volume-based royalties to the Company.
During the year ended June 30, 1996, license fees paid by Netscape accounted
for 31% of the Company's revenues. The Netscape License Agreement may be
terminated by Netscape at any time on 90 days notice. See "Risk Factors--
Dependence on Netscape," "Management" and "Principal Stockholders."
Intel has also made a minority equity investment in the Company. Intel
provides consulting support to Voxware in the optimization of the Company's
technologies on Intel platforms, consults with Voxware on
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standards issues of mutual interest and supplies the Company with pre-release
versions of its advanced processors for development. See "Principal
Stockholders."
The Company broadly licenses its codecs and bundles its applications with the
products of independent software vendors, computing companies and
communications companies. The Company generally seeks to obtain a combination
of initial payments and recurring revenue payments from licensees. The amount
and structure of these payments are dependent on many factors including the
licensed codec or application, the licensee's intended application and target
market. A majority of the Company's most recent license agreements provide for
a royalty payment or other recurring revenue stream to the Company. While the
Company has derived its revenue principally from initial and annual licensing
fees on software licensing agreements and the Company has not received any
royalties to date, the Company believes that developing a recurring revenue
stream will be a key to the Company's financial success. Whether a recurring
revenue stream develops will depend on many factors, including the success of
the Company's licensees in selling products which incorporate the Company's
technologies.
The following table sets forth certain companies that have entered into
license agreements with Voxware during the last twelve months:
America Online, Inc. LifeCycle Systems, Inc.
Andrea Electronics Corporation Twin Sun, Inc.
Lucent Technologies Inc.
USFI, Inc.
Apple Computer, Inc. Luckman Interactive, Inc.
VDOnet Corporation
Ltd.
Cardinal Technologies, Inc.
Microsoft Corporation
Eidos, plc Mpath Interactive, Inc. Velocity, Inc.
Farrallon Computing, Inc. PC Roar, Inc. Vienna Systems
GameTek, Inc. Corporation
InterVoice, Inc. TE Network, Inc. White Pine Software,
Tribal Voice Inc.
Worlds Inc.
Zoll Medical
Corporation
SALES, MARKETING AND DISTRIBUTION
The Company sells its codecs and TNT directly to independent software vendors
and computing and communications companies. The Company's direct sales force
combines field and telemarketing personnel who focus on major Internet software
developers, hardware OEMs, as well as Internet and telecommunication service
providers and semiconductor manufacturers.
As of June 30, 1996, the Company had 11 direct sales and marketing personnel.
Codec licensing is handled primarily through the direct field sales force and
is supported by telemarketing personnel. The Company intends to increase its
direct sales force as part of the expansion of its sales and marketing program.
Sales and marketing activities include, in addition to direct sales calls,
participation in trade shows.
CUSTOMER SUPPORT
The Company believes that customer support and engineering services are
important competitive factors for its business. Customer support services
include providing updates and technical support to licensees of the Company's
products. Engineering services include providing technical resources to support
customer specific development efforts or porting the Company's technologies to
specific customer platforms. The Company provides those services, along with
product demonstration software, evaluation software and application notes via
its customer support group and research and development group located in
Princeton, New Jersey. See "Business--Research and Product Development."
COMPETITION
The market for voice processing software products and services is intensely
competitive. The Company expects competition to persist, intensify and increase
in the future. Many of the Company's current and potential competitors have
longer operating histories, greater name recognition, larger customer bases and
significantly
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greater financial, technical and marketing resources than the Company. The
Company's competition for voice processing software products and services is
primarily emerging from two sources: developers of speech compression
algorithms and developers of software applications that incorporate speech.
Direct competitors include DSP Group, Inc., Lernout & Hauspie Speech Products
N.V. and Lucent Technologies Inc in the speech coding market and Electric
Magic Co., FreeTel Communications, Macromedia, Netspeak Corp., PGP Inc.,
Progressive Networks, Quarterdeck Corporation, Third Planet Publishing Inc.,
VocalTec, Ltd., Inc. and Xing Technology Corporation in the Internet
applications market. Several of these companies are developing new products or
enhancing existing products specifically to operate in low bandwidth
environments. Companies that have developed low bit rate parametric speech
compression technologies but do not currently compete with the Company
directly include Texas Instruments, Incorporated and Digital Voice Services,
Inc. The competition in the market for Internet telephony products, in
particular, is intense. Many companies, including for example Intel,
distribute free Internet telephony applications offering basic functionality.
The availability of such free Internet telephony applications may increase
pricing pressure on such applications, including the Company's TeleVox
products. In addition to the Company's current competitors, the Company
expects other established companies, including large software companies, such
as Microsoft, and telecommunications companies, such as interexchange carriers
(for example, AT&T Corp. and MCI Telecommunications), regional Bell operating
companies and cable companies, to compete in the markets for speech
compression technologies and digital speech applications, including Internet
telephony. The ability of certain of the Company's competitors to bundle other
services and products with voice products could put the Company at a
competitive disadvantage.
PATENTS AND PROPRIETARY INFORMATION
To date, the Company has applied for three patents relating to the MetaVoice
voice coding technology. Several additional patent applications are being
prepared and the Company expects to routinely file patent applications as
deemed appropriate. The Company's success will depend in part on its ability
to obtain patent protection for its products, preserve its trade secrets and
operate without infringing the proprietary rights of other parties. There can
be no assurance that patent applications to which the Company holds rights
will result in the issuance of patents, or that any issued patents will
provide commercially significant protection to the Company's technology,
products and processes. In addition, there can be no assurance that others
will not independently develop substantially equivalent proprietary
information not covered by patents to which the Company owns rights or obtain
access to the Company's know-how or that others will not claim to have or will
not be issued patents which may prevent the sale of one or more of the
Company's products. In particular, Elk Industries has asserted in two letters
to Voxware that Voxware's "Internet-based streaming audio systems" infringe
U.S. Patent No. 4,128,773 owned by Elk Industries, and Elk Industries has
offered Voxware the opportunity to purchase a license. The Company does not
believe that its products infringe Elk Industries' patent because its
technology is distinct from and dissimilar to the claims contained in Elk
Industries' patent. Litigation, which could be costly and time consuming, may
be necessary to determine the scope and validity of others' proprietary rights
including Elk Industries', or to enforce any patents issued to the Company, in
either case, in judicial or administrative proceedings. An adverse outcome
could subject the Company to significant liabilities to third-parties, require
the Company to obtain licenses from third-parties, or require the Company to
cease any related research and development activities or product sales. There
can be no assurance that a license for Elk Industries or any licenses required
under any third-party patents or proprietary rights would be made available on
acceptable terms, if at all. In addition, the laws of certain countries may
not protect the Company's intellectual property. The software market has
traditionally experienced widespread unauthorized reproduction of products in
violation of manufacturers' intellectual property rights. Such activity is
difficult to detect and legal proceedings to enforce the manufacturers'
intellectual property rights are often burdensome and involve a high degree of
uncertainty and costs. The Company's success is also dependent upon unpatented
trade secrets which are difficult to protect. To help protect its rights, the
Company requires employees and consultants to enter into confidentiality
agreements that prohibit disclosure of the Company's proprietary information
and requires the assignment to the Company of their ideas, developments,
discoveries and inventions. There can be no assurance, however, that these
agreements will provide adequate protection for the Company's trade secrets,
know-how, or other proprietary information in the event of any unauthorized
use or disclosures.
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EMPLOYEES
As of June 30, 1996, the Company had 58 full-time employees consisting of 11
in sales and marketing, 33 in research and development, 3 in customer support
and 11 in administration and finance. None of the Company's employees is
represented by a labor union or is subject to a collective bargaining
agreement. The Company believes that its employee relations are good.
FACILITIES
The Company leases its principal facility, which contains approximately
18,000 square feet of office space in Princeton, NJ. The initial term of the
lease for the Company's current office space will expire on May 31, 2003. The
Company believes that existing facilities are adequate for its current needs
through approximately the next nine months and anticipates that it will likely
need additional space at that time. The Company believes that any such
additional space will be available as needed.
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MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The Executive Officers and Directors of the Company and their respective
ages and positions are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Michael Goldstein....... 42 President, Chief Executive Officer and Director
Kenneth H. Traub........ 35 Executive Vice President, Chief Financial Officer,
Secretary and Director
J. Gerard Aguilar....... 30 Vice President, Research and Development and
Director
Steven J. Ott........... 36 Vice President, Sales
Stuart R. Patterson..... 39 Vice President, Telephony Business
Kenneth W. Whittington.. 43 Vice President, Product Development
Nicholas Narlis......... 36 Controller, Chief Accounting Officer and Treasurer
Joan R. Spindel......... 34 Vice President, Marketing Communications and OEM
Partnering
Jordan S. Davis......... 34 Director
Andrew I. Fillat(1)(2).. 48 Director
William J. Geary(1)(2).. 37 Director
David J. Roux(1)........ 39 Director
Richard M. Schell, 45 Director
Ph.D...................
</TABLE>
- --------
(1) Member of the Compensation Committee.
(2) Member of Audit Committee.
Michael Goldstein has served as President and Chief Executive Officer and as
a Director of the Company since January 1994. From April 1993 to December
1993, Mr. Goldstein served as Vice President of Business Development of
Donovan Data Systems, Inc., a data processing service provider. From 1986 to
March 1993, Mr. Goldstein was a consultant with McKinsey & Company, Inc.,
where he was an advisor to technology companies. From 1983 to June 1986, Mr.
Goldstein served as Vice President of Macmillan Software Company, a scientific
software publisher and division of Macmillan, Inc. Mr. Goldstein holds an
M.B.A. from the Harvard Graduate School of Business Administration and a Sc.B.
from Brown University.
Kenneth H. Traub is a co-founder of Voxware and has served as Executive Vice
President, Chief Financial Officer and Secretary and as a Director of the
Company since February 1995. From 1989 to February 1995, Mr. Traub held
various management positions, including Corporate Vice President, with Trans-
Resources, Inc., a diversified, multinational company, where Mr. Traub was
responsible for acquisitions, financings and strategic planning. From January
1993 to February 1995, Mr. Traub was also President of Conservation Securities
Corp., an investment company affiliated with Trans-Resources, Inc. Mr. Traub
holds an M.B.A. from the Harvard Graduate School of Business Administration
and a B.A. from Emory University.
J. Gerard Aguilar is a co-founder of Voxware and has served as Vice
President, Research and Development since January 1994 and as a Director of
the Company since its incorporation in August 1993. Mr. Aguilar served as the
Company's President and Secretary from its incorporation through January 1994
and Treasurer from its incorporation through June 1996. Prior thereto, Mr.
Aguilar had been independently developing certain of the Company's
technologies since 1991. Mr. Aguilar holds an M.S.E.E. and a B.S.E.E. from the
Florida Institute of Technology.
Steven J. Ott has served as Vice President, Sales of the Company since
October 1994. From January 1990 to June 1994, Mr. Ott held various executive
positions with Legent Corporation ("Legent"), a systems management software
company, most recently as Vice President, Corporate Development. Prior to his
appointment as Vice President, Corporate Development, Mr. Ott served as
Director, North American Sales Programs and Regional Manager Northeast Sales
for Legent. From 1987 to 1989, Mr. Ott served as District Sales Manager for
Business Software Technology, Inc., a developer of systems management
software. From 1982 to
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1987, Mr. Ott served as Area Sales Manager for DBMS, Inc., a database and data
administration software company. Mr. Ott holds a B.S. from Quinnipiac College.
Stuart R. Patterson has served as Vice President, Telephony Business of the
Company since May 1996 and prior to that as a member of the Company's Board of
Advisors since August 1993. From 1987 to May 1996, Mr. Patterson served in
various capacities at Vicorp Interactive Systems, Inc. ("VIS"), a software
developer for large-scale voice processing and information gateway services,
including most recently as President and Chief Executive Officer. From 1986 to
1987, Mr. Patterson served as International Marketing Manager for the Vicorp
Group in Dusseldorf, Germany. From 1985 to December 1986, Mr. Patterson worked
for Hewlett-Packard Company in Grenoble, France. Mr. Patterson holds an
M.P.P.M. from the Yale School of Management and a B.A. from Harvard College.
Kenneth W. Whittington has served as Vice President, Product Development of
the Company since August 1995. From 1990 to July 1995, Mr. Whittington held
various development management positions at Central Point Software, Inc.
("CPS") and Symantec Corporation ("Symantec") (which acquired CPS in 1994).
From May 1994 to July 1995, Mr. Whittington was a Director of Development at
Symantec responsible for development of client/server and enterprise products.
From 1990 through May 1994, Mr. Whittington served as a Senior Systems
Architect and then Development Manager in charge of CPS's product, PC
Tools.(TM)
Nicholas Narlis has served as Controller and Chief Accounting Officer of the
Company since March 1996 and as Treasurer since June 1996. From 1992 to March
1996, Mr. Narlis served in various capacities at Dendrite International, Inc.,
a sales force automation software and service company, including most recently
as Director of Finance. Previously, from 1983 to May 1992, Mr. Narlis worked
for KPMG Peat Marwick where he served as a Senior Manager from 1989 to May
1992 in the New Jersey Audit Practice Unit. Mr. Narlis holds a B.S. from Rider
University and is a Certified Public Accountant.
Joan R. Spindel has served as Vice President, Marketing Communications and
OEM Partnering of the Company since September 1996. From 1991 to September
1996, Ms. Spindel held various managerial marketing positions with Lotus
Development Corporation ("Lotus") including most recently as Director of
Developer Relations. Previously from 1985 to January 1991, Ms. Spindel held
various marketing positions at Prime Computer, Inc. and EMC Corporation. Ms.
Spindel holds a B.A. from Hamilton College.
William J. Geary has served as a Director of the Company since July 1996.
Mr. Geary has been a Principal of North Bridge Venture Partners, L.P. ("North
Bridge") since March 1994 and a General Partner of Hambro International Equity
Partners since 1990. Mr. Geary also serves as a director of several private
technology companies. Mr. Geary holds a B.S. from Boston College and is a
Certified Public Accountant.
Jordan S. Davis is a co-founder of Voxware and has served as a Director of
the Company since January 1994. Since May 1992, Mr. Davis has been employed by
KBL Healthcare, Inc., a private merchant banking and venture capital firm,
most recently serving as a Managing Director. From November 1992 to August
1994, Mr. Davis served as Vice President, Secretary and as a director of KBL
Healthcare Acquisition Corp., a publicly held acquisition fund which Mr. Davis
co-founded. From 1991 to May 1992, Mr. Davis served as Corporate Vice
President of D. Blech and Company, Incorporated, a private merchant bank.
Previously, from 1986 to 1990, Mr. Davis held various financial advisory
positions with Morgan Stanley & Co., Incorporated. Mr. Davis holds an M.M.
from the J.L. Kellogg Graduate School of Management at Northwestern University
and a B.A. from the State University of New York at Binghamton.
Andrew I. Fillat has served as a Director of the Company since December
1995. In 1989, Mr. Fillat joined Advent International Corporation ("Advent")
where he currently serves as a Senior Vice President. Mr. Fillat is also a
Director of Advanced Radio Telecom Corp., Interlink Computer Sciences, Inc.
and Lightbridge, Inc. as well as several other private companies. Mr. Fillat
holds an M.S. and a B.S. from M.I.T. and an M.B.A. from the Harvard Graduate
School of Business Administration.
David J. Roux has served as a Director of the Company since March 1994.
Since February 1996, Mr. Roux has been Executive Vice President and from
August 1994 through February 1996, he was Senior Vice President,
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in each case in charge of business development, at Oracle Corporation. From
April 1992 to June 1994, Mr. Roux was Senior Vice President of Central Point
Software. From February 1988 to March 1992, Mr. Roux served in various senior
executive capacities at Lotus, including most recently as Senior Vice
President. In 1984, Mr. Roux co-founded Datext, Inc., a CD-Rom database
publishing business, where he served as Chief Executive Officer until it was
sold to Lotus in 1987. Mr. Roux holds an M.B.A. from the Harvard Graduate
School of Business Administration, a M.Phil. from Cambridge University and an
A.B. from Harvard College.
Richard M. Schell, Ph.D. has served as a Director of the Company since
August 1995. Since March 1996, Dr. Schell has served as Senior Vice President
of Product Development and from October 1994 to February 1996 as Vice
President of Engineering of Netscape. Dr. Schell currently leads client,
server, tool and commercial applications development for Netscape. From
January 1993 to October 1994, Dr. Schell was a senior executive of Symantec,
most recently serving as Vice President and General Manager of the Central
Point Division (formerly Central Point Software, Inc.). From March 1989 to
December 1992, Dr. Schell served as Vice President in charge of Languages and
dBase of Borland International, Inc. Prior thereto, he held various management
positions at Sun Microsystems, Inc. and Intel Corporation. Dr. Schell holds a
Ph.D., M.S. and B.A. from the University of Illinois.
Each of Messrs. Fillat, Geary and Schell serves on the Board of Directors
pursuant to a voting agreement among certain stockholders of the Company. This
agreement will terminate upon consummation of this offering.
Mr. Davis and Mr. Aguilar are brothers-in-law.
Subject to, and upon the consummation of, the offering, the Company's
Certificate of Incorporation will be amended to provide that directors of the
Company shall be divided into three classes, as nearly equal in number as
possible. The initial term of office of the first class shall expire on the
day of the first annual meeting of stockholders following the end of the 1997
fiscal year (the "1997 Annual Meeting"); the initial term of office of the
second class shall expire on the day of the annual meeting of stockholders
next succeeding the 1997 Annual Meeting; and the initial term of office of the
third class shall expire on the day of the second annual meeting of
stockholders succeeding the 1997 Annual Meeting. At each annual meeting of
stockholders, directors elected to succeed those directors whose terms expire
shall be elected for a term of office to expire at the third succeeding annual
meeting of stockholders after their election. Thus, after consummation of this
offering and effective upon the amendment of the Certificate of Incorporation,
directors will stand for election only once in three years. Effective upon the
amendment of the Certificate of Incorporation, Messrs. Davis, Traub and Fillat
are expected to serve as Class I directors, Messrs. Roux, Schell and Geary are
expected to serve as Class II directors, and Messrs. Aguilar and Goldstein are
expected to serve as Class III directors.
In accordance with the amendment, the affirmative vote of the holders of at
least 66 2/3% of the outstanding shares of capital stock of the Company
entitled to vote generally in the election of directors, voting together as a
single class, shall be required to alter, change, amend, repeal, or adopt any
provision inconsistent with, the provisions of the Certificate of
Incorporation providing for the classified Board of Directors.
BOARD COMMITTEES
The Audit Committee consists of Messrs. Geary and Fillat and the
Compensation Committee consists of Messrs. Geary, Fillat and Roux. The Audit
Committee reviews the adequacy of the Company's internal control systems and
financial reporting procedures, reviews the general scope of the annual audit,
reviews and monitors the performance of non-audit services by the Company's
independent public accountants and reviews interested transactions between the
Company and any of its affiliates. The Compensation Committee administers the
Company's 1994 Stock Option Plan and makes recommendations to the Board of
Directors concerning salaries and non-stock compensation for the Company's
officers and employees.
BOARD OF ADVISORS
The Board of Advisors advises the Company regarding technological and
commercial issues concerning the Company's areas of interest. The Company's
practice has been, and is expected to continue to be, to consult
36
<PAGE>
with members of the Board of Advisors on an individual basis as needed. All of
the members of the Board of Advisors have entered into confidentiality
agreements with the Company, and subject to this constraint, the members of
the Board of Advisors are entitled to accept employment with, or provide
consulting services to, others, including competitors or potential competitors
of the Company.
Vladimir Cuperman, Ph.D. is Professor of Electrical Engineering at Simon
Fraser University, Vancouver, B.C., Canada and specializes in the fields of
digital signal processing, speech coding, speech recognition and digital
communications. He was Editor for Speech Processing, IEEE Transactions on
Communications from 1988 to 1991 and has co-edited two books and published
numerous papers on speech coding and recognition. From 1984 to 1986 he was
Research and Development Manager of CALLTALK, Ltd., a precursor company to the
DSP Group, Inc. Previously, Dr. Cuperman had been employed by Tadiran Limited
of Tel Aviv, Israel as Chief Scientist in the Digital Communications Division
from 1983 to 1984 and as Project and Group Leader from 1974 to 1980. Dr.
Cuperman holds a Ph.D. and an M.S.E.E. from the University of California,
Santa Barbara ("UCSB") and an M.S.E.E. from the Polytechnic of Bucharest.
Francis X. Dzubeck is President and Chief Executive Officer of
Communications Network Architects, Inc. ("CNA"), an international consulting
firm he founded in 1973. CNA's clients include commercial and government
users, communications carriers, computer and communications vendors, the
venture capital and investment banking communities and public relations firms.
Mr. Dzubeck holds an M.S.E.E. from Columbia University and a B.S.E.E. from the
New Jersey Institute of Technology.
Ira Fuchs is Vice President for Computing and Information Technology at
Princeton University, Princeton, New Jersey, where he leads the University's
efforts in academic and administrative computing. Mr. Fuchs has been involved
in the creation of a high speed telecommunications infrastructure for the
University. In 1981, Mr. Fuchs founded the BITNET Network, an academic
telecommunications network. Mr. Fuchs also presently serves as Chief Scientist
for the Journal Storage project (JSTOR), a project designed to create a
digital library for out-of-print scholarly journals, for the Andrew W. Mellon
Foundation. Mr. Fuchs has previously served as Vice Chancellor for University
Systems at The City University of New York. Mr. Fuchs holds an M.S. and B.S.
from Columbia University.
Allen Gersho, Ph.D. has been a Professor of Electrical and Computer
Engineering at UCSB since 1980. Dr. Gersho's work is primarily in the field of
speech coding. Dr. Gersho and his UCSB research staff were pioneers in the
application of vector quantization to signal compression and several of the
coding techniques developed by his group have become widely used in speech
coding algorithms and in national and international standards. Dr. Gersho has
authored or co-authored over 250 research papers, more than a dozen of which
are reprinted in various books of collected benchmark papers in signal
processing, communications and quantization. From 1963 to 1980, Dr. Gersho
served as a member of the technical staff at AT&T Bell Laboratories. Dr.
Gersho holds Ph.D. and M.S.E.E. degrees from Cornell University and a B.S.E.E.
from M.I.T.
Martin Mazner has been Vice President and General Manager of the BookMaker
division of the ForeFront Group, Inc. since June 1996. From June 1992 to June
1996, Mr. Mazner was President and Chief Executive Officer of BookMaker
Corporation. From 1990 to 1992, Mr. Mazner served as Vice President of
Marketing for Power Up Software Corporation. Prior thereto, from 1986 to 1990,
Mr. Mazner served as Publisher of MacUser Magazine, a division of Ziff Davis
Publishing Company. Mr. Mazner holds a B.A. degree from California State
University, Northridge.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Company formed a Compensation Committee in December 1995. The
Compensation Committee currently consists of Messrs. Geary, Fillat and Roux,
none of whom is an employee of the Company. In December 1995, the Company sold
2,000,000 shares of Series A Preferred Stock to certain entities managed by
Advent International Corporation and 2,000,000 shares of Series A Preferred
Stock to certain entities managed by North Bridge for a purchase price of
$1.00 per share. Mr. Geary is a Principal of North Bridge and Mr. Fillat is a
Senior Vice President of Advent. See "Certain Transactions."
37
<PAGE>
EXECUTIVE COMPENSATION
The following table provides information concerning compensation paid to or
earned by the Chief Executive Officer of the Company for the years ended June
30, 1996 and 1995 and the period from Inception (August 20, 1993) to June 30,
1994 and the next four most highly compensated Executive Officers of the
Company for such periods (the "Named Executive Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
------------
ANNUAL COMPENSATION
------------------------------------------ SECURITIES
OTHER ANNUAL UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION PERIOD BASE SALARY BONUS COMPENSATION(1) OPTIONS COMPENSATION(2)
- --------------------------- ------ ----------- ------- --------------- ------------ ---------------
<S> <C> <C> <C> <C> <C> <C>
Michael Goldstein ...... 1996 $117,500 $30,000 $ -- -- $3,567
President and Chief 1995 $101,458 $ -- $ -- 20,000 $3,317
Executive Officer 1994 $ 33,333 $ -- $30,000 312,500 $3,095
Kenneth H. Traub........ 1996 $100,000 $25,000 $ -- -- $ 250
Executive Vice Presi- 1995 $ 41,667 $ -- $17,015 75,000 $ --
dent, Chief 1994 $ -- $ -- $ -- -- $ --
Financial Officer and
Secretary
J. Gerard Aguilar....... 1996 $ 70,000 $20,000 $ -- -- $ --
Vice President, Re- 1995 $ 60,833 $15,000 $ -- -- $ --
search and 1994 $ 20,000 $ -- $ -- -- $ --
Development
Steven J. Ott .......... 1996 $136,476 $ -- $13,766 -- $ --
Vice President, Sales 1995 $ 65,000 $ -- $ -- 200,000 $ --
1994 $ -- $ -- $ -- -- $ --
Kenneth W. Whittington.. 1996 $ 96,551 $15,000 $ -- -- $ --
Vice President, Product 1995 $ -- $ -- $ -- 75,000 $ --
Development 1994 $ -- $ -- $ -- -- $ --
</TABLE>
- --------
(1) Other Annual Compensation consists solely of relocation payments.
(2) All Other Compensation consists of life and disability insurance premiums
of $3,095, $3,317 and $3,567 paid on behalf of Mr. Goldstein in 1994,
1995, and 1996, respectively, and $250 paid on behalf of Mr. Traub in
1996.
EMPLOYMENT AGREEMENTS
Michael Goldstein, President and Chief Executive Officer of the Company, has
a three-year employment agreement with the Company which commenced in January
1994. Mr. Goldstein currently receives an annual base salary of $140,000 and
is entitled to bonuses for each fiscal year if the Company achieves certain
financial and other benchmarks which the Company and Mr. Goldstein will
endeavor to establish each fiscal year. At the time he began his employment
with the Company, Mr. Goldstein purchased 62,500 shares of Common Stock from
the Company and 187,500 shares of Common Stock from a stockholder of the
Company for an aggregate purchase price of $6,000. In the event that Mr.
Goldstein's employment agreement is terminated prior to January 3, 1997, the
Company and the above-referenced stockholder shall have the option to
repurchase 15,625 and 46,875 shares of Common Stock, respectively, from Mr.
Goldstein at an aggregate purchase price of $375 and $1,125, respectively (the
"Purchase Option"). Notwithstanding the foregoing, in the event Mr.
Goldstein's employment agreement is terminated (i) by the Company without
Cause (as defined in the employment agreement) based upon a determination by
the Company's Board of Directors that Mr. Goldstein's performance has not been
satisfactory for any reason, or (ii) by Mr. Goldstein because of an uncured
material breach of the employment agreement by the Company, the Purchase
Option shall immediately expire.
Kenneth H. Traub, Executive Vice President, Chief Financial Officer and
Secretary of the Company, has a three-year employment agreement with the
Company which commenced in February 1995. Mr. Traub currently receives an
annual base salary of $115,000.
38
<PAGE>
J. Gerard Aguilar, Vice President, Research and Development of the Company,
has a five-year employment agreement with the Company which commenced in
February 1994. Mr. Aguilar currently receives an annual base salary of
$90,000.
Steven J. Ott, Vice President, Sales of the Company, has a four-year
employment agreement with the Company which commenced in August 1994. Mr. Ott
currently receives an annual base salary of $80,000 and commissions on sales
on terms negotiated between the Company and Mr. Ott.
Kenneth W. Whittington, Vice President, Product Development of the Company,
has a three-year employment agreement with the Company which commenced in
April 1995. Mr. Whittington receives an annual base salary of $110,000.
All of the foregoing employment agreements are automatically renewable for
successive one-year terms unless terminated by either party.
Under the employment agreements for each of Messrs. Goldstein, Traub,
Aguilar, Ott and Whittington, if any of them, respectively, is dismissed for
any reason other than Cause (as defined in their respective employment
agreements), death or disability, or in the case of Messrs. Goldstein and
Traub if the employment agreement is not extended at the end of the Term (as
defined in their respective employment agreements), he shall be entitled to
receive an amount equal to, in the case of Messrs. Goldstein, Traub and
Whittington, nine months salary at his then current rate, in the case of Mr.
Ott six months salary at his then current rate, and in the case of Mr.
Aguilar, his salary at his then current rate for the shorter of (i) nine
months or (ii) the remainder of his then current Term.
All of the employment agreements grant to the Company the rights to any
information created, discovered or developed by the executive which is related
to or useful in the business of the Company. The employment agreements
prohibit the executive from disclosing the Company's proprietary information
and contains certain covenants by the executive not to compete with the
Company.
1994 STOCK OPTION PLAN
On January 3, 1994, the Board of Directors of the Company adopted and the
stockholders of the Company approved, the 1994 Stock Option Plan (as amended,
the "1994 Plan"). The 1994 Plan permits the granting of options to purchase an
aggregate of 2,350,000 shares of the Company's Common Stock to key employees
of, and consultants to, the Company as well as to directors of the Company
whether or not employees. Options granted under the 1994 Plan may be either
incentive stock options ("ISOs") or options which do not qualify as ISOs
("non-ISOs").
The 1994 Plan is administered by the Compensation Committee (the
"Committee") of the Board of Directors, which currently consists of Messrs.
Fillat, Geary and Roux. Subject to the provisions of the 1994 Plan, the Board
of Directors or the Committee has the authority to determine the individuals
to whom stock options will be granted, the number of shares to be covered by
each option, the option price, the type of option, the option period, the
vesting restrictions, if any, with respect to the exercise of the option, the
terms for the payment of the option price and other terms and conditions.
Payment for shares acquired upon exercise of an option may be made in cash
and/or such other form of payment as may be permitted under the applicable
option agreement, including without limitation, previously owned shares of
Common Stock.
The exercise price for shares covered by an ISO may not be less than 100% of
the fair market value of the Common Stock on the date of grant (110% in the
case of a grant to an employee who owns 10% or more of the total combined
voting power of all classes of stock of the Company or any subsidiary (a "10%
Stockholder")). The exercise price for shares covered by a non-ISO may not be
less than the par value of the Common Stock at the date of grant. Unless
otherwise approved by the Board of Directors or the Committee, an option may
not be exercised during the first six months after the date of its grant. All
options must expire no later than ten years (five years in the case of an ISO
granted to a 10% Stockholder) from the date of grant. In general, no option
may
39
<PAGE>
be exercised more than three months after the termination of the optionee's
service with the Company and any of its subsidiaries. However, the three month
period is extended to one year if the optionee's service is terminated by
reason of disability or death. No individual may be granted ISOs that become
exercisable for the first time in any calendar year for Common Stock having a
fair market value at the time of grant in excess of $100,000.
Unless otherwise determined by the Committee in an option agreement with
respect to any particular option, if any event constituting a "Change in
Control of the Company" (as defined in the 1994 Plan) shall occur, all options
granted under the 1994 Plan which are outstanding at the time a Change in
Control of the Company shall occur shall immediately become exercisable.
Options may not be transferred during the lifetime of an optionee. Subject
to certain limitations set forth in the Plan and applicable law, the Board of
Directors may amend or terminate the Plan. By its own terms, the Plan will
terminate on January 2, 2004.
Option Exercises and Fiscal Year Values
None of the Named Executive Officers exercised options during the fiscal
year ended June 30, 1996. The following table provides information regarding
the number of shares covered by both exercisable and unexercisable stock
options as of June 30, 1996 and the values of "in-the-money" options as of
that date. An option is "in-the-money" if the per share fair market value of
the underlying stock exceeds the option exercise price per share.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
VALUE OF
NUMBER OF UNEXERCISED
SECURITIES UNDERLYING IN-THE-MONEY
UNEXERCISED OPTIONS AT OPTIONS AT
FISCAL YEAR END FISCAL YEAR END(1)
------------------------- -------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Michael Goldstein.......... 273,906 58,594 $2,749,060 $ 585,940
Kenneth H. Traub........... 42,187 32,812 $ 442,969 $ 344,531
J. Gerard Aguilar.......... -- -- -- --
Steven J. Ott.............. 101,562 98,437 $1,117,188 $1,082,813
Kenneth W. Whittington..... -- 75,000 -- $ 787,500
</TABLE>
- --------
(1) Based on the difference between the option exercise price and the assumed
initial public offering price of $12.00 share.
1996 EMPLOYEE STOCK PURCHASE PLAN
The Company's 1996 Employee Stock Purchase Plan (the "1996 Purchase Plan")
was adopted by the Board of Directors and by the stockholders in September
1996. The Company has reserved a total of 200,000 shares of Common Stock for
issuance under the 1996 Purchase Plan. The 1996 Purchase Plan, which is
intended to qualify under Section 423 of the Internal Revenue Code of 1986, as
amended, permits eligible employees of the Company to purchase Common Stock
through payroll deductions of up to ten percent of their compensation
(including commissions, overtime, shift premiums, and bonuses), up to a
maximum of $25,000 for all purchase periods ending within any calendar year.
The price of Common Stock purchased under the 1996 Purchase Plan will be 85%
of the lower of the fair market value of the Common Stock on the first or last
day of each six month purchase period. Employees may end their participation
in the 1996 Purchase Plan at any time during an offering period, and they will
be paid their payroll deductions to date. Participation ends automatically
upon termination of employment with the Company. Rights granted under the 1996
Purchase Plan are not transferable other than by will, the laws of descent and
distribution, or as otherwise provided under the 1996 Purchase Plan. The 1996
Purchase Plan will be implemented by an initial offering period of
approximately seven months commencing on
40
<PAGE>
the first trading day on or after the effective date of this offering and
ending on the last trading day in the period ending May 31, 1997. Subsequent
offering periods will last six months and will commence on each June 1 and
December 1 of each year during which the 1996 Purchase Plan is in effect, and
will terminate on the last trading day in the periods ending six months later.
The 1996 Purchase Plan will be administered by the Board of Directors or by a
committee appointed by the Board. Employees are eligible to participate if they
are customarily employed by the Company or any designated subsidiary for at
least 20 hours per week and for more than five months in any calendar year.
LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS
As permitted by the Delaware General Corporation Law (the "Delaware Law"),
the Company's Certificate of Incorporation includes a provision that eliminates
the personal liability of its directors to the Company or its stockholders for
monetary damages for breach of their fiduciary duty to the maximum extent
permitted by the Delaware Law. The Delaware Law does not permit liability to be
eliminated (i) for any breach of a director's duty of loyalty to the Company or
its stockholders, (ii) for acts or omissions not in good faith or that involve
intentional misconduct or a knowing violation of law, (iii) for unlawful
payments of dividends or unlawful stock repurchases or redemptions, as provided
in Section 174 of the Delaware Law, or (iv) for any transaction from which the
director derived an improper personal benefit. The provision does not apply to
claims against a director for violations of certain laws, including federal
securities laws. In addition, as permitted in Section 145 of the Delaware Law,
the Certificate of Incorporation and By-Laws of the Company provide that the
Company shall indemnify its directors and officers to the fullest extent
permitted by the Delaware Law, including those circumstances in which
indemnification would otherwise be discretionary, subject to certain
exceptions. The By-Laws also provide that the Company shall advance expenses to
directors and officers incurred in connection with an action or proceeding as
to which they may be entitled to indemnification, subject to certain
exceptions.
Each of the Employment Agreements with Messrs. Goldstein, Traub, Aguilar, Ott
and Whittington provides for indemnification to the maximum extent permitted by
applicable law. The Company will enter into indemnification agreements with
each of its directors and executive officers that provide the maximum
indemnification allowed to directors and executive officers by the Delaware
Law, subject to certain exceptions, as well as certain additional procedural
protections. In addition, the indemnification agreements will provide generally
that the Company will advance expenses incurred by directors and executive
officers in any action or proceeding as to which they may be entitled to
indemnification, subject to certain exceptions.
The indemnification provisions in the Company's Certificate of Incorporation,
By-Laws, the indemnification agreements to be entered into between the Company
and its directors and executive officers and each of the Employment Agreements
with Messrs. Goldstein, Traub, Aguilar, Ott and Whittington, may permit
indemnification for liabilities arising under the Securities Act. Insofar as
indemnification for liabilities arising under the Securities Act may be
permitted to directors, officers and controlling persons of the Company
pursuant to the foregoing provisions, or otherwise, the Company has been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable.
The Company currently expects to carry director and officer liability
insurance following this offering.
41
<PAGE>
CERTAIN TRANSACTIONS
From August 1993 to January 1994, the Company sold an aggregate of 3,122,500
shares of Common Stock to various officers, directors, advisors and other
persons for an aggregate of $33,507, including 1,740,000 to J. Gerard Aguilar,
420,000 to each of Jordan S. Davis, Mitchell Davis and Kenneth H. Traub,
62,500 shares to Michael Goldstein and 60,000 shares to Dr. Allen Gersho.
In March 1994, the Company sold an aggregate of 2,000,000 units at a price
of $0.25 per unit, each unit consisting of one-half share of Common Stock and
one warrant to purchase one-half share of Common Stock at a purchase price of
$1.50 per share of Common Stock. David J. Roux, Abel Aguilar, J. Gerard
Aguilar's father, Edward Goldstein, Michael Goldstein's father, William and
Sheila Davis, Jordan Davis' parents, and Steven J. Bier, Burton and Elaine
Traub, Gary Traub, Paul Traub and George and Lorraine Zimmerman, Kenneth H.
Traub's brother-in-law, parents, brother, brother, and father-in-law and
mother-in-law, respectively, purchased 80,000, 80,000, 60,000, 35,000, 30,000,
20,000, 10,000, 10,000 and 10,000 units, respectively, on the same terms as
all of the other purchasers of units. See "Description of Securities--
Warrants."
From November 1994 through February 1995, the Company sold an aggregate of
1,650,000 shares of Common Stock at a price of $1.50 per share. Edward
Goldstein, Steven J. Bier and Burton and Elaine Traub purchased 25,000, 15,000
and 5,000 shares of Common Stock, respectively, on the same terms as all of
the other purchasers of shares.
In December 1995, the Company sold 2,000,000 shares of Series A Preferred
Stock to entities of which Advent is a general partner and 2,000,000 shares of
Series A Preferred Stock to North Bridge at a price of $1.00 per share. Each
of Messrs. Fillat, a Senior Vice President of Advent, Geary, a Principal of
North Bridge, and Schell serves on the Board of Directors pursuant to a voting
agreement entered into in connection with the sale of the Series A Preferred
Stock. See "Management."
In March 1996, the Company sold 1,000,000 shares of Series A Preferred Stock
to Netscape at a price of $1.00 per share. Richard M. Schell, a Director of
the Company, is Vice President, Engineering of Netscape. Further, the Company
and Netscape are parties to a software license agreement pursuant to which
Netscape has a license to use and distribute certain of Voxware's products,
including the RT24 codec. The Netscape License Agreement provides for Netscape
to pay quarterly license fees to the Company for certain "basic" products. See
"Business--Strategic Relationships and Licensees." During the fiscal year
ended June 30, 1996 the Company derived $500,000 of its revenues from Netscape
pursuant to the Netscape License Agreement, representing approximately 31% of
the Company's revenues during the fiscal year.
In March 1996, the Company sold 1,000,000 shares of Series A Preferred Stock
to Intel at a price of $1.00 per share.
Each share of Series A Preferred Stock will automatically convert into one-
half share of Common Stock effective upon the closing of this offering. The
holders of Series A Preferred Stock will, however, be entitled to certain
registration rights with respect to the shares of Common Stock issuable upon
the conversion of the Series A Preferred Stock. See "Description of
Securities--Registration Rights."
42
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding beneficial
ownership of the Company's Common Stock as of June 30, 1996 and as adjusted to
reflect the sale of shares offered hereby, by (i) each person or entity who is
known by the Company to own beneficially more than five percent of the
Company's Common Stock, (ii) each of the Company's directors and (iii) all
executive officers and directors as a group. Unless indicated otherwise, the
address of each of these persons is c/o Voxware, Inc., 305 College Road East,
Princeton, New Jersey 08540.
<TABLE>
<CAPTION>
NUMBER OF
SHARES BENEFICIALLY PERCENTAGE OF SHARES
OWNED (1)(2) BENEFICIALLY OWNED
-------------------- ----------------------
PRIOR TO THE AFTER THE
NAME AND ADDRESS OF BENEFICIAL OWNER NUMBER OFFERING OFFERING
- ------------------------------------ -------------------- ------------ ---------
<S> <C> <C> <C>
J. Gerard Aguilar.................. 1,502,500 16.8% 12.6%
Advent International Group(3)...... 1,000,000 11.2 8.4
101 Federal Street
Boston, MA 02110
North Bridge Venture Management, 1,000,000 11.2 8.4
L.P.(4)...........................
404 Wyman Street, Suite 365
Waltham, MA 02154
Michael Goldstein(5)............... 520,937 5.6 4.3
Netscape Communications Corpora- 500,000 5.6 4.2
tion(6)...........................
501 East Middlefield Road
Mountain View, CA 94043
Intel Corporation(6)............... 500,000 5.6 4.2
2200 Mission College Boulevard
Santa Clara, CA 95052
Kenneth H. Traub(7)................ 446,875 5.2 3.7
Jordan S. Davis and Maria T. Davis 409,000 4.6 3.4
JTWROS............................
David J. Roux(8)................... 113,743 1.3 *
Steven J. Ott(9)................... 112,500 1.2 *
Richard M. Schell(10).............. 30,000 * *
Kenneth W. Whittington(11)......... 18,750 * *
Stuart R. Patterson(12)............ 6,000 * *
Andrew I. Fillat(13)............... 3,928 * *
William J. Geary(4)................ -- -- --
Nicholas Narlis.................... -- -- --
Joan R. Spindel.................... -- -- --
All Directors and Executive Offi-
cers and their respective
affiliates as a group (13 per-
sons)............................. 5,660,305 59.6 45.4
</TABLE>
- --------
* Less than 1% of outstanding shares of Common Stock.
(1) Number of shares beneficially owned is determined by assuming that options
that are held by such person (but not those held by any other person) and
which are exercisable or convertible within 60 days have been exercised or
converted.
(2) Unless otherwise noted, the Company believes that all persons named in the
table have sole voting and investment power with respect to all shares of
Common Stock beneficially owned by them.
43
<PAGE>
(3) Includes the ownership by the following venture capital funds managed by
Advent International Corporation: 2,500 shares owned by Advent
International Investors II Limited Partnership, 250,000 shares owned by
Adtel Limited Partnership, 400,000 shares owned by Advent Crown Fund
C.V., 175,000 shares owned by Adwest Limited Partnership, 13,512 shares
owned by Advent Israel (Bermuda) Limited Partnership, 111,487 shares
owned by Advent Israel Limited Partnership and 47,500 shares owned by
Advent Partners Limited Partnership. In its capacity as manager of these
funds, Advent International Corporation exercises sole voting and
investment power with respect to all shares held by these funds. Advent
International Corporation exercises its voting and investment power
through a group of three persons, Douglas R. Brown, President and Chief
Executive Officer, Dennis R. Costello, Senior Vice President responsible
for managing North American Investment Activities and Janet L. Hennessey,
Vice President responsible for monitoring public securities, none of whom
may act independently and a majority of whom must act in concert to
exercise voting or investment power over the beneficial holdings of such
entity. Therefore, no individual in this group is deemed to share voting
or investment power.
(4) Includes 1,000,000 shares of Common Stock issuable upon the conversion of
shares of Series A Preferred Stock held by North Bridge Venture Partners,
L.P., of which North Bridge Venture Management, L.P. is the general
partner. Mr. Geary is a Principal of North Bridge Venture Partners, L.P.
North Bridge Venture Management, L.P. has three general partners, Edward
T. Anderson, Richard A. D'Amore and Robert Walkingshaw, none of whom may
act independently and whose unanimous consent is required to exercise
voting or investment power over the beneficial holdings of such entity.
Therefore, no individual in this group is deemed to share voting or
investment power.
(5) Includes 62,500 shares and 187,500 shares of Common Stock owned by Mr.
Goldstein which may be repurchased by the Company and another stockholder
of the Company, respectively, in the event Mr. Goldstein's employment
agreement with the Company shall be terminated at any time prior to
January 3, 1997. Includes 293,437 shares of Common Stock issuable upon
the exercise of stock options. See "Management--Employment Agreements."
(6) Consists of 500,000 shares of Common Stock issuable upon conversion of
1,000,000 shares of Series A Preferred Stock.
(7) Includes 46,875 shares of Common Stock issuable upon the exercise of
stock options.
(8) Includes 33,743 shares of Common Stock issuable upon the exercise of
stock options and 40,000 shares of Common Stock issuable upon the
exercise of warrants.
(9) Includes 112,500 shares of Common Stock issuable upon the exercise of
stock options.
(10) Richard M. Schell is not deemed to have shared voting or investment power
over the shares owned by Netscape. The shares owned by Netscape are voted
by its President and Chief Executive Officer, James L. Barksdale, or his
designee.
(11) Includes 18,750 shares of Common Stock issuable upon the exercise of
stock options.
(12) Includes 6,000 shares of Common Stock issuable upon the exercise of stock
options.
(13) Includes 3,928 shares which are indirectly owned as a limited partner of
Advent Partners Limited Partnership. Mr. Fillat is a Senior Vice
President of Advent International Corporation, the venture capital firm
which is the manager of the funds affiliated with the Advent
International Group. Mr. Fillat disclaims beneficial ownership of the
remaining shares held by the Advent International Group.
44
<PAGE>
DESCRIPTION OF SECURITIES
COMMON STOCK
The authorized capital stock of the Company includes 30,000,000 shares of
Common Stock, par value $.001 per share. At June 30, 1996, there were
5,947,496 shares of Common Stock outstanding, held by 174 stockholders of
record. Holders of Common Stock are entitled to one vote for each share held
of record on all matters submitted to a vote of the stockholders. Holders of
Common Stock are not entitled to cumulative voting rights. Holders of Common
Stock are entitled to receive ratably such dividends as may be declared by the
Board of Directors out of funds legally available therefor, subject to any
preferential dividend rights of outstanding Preferred Stock. In the event of a
liquidation, dissolution or winding up of the Company, holders of Common Stock
are entitled to share ratably in all assets remaining after payment of
liabilities, subject to the prior rights of any outstanding Preferred Stock.
Holders of Common Stock have no preemptive rights and no right to convert
their Common Stock into any other securities. There are no redemption or
sinking fund provisions applicable to the Common Stock. All the outstanding
shares of Common Stock are, and the shares to be sold in this offering will
be, when issued and paid for, validly issued, fully paid and nonassessable.
PREFERRED STOCK
The Board of Directors is authorized, subject to certain limitations
prescribed by law, without further stockholder approval, to issue from time to
time up to an aggregate of 10,000,000 shares of preferred stock in one or more
series and to fix the relative rights, preferences and limitations of the
shares within each series, including the dividend rights, voting rights,
redemption and sinking fund provisions, liquidation preferences, conversion
rights and preemptive rights and the number of shares constituting any series.
The issuance of preferred stock, while providing desirable flexibility in
connection with possible acquisitions and other corporate purposes, could
adversely affect the voting and other rights of holders of Common Stock and,
under certain circumstances, make it more difficult or costly for a third
party to acquire, or discourage a third party from attempting to acquire,
control of the Company. The Company has no present plans to issue any shares
of preferred stock.
WARRANTS
The Company has issued warrants to purchase 1,000,000 shares of Common Stock
of the Company, of which 885,000 were outstanding as of June 30, 1996. The
Warrants entitle a registered holder thereof to purchase at a price of $1.50,
subject to adjustment in certain circumstances, at any time prior to the close
of business on March 23, 1999, one share of Common Stock. In lieu of paying
cash upon the exercise of the Warrants, the holders of Warrants have the right
to have the Company convert, without the payment of cash, all or a portion of
the Warrants into shares of Common Stock at a rate of two Warrants for each
share of Common Stock. Upon the consummation of this offering, the Warrants
will become redeemable at a price of $0.01 per Warrant at any time on not less
than 30 days prior notice from the Company.
The exercise price of the Warrants and the number and kind of shares of
Common Stock or other securities and property issuable upon exercise of the
Warrants are subject to adjustment in certain circumstances, including a stock
split of, stock dividend on, or subdivision of the Common Stock. Additionally,
except in the case of a Qualified Transaction, an adjustment will be made upon
a merger, consolidation, sale of all or substantially all of the assets of the
Company, or recapitalization or other similar transaction in order to enable
holders of Warrants to purchase the kind and number of shares of stock or
other securities or property (including cash) receivable in such event by a
holder of the number of shares of Common Stock that might otherwise have been
purchased upon exercise of the Warrants.
REGISTRATION RIGHTS
After this offering, the holders of 3,000,000 shares of outstanding Common
Stock will have the right at any time after the six month period following the
closing of the offering to require the Company to register their
45
<PAGE>
shares of Common Stock under the Securities Act. In addition, the holders of
those shares have certain "piggy-back" registration rights and rights to
require the Company to register all or a portion of their shares on Form S-3
to the extent that form is available to the Company for registration of
shares. In addition, the Company has an obligation to register up to 1,650,000
shares of Common Stock (the "Second Placement Shares"), which were sold by the
Company in a private placement between November 1994 and February 1995, within
12 months following the closing of the offering; provided, that the Company
will not be obligated to register Second Placement Shares for any holder who
could then sell all of his, her or its holding of Second Placement Shares
under Rule 144. The Company believes that nearly all holders of Second
Placement Shares will be able to sell all of their shares under Rule 144
within 12 months after the offering and therefore the registration obligation
will apply to few, if any, Second Placement Shares. Registration and sale of
shares of Common Stock could have an adverse effect on the trading price of
the Common Stock.
DELAWARE ANTI-TAKEOVER LAW AND CHARTER PROVISIONS
Upon the consummation of the offering, the Company will be subject to the
provisions of Section 203 of the Delaware Law (the "Anti-Takeover Law")
regulating corporate takeovers. The Anti-Takeover Law prevents certain
Delaware corporations from engaging, under certain circumstances, in a
"business combination" with any "interested stockholder" (defined generally as
a stockholder who acquired 15% or more of the corporation's outstanding voting
stock without the prior approval of the corporation's board of directors) for
three years following the time that such stockholder became an "interested
stockholder." A Delaware corporation may "opt out" of the Anti-Takeover Law
with an express provision in its original certificate of incorporation or an
express provision in its certificate of incorporation or bylaws resulting from
a stockholder's amendment approved by at least a majority of the outstanding
voting shares. The Company has not "opted out" of the provisions of the Anti-
Takeover Law. The existence of this provision would be expected to have the
effect of discouraging takeover attempts, including attempts that might result
in a premium over the market price for the shares of Common Stock held by
stockholders. In addition, the Certificate of Incorporation, as amended,
provides that upon the closing of the offering, the stockholders of the
Company may consent in writing to an action in lieu of an annual or special
meeting of stockholders only by the consent of the holders of all of the
outstanding stock of the Company. Subject to, and upon the consummation of,
the offering, the Company's Certificate of Incorporation will be amended to
provide that directors of the Company shall be divided into three classes, as
nearly equal in number as possible. See "Management--Executive Officers and
Directors."
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock is Continental Stock
Transfer & Trust Company, 2 Broadway, New York, New York 10004.
46
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Sales of a substantial number of shares of the Company's Common Stock could
have the effect of depressing the prevailing market price of its Common Stock.
Upon completion of this offering, the Company will have a total of 11,947,496
shares of Common Stock outstanding, assuming no exercise of stock options and
warrants after June 30, 1996. The Company believes that substantially all of
the warrants to purchase 885,000 shares of Common Stock outstanding as of June
30, 1996 will be exercised prior to or promptly following the closing of this
offering. Of the 11,947,496 shares outstanding, the 3,000,000 shares of Common
Stock offered hereby will be freely tradeable without restriction under the
Securities Act by persons other than "affiliates" of the Company, as defined
under the Securities Act. The remaining 8,947,496 shares of Common Stock
outstanding are "restricted shares" as that term is defined by Rule 144 as
promulgated under the Securities Act. None of these 8,947,496 shares will be
immediately saleable in the public market following the date of this
Prospectus. Beginning 180 days after the date of this Prospectus (or earlier
with the written consent of Montgomery Securities, on behalf of the
Underwriters), 8,865,496 shares of Common Stock will become eligible for sale
upon the expiration of lock-up agreements between the Underwriters and the
holders of such shares, subject to compliance with Rule 144 or Rule 701 of the
Securities Act.
As of June 30, 1996, options to purchase a total of 1,261,150 shares of
Common Stock were outstanding, and there were 1,098,850 shares of Common Stock
available for future option grants under the Company's 1994 Stock Option Plan.
917,500 of the shares issuable pursuant to outstanding options are subject to
lock-up restrictions for a period of 180 days as described above. In addition,
the Company has warrants outstanding to purchase an aggregate of 885,000
shares of Common Stock for $1.50 per share, of which 867,500 shares are
subject to lock-up restrictions for a period of 180 days as described above.
In addition, the Company has 200,000 shares of Common Stock reserved for
issuance pursuant to the 1996 Employee Stock Purchase Plan, none of which have
been issued. See "Management--1994 Stock Option Plan," and "--1996 Employee
Stock Purchase Plan," "Description of Securities--Warrants," "Underwriting"
and "Note 4 of "Notes to Financial Statements."'
Rule 701 under the Securities Act provides that, beginning 90 days after the
date of this Prospectus, shares of Common Stock acquired upon the exercise of
outstanding options may be resold by persons other than affiliates subject
only to the manner of sale provisions of Rule 144 and by affiliates subject to
all provisions of Rule 144 except its two-year minimum holding period. The
Company intends to file a Registration Statement on Form S-8 under the
Securities Act to register shares of Common Stock subject to stock options
which will permit the resale of such shares, subject to the Rule 144 volume
limitations applicable to affiliates, vesting restrictions with the Company
and lock-up agreements between the optionholders and the Underwriters.
Prior to this offering, there has been no public trading market for the
Common Stock. The possibility that substantial amounts of Common Stock may be
sold in the public market may adversely affect prevailing prices for the
Common Stock and could impair the Company's ability to raise additional
capital through the sale of its equity securities.
47
<PAGE>
UNDERWRITING
The underwriters named below (the "Underwriters"), represented by Montgomery
Securities, Alex. Brown & Sons Incorporated and Oppenheimer & Co., Inc. (the
"Representatives"), have severally agreed, subject to the terms and conditions
set forth in the Underwriting Agreement, to purchase from the Company the
number of shares of Common Stock indicated below opposite their respective
names at the initial public offering price less the underwriting discount set
forth on the cover page of this Prospectus. The Underwriting Agreement
provides that the obligations of the Underwriters are subject to certain
conditions precedent and that the Underwriters are committed to purchase all
of such shares, if any are purchased.
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITER SHARES
----------- ---------
<S> <C>
Montgomery Securities .............................................
Alex. Brown & Sons Incorporated....................................
Oppenheimer & Co., Inc.............................................
---------
Total............................................................ 3,000,000
=========
</TABLE>
The Representatives have advised the Company that the Underwriters initially
propose to offer the Common Stock to the public on the terms set forth on the
cover page of this Prospectus. The Underwriters may allow to selected dealers
a concession of not more than $ per share; and the Underwriters may allow,
and such dealers may reallow, a concession of not more than $ per share to
certain other dealers. After the initial public offering, the offering price
and other selling terms may be changed by the Representatives. The Common
Stock is offered subject to receipt and acceptance by the Underwriters, and to
certain other conditions, including the right to reject orders in whole or in
part.
The Company has granted an option to the Underwriters, exercisable during
the 30-day period after the date of this Prospectus, to purchase up to a
maximum of 450,000 additional shares of Common Stock to cover over-allotments,
if any, at the same price per share as the initial 3,000,000 shares to be
purchased by the Underwriters. To the extent that the Underwriters exercise
this option, each of the Underwriters will be committed, subject to certain
conditions, to purchase such additional shares in approximately the same
proportion as set forth in the above table. The Underwriters may purchase such
shares only to cover over-allotments made in connection with this offering.
Each director and officer of the Company and certain other holders of Common
Stock prior to this offering have agreed, subject to certain limited
exceptions, not to sell or offer to sell or otherwise dispose of any shares of
Common Stock currently held by them, any right to acquire any shares of Common
Stock or any securities exercisable for or convertible into any shares of
Common Stock for a period of 180 days after the date of this Prospectus
without the prior written consent of Montgomery Securities. Montgomery
Securities may, in its sole discretion and at any time without notice, release
all or any portion of the securities subject to these lock-up agreements. In
addition, the Company has agreed, subject to certain exceptions, that for a
period of 180 days after the date of this Prospectus it will not, without the
prior written consent of Montgomery Securities, issue, offer, sell, grant
options to purchase or otherwise dispose of any equity securities or
securities convertible into or exchangeable for equity securities except for
shares of Common Stock offered hereby and shares issued pursuant to
outstanding options and warrants. See "Management--1994 Stock Option Plan" and
"Description of Securities--Warrants."
The Underwriting Agreement provides that the Company will indemnify the
Underwriters and their controlling persons against certain liabilities,
including civil liabilities under the Securities Act, or will contribute to
payments the Underwriters may be required to make in respect thereof.
The Representatives have advised the Company that they do not intend to
confirm sales to any accounts over which they exercise discretionary authority
in excess of 5% of the number of shares of Common Stock offered hereby.
48
<PAGE>
Prior to this offering, there has been no public market for the Common
Stock. Consequently, the initial public offering price will be determined
through negotiations between the Company and the Representatives. Among the
factors to be considered in such negotiations will be the history of, and
prospects for, the Company and the industry in which it competes, an
assessment of the Company's management, the Company's past and present
operations and financial performance, its past and present earnings and the
trend of such earnings, the prospects for future earnings of the Company, the
present state of the Company's development, the general condition of the
securities markets at the time of the offering and the market prices of
publicly traded common stocks of comparable companies in recent periods.
LEGAL MATTERS
The validity of the issuance of the shares of Common Stock offered hereby
will be passed upon for the Company by Fulbright & Jaworski L.L.P., New York,
New York. Ropes & Gray, Boston, Massachusetts will pass upon certain legal
matters relating to the offering for the Underwriters. At June 30, 1996,
attorneys at Fulbright & Jaworski L.L.P. owned 70,000 shares of Common Stock
of the Company and warrants to purchase 10,000 shares of Common Stock.
EXPERTS
The financial statements of the Company included in this Prospectus and
elsewhere in the Registration Statement have been audited by Arthur Andersen
LLP, independent public accountants, as indicated in their report with respect
thereto, and are included herein in reliance upon the authority of said firm
as experts in giving said report.
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") in Washington, D.C. a Registration Statement on Form S-1
(together with all amendments thereto, the "Registration Statement"), under
the Securities Act with respect to the Common Stock offered hereby. This
Prospectus, which constitutes a part of the Registration Statement, does not
contain all of the information set forth in the Registration Statement and the
exhibits and schedules filed therewith, certain portions of which have been
omitted as permitted by the rules and regulations of the Commission. With
respect to each contract, agreement or other document referred to in this
prospectus and which is filed as an exhibit to the Registration Statement,
reference hereby is made to the exhibit for a more complete description of the
matter involved and each such statement shall be deemed qualified by such
reference. For further information with respect to the Company and the Common
Stock offered hereby, reference is made to the Registration Statement and
exhibits and schedules thereto. The Registration Statement filed by the
Company, including exhibits and schedules thereto, may be inspected without
charge at the public reference facilities maintained by the Commission at Room
1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549 and at
the Midwest Regional Office of the Commission located at 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661-2511 and at 7 World Trade Center,
Suite 1300, New York, New York 10048. Copies of such material, when filed, may
also be obtained from the Public Reference Section of the Commission at 450
Fifth Street, N.W., Washington, D.C. 20549 upon payment of certain fees
prescribed by the Commission. The Commission maintains a World Wide Web site
on the Internet at http://www.sec.gov that contains reports, proxy and
information statements and other information regarding registrants that file
electronically with the Commission.
The Company intends to furnish its stockholders with annual reports
containing financial statements audited by its independent public accountants
and quarterly reports containing unaudited financial information for each of
the first three quarters of each fiscal year.
49
<PAGE>
On February 6, 1996, the Company engaged Arthur Andersen LLP as its
independent public accountants and dismissed the Company's former auditors.
The decision to change accountants was recommended by the Audit Committee of
the Board of Directors and approved by the Board of Directors. The financial
statements of the Company as of June 30, 1994, 1995 and 1996 and for the
period from Inception (August 20, 1993) to June 30, 1994 and for the years
ended June 30, 1995 and 1996, have been audited by Arthur Andersen LLP. The
former auditors were retained by the Company since its Inception. The former
auditor's reports for the period from Inception to May 31, 1994 and the year
ended May 31, 1995, did not contain an adverse opinion or a disclaimer of
opinion and were not qualified or modified as to uncertainty, audit scope, or
accounting principles. In connection with the audits of the Company's
financial statements for the period from Inception (August 20, 1993) to May
31, 1994 and for the year ended May 31, 1995 and in the subsequent interim
period prior to the dismissal, there were no disagreements with the former
auditors on any matters of accounting principles or practices, financial
statement disclosure, or auditing scope or procedures which, if not resolved
to the former auditor's satisfaction, would have caused them to make reference
to the subject matter in their report. Prior to retaining Arthur Andersen LLP,
the Company did not consult with Arthur Andersen LLP regarding the application
of accounting principles to a specified transaction, the type of audit opinion
that might be rendered on the Company's financial statements or any other
matter.
50
<PAGE>
VOXWARE, INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Report of Independent Public Accountants.................................. F-2
Balance Sheets............................................................ F-3
Statements of Operations.................................................. F-4
Statements of Redeemable Convertible Preferred Stock and Stockholders'
Equity (Deficit)......................................................... F-5
Statements of Cash Flows.................................................. F-6
Notes to Financial Statements............................................. F-7
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Voxware, Inc.:
We have audited the accompanying balance sheets of Voxware, Inc. (a Delaware
corporation) as of June 30, 1995 and 1996 and the related statements of
operations, redeemable convertible preferred stock and stockholders' equity
(deficit) and cash flows for the period from Inception (August 20, 1993) to
June 30, 1994 and for the two years ended June 30, 1996. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Voxware, Inc. as of June
30, 1995 and 1996 and the results of its operations and its cash flows for the
period from Inception (August 20, 1993) to June 30, 1994 and for the two years
ended June 30, 1996, in conformity with generally accepted accounting
principles.
ARTHUR ANDERSEN LLP
Philadelphia, Pa.,
July 12, 1996, (except for the stock split discussed in Note 1, as to which
the date is September 19, 1996)
F-2
<PAGE>
VOXWARE, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
PRO FORMA
STOCKHOLDERS'
JUNE 30, EQUITY
------------------------ JUNE 30, 1996
1995 1996 (UNAUDITED)
----------- ----------- -------------
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............ $ 1,523,054 $ 3,836,836
Accounts receivable, net of allowance
for doubtful accounts of $25,000 at
June 30, 1996....................... -- 469,750
Prepaid expenses..................... 5,440 54,358
----------- -----------
Total current assets............... 1,528,494 4,360,944
Property and equipment, net............ 128,769 610,973
Other assets, net...................... 9,564 364,536
----------- -----------
$ 1,666,827 $ 5,336,453
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
(DEFICIT)
Current liabilities:
Accounts payable..................... $ 110,530 $ 193,944
Accrued compensation and benefits.... -- 109,875
Other accrued expenses............... -- 60,664
Deferred revenues.................... -- 109,123
----------- -----------
Total current liabilities.......... 110,530 473,606
----------- -----------
Redeemable Series A Convertible
Preferred Stock....................... -- 5,938,325 $ --
----------- ----------- -----------
Commitments and contingencies (Note 6)
Stockholders' equity (deficit):
Preferred stock, $.001 par value,
10,000,000 shares authorized;
6,000,000 Redeemable Series A
Convertible shares issued and
outstanding in 1996; no shares
issued and outstanding pro forma.... -- -- --
Common stock, $.001 par value,
30,000,000 shares authorized;
5,772,496 and 5,947,496 shares
issued and outstanding; 8,947,496
shares issued and outstanding pro
forma............................... 5,772 5,947 8,947
Additional paid-in capital........... 2,934,813 3,177,138 9,112,463
Accumulated deficit.................. (1,384,288) (4,258,563) (4,258,563)
----------- ----------- -----------
Total stockholders' equity
(deficit)......................... 1,556,297 (1,075,478) 4,862,847
----------- ----------- -----------
$ 1,666,827 $ 5,336,453 $ 5,336,453
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
F-3
<PAGE>
VOXWARE, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
PERIOD FROM
INCEPTION
(AUGUST 20, 1993) YEAR ENDED JUNE 30,
TO JUNE 30, ------------------------
1994 1995 1996
----------------- ----------- -----------
<S> <C> <C> <C>
Revenues:
Product revenues................ $ -- $ -- $ 1,494,075
Service revenues................ -- -- 112,963
--------- ----------- -----------
Total revenues................ -- -- 1,607,038
--------- ----------- -----------
Cost of revenues:
Cost of product revenues........ -- -- 17,285
Cost of service revenues........ -- -- 28,129
--------- ----------- -----------
Total cost of revenues........ -- -- 45,414
--------- ----------- -----------
Gross profit.................. -- -- 1,561,624
--------- ----------- -----------
Operating expenses:
Research and development........ 93,372 536,581 2,496,717
Sales and marketing............. 9,158 331,728 1,084,280
General and administrative...... 112,978 365,411 979,796
--------- ----------- -----------
Total operating expenses...... 215,508 1,233,720 4,560,793
--------- ----------- -----------
Operating loss................ (215,508) (1,233,720) (2,999,169)
Interest income................... -- 64,940 131,857
--------- ----------- -----------
Net loss.......................... $(215,508) $(1,168,780) $(2,867,312)
========= =========== ===========
Pro forma net loss per share
(unaudited)...................... $ (0.33)
===========
Shares used in computing pro forma
net
loss per share (unaudited)....... 8,704,201
===========
</TABLE>
The accompanying notes are an integral part of these statements.
F-4
<PAGE>
VOXWARE, INC.
STATEMENTS OF REDEEMABLE CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY
(DEFICIT)
<TABLE>
<CAPTION>
STOCKHOLDERS' EQUITY (DEFICIT)
-----------------------------------------------------
REDEEMABLE
SERIES A COMMON STOCK ADDITIONAL
CONVERTIBLE ----------------- PAID-IN ACCUMULATED
PREFERRED STOCK SHARES AMOUNT CAPITAL DEFICIT TOTAL
--------------- --------- ------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Sale of common stock
to founding
stockholders......... $ -- 3,000,000 $ 3,000 $ 27,567 $ -- $ 30,567
Sale of common stock.. -- 1,122,496 1,122 490,050 -- 491,172
Net loss.............. -- -- -- -- (215,508) (215,508)
---------- --------- ------- ---------- ----------- -----------
Balance, June 30, 1994.. -- 4,122,496 4,122 517,617 (215,508) 306,231
Sale of common stock.. -- 1,650,000 1,650 2,417,196 -- 2,418,846
Net loss.............. -- -- -- -- (1,168,780) (1,168,780)
---------- --------- ------- ---------- ----------- -----------
Balance, June 30, 1995.. -- 5,772,496 5,772 2,934,813 (1,384,288) 1,556,297
Sale of Redeemable
Series A Convertible
Preferred Stock...... 5,931,362 -- -- -- -- --
Exercise of common
stock warrants....... -- 115,000 115 172,385 -- 172,500
Exercise of common
stock options........ -- 60,000 60 69,940 -- 70,000
Accretion of
redemption premium on
Redeemable Series A
Convertible Preferred
Stock................ 6,963 -- -- -- (6,963) (6,963)
Net loss.............. -- -- -- -- (2,867,312) (2,867,312)
---------- --------- ------- ---------- ----------- -----------
Balance, June 30, 1996.. $5,938,325 5,947,496 $5,947 $3,177,138 $(4,258,563) $(1,075,478)
========== ========= ======= ========== =========== ===========
Pro forma balance after
conversion of
Redeemable Series A
Convertible Preferred
Stock into common stock
(Note 1) (unaudited)... $ -- 8,947,496 $8,947 $9,112,463 $(4,258,563) $ 4,862,847
========== ========= ======= ========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
F-5
<PAGE>
VOXWARE, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
PERIOD FROM
INCEPTION
(AUGUST 20, 1993) YEAR ENDED JUNE 30,
TO JUNE 30, ------------------------
1994 1995 1996
----------------- ----------- -----------
<S> <C> <C> <C>
Operating activities:
Net loss.......................... $(215,508) $(1,168,780) $(2,867,312)
Adjustments to reconcile net loss
to net cash used in operating
activities:
Depreciation and amortization.... 3,951 16,659 104,162
Provision for doubtful accounts.. -- -- 25,000
Changes in assets and
liabilities:
Accounts receivable............ -- -- (494,750)
Prepaid expenses............... -- (5,440) (48,918)
Other assets................... (6,534) (3,030) (354,972)
Accounts payable............... 52,469 58,061 83,414
Accrued compensation and
benefits...................... -- -- 109,875
Other accrued expenses......... -- -- 60,664
Deferred revenues.............. -- -- 109,123
--------- ----------- -----------
Net cash used in operating
activities.................. (165,622) (1,102,530) (3,273,714)
--------- ----------- -----------
Investing activities:
Purchases of property and
equipment....................... (48,820) (100,559) (586,366)
--------- ----------- -----------
Financing activities:
Sale of Redeemable Series A
Convertible Preferred Stock..... -- -- 5,931,362
Proceeds from exercise of common
stock warrants.................. -- -- 172,500
Proceeds from exercise of common
stock options................... -- -- 70,000
Proceeds from sale of common
stock........................... 521,739 2,418,846 --
--------- ----------- -----------
Net cash provided by
financing activities........ 521,739 2,418,846 6,173,862
--------- ----------- -----------
Increase in cash and cash
equivalents....................... 307,297 1,215,757 2,313,782
Cash and cash equivalents,
beginning of period............... -- 307,297 1,523,054
--------- ----------- -----------
Cash and cash equivalents, end of
period............................ $ 307,297 $ 1,523,054 $ 3,836,836
========= =========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
F-6
<PAGE>
VOXWARE, INC.
NOTES TO FINANCIAL STATEMENTS
1. THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
The Company
Voxware, Inc. (the "Company") develops, markets, licenses and supports a
comprehensive set of digital speech processing technologies which provide the
ability to compress, model and transform speech. The Company licenses its
products to leading software, computing and communication companies.
The market for the Company's products is characterized by rapidly changing
technology and evolving industry standards. The introduction of products
incorporating new technology and the emergence of new industry standards could
render the Company's products obsolete and unmarketable and could exert price
pressures on existing products. The Company's ability to anticipate changes in
technology and industry standards and successfully develop and introduce new
and enhanced products, as well as additional applications for existing
products, in each case on a timely basis, will be a critical factor in the
Company's ability to grow and to be competitive. The Company has only a
limited operating history upon which an evaluation of the Company and its
prospects can be based. The Company's prospects must be considered in light of
the risks, expenses and difficulties frequently encountered by companies in
the early stage of development, particularly companies in new and rapidly
evolving markets. As of June 30, 1996, the Company had an accumulated deficit
of $4,258,563. In addition, the Company's operating results may fluctuate
significantly in the future as a result of a variety of factors, many of which
are outside the Company's control. These factors include the level of usage of
the Internet, the budgeting cycles of potential customers, the amount and
timing of capital expenditures and other costs relating to the expansion of
the Company's operations, the introduction of new products or services by the
Company or its competitors, pricing changes in the industry, technical
difficulties with respect to the use of products developed by the Company,
general economic conditions and economic conditions specific to the Internet.
However, the Company believes that adequate capital resources will be
available to fund the Company's operations for the year ending June 30, 1997.
The Company was incorporated in the State of Delaware on August 20, 1993 as
Advanced Communication Technologies, Inc. and changed its name to Voxware,
Inc. in May 1994. For accounting purposes, the Company emerged from
development stage commencing July 1995.
Unaudited Pro Forma Stockholders' Equity
In conjunction with the proposed initial public offering of the Company's
common stock (the "Offering"), all of the outstanding shares of Redeemable
Series A Convertible Preferred Stock will convert into common stock effective
upon the closing of the Offering. The unaudited pro forma stockholders' equity
at June 30, 1996 reflects the assumed conversion of the Redeemable Series A
Convertible Preferred Stock into 3,000,000 shares of common stock (see Note
3).
Summary of Significant Accounting Policies
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
REVENUE RECOGNITION
The Company generates revenues from two sources: fees from product licenses
and fees for services provided. Product licenses include a combination of
initial license fees, annual license fees or royalties. Service revenues
consist of customer support and engineering fees. Product revenues are
generally recognized upon shipment, provided there are no significant post
delivery obligations, the payment is due within one year and
F-7
<PAGE>
VOXWARE, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
collection of the resulting receivable is deemed probable. Certain agreements
provide for per unit royalties to be paid to the Company based on shipments by
customers of units utilizing the Company's products. Royalty revenues are
recognized at the time of shipment by the customer. No royalty revenues have
been recognized through June 30, 1996. Service revenues from customer support,
including amounts bundled with initial or annual license fees, are recognized
ratably over the term of the support period, which is typically one year.
Revenues from engineering fees are recognized upon customer acceptance or over
the period in which services are provided if customer acceptance is not
required.
RESEARCH AND DEVELOPMENT
Research and development expenditures are charged to operations as incurred.
Pursuant to Statement of Financial Accounting Standards No. 86, "Accounting
for the Cost of Computer Software to be Sold, Leased or Otherwise Marketed",
development costs incurred in connection with the research and development of
software products and enhancements to existing software products are expensed
when incurred unless technological feasibility has been established. Based on
the Company's product development process, technological feasibility is
established upon completion of a working model. Costs incurred by the Company
between completion of the working model and the point at which the product is
ready for general release have been insignificant. All research and
development costs have been expensed.
STOCK SPLIT
On September 19, 1996 the Company effected a one for two stock split and
decreased its authorized common stock to 30,000,000 shares. All references in
the accompanying financial statements to the number of common shares and per
share amounts have been retroactively restated to reflect the stock split.
PRO FORMA NET LOSS PER SHARE (UNAUDITED)
Pro forma net loss per share was calculated by dividing net loss by the
weighted average number of common shares outstanding for the respective
periods adjusted for the dilutive effect of common stock equivalents, which
consist of stock options using the treasury stock method. Pursuant to the
requirements of the Securities and Exchange Commission, common stock issued by
the Company during the twelve months immediately preceding the initial public
offering, plus the number of common equivalent shares which became issuable
during the same period pursuant to the grant of common stock options, have
been included in the calculation of the shares used in computing pro forma net
loss per share as if they were outstanding for all periods presented (using
the treasury stock method and the estimated initial public offering price of
$12.00 per share). Pursuant to the policy of the Securities and Exchange
Commission the calculation of shares used in computing pro forma net loss per
share also includes the Redeemable Series A Convertible Preferred Stock which
will convert into 3,000,000 shares of common stock effective upon the closing
of the Offering.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents consist of investments in highly liquid short-term
instruments, with original maturities of three months or less.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation is computed on a
straight-line basis over the useful lives of the assets ranging from three to
seven years. Maintenance, repairs and minor replacements are charged to
expense as incurred.
CONCENTRATION OF CREDIT RISK
Financial instruments that potentially subject the Company to concentration
of credit risk consist principally of cash balances and trade receivables. The
Company invests its excess cash with highly liquid investments (short-term
bank deposits). The Company's customer base principally comprises companies
within the software, computer and telecommunications industries. The Company
does not require collateral from its customers.
F-8
<PAGE>
VOXWARE, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
MAJOR CUSTOMERS
The Company derived approximately 31% of its revenues in the year ended June
30, 1996 from one customer which is a related party (see Note 7).
STOCK BASED COMPENSATION
In October 1995, The Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" ("SFAS No. 123") which establishes financial accounting and
reporting standards for stock based employee compensation plans. Companies are
encouraged, rather than required to adopt a new method that accounts for stock
compensation awards based on their fair value using an option pricing model.
Companies that do not adopt this method will have to make pro forma
disclosures of net income as if the fair value based method of accounting
required by this standard had been applied. The Company is required to adopt
SFAS No. 123 effective July 1, 1996. The Company has elected to adopt the
disclosure requirement of the pronouncement.
2. PROPERTY AND EQUIPMENT:
<TABLE>
<CAPTION>
JUNE 30,
-------------------
1995 1996
-------- ---------
<S> <C> <C>
Equipment............................................. $139,817 $ 409,425
Leasehold improvements................................ -- 50,000
Furniture and fixtures................................ 9,562 276,320
-------- ---------
149,379 735,745
Less--Accumulated depreciation........................ (20,610) (124,772)
-------- ---------
$128,769 $ 610,973
======== =========
</TABLE>
Depreciation expense was $3,951, $16,659 and $104,162 for the periods ended
June 30, 1994, 1995 and 1996, respectively.
3. REDEEMABLE SERIES A CONVERTIBLE PREFERRED STOCK:
As of June 30, 1996, the Company had 10,000,000 shares of preferred stock
authorized of which 6,000,000 were designated, issued and outstanding as
$0.001 par value Redeemable Series A Convertible Preferred Stock ("Series A
Preferred Stock"). The 6,000,000 shares of Series A Preferred Stock were sold
to investors in fiscal 1996 for $1.00 per share resulting in net proceeds to
the Company of $5,931,362.
Each share of Series A Preferred Stock is convertible into one-half share of
the Company's common stock. In addition, effective upon the closing of an
initial public offering of the Company's common stock, as defined, all shares
of the Series A Preferred Stock will automatically convert into common stock
on a two-for-one basis, subject to certain adjustments. Each preferred
stockholder is entitled to one vote per share, registration rights, as
defined, and dividends when and if declared. No dividends have been declared
on the Series A Preferred Stock.
Subsequent to December 15, 2000, the Series A Preferred Stock is redeemable
at the option of a majority of the holders at $1.00 per share plus accrued but
unpaid dividends, if any, payable in twelve equal quarterly installments. The
Series A Preferred Stock is being accreted to its redemption value.
F-9
<PAGE>
VOXWARE, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
4. STOCKHOLDERS' EQUITY:
Stock Option Plans
Pursuant to the 1994 Stock Option Plan (the "Plan"), the Company may grant
to eligible individuals incentive stock options as defined in the Internal
Revenue Code and nonqualified stock options. An aggregate of 2,350,000 shares
of common stock have been reserved for issuance under the Plan. The exercise
price for incentive stock options may not be less than 100% (110% for holders
of 10% or more of the combined voting power of all classes of stock of the
Company) of the fair value of the shares on the date of grant and at least par
value for nonqualified stock options. The period during which an option may be
exercised will be fixed by the Board of Directors up to a maximum of ten years
(five years in case of incentive stock options granted to holders of 10% or
more of the combined voting power of all classes of stock of the Company) and
vest at the discretion of the Board of Directors.
The Company has granted a total of 70,000 options at prices ranging from
$1.00 to $2.00 outside of the 1994 Stock Option Plan ("Outside Options").
Information relative to the 1994 Stock Option Plan and the Outside Options
is as follows:
<TABLE>
<CAPTION>
PRICE
SHARES PER SHARE
--------- -------------
<S> <C> <C>
Granted........................................ 377,500 $0.50--$ 3.00
---------
Outstanding at June 30, 1994..................... 377,500 $0.50--$ 3.00
Granted........................................ 584,000 $1.00--$ 1.50
---------
Outstanding at June 30, 1995..................... 961,500 $0.50--$ 3.00
Granted........................................ 421,150 $1.50--$10.80
Exercised...................................... (60,000) $0.50--$ 1.50
Canceled....................................... (61,500) $1.50--$ 2.40
---------
Outstanding at June 30, 1996..................... 1,261,150 $0.50--$10.80
=========
</TABLE>
As of June 30, 1996, there were 545,116 options exercisable at an aggregate
price of $845,589. In addition as of June 30, 1996, there were 1,098,850
additional options to purchase common stock available for grant under the 1994
Stock Option Plan.
Warrants
In March 1994, the Company sold 1,000,000 shares of common stock and
warrants ("Warrants") to purchase an aggregate of 1,000,000 shares of common
stock for $1.50 per share, subject to adjustment in certain circumstances. In
lieu of paying cash upon the exercise of the Warrants, the Warrant holders
have the right to have the Company convert all or a portion of the Warrants
into shares of common stock at a rate of two Warrants for each share of common
stock. Immediately upon the closing of an initial public offering, as defined,
the Warrants will become redeemable at a price of $0.01 per Warrant at any
time on not less than 30 days prior written notice from the Company. In June
1996, warrants to purchase 115,000 shares of Common Stock were exercised.
5. INCOME TAXES:
As of June 30, 1996, the Company had approximately $3,500,000 of federal net
operating loss carryforwards for tax reporting purposes available to offset
future taxable income; such carryforwards begin to expire in 2009. Under the
Tax Reform Act of 1986, the amounts of and benefits from net operating losses
carried forward may be impaired or limited in certain circumstances. Events
which may cause limitations in the amount of net operating losses that the
Company may utilize in any one year include, but are not limited to, a
cumulative
F-10
<PAGE>
VOXWARE, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
ownership change of more than 50% over a three year period. As of June 30,
1996, the effect of such limitations, if imposed, is not expected to be
material.
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
and the amounts used for income tax purposes. As of June 30, 1996, the Company
had deferred tax assets of approximately $1,645,000 relating primarily to net
operating loss carryforwards. The net deferred tax asset has been fully offset
by a valuation allowance.
6. COMMITMENTS AND CONTINGENCIES:
The Company leases its office facility and certain equipment under operating
leases with remaining noncancelable lease terms generally in excess of one
year. Rent expense was $3,000, $19,500 and $64,182 for the periods ended June
30, 1994, 1995 and 1996, respectively. Future minimum rental payments as of
June 30, 1996 are as follows:
<TABLE>
<S> <C>
Year Ending June 30,
1997.............................. $ 193,525
1998.............................. 322,350
1999.............................. 383,400
2000.............................. 383,400
2001.............................. 383,400
2002 and thereafter............... 734,850
----------
$2,400,925
==========
</TABLE>
The Company has a $300,000 letter of credit outstanding in connection with
the Company's facility lease. Included in other assets as of June 30, 1996 is
a $300,000 certificate of deposit which is required to be held as collateral
for the letter of credit.
From time to time the Company is involved in certain legal actions arising
in the ordinary course of business. In the opinion of management, the outcome
of such actions will not have a material adverse effect on the Company's
financial position or results of operations.
The Company has employment and severance agreements with five officers, the
terms of which range from three to five years. The agreements provide for
minimum salary levels, adjusted annually at the discretion of the board of
directors.
7. RELATED-PARTY TRANSACTIONS:
The Company derived approximately 31% of its revenues for the year ended
June 30, 1996 from Netscape Communications Corporation, which owns 1,000,000
shares of the Series A Preferred Stock (see Note 3).
8. SEGMENT INFORMATION:
The Company conducts its business within one industry segment. For the year
ended June 30, 1996, revenues included $183,989 of sales to customers outside
the United States.
F-11
<PAGE>
[VOXWARE LOGO]
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
No dealer, sales representative or any other person has been authorized to
give any information or to make any representations in connection with this
offering other than those contained in this Prospectus and, if given or made,
such information or representations must not be relied upon as having been au-
thorized by the Company or any of the Underwriters. This Prospectus does not
constitute an offer to sell or a solicitation of any offer to buy any securi-
ties other than the shares of Common Stock to which it relates or an offer to,
or a solicitation of, any person in any jurisdiction where such offer or so-
licitation would be unlawful. Neither the delivery of this Prospectus nor any
sale made hereunder shall, under any circumstances, create an implication that
there has been no change in the affairs of the Company or that the information
contained herein is correct as of any time subsequent to the date hereof.
-------------------
TABLE OF CONTENTS
-------------------
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary....................................................... 3
Risk Factors............................................................. 5
Use of Proceeds.......................................................... 12
Dividend Policy.......................................................... 12
Capitalization........................................................... 13
Dilution................................................................. 14
Selected Financial Data.................................................. 15
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 16
Business................................................................. 21
Management............................................................... 34
Certain Transactions..................................................... 42
Principal Stockholders................................................... 43
Description of Securities................................................ 45
Shares Eligible for Future Sale.......................................... 47
Underwriting............................................................. 48
Legal Matters............................................................ 49
Experts.................................................................. 49
Additional Information................................................... 49
Index to Financial Statements............................................ F-1
</TABLE>
-------------------
Until , 1996 (25 days after the date of this Prospectus), all dealers ef-
fecting transactions in the Common Stock, whether or not participating in this
distribution, may be required to deliver a Prospectus. This is in addition to
the obligation of dealers to deliver a Prospectus when acting as Underwriters
and with respect to their unsold allotments or subscriptions.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
3,000,000 SHARES
LOGO
VOXWARE
COMMON STOCK
----------------
PROSPECTUS
----------------
MONTGOMERY SECURITIES
ALEX. BROWN & SONS
Incorporated
OPPENHEIMER & CO., INC.
, 1996
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
PART II
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the Company's estimates (other than the SEC
registration fee and the NASD filing fee) of the expenses in connection with
the issuance and distribution of the shares of Common Stock being registered,
other than underwriting discounts and commissions:
<TABLE>
<S> <C>
SEC registration fee............................................... $ 15,466
NASD filing fee.................................................... 4,180
Nasdaq National Market listing fee................................. 50,000
Printing and engraving expenses.................................... 125,000
Legal fees and expenses............................................ 225,000
Accounting fees and expenses....................................... 120,000
Blue sky fees and expenses......................................... 20,000
Transfer agent and registrar fees.................................. 4,000
Directors and officers insurance fees.............................. 180,000
Miscellaneous expenses............................................. 6,354
--------
Total............................................................ $750,000
========
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145 of the Delaware General Corporation Law (the "DGCL") empowers a
Delaware corporation to indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative
(other than an action by or in the right of such corporation) by reason of the
fact that such person is or was a director, officer, employee or agent of such
corporation, or is or was serving at the request of such corporation as a
director, officer, employee or agent of another corporation or enterprise. A
corporation may, in advance of the final disposition of any civil, criminal,
administrative or investigative action, suit or proceeding, pay the expenses
(including attorneys' fees) incurred by any officer, director, employee or
agent in defending such action, provided that the director or officer
undertakes to repay such amount if it shall ultimately be determined that he
is not entitled to be indemnified by the corporation. A corporation may
indemnify such person against expenses (including attorneys' fees), judgments,
fines and amounts paid in settlement actually and reasonably incurred by such
person in connection with such action, suit or proceeding if he acted in good
faith and in a manner he reasonably believed to be in or not opposed to the
best interests of the corporation and, with respect to any criminal action or
proceeding, had no reasonable cause to believe his conduct was unlawful.
A Delaware corporation may indemnify officers and directors in an action by
or in the right of the corporation to procure a judgment in its favor under
the same conditions, except that no indemnification is permitted without
judicial approval if the officer or director is adjudged to be liable to the
corporation. Where an officer or director is successful on the merits or
otherwise in the defense of any action referred to above, the corporation must
indemnify him against the expenses (including attorneys' fees) which he
actually and reasonably incurred in connection therewith. The indemnification
provided is not deemed to be exclusive of any other rights to which an officer
or director may be entitled under any corporation's by-law, agreement, vote or
otherwise.
The Company's Certificate of Incorporation includes a provision that
eliminates the personal liability of its directors to the Company or its
stockholders for monetary damages for breach of their fiduciary duty to the
maximum extent permitted by the DGCL. The DGCL does not permit liability to be
eliminated (i) for any breach of a director's duty of loyalty to the Company
or its stockholders, (ii) for acts or omissions not in good faith or that
involve intentional misconduct or a knowing violation of law, (iii) for
unlawful payments of dividends or unlawful stock repurchases or redemptions,
as provided in Section 174 of the DGCL, or (iv) for any transaction
II-1
<PAGE>
from which the director derived an improper personal benefit. In addition, as
permitted in Section 145 of the DGCL, the Certificate of Incorporation and By-
Laws of the Company provide that the Company shall indemnify its directors and
officers to the fullest extent permitted by the DGCL, including those
circumstances in which indemnification would otherwise be discretionary,
subject to certain exceptions. The By-Laws also provide that the Company shall
advance expenses to directors and officers incurred in connection with an
action or proceeding as to which they may be entitled to indemnification,
subject to certain exceptions.
Each of the Employment Agreements with Messrs. Goldstein, Traub, Aguilar,
Ott and Whittington provides for indemnification to the maximum extent
permitted by applicable law. The Company will enter into indemnification
agreements with each of its directors and executive officers that provide the
maximum indemnification allowed to directors and executive officers by the
DGCL, subject to certain exceptions, as well as certain additional procedural
protections. In addition, the indemnification agreements will provide
generally that the Company will advance expenses incurred by directors and
executive officers in any action or proceeding as to which they may be
entitled to indemnification, subject to certain exceptions.
The indemnification provisions in the Company's Certificate of
Incorporation, By-Laws, the indemnification agreements to be entered into
between the Company and its directors and executive officers and each of the
Employment Agreements with Messrs. Goldstein, Traub, Aguilar, Ott and
Whittington, may permit indemnification for liabilities arising under the
Securities Act. Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling persons
of the Company pursuant to the foregoing provisions, or otherwise, the Company
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities
Act and is, therefore, unenforceable.
The Company currently expects to carry director and officer liability
insurance following this offering.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
During the past three years, the following shares were sold by the Company
without registration under the Securities Act of 1933, as amended (the "Act").
All references to shares of the Company's Common Stock give effect to a sixty
thousand for one share stock split effected on December 8, 1993 but do not
give effect to the one-for-two share stock split effected on September 19,
1996.
(a) From August 1993 to January 1994, an aggregate of 6,245,000 shares of
the Company's Common Stock were sold by the Company for an aggregate of
$33,507, as follows:
<TABLE>
<CAPTION>
SHAREHOLDER NUMBER OF SHARES
----------- ----------------
<S> <C>
J. Gerard Aguilar........................................... 3,480,000
Jordan S. and Maria T. Davis ............................... 840,000
Mitchell Davis.............................................. 840,000
Kenneth H. Traub............................................ 840,000
Michael Goldstein........................................... 125,000
Allen Gersho................................................ 120,000
---------
6,245,000
=========
</TABLE>
The Company relied on the exemption from registration set forth in Section
4(2) of the Act. No fees were paid in connection with the foregoing sales of
securities.
II-2
<PAGE>
(b) In March 1994, the Company sold an aggregate of 2,000,000 units, each
unit consisting of one share of Common Stock and one warrant to purchase one
share of Common Stock at a purchase price of $0.75 per share. The Company sold
units to the following persons at a price of $0.25 per unit.
<TABLE>
<CAPTION>
UNITHOLDER NUMBER OF UNITS
---------- ---------------
<S> <C>
Lester Youner................................................. 40,000
Stuart P. Milsten............................................. 35,000
William R. Davis and Sheila Davis............................. 35,000
Igor Stenmark................................................. 40,000
Peter W. Ryan................................................. 30,000
Arie Genger................................................... 100,000
Herbert Goldstein............................................. 60,000
David J. Roux................................................. 80,000
Paul Jacobs................................................... 60,000
Lawrence A. Spector........................................... 20,000
Edward Goldstein.............................................. 60,000
Eric Schreiber................................................ 20,000
Mitchell Napack............................................... 30,000
Peter M. Wood................................................. 100,000
Steven Bier................................................... 30,000
Lois B. Hoffner............................................... 30,000
Voice Tech Ventures........................................... 280,000
Abel Aguilar.................................................. 80,000
Alec Gindis................................................... 200,000
Burton and Elaine Traub....................................... 20,000
George and Lorraine Zimmerman................................. 10,000
Alan Gelband.................................................. 60,000
Alan Gelband Co. Defined Contribution Pension Plan & Trust.... 60,000
Richard W. Kates.............................................. 20,000
John M. McMahon............................................... 40,000
Terrence L. Mealy............................................. 20,000
Dr. Gary S. Traub............................................. 10,000
Paul Traub.................................................... 10,000
Marvin Haas................................................... 110,000
John Bendik................................................... 40,000
Harry Krensky and Linda Krensky............................... 20,000
Michael Bernstein............................................. 10,000
Bohemond Corp................................................. 100,000
David Handler................................................. 20,000
Stanley Davis and Silvia Davis................................ 10,000
Thomas Hardy.................................................. 110,000
---------
2,000,000
=========
</TABLE>
The Company relied on the exemption from registration set forth in Section
4(2) of the Act. No fees were paid in connection with the foregoing sales of
securities.
II-3
<PAGE>
(c) From November 1994 through February 1995, the Company sold an aggregate
of 3,300,000 shares of Common Stock to the following persons at a price of
$0.75 per share:
<TABLE>
<CAPTION>
SHAREHOLDER NUMBER OF SHARES
----------- ----------------
<S> <C>
Diego and Irene Alvarez..................................... 20,000
Hormozan Aprin, M.D. and Mahmaz Aprin....................... 100,000
Robert E. and Debra A. Balducci............................. 10,000
John E. Bendik.............................................. 51,000
Ennius E. Bergsman.......................................... 40,000
Steven J. Bier.............................................. 30,000
Mark A. and Maribeth Brostowski............................. 30,000
Joel A. and Karen Ann Budin................................. 50,000
John F. Burton.............................................. 100,000
Capital Express, L.L.C...................................... 100,000
James A. and JoAnn A. Cohen................................. 100,000
Joseph Coler DC............................................. 14,000
Kevin Collins............................................... 10,000
Smith Barney, Inc. IRA Custodian FBO J. Douglas Cox......... 40,000
Kathryn A. and J. Douglas Cox............................... 34,000
Kathryn A. Cox M.D. PC Retirement Trust..................... 26,000
Keith Eisenstark and Mary Beth Walsh........................ 10,000
Leonard G. Epstein.......................................... 35,000
Sheryl Fischer.............................................. 4,000
Mark H. Folit............................................... 20,000
Wayne J. and Deborah R. Friedman............................ 67,000
Jeffrey Garber.............................................. 10,000
David Gardner............................................... 20,000
Scott M. Gibson............................................. 10,000
Louis M. Gidding............................................ 10,000
Alec Gindis................................................. 100,000
Daniel Paul Goldman......................................... 20,000
Michael Goldman............................................. 20,000
Edward Goldstein............................................ 50,000
Steven J. Golub............................................. 50,000
Ira A. Gomberg.............................................. 40,000
Richard L. Green............................................ 14,000
Harlan T. Greenman.......................................... 7,000
Natalie J. Greenman......................................... 7,000
Steven M. Grossman.......................................... 20,000
Eugene and Joan Gyesky...................................... 20,000
Dhananjay Hajela............................................ 60,000
Thomas Hardy................................................ 70,000
Paul D. Harris.............................................. 70,000
Glenn H. Hutchins........................................... 50,000
Darlynn L. Johnson.......................................... 26,000
Beth Kaplan................................................. 50,000
Richard W. Kates............................................ 67,000
Gary H. and Cindy S. Katz................................... 7,000
Edward Klimerman............................................ 42,000
Joseph Korff................................................ 50,000
Carolyn H. Kornblau......................................... 20,000
Harry F. and Linda M. Krensky............................... 51,000
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
SHAREHOLDER NUMBER OF SHARES
----------- ----------------
<S> <C>
Charles T. and Nina A. Langpaul............................. 20,000
Alicia Latkovski............................................ 14,000
David A. Leff, D.O.......................................... 10,000
Lengfeld S.A................................................ 15,000
Marc N. and Pamela Levin.................................... 30,000
Fred and Cindi Brandt Levin................................. 8,000
Mark and Rachel Lipschutz................................... 8,000
Gregory G. Mario............................................ 100,000
Mark Mazzonelli............................................. 50,000
Michael L. and Cynthia G. McEachern......................... 30,000
Terrence L. Mealy........................................... 20,000
Edwin L. Miller............................................. 50,000
Stuart P. Milsten........................................... 10,000
Daniel S. Mintz............................................. 100,000
Richard and Maria Molinsky.................................. 33,000
Mario M. Morino............................................. 100,000
Michael Moskowitz........................................... 50,000
James Mossman............................................... 50,000
William J. Murray........................................... 30,000
Guarantee & Trust Co. TTEEFBO Philip Musicant............... 20,000
Fred T. and Elyce L. Perlstadt.............................. 20,000
Richard E. and Selena Lynn Pickering........................ 15,000
Gabriel Politzer............................................ 10,000
John G. Powers.............................................. 10,000
Renwick Alpha Fund.......................................... 100,000
Michael J. Reilly........................................... 40,000
Chris K. Richey............................................. 16,500
Mark Rosenblatt and Sarah M. Stern.......................... 50,000
Joseph and Sydell Roth...................................... 10,000
Andrea R. Ryan.............................................. 10,000
Robert Schiller............................................. 20,000
Geoffrey G. G. Sharp........................................ 10,000
Meyar Sheik................................................. 10,000
Jesse and Rochelle E. Shereff............................... 20,000
Howard Siegel............................................... 10,000
Simon Family Associates..................................... 10,000
Richard L. Smith............................................ 87,500
Bruce Todd Spector.......................................... 10,000
Robin Lee Steinfeld......................................... 10,000
Alan Stupell................................................ 20,000
Sarah Swiatycki............................................. 10,000
Charles and Roseann Terzano................................. 10,000
Burton H. and Elaine Traub.................................. 10,000
Laurence Usdin.............................................. 20,000
Voice Compression Associates................................ 121,000
Lauren S. Youner............................................ 4,000
Lester W. Youner and Sherry Youner.......................... 26,000
Ronald L. Zander............................................ 10,000
---------
3,300,000
=========
</TABLE>
II-5
<PAGE>
The Company relied on the exemption afforded from registration set forth in
Section 4(2) of the Act and Regulation D promulgated thereunder. No fees were
paid in connection with the foregoing sales of securities.
(d) In December 1995, the Company sold a total of 4,000,000 shares of Series
A Preferred Stock. The Company sold the shares of Series A Preferred Stock to
the following persons at a price of $1.00 per share.
<TABLE>
<CAPTION>
SHARES OF SERIES A
SHAREHOLDER PREFERRED STOCK
----------- ------------------
<S> <C>
Advent International Investors II Limited Partnership.... 5,000
Adtel Limited Partnership................................ 500,000
Advent Crown Fund C.V.................................... 800,000
Adwest Limited Partnership............................... 350,000
Advent Israel (Bermuda) Limited Partnership.............. 27,025
Advent Israel Limited Partnership........................ 222,975
Advent Partners Limited Partnership...................... 95,000
North Bridge Venture Partners, L.P....................... 2,000,000
---------
4,000,000
=========
</TABLE>
The Company relied on the exemption from registration set forth in Section
4(2) of the Act. No fees were paid in connection with the foregoing sales of
securities.
(e) In March 1996, the Company sold 1,000,000 shares of Series A Preferred
Stock to Intel Corporation and 1,000,000 shares of Series A Preferred Stock to
Netscape Communications Corporation at a price of $1.00 per share. The Company
relied on the exemption from registration set forth in Section 4(2) of the
Act. No fees were paid in connection with the foregoing sales of securities.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits.
<TABLE>
<S> <C>
1. Form of Underwriting Agreement.
3.1 Certificate of Incorporation, as amended.
3.2 Bylaws.**
4.1 Specimen Common Stock Certificate.
4.2 Form of Warrant to Purchase Shares of Common Stock.**
5. Opinion of Fulbright & Jaworski L.L.P.
10.1 Voxware, Inc. 1994 Stock Option Plan.**
10.2 Form of Voxware, Inc. Stock Option Agreement.**
10.3 Form of Indemnification Agreement.**
10.4 Series A Preferred Stock Purchase Agreement, dated December 19, 1995, as amended.**
10.5 Employment Agreement dated January 3, 1994, with Michael Goldstein, as amended.**
10.6 Employment Agreement dated February 1, 1995, with Kenneth H. Traub.**
10.7 Employment Agreement dated August 15, 1995, with Kenneth Whittington.**
10.8 Employment Agreement dated February 28, 1994, with J. Gerard Aguilar.**
10.9 Employment Agreement dated August 15, 1994, with Steven J. Ott.**
10.10 Technology Transfer Agreement Effective May 19, 1995, between Suat Yeldener Ph.D.
and Voxware, Inc.**+
10.11 Software License Agreement, dated January 31, 1996, with Netscape Communications
Corporation.**+
10.12 License Agreement, dated June 28, 1996 with America Online, Inc.**+
10.13 License Agreement, dated September 26, 1995 with Microsoft Corporation.**+
10.14 License Agreement, dated June 28, 1996 with USFI, Inc.**+
</TABLE>
II-6
<PAGE>
<TABLE>
<S> <C>
10.15 License Agreement, dated March 29, 1996 with VDOnet Corporation Ltd.**+
10.16 License Agreement, dated June 28, 1996 with Vienna Systems Corporation.**+
10.17 Lease, dated April 10, 1996, between College Road Associates, Limited Partnership and
the Company.**
10.18 Acquisition Agreement, dated January 30, 1996, with K & F Software.**
10.19 Stockholders Agreement, dated December 19, 1995, as amended.**
10.20 License Agreement, dated September 13, 1996 with Lucent Technologies Inc.+
10.21 1996 Employee Stock Purchase Plan.
10.22 Letter of Intent with Silicon Valley Bank.
11. Computation of Per Share Earnings.
16. Letter from Ernst & Young LLP respecting change in certifying accountant.**
23.1 Consent of Arthur Andersen LLP.
23.2 Consent of Fulbright & Jaworski L.L.P. (contained in Exhibit 5).
24. Power of Attorney.**
27. Financial Data Schedule.**
</TABLE>
- --------
+A request for confidential treatment has been made for portions of such
document.
**Previously filed.
(b) Financial Statement Schedules.
Not Applicable.
ITEM 17. UNDERTAKINGS.
The undersigned registrant hereby undertakes to provide to the Underwriters
at the closing specified in the Underwriting Agreement, certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.
The undersigned registrant hereby undertakes that:
(1) Insofar as indemnification for liabilities arising under the
Securities Act of 1933, as amended, may be permitted to directors, officers
and controlling persons of the registrant pursuant to the foregoing
provisions, or otherwise, the registrant has been advised that in the
opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in
the successful defense of any action, suit or proceeding) is asserted by
such director, officer or controlling person in connection with the
securities being registered, the registrant will, unless in the opinion of
its counsel the matter has been settled by controlling precedent, submit to
a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
(2) For purposes of determining any liability under the Securities Act of
1933, as amended, the information omitted from the form of prospectus filed
as part of this registration statement in reliance upon Rule 430A and
contained in a form of prospectus filed by the registrant pursuant to Rule
424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be
part of this registration statement as of the time it was declared
effective.
(3) For the purpose of determining any liability under the Securities Act
of 1933, as amended, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-7
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED, THE
REGISTRANT HAS DULY CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS
BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF PRINCETON
AND STATE OF NEW JERSEY ON THE 18TH DAY OF SEPTEMBER 1996.
Voxware, Inc.
/s/ Michael Goldstein
By: _________________________________
Michael Goldstein
President and Chief Executive
Officer
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED:
/s/ Michael Goldstein President and Chief
- ------------------------------------- Executive Officer September 18,
MICHAEL GOLDSTEIN and Director 1996
(principal
executive officer)
/s/ Kenneth H. Traub Executive Vice
- ------------------------------------- President, Chief September 18,
KENNETH H. TRAUB Financial Officer, 1996
Secretary and
Director (principal
financial officer)
/s/ J. Gerard Aguilar* Director
- ------------------------------------- September 18,
J. GERARD AGUILAR 1996
/s/ William J. Geary* Director
- ------------------------------------- September 18,
WILLIAM J. GEARY 1996
/s/ Jordan S. Davis* Director
- ------------------------------------- September 18,
JORDAN S. DAVIS 1996
/s/ Andrew I. Fillat* Director
- ------------------------------------- September 18,
ANDREW I. FILLAT 1996
/s/ David Roux* Director
- ------------------------------------- September 18,
DAVID ROUX 1996
/s/ Richard M. Schell* Director
- ------------------------------------- September 18,
RICHARD M. SCHELL 1996
/s/ Nicholas Narlis* Controller, Chief
- ------------------------------------- Accounting Officer
NICHOLAS NARLIS and Treasurer
(principal accounting officer)
September 18,
1996
*By /s/ Kenneth H. Traub
- -------------------------------------
KENNETH H. TRAUB
(Kenneth H. Traub as attorney-in-fact for each of the persons indicated)
II-8
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
PAGE
EXHIBIT DESCRIPTION OF DOCUMENT NUMBER
NUMBER ----------------------- ------
<S> <C> <C>
1. Form of Underwriting Agreement.
3.1 Certificate of Incorporation, as amended.
3.2 Bylaws.**
4.1 Specimen Common Stock Certificate.
4.2 Form of Warrant to Purchase Shares of Common Stock.**
5. Opinion of Fulbright & Jaworski L.L.P.
10.1 Voxware, Inc. 1994 Stock Option Plan.**
10.2 Form of Voxware, Inc. Stock Option Agreement.**
10.3 Form of Indemnification Agreement.**
10.4 Series A Preferred Stock Purchase Agreement, dated December 19, 1995, as amended.**
10.5 Employment Agreement dated January 3, 1994, with Michael Goldstein, as amended.**
10.6 Employment Agreement dated February 1, 1995, with Kenneth H. Traub.**
10.7 Employment Agreement dated August 15, 1995, with Kenneth Whittington.**
10.8 Employment Agreement dated February 28, 1994, with J. Gerard Aguilar.**
10.9 Employment Agreement dated August 15, 1994, with Steven J. Ott.**
10.10 Technology Transfer Agreement Effective May 19, 1995, between Suat Yeldener Ph.D.
and Voxware, Inc.**+
10.11 Software License Agreement, dated January 31, 1996, with Netscape Communications
Corporation.**+
10.12 License Agreement, dated June 28, 1996 with America Online, Inc.**+
10.13 License Agreement, dated September 26, 1995 with Microsoft Corporation.**+
10.14 License Agreement, dated June 28, 1996 with USFI, Inc.**+
10.15 License Agreement, dated March 29, 1996 with VDOnet Corporation Ltd.**+
10.16 License Agreement, dated June 28, 1996 with Vienna Systems Corporation.**+
10.17 Lease, dated April 10, 1996, between College Road Associates, Limited Partnership and
the Company.**
10.18 Acquisition Agreement, dated January 30, 1996, with K & F Software.**
10.19 Stockholders Agreement, dated December 19, 1995, as amended.**
10.20 License Agreement, dated September 13, 1996 with Lucent Technologies Inc.+
10.21 1996 Employee Stock Purchase Plan.
10.22 Letter of Intent with Silicon Valley Bank.
11. Computation of Per Share Earnings.
16. Letter from Ernst & Young LLP respecting change in certifying accountant.**
23.1 Consent of Arthur Andersen LLP.
23.2 Consent of Fulbright & Jaworski L.L.P. (contained in Exhibit 5).
24. Power of Attorney.**
27. Financial Data Schedule.**
</TABLE>
- --------
+A request for confidential treatment has been made for portions of such
document.
**Previously filed.
<PAGE>
3,000,000 Shares
VOXWARE, INC.
Common Stock
UNDERWRITING AGREEMENT
----------------------
October ___, 1996
MONTGOMERY SECURITIES
ALEX. BROWN & SONS INCORPORATED
OPPENHEIMER & CO., INC.
As Representatives of the several Underwriters
c/o MONTGOMERY SECURITIES
600 Montgomery Street
San Francisco, California 94111
Dear Sirs:
SECTION 1. Introductory. Voxware, Inc., a Delaware corporation (the
------------
"Company), proposes to issue and sell 3,000,000 shares of its authorized but
unissued Common Stock (the "Common Stock") to the several underwriters named in
Schedule A annexed hereto (the "Underwriters"), for whom you are acting as
Representatives. Said aggregate of 3,000,000 shares are herein called the "Firm
Common Shares." In addition, the Company proposes to grant to the Underwriters
an option to purchase up to 450,000 additional shares of Common Stock (the
"Optional Common Shares"), as provided in Section 4 hereof. The Firm Common
Shares and, to the extent such option is exercised, the Optional Common Shares
are hereinafter collectively referred to as the "Common Shares."
You have advised the Company that the Underwriters propose to make a public
offering of their respective portions of the Common Shares on the effective date
of the registration statement hereinafter referred to, or as soon thereafter as
in your judgment is advisable.
The Company hereby confirms its agreement with respect to the purchase of
the Common Shares by the Underwriters as follows:
SECTION 2. Representations and Warranties of the Company. The Company
---------------------------------------------
hereby represents and warrants to the several Underwriters that:
<PAGE>
(a) A registration statement on Form S-1 (File No. 333-08393) with respect
to the Common Shares has been prepared by the Company in conformity with the
requirements of the Securities Act of 1933, as amended (the "Act"), and the
rules and regulations (the "Rules and Regulations") of the Securities and
Exchange Commission (the "Commission") thereunder, and has been filed with the
Commission. The Company has prepared and has filed or proposes to file prior to
the effective date of such registration statement an amendment or amendments to
such registration statement, which amendment or amendments have been or will be
similarly prepared. There have been delivered to you two signed copies of such
registration statement and amendments, together with two copies of each exhibit
filed therewith. Conformed copies of such registration statement and amendments
(but without exhibits) and of the related preliminary prospectus have been
delivered to you in such reasonable quantities as you have requested for each of
the Underwriters. The Company will next file with the Commission one of the
following: (i) prior to effectiveness of such registration statement, a further
amendment thereto, including the form of final prospectus, (ii) a final
prospectus in accordance with Rules 430A and 424(b) of the Rules and Regulations
or (iii) a term sheet (the "Term Sheet") as described in and in accordance with
Rules 434 and 424(b) of the Rules and Regulations. As filed, the final
prospectus, if one is used, or the Term Sheet and Preliminary Prospectus, if a
final prospectus is not used, shall include all Rule 430A Information and,
except to the extent that you shall agree in writing to a modification, shall be
in all substantive respects in the form furnished to you prior to the date and
time that this Agreement was executed and delivered by the parties hereto, or,
to the extent not completed at such date and time, shall contain only such
specific additional information and other changes (beyond that contained in the
latest Preliminary Prospectus) as the Company shall have previously advised you
would be included or made therein.
The term "Registration Statement" as used in this Agreement shall mean such
registration statement at the time such registration statement becomes effective
and, in the event any post-effective amendment thereto becomes effective prior
to the First Closing Date (as hereinafter defined), shall also mean such
registration statement as so amended; provided, however, that such term shall
also include (i) all Rule 430A Information deemed to be included in such
registration statement at the time such registration statement becomes effective
as provided by Rule 430A of the Rules and Regulations and (ii) any registration
statement filed pursuant to Rule 462(b) of the Rules and Regulations relating to
the Common Shares. The term "Preliminary Prospectus" shall mean any preliminary
prospectus referred to in the preceding paragraph and any preliminary prospectus
included in the Registration Statement at the time it becomes effective that
omits Rule 430A Information. The term "Prospectus" as used in this Agreement
shall mean either (i) the prospectus relating to the Common Shares in the form
in which it is first filed with the Commission pursuant to Rule 424(b) of the
Rules and Regulations or, (ii) if a Term Sheet is not used and no filing
pursuant to Rule 424(b) of the Rules and Regulations is required, shall mean the
form of final prospectus included in the Registration Statement at the time such
registration statement becomes effective or (iii) if a Term Sheet is used, the
Term Sheet in the form in which it is first filed with the Commission pursuant
to Rule 424(b) of the Rules and Regulations, together with the Preliminary
Prospectus included in the Registration Statement at the time it becomes
effective. The term "Rule 430A Information" means information with respect to
the Common Shares and the offering thereof permitted to be omitted from the
Registration Statement when it becomes effective pursuant to Rule 430A of the
Rules and Regulations.
(b) The Commission has not issued any order preventing or suspending the
use of any Preliminary Prospectus, and each Preliminary Prospectus has conformed
in all material respects to the requirements of the Act and the Rules and
Regulations and, as of its date, has not included any untrue statement of a
material fact or omitted to state a material fact necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading; and at the time the Registration Statement
-2-
<PAGE>
becomes effective, and at all times subsequent thereto up to and including each
Closing Date hereinafter mentioned, the Registration Statement and the
Prospectus, and any amendments or supplements thereto, will in all material
respects conform to the requirements of the Act and the Rules and Regulations,
and neither the Registration Statement nor the Prospectus, nor any amendment or
supplement thereto, will include any untrue statement of a material fact or omit
to state a material fact required to be stated therein or necessary to make the
statements therein not misleading; provided, however, no representation or
warranty contained in this subsection 2(b) shall be applicable to information
contained in or omitted from any Preliminary Prospectus, the Registration
Statement, the Prospectus or any such amendment or supplement in reliance upon
and in conformity with written information furnished to the Company by or on
behalf of any Underwriter, directly or through the Representatives, specifically
for use in the preparation thereof.
(c) The Company does not own or control, directly or indirectly, any
corporation, association or other entity. The Company has been duly
incorporated and is validly existing as a corporation in good standing under the
laws of Delaware, with full power and authority (corporate and other) to own and
lease its properties and conduct its business as described in the Prospectus;
the Company is in possession of and operating in compliance with all
authorizations, licenses, permits, consents, certificates and orders material to
the conduct of its business, all of which are valid and in full force and
effect; the Company is duly qualified to do business and in good standing as
foreign corporations in each jurisdiction in which the ownership or leasing of
properties or the conduct of its business requires such qualification, except
for jurisdictions in which the failure to so qualify would not have a material
adverse effect upon the Company; and no proceeding has been instituted in any
such jurisdiction, revoking, limiting or curtailing, or seeking to revoke, limit
or curtail, such power and authority or qualification.
(d) The Company has an authorized and outstanding capital stock as set
forth under the heading "Capitalization" in the Prospectus as of the date set
forth therein; the issued and outstanding shares of Common Stock have been duly
authorized and validly issued, are fully paid and nonassessable, have been
issued in compliance with all federal and state securities laws, were not issued
in violation of or subject to any preemptive rights or other rights to subscribe
for or purchase securities, and conform to the description thereof contained in
the Prospectus. Except as disclosed in or contemplated by the Prospectus and
the financial statements of the Company, and the related notes thereto, included
in the Prospectus, the Company has no outstanding options to purchase, nor any
preemptive rights or other rights to subscribe for or to purchase, any
securities or obligations convertible into, or any contracts or commitments to
issue or sell, shares of its capital stock or any such options, rights,
convertible securities or obligations which preemptive rights will be in effect
after the First Closing Date. The description of the Company's stock option,
stock bonus and other stock plans or arrangements, and the options or other
rights granted and exercised thereunder, set forth in the Prospectus accurately
and fairly presents the information required to be shown with respect to such
plans, arrangements, options and rights.
(e) The Common Shares to be sold by the Company have been duly authorized
and, when issued, delivered and paid for in the manner set forth in this
Agreement, will be duly authorized, validly issued, fully paid and
nonassessable, and will conform to the description thereof contained in the
Prospectus. No preemptive rights or other rights to subscribe for or purchase
exist with respect to the issuance and sale of the Common Shares by the Company
pursuant to this Agreement. No stockholder of the Company has any right which
has not been waived to require the Company to register the sale of any shares
owned by such stockholder under the Act in the public offering contemplated by
this Agreement. No further approval
-3-
<PAGE>
or authority of the stockholders or the Board of Directors of the Company will
be required for the issuance and sale of the Common Shares to be sold by the
Company as contemplated herein.
(f) The Company has full legal right, power and authority to enter into
this Agreement and perform the transactions contemplated hereby. This Agreement
has been duly authorized, executed and delivered by the Company and constitutes
a valid and binding obligation of the Company enforceable in accordance with its
terms, except as rights to indemnity and contribution may be limited under
federal or state securities laws and except (i) as limited by applicable
bankruptcy, insolvency, reorganization and other laws affecting creditors'
rights and (ii) as limited by general principles of equity. The making and
performance of this Agreement by the Company and the consummation of the
transactions herein contemplated will not violate any provisions of the
certificate of incorporation or bylaws, or other organizational documents, of
the Company, and will not conflict with, result in the breach or violation of,
or constitute, either by itself or upon notice or the passage of time or both, a
default under any agreement, mortgage, deed of trust, lease, franchise, license,
indenture, permit or other instrument to which the Company is a party or by
which the Company or any of its respective properties may be bound or affected,
any statute or any authorization, judgment, decree, order, rule or regulation of
any court or any regulatory body, administrative agency or other governmental
body applicable to the Company or any of its properties. No consent, approval,
authorization or other order of any court, regulatory body, administrative
agency or other governmental body is required for the execution and delivery of
this Agreement or the consummation of the transactions contemplated by this
Agreement, except for compliance with the Securities Exchange Act of 1934, the
Blue Sky laws applicable to the public offering of the Common Shares by the
several Underwriters and the clearance of such offering with the National
Association of Securities Dealers, Inc. (the "NASD").
(g) Arthur Andersen LLP, who have expressed their opinion with respect to
the financial statements filed with the Commission as a part of the Registration
Statement and included in the Prospectus and in the Registration Statement, are
independent accountants as required by the Act and the Rules and Regulations.
(h) The financial statements of the Company, and the related notes
thereto, included in the Registration Statement and the Prospectus present
fairly the financial position of the Company as of the respective dates of such
financial statements, and the results of operations and changes in financial
position of the Company for the respective periods covered thereby. Such
statements and related notes have been prepared in accordance with generally
accepted accounting principles applied on a consistent basis as certified by the
independent accountants named in subsection 2(g). No other financial statements
or schedules are required to be included in the Registration Statement. The
selected financial data set forth in the Prospectus under the captions
"Capitalization" and "Selected Financial Data" fairly present the information
set forth therein on the basis stated in the Registration Statement.
(i) Except as disclosed in the Prospectus, and except as to defaults which
individually or in the aggregate would not be material to the Company, the
Company is not in violation or default of any provision of its certificate of
incorporation or bylaws, or other organizational documents, or in breach of or
default with respect to any provision of any agreement, judgment, decree, order,
mortgage, deed of trust, lease, franchise, license, indenture, permit or other
instrument to which it is a party or by which it or any of its properties are
bound; and there does not exist any state of facts which constitutes an event of
default on the part of the Company as defined in such documents or which, with
notice or lapse of time or both, would constitute such an event of default.
-4-
<PAGE>
(j) There are no contracts or other documents required to be described in
the Registration Statement or to be filed as exhibits to the Registration
Statement by the Act or by the Rules and Regulations which have not been
described or filed as required. The descriptions of the contracts so described
in the Prospectus are accurate and fair summaries thereof; all such contracts
are in full force and effect on the date hereof; and neither the Company nor, to
the best of the Company's knowledge, any other party is in breach of or default
under any of such contracts.
(k) Except as disclosed in the Prospectus, there are no legal or
governmental actions, suits or proceedings pending or, to the best of the
Company's knowledge, threatened to which the Company is or may be a party or of
which property owned or leased by the Company is or may be the subject, or
related to environmental or discrimination matters, which actions, suits or
proceedings might, individually or in the aggregate, prevent or adversely affect
the transactions contemplated by this Agreement or result in a material adverse
change in the condition (financial or otherwise), properties, business, results
of operations or prospects of the Company; and no labor disturbance by the
employees of the Company exists or to the Company's knowledge is imminent which
might be expected to affect adversely such condition, properties, business,
results of operations or prospects. The Company is not a party or subject to
the provisions of any material injunction, judgment, decree or order of any
court, regulatory body, administrative agency or other governmental body.
(l) The Company has good and marketable title to all the properties and
assets reflected as owned in the financial statements hereinabove described (or
elsewhere in the Prospectus), subject to no lien, mortgage, pledge, charge or
encumbrance of any kind except (i) those, if any, reflected in such financial
statements (or elsewhere in the Prospectus), or (ii) those which are not
material in amount and do not adversely affect the use made and proposed to be
made of such property by the Company. The Company holds its leased properties
under valid and binding leases, with such exceptions as are not materially
significant in relation to the business of the Company. Except as disclosed in
the Prospectus, the Company owns or leases all such real properties as are
necessary to its operations as now conducted or as proposed to be conducted as
described in the Prospectus.
(m) Since the respective dates as of which information is given in the
Registration Statement and Prospectus, and except as described in or
specifically contemplated by the Prospectus: (i) the Company has not incurred
any material liabilities or obligations, indirect, direct or contingent, or
entered into any material verbal or written agreement or other transaction which
is not in the ordinary course of business; (ii) the Company has not sustained
any material loss or interference with its business or properties from fire,
flood, windstorm, accident or other calamity, whether or not covered by
insurance; (iii) the Company has not paid or declared any dividends or other
distributions with respect to its capital stock and the Company is not in
default in the payment of principal or interest on any outstanding debt
obligations; (iv) there has not been any change in the capital stock (other than
upon the sale of the Common Shares hereunder and upon the exercise of options
and warrants described in the Registration Statement) or indebtedness material
to the Company (other than in the ordinary course of business); and (v) there
has not been any material adverse change in the condition (financial or
otherwise), business, properties, results of operations or prospects of the
Company.
(n) Except as disclosed in or specifically contemplated by the Prospectus,
the Company has sufficient trademarks, trade names, patent rights, mask works,
copyrights, licenses, approvals and governmental authorizations to conduct its
business as now conducted; the expiration of any trademarks, trade names, patent
rights, mask works, copyrights, licenses, approvals or governmental
authorizations
-5-
<PAGE>
would not have a material adverse effect on the condition (financial or
otherwise), business, results of operations or prospects of the Company; and the
Company has no knowledge of any material infringement by it of trademark, trade
name rights, patent rights, mask works, copyrights, licenses, trade secret or
other similar rights of others, and there is no claim being made against the
Company regarding trademark, trade name, patent, mask work, copyright, license,
trade secret or other infringement which could have a material adverse effect on
the condition (financial or otherwise), business, results of operations or
prospects of the Company.
(o) The Company has not been advised, and has no reason to believe, that
it is not conducting business in compliance with all applicable laws, rules and
regulations of the jurisdictions in which it is conducting business, including,
without limitation, all applicable local, state and federal environmental laws
and regulations; except where failure to be so in compliance would not
materially adversely affect the condition (financial or otherwise), business,
results of operations or prospects of the Company.
(p) The Company has filed all necessary federal, state and foreign income
and franchise tax returns and has paid all taxes shown as due thereon; and the
Company has no knowledge of any tax deficiency which has been or might be
asserted or threatened against the Company which could materially and adversely
affect the business, operations or properties of the Company.
(q) The Company is not an "investment company" within the meaning of the
Investment Company Act of 1940, as amended.
(r) The Company has not distributed and will not distribute prior to the
First Closing Date any material that constitutes an "offer to sell" (as that
term is defined in the Act) the Common Shares other than the Prospectus, the
Registration Statement and the other materials permitted by the Act.
(s) The Company maintains insurance of the types and in the amounts
generally deemed adequate for its business, including, but not limited to,
insurance covering real and personal property owned or leased by the Company
against theft, damage, destruction, acts of vandalism and all other risks
customarily insured against, all of which insurance is in full force and effect.
(t) The Company has not at any time during the last five years (i) made
any unlawful contribution to any candidate for foreign office, or failed to
disclose fully any contribution in violation of law, or (ii) made any payment to
any federal or state governmental officer or official, or other person charged
with similar public or quasi-public duties, other than payments required or
permitted by the laws of the United States or any jurisdiction thereof.
(u) The Company has not taken and will not take, directly or indirectly,
any action designed to or that might be reasonably expected to cause or result
in stabilization or manipulation of the price of the Common Stock to facilitate
the sale or resale of the Common Shares.
SECTION 3. Representations and Warranties of the Underwriters. The
--------------------------------------------------
Representatives, on behalf of the several Underwriters, represent and warrant to
the Company that the information set forth (i) on the cover page of the
Prospectus with respect to price, underwriting discounts and commissions and
terms of offering and (ii) under "Underwriting" in the Prospectus was furnished
to the Company by and on behalf of the Underwriters for use in connection with
the preparation of the Registration Statement and the Prospectus and is correct
in all material respects. The Representatives represent and warrant that they
have
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<PAGE>
been authorized by each of the other Underwriters as the Representatives to
enter into this Agreement on its behalf and to act for it in the manner herein
provided.
SECTION 4. Purchase, Sale and Delivery of Common Shares. On the basis of
--------------------------------------------
the representations, warranties and agreements herein contained, but subject to
the terms and conditions herein set forth, the Company agrees to issue and sell
to the Underwriters 3,000,000 of the Firm Common Shares. The Underwriters agree,
severally and not jointly, to purchase from the Company the number of Firm
Common Shares set forth opposite the name of each Underwriter in Schedule A
annexed hereto. The purchase price per share to be paid by the several
Underwriters to the Company shall be $___ per share.
Delivery of certificates for the Firm Common Shares to be purchased by the
Underwriters and payment therefor shall be made at the offices of Montgomery
Securities, 600 Montgomery Street, San Francisco, California (or such other
place as may be agreed upon by the Company and the Representatives) at such time
and date, not later than the third (or, if the Firm Common Shares are priced, as
contemplated by Rule 15c6-1(c) under the Securities Exchange Act of 1934, after
4:30 P.M. Washington D.C. time, the fourth) full business day following the
first date that any of the Common Shares are released by you for sale to the
public, as you shall designate by at least 48 hours prior notice to the Company
(or at such other time and date, not later than one week after such third or
fourth, as the case may be, full business day as may be agreed upon by the
Company and the Representatives) (the "First Closing Date"); provided, however,
that if the Prospectus is at any time prior to the First Closing Date
recirculated to the public, the First Closing Date shall occur upon the later of
the third or fourth, as the case may be, full business day following the first
date that any of the Common Shares are released by you for sale to the public or
the date that is 48 hours after the date that the Prospectus has been so
recirculated.
Delivery of certificates for the Firm Common Shares shall be made by or on
behalf of the Company to you, for the respective accounts of the Underwriters
against payment by you, for the accounts of the several Underwriters, of the
purchase price therefor by a wire transfer of immediately available funds to an
account designated by the Company. The certificates for the Firm Common Shares
shall be registered in such names and denominations as you shall have requested
at least two full business days prior to the First Closing Date, and shall be
made available for checking and packaging on the business day preceding the
First Closing Date at a location in New York, New York, as may be designated by
you. Time shall be of the essence, and delivery at the time and place specified
in this Agreement is a further condition to the obligations of the Underwriters.
In addition, on the basis of the representations, warranties and agreements
herein contained, but subject to the terms and conditions herein set forth, the
Company hereby grants an option to the several Underwriters to purchase,
severally and not jointly, up to an aggregate of 450,000 Optional Common Shares
at the purchase price per share to be paid for the Firm Common Shares, for use
solely in covering any over-allotments made by you for the accounts of the
Underwriters in the sale and distribution of the Firm Common Shares. The option
granted hereunder may be exercised at any time (but not more than once) within
30 days after the first date that any of the Common Shares are released by you
for sale to the public, upon notice by you to the Company setting forth the
aggregate number of Optional Common Shares as to which the Underwriters are
exercising the option, the names and denominations in which the certificates for
such shares are to be registered and the time and place at which such
certificates will be delivered. Such time of delivery (which may not be earlier
than the First Closing Date), being herein referred to as the "Second Closing
Date," shall be determined by you, but if at any time other than the First
Closing Date shall not be earlier than three nor later than five full business
days after delivery of such
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<PAGE>
notice of exercise. The number of Optional Common Shares to be purchased by
each Underwriter shall be determined by multiplying the number of Optional
Common Shares to be sold by the Company pursuant to such notice of exercise by a
fraction, the numerator of which is the number of Firm Common Shares to be
purchased by such Underwriter as set forth opposite its name in Schedule A
annexed hereto and the denominator of which is the maximum number of Firm Common
Shares to be purchased by the Underwriters hereunder (subject to such
adjustments to eliminate any fractional share purchases as you in your
discretion may make). Certificates for the Optional Common Shares will be made
available for checking and packaging on the business day preceding the Second
Closing Date at a location in New York, New York, as may be designated by you.
The manner of payment for and delivery of the Optional Common Shares shall be
the same as for the Firm Common Shares purchased from the Company as specified
in the two preceding paragraphs. At any time before lapse of the option, you
may cancel such option by giving written notice of such cancellation to the
Company. If the option is canceled or expires unexercised in whole or in part,
the Company will deregister under the Act the number of Optional Common Shares
as to which the option has not been exercised.
You have advised the Company that each Underwriter has authorized you to accept
delivery of its Common Shares, to make payment and to receipt therefor. You,
individually and not as the Representatives of the Underwriters, may (but shall
not be obligated to) make payment for any Common Shares to be purchased by any
Underwriter whose funds shall not have been received by you by the First Closing
Date or the Second Closing Date, as the case may be, for the account of such
Underwriter, but any such payment shall not relieve such Underwriter from any of
its obligations under this Agreement.
Subject to the terms and conditions hereof, the Underwriters propose to make a
public offering of their respective portions of the Common Shares as soon after
the effective date of the Registration Statement as in the judgment of the
Representatives is advisable and at the public offering price set forth on the
cover page of and on the terms set forth in the final prospectus, if one is
used, or on the first page of the Term Sheet, if one is used.
SECTION 5. Covenants of the Company. The Company covenants and agrees
------------------------
that:
(a) The Company will use its best efforts to cause the Registration
Statement and any amendment thereof, if not effective at the time and date that
this Agreement is executed and delivered by the parties hereto, to become
effective. If the Registration Statement has become or becomes effective
pursuant to Rule 430A of the Rules and Regulations, or the filing of the
Prospectus is otherwise required under Rule 424(b) of the Rules and Regulations,
the Company will file the Prospectus, properly completed, pursuant to the
applicable paragraph of Rule 424(b) of the Rules and Regulations within the time
period prescribed and will provide evidence satisfactory to you of such timely
filing. The Company will promptly advise you in writing (i) of the receipt of
any comments of the Commission, (ii) of any request of the Commission for
amendment of or supplement to the Registration Statement (either before or after
it becomes effective), any Preliminary Prospectus or the Prospectus or for
additional information, (iii) when the Registration Statement shall have become
effective, and (iv) of the issuance by the Commission of any stop order
suspending the effectiveness of the Registration Statement or of the institution
of any proceedings for that purpose. If the Commission shall enter any such
stop order at any time, the Company will use its best efforts to obtain the
lifting of such order at the earliest possible moment. The Company will not
file any amendment or supplement to the Registration Statement (either before or
after it becomes effective), any Preliminary Prospectus or the Prospectus of
which you have not been furnished with a copy a reasonable
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<PAGE>
time prior to such filing or to which you reasonably object or which is not in
compliance with the Act and the Rules and Regulations.
(b) The Company will prepare and file with the Commission, promptly upon
your request, any amendments or supplements to the Registration Statement or the
Prospectus which in your judgment may be necessary or advisable to enable the
several Underwriters to continue the distribution of the Common Shares and will
use its best efforts to cause the same to become effective as promptly as
possible. The Company will fully and completely comply with the provisions of
Rule 430A of the Rules and Regulations with respect to information omitted from
the Registration Statement in reliance upon such Rule.
(c) If at any time within the nine-month period referred to in Section
10(a)(3) of the Act during which a prospectus relating to the Common Shares is
required to be delivered under the Act any event occurs, as a result of which
the Prospectus, including any amendments or supplements, would include an untrue
statement of a material fact, or omit to state any material fact required to be
stated therein or necessary to make the statements therein not misleading, or if
it is necessary at any time to amend the Prospectus, including any amendments or
supplements, to comply with the Act or the Rules and Regulations, the Company
will promptly advise you thereof and will promptly prepare and file with the
Commission, at its own expense, an amendment or supplement which will correct
such statement or omission or an amendment or supplement which will effect such
compliance and will use its best efforts to cause the same to become effective
as soon as possible; and, in case any Underwriter is required to deliver a
prospectus after such nine-month period, the Company upon request, but at the
expense of such Underwriter, will promptly prepare such amendment or amendments
to the Registration Statement and such Prospectus or Prospectuses as may be
necessary to permit compliance with the requirements of Section 10(a)(3) of the
Act.
(d) As soon as practicable, but not later than 45 days after the end of
the first quarter ending after one year following the "effective date of the
Registration Statement" (as defined in Rule 158(c) of the Rules and
Regulations), the Company will make generally available to its security holders
an earnings statement (which need not be audited) covering a period of 12
consecutive months beginning after the effective date of the Registration
Statement which will satisfy the provisions of the last paragraph of Section
11(a) of the Act.
(e) During such period as a prospectus is required by law to be delivered
in connection with sales by an Underwriter or dealer, the Company, at its
expense, but only for the nine-month period referred to in Section 10(a)(3) of
the Act, will furnish to you or mail to your order copies of the Registration
Statement, the Prospectus, the Preliminary Prospectus and all amendments and
supplements to any such documents in each case as soon as available and in such
quantities as you may request, for the purposes contemplated by the Act.
(f) The Company shall cooperate with you and your counsel in order to
qualify or register the Common Shares for sale under (or obtain exemptions from
the application of) the Blue Sky laws of such jurisdictions as you designate,
will comply with such laws and will continue such qualifications, registrations
and exemptions in effect so long as reasonably required for the distribution of
the Common Shares. The Company shall not be required to qualify as a foreign
corporation or to file a general consent to service of process in any such
jurisdiction where it is not presently qualified or where it would be subject to
taxation as a foreign corporation. The Company will advise you promptly of the
suspension of the qualification or registration of (or any such exemption
relating to) the Common Shares for offering, sale
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<PAGE>
or trading in any jurisdiction or any initiation or threat of any proceeding for
any such purpose, and in the event of the issuance of any order suspending such
qualification, registration or exemption, the Company, with your cooperation,
will use its best efforts to obtain the withdrawal thereof.
(g) During the period of five years hereafter, the Company will furnish to
the Representatives and, upon request of the Representatives, to each of the
other Underwriters: (i) as soon as practicable after the end of each fiscal
year, copies of the Annual Report of the Company containing the balance sheet of
the Company as of the close of such fiscal year and statements of income,
stockholders' equity and cash flows for the year then ended and the opinion
thereon of the Company's independent public accountants; (ii) as soon as
practicable after the filing thereof, copies of each proxy statement, Annual
Report on Form 10-K, Quarterly Report on Form 10-Q, Report on Form 8-K or other
report filed by the Company with the Commission, the NASD or any securities
exchange; and (iii) as soon as available, copies of any report or communication
of the Company mailed generally to holders of its Common Stock.
(h) During the period of 180 days after the First Closing Date, except as
set forth in the following two sentences, without the prior written consent of
Montgomery Securities, which consent may be withheld at the sole discretion of
Montgomery Securities, the Company will not, other than pursuant to existing
stock option plans and to outstanding stock options and warrants, each as
disclosed in the Prospectus, issue, offer, sell, grant options to purchase or
otherwise dispose of any of the Company's equity securities or any other
securities convertible into or exchangeable with its Common Stock or other
equity security (collectively, "Equity Securities"). During the period from the
First Closing Date until 90 days after the First Closing Date, Montgomery
Securities agrees to consider any proposed issuance of Equity Securities not for
financing purposes to an entity (or an affiliate of such entity) in connection
with the acquisition of such entity by the Company or the entering into of a
strategic business relationship with such entity by the Company; during the
period beginning 91 days after the First Closing Date until 180 days after the
First Closing Date, the Company may issue Equity Securities not for financing
purposes to an entity (or an affiliate of such entity) in connection with the
acquisition of such entity by the Company or the entering into of a strategic
business relationship with such entity by the Company, provided that any such
Equity Securities are not freely tradable in the public equity markets during
such 180 day period and provided that the Company has informed Montgomery
Securities of the material terms of such acquisition or relationship at least 20
days prior to entering into an agreement obligating the Company to consummate
such acquisition or enter into such relationship.
(i) The Company will apply the net proceeds of the sale of the Common
Shares sold by it substantially in accordance with its statements under the
caption "Use of Proceeds" in the Prospectus.
(j) The Company will use its best efforts to qualify or register its
Common Stock for sale in non-issuer transactions under (or obtain exemptions
from the application of) the Blue Sky laws of the State of California (and
thereby permit market making transactions and secondary trading in the Company's
Common Stock in California), will comply with such Blue Sky laws and will
continue such qualifications, registrations and exemptions in effect for a
period of five years after the date hereof.
(k) The Company will use its best efforts to designate the Common Stock
for quotation as a National Market System security on the NASD Automated
Quotation System.
You, on behalf of the Underwriters, may, in your sole discretion, waive in
writing the performance by the Company of any one or more of the foregoing
covenants or extend the time for their performance.
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<PAGE>
SECTION 6. Payment of Expenses. Whether or not the transactions
-------------------
contemplated hereunder are consummated or this Agreement becomes effective or is
terminated, the Company agrees to pay all costs, fees and expenses incurred in
connection with the performance of its obligations hereunder and in connection
with the transactions contemplated hereby, including without limiting the
generality of the foregoing, (i) all expenses incident to the issuance and
delivery of the Common Shares (including all printing and engraving costs), (ii)
all fees and expenses of the registrar and transfer agent of the Common Stock,
(iii) all necessary issue, transfer and other stamp taxes in connection with the
issuance and sale of the Common Shares to the Underwriters, (iv) all fees and
expenses of the Company's counsel and the Company's independent accountants, (v)
all costs and expenses incurred in connection with the preparation, printing,
filing, shipping and distribution of the Registration Statement, each
Preliminary Prospectus and the Prospectus (including all exhibits and financial
statements) and all amendments and supplements provided for herein, this
Agreement, the Agreement Among Underwriters, the Selected Dealers Agreement, the
Underwriters' Questionnaire, the Underwriters' Power of Attorney and the Blue
Sky memorandum, (vi) all filing fees, attorneys' fees and expenses incurred by
the Company or the Underwriters in connection with qualifying or registering (or
obtaining exemptions from the qualification or registration of) all or any part
of the Common Shares for offer and sale under the Blue Sky laws, (vii) the
filing fee of the National Association of Securities Dealers, Inc., and (viii)
all other fees, costs and expenses referred to in Item 13 of Part II of the
Registration Statement. Except as provided in this Section 6, Section 8 and
Section 10 hereof, the Underwriters shall pay all of their own expenses,
including the fees and disbursements of their counsel (excluding those relating
to this Agreement, qualification, registration or exemption under the Blue Sky
laws and the Blue Sky memorandum referred to above).
SECTION 7. Conditions of the Obligations of the Underwriters. The
-------------------------------------------------
obligations of the several Underwriters to purchase and pay for the Firm Common
Shares on the First Closing Date and the Optional Common Shares on the Second
Closing Date shall be subject to the accuracy of the representations and
warranties on the part of the Company herein set forth as of the date hereof and
as of the First Closing Date or the Second Closing Date, as the case may be, to
the accuracy of the statements of Company officers made pursuant to the
provisions hereof, to the performance by the Company of its obligations
hereunder, and to the following additional conditions:
(a) The Registration Statement shall have become effective not later than
5:00 P.M. (or, in the case of a registration statement filed pursuant to Rule
462(b) of the Rules and Regulations relating to the Common Shares, not later
than 10 P.M.), Washington, D.C. Time, on the date of this Agreement, or at such
later time as shall have been consented to by you; if the filing of the
Prospectus, or any supplement thereto, is required pursuant to Rule 424(b) of
the Rules and Regulations, the Prospectus shall have been filed in the manner
and within the time period required by Rule 424(b) of the Rules and Regulations;
and prior to such Closing Date, no stop order suspending the effectiveness of
the Registration Statement shall have been issued and no proceedings for that
purpose shall have been instituted or shall be pending or, to the knowledge of
the Company or you, shall be contemplated by the Commission; and any request of
the Commission for inclusion of additional information in the Registration
Statement, or otherwise, shall have been complied with to your satisfaction.
(b) You shall be satisfied that since the respective dates as of which
information is given in the Registration Statement and Prospectus, (i) except as
otherwise disclosed in the Prospectus, there shall not have been any change in
the capital stock other than pursuant to the exercise of outstanding options and
warrants disclosed in the Prospectus of the Company or any material change in
the indebtedness (other than
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<PAGE>
in the ordinary course of business) of the Company, (ii) except as set forth or
contemplated by the Registration Statement or the Prospectus, no material verbal
or written agreement or other transaction shall have been entered into by the
Company, which is not in the ordinary course of business, (iii) no loss or
damage (whether or not insured) to the property of the Company shall have been
sustained which materially and adversely affects the condition (financial or
otherwise), business, results of operations or prospects of the Company, (iv) no
legal or governmental action, suit or proceeding affecting the Company which is
material to the Company or which affects or may affect the transactions
contemplated by this Agreement shall have been instituted or threatened, and (v)
there shall not have been any material change in the condition (financial or
otherwise), business, management, results of operations or prospects of the
Company which makes it impractical or inadvisable in the judgment of the
Representatives to proceed with the public offering or purchase the Common
Shares as contemplated hereby.
(c) There shall have been furnished to you, as Representatives of the
Underwriters, on each Closing Date, in form and substance satisfactory to you,
except as otherwise expressly provided below:
(i) An opinion of Fulbright & Jaworski L.L.P., counsel for the
Company, addressed to the Underwriters and dated the First Closing Date, or
the Second Closing Date, as the case may be, to the effect that:
(1) The Company has been duly incorporated and is validly
existing as a corporation in good standing under the laws of the State
of Delaware, is duly qualified to do business as a foreign corporation
and is in good standing in all other jurisdictions where the Company
owns or leases real property, and has full corporate power and
authority to own its properties and conduct its business as described
in the Registration Statement;
(2) The authorized, issued and outstanding capital stock of the
Company was (as of the date set forth in the Prospectus) as set forth
under the caption "Capitalization" in the Prospectus; all necessary
and proper corporate proceedings have been taken in order to authorize
validly such authorized Common Stock; all outstanding shares of Common
Stock (including the Firm Common Shares and any Optional Common
Shares) have been duly and validly issued, are fully paid and
nonassessable, have been issued in compliance with federal securities
laws, were not issued in violation of or subject to any preemptive
rights or, to such counsel's knowledge, other rights to subscribe for
or purchase any securities and conform in all material respects to the
description thereof contained in the Prospectus; without limiting the
foregoing, there are no preemptive or, to such counsel's knowledge,
other rights to subscribe for or purchase any of the Common Shares to
be sold by the Company hereunder;
(3) The certificates evidencing the Common Shares to be
delivered hereunder are in due and proper form under Delaware law, and
when duly countersigned by the Company's transfer agent and registrar,
and delivered to you or upon your order against payment of the agreed
consideration therefor in accordance with the provisions of this
Agreement, the Common Shares represented thereby will be duly
authorized and validly issued, fully paid and nonassessable, will not
have been issued in violation of or subject to any preemptive rights
or, to such counsel's knowledge, other rights to subscribe for or
purchase securities and will conform in all material respects to the
description thereof contained in the Prospectus;
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<PAGE>
(4) Except as disclosed in or specifically contemplated by the
Prospectus, to such counsel's knowledge, there are no outstanding
options, warrants or other rights calling for the issuance of, and no
commitments, plans or arrangements to issue, any shares of capital
stock of the Company or any security convertible into or exchangeable
for capital stock of the Company;
(5) (a) The Registration Statement has become effective under
the Act, and, to such counsel's knowledge, no stop order suspending
the effectiveness of the Registration Statement or preventing the use
of the Prospectus has been issued and no proceedings for that purpose
have been instituted or are pending or contemplated by the Commission;
any required filing of the Prospectus and any supplement thereto
pursuant to Rule 424(b) of the Rules and Regulations has been made in
the manner and within the time period required by such Rule 424(b);
(b) The Registration Statement, the Prospectus and each
amendment or supplement thereto (except for the financial
statements and schedules included therein as to which such
counsel need express no opinion) comply as to form in all
material respects with the requirements of the Act and the Rules
and Regulations;
(c) To such counsel's knowledge, there are no franchises,
leases, contracts, agreements or documents of a character
required to be disclosed in the Registration Statement or
Prospectus or to be filed as exhibits to the Registration
Statement which are not disclosed or filed, as required; and
(d) To such counsel's knowledge, there are no legal or
governmental actions, suits or proceedings pending or threatened
against the Company which are required to be described in the
Prospectus which are not described as required.
(6) The Company has full corporate power and authority to enter
into this Agreement and to sell and deliver the Common Shares to be
sold by it to the several Underwriters; this Agreement has been duly
and validly authorized by all necessary corporate action by the
Company, has been duly and validly executed and delivered by and on
behalf of the Company, and under the laws of the State of New York is
a valid and binding agreement of the Company in accordance with its
terms, except as enforceability may be limited by general equitable
principles, bankruptcy, insolvency, reorganization, moratorium or
other laws affecting creditors' rights generally and except as to
those provisions relating to indemnity or contribution for liabilities
arising under the Act as to which no opinion need be expressed; and no
approval, authorization, order, consent, registration, filing,
qualification, license or permit of or with any court, regulatory,
administrative or other governmental body is required for the
execution and delivery of this Agreement by the Company or the
consummation by the Company of the transactions contemplated by this
Agreement, except such as have been obtained and are in full force and
effect under the Act and such as may be required under applicable Blue
Sky laws in connection with the purchase and distribution of the
Common Shares by the Underwriters and the clearance of such offering
with the NASD;
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<PAGE>
(7) The execution and performance of this Agreement and the
consummation of the transactions herein contemplated will not violate,
result in the breach of, or constitute, either by itself or upon
notice or the passage of time or both, a default under, any agreement,
mortgage, deed of trust, lease, franchise, license, indenture, permit
or other instrument to which the Company is a party or by which the
Company or any of its property may be bound or affected which were
filed as an exhibit to the Registration Statement, or violate any of
the provisions of the certificate of incorporation or bylaws, or other
organizational documents, of the Company or, so far as is known to
such counsel, violate any statute, judgment, decree, order, rule or
regulation of any court or governmental body having jurisdiction over
the Company or any of its property;
(8) The Company is not in violation of its certificate of
incorporation;
(9) To such counsel's knowledge, no holders of securities of the
Company have rights which have not been waived to the registration of
shares of Common Stock or other securities, because of the filing of
the Registration Statement by the Company or the offering contemplated
hereby;
(10) No transfer taxes are required to be paid in connection
with the sale and delivery of the Common Shares to the Underwriters
hereunder.
In rendering such opinion, such counsel may rely as to matters of local law, on
opinions of local counsel, and as to matters of fact, on certificates of
officers of the Company and of governmental officials, in which case their
opinion is to state that they are so doing and that the Underwriters are
justified in relying on such opinions or certificates and copies of said
opinions or certificates are to be attached to the opinion. Such counsel shall
also include a statement to the effect that nothing has come to such counsel's
attention that would lead such counsel to believe that either at the effective
date of the Registration Statement or at the applicable Closing Date the
Registration Statement or the Prospectus, or any such amendment or supplement,
contains any untrue statement of a material fact or omits to state a material
fact required to be stated therein or necessary to make the statements therein
not misleading;
(ii) Such opinion or opinions of Ropes & Gray, counsel for the
Underwriters dated the First Closing Date or the Second Closing Date, as
the case may be, with respect to the incorporation of the Company, the
sufficiency of all corporate proceedings and other legal matters relating
to this Agreement, the validity of the Common Shares, the Registration
Statement and the Prospectus and other related matters as you may
reasonably require, and the Company shall have furnished to such counsel
such documents and shall have exhibited to them such papers and records as
they may reasonably request for the purpose of enabling them to pass upon
such matters. In connection with such opinions, such counsel may rely on
representations or certificates of officers of the Company and governmental
officials.
(iii) An opinion of Pennie & Edmonds, counsel for the Company,
addressed to the Underwriters and dated the First Closing Date or the
Second Closing Date, as the case may be, to the effect that:
(1) To the best of such counsel's knowledge, neither the
Registration Statement or the Prospectus contains any untrue statement
of a material fact with respect
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<PAGE>
to the trademark, trade name, patent, mask work, copyright, license,
trade secret and other intellectual property rights (collectively, the
"Intellectual Property") owned or used by the Company or omits to
state any material fact relating to Intellectual Property owned or
used by the Company that is required to be stated in the Registration
Statement or the Prospectus or that is necessary to make the
statements therein not misleading;
(2) To the best of such counsel's knowledge, there are no legal
or governmental proceedings pending relating to Intellectual Property
other than prosecution by the Company of its patent applications
before the United States Patent Office and appropriate foreign
government agencies, and to the best of such counsel's knowledge, no
such proceedings are threatened or contemplated by governmental
authorities or others;
(3) The Company has duly and properly filed patent applications
and patent cooperation treaty applications, listed or otherwise
referred to in the Prospectus under the caption "Business - Patents
and Proprietary Information";
(4) Such counsel do not know of any contracts or other documents
relating to the Company's Intellectual Property of a character
required to be filed as an exhibit to the Registration Statement or
required to be described in the Registration Statement or the
Prospectus that are not filed or described as required;
(5) To the best of such counsel's knowledge, the Company is not
infringing or otherwise violating any trademarks, trade names,
patents, mask works, copyrights, licenses, trade secrets or other
intellectual property rights of others and, to the best of such
counsel's knowledge, there are no infringements by others of any of
the Company's Intellectual Property which in the judgement of such
counsel would have a material adverse effect; and
(6) To the best of such counsel's knowledge, the Company owns or
possesses sufficient licenses or other rights to use all Intellectual
Property necessary to conduct the business now being or proposed to be
conducted by the Company as described in the Prospectus.
In rendering such opinion, such counsel may, to the extent stated therein, rely
as to matters of fact on certificates of officers of the Company, copies of
which shall be attached to the opinion. In rendering such opinion, such counsel
need not have conducted any independent investigation or conducted searches to
locate any third party patents, mask works, copyrights or other intellectual
property rights that might impact the Company's activities.
(iv) A certificate of the Company executed by the President and the
chief financial or accounting officer of the Company, dated the First
Closing Date or the Second Closing Date, as the case may be, to the effect
that:
(1) The representations and warranties of the Company set forth
in Section 2 of this Agreement are true and correct as of the date of
this Agreement and as of the First Closing Date or the Second Closing
Date, as the case may be, and the Company has
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<PAGE>
complied with all the agreements and satisfied all the conditions on
its part to be performed or satisfied on or prior to such Closing
Date;
(2) The Commission has not issued any order preventing or
suspending the use of the Prospectus or any Preliminary Prospectus
filed as a part of the Registration Statement or any amendment
thereto; no stop order suspending the effectiveness of the
Registration Statement has been issued; and to the best of the
knowledge of the respective signers, no proceedings for that purpose
have been instituted or are pending or contemplated under the Act;
(3) Since the initial date on which the Registration Statement
was filed, no agreement, written or oral, transaction or event has
occurred which should have been set forth in an amendment to the
Registration Statement or in a supplement to or amendment of any
prospectus which has not been disclosed in such a supplement or
amendment;
(4) Since the respective dates as of which information is given
in the Registration Statement and the Prospectus, and except as
disclosed in or contemplated by the Prospectus, there has not been any
material adverse change or a development involving a material adverse
change in the condition (financial or otherwise), business,
properties, results of operations, management or prospects of the
Company; and no legal or governmental action, suit or proceeding is
pending or threatened against the Company which is material to the
Company, whether or not arising from transactions in the ordinary
course of business, or which may adversely affect the transactions
contemplated by this Agreement; since such dates and except as so
disclosed, the Company has not entered into any verbal or written
agreement or other transaction which is not in the ordinary course of
business or incurred any material liability or obligation, direct,
contingent or indirect, made any change in its capital stock, made any
material change in its short-term debt or funded debt or repurchased
or otherwise acquired any of the Company's capital stock; and the
Company has not declared or paid any dividend, or made any other
distribution, upon its outstanding capital stock payable to
stockholders of record on a date prior to the First Closing Date or
Second Closing Date; and
(5) Since the respective dates as of which information is given
in the Registration Statement and the Prospectus and except as
disclosed in or contemplated by the Prospectus, the Company has not
sustained a material loss or damage by strike, fire, flood, windstorm,
accident or other calamity (whether or not insured).
(v) On the date before this Agreement is executed and also on the First
Closing Date and the Second Closing Date a letter addressed to you, as
Representatives of the Underwriters, from Arthur Andersen LLP, independent
accountants, the first one to be dated the day before the date of this
Agreement, the second one to be dated the First Closing Date and the third
one (in the event of a Second Closing) to be dated the Second Closing Date,
in form and substance satisfactory to you.
(vi) On or before the First Closing Date, letters from each holder of 5
percent or more of the Company's Common Stock and each director and officer
of the Company, in form and substance satisfactory to you, confirming that
for a period of 180 days after the First Closing Date, such
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<PAGE>
person will not (except as contemplated hereby) directly or indirectly sell
or offer to sell or otherwise dispose of any shares of Common Stock or any
right to acquire such shares without the prior written consent of either
Montgomery Securities or each of the Representatives, which consent may be
withheld at the sole discretion of Montgomery Securities or each of the
Representatives, as the case may be.
All such opinions, certificates, letters and documents shall be in compliance
with the provisions hereof only if they are satisfactory to you and to Ropes &
Gray, counsel for the Underwriters. The Company shall furnish you with such
manually signed or conformed copies of such opinions, certificates, letters and
documents as you request. Any certificate signed by any officer of the Company
and delivered to the Representatives or to counsel for the Underwriters shall be
deemed to be a representation and warranty by the Company to the Underwriters as
to the statements made therein.
If any condition to the Underwriters' obligations hereunder to be satisfied
prior to or at the First Closing Date is not so satisfied, this Agreement at
your election will terminate upon notification by you as Representatives to the
Company without liability on the part of any Underwriter or the Company except
for the expenses to be paid or reimbursed by the Company pursuant to Sections 6
and 8 hereof and except to the extent provided in Section 10 hereof.
SECTION 8. Reimbursement of Underwriters' Expenses. Notwithstanding any
---------------------------------------
other provisions hereof, if this Agreement shall be terminated by you pursuant
to Section 7, or if the sale to the Underwriters of the Common Shares at the
First Closing is not consummated because of any refusal, inability or failure on
the part of the Company to perform any agreement herein or to comply with any
provision hereof, the Company agrees to reimburse you and the other Underwriters
upon demand for all out-of-pocket expenses that shall have been reasonably
incurred by you and them in connection with the proposed purchase and the sale
of the Common Shares, including but not limited to fees and disbursements of
counsel, printing expenses, travel expenses, postage, telegraph charges and
telephone charges relating directly to the offering contemplated by the
Prospectus. Any such termination shall be without liability of any party to any
other party except that the provisions of this Section, Section 6 and Section 10
shall at all times be effective and shall apply. The Company shall in no event
be liable to any of the Underwriters for any loss of anticipated profits from
the transactions covered by this Agreement.
SECTION 9. Effectiveness of Registration Statement. You and the Company
---------------------------------------
will use your and its best efforts to cause the Registration Statement to become
effective, to prevent the issuance of any stop order suspending the
effectiveness of the Registration Statement and, if such stop order be issued,
to obtain as soon as possible the lifting thereof.
SECTION 10. Indemnification. (a) The Company agrees to indemnify and hold
---------------
harmless each Underwriter and each person, if any, who controls any Underwriter
within the meaning of the Act against any losses, claims, damages, liabilities
or expenses, joint or several, to which such Underwriter or such controlling
person may become subject, under the Act, the Securities Exchange Act of 1934,
as amended (the "Exchange Act"), or other federal or state statutory law or
regulation, or at common law or otherwise (including in settlement of any
litigation, if such settlement is effected with the written consent of the
Company), insofar as such losses, claims, damages, liabilities or expenses (or
actions in respect thereof as contemplated below) arise out of or are based upon
any untrue statement or alleged untrue statement of any material fact contained
in the Registration Statement, any Preliminary Prospectus, the Prospectus, or
any amendment or supplement thereto, or arise out of or are based upon the
omission or alleged omission
-17-
<PAGE>
to state in any of them a material fact required to be stated therein or
necessary to make the statements in any of them not misleading, or arise out of
or are based in whole or in part on any inaccuracy in the representations and
warranties of the Company contained herein; and will reimburse each Underwriter
and each such controlling person for any legal and other expenses as such
expenses are reasonably incurred by such Underwriter or such controlling person
in connection with investigating, defending, settling, compromising or paying
any such loss, claim, damage, liability, expense or action; provided, however,
that the Company will not be liable in any such case to the extent that any
such loss, claim, damage, liability or expense arises: (i) out of or is based
upon an untrue statement or alleged untrue statement or omission or alleged
omission made in the Registration Statement, any Preliminary Prospectus, the
Prospectus or any amendment or supplement thereto in reliance upon and in
conformity with the information furnished to the Company pursuant to Section 3
hereof; or (ii) arises out of or is based upon an untrue statement or alleged
untrue statement or omission or alleged omission made in any Preliminary
Prospectus where such statement or omission has been fully corrected in the
Prospectus and such loss, claim, damage, liability or expense would not have
arisen but for the failure of the Underwriters to deliver the Prospectus and a
sufficient number of copies of the Prospectus are delivered to the Underwriters
within thirty-six hours following the establishment of the public offering price
by the Company and the Underwriters. In addition to their other obligations
under this Section 10(a), the Company agrees that, as an interim measure during
the pendency of any claim, action, investigation, inquiry or other proceeding
arising out of or based upon any statement or omission, or any alleged statement
or omission, or any inaccuracy in the representations and warranties of the
Company herein, all as described in this Section 10(a), they will reimburse each
Underwriter on a quarterly basis for all reasonable legal or other expenses
incurred in connection with investigating or defending any such claim, action,
investigation, inquiry or other proceeding, notwithstanding the absence of a
judicial determination as to the propriety and enforceability of the Company's
obligation to reimburse each Underwriter for such expenses and the possibility
that such payments might later be held to have been improper by a court of
competent jurisdiction. To the extent that any such interim reimbursement
payment is so held to have been improper, each Underwriter shall promptly return
it to the Company together with interest, compounded daily, determined on the
basis of the prime rate (or other commercial lending rate for borrowers of the
highest credit standing) announced from time to time by Bank of America NT&SA,
San Francisco, California (the "Prime Rate"). Any such interim reimbursement
payments which are not made to an Underwriter within 30 days of a request for
reimbursement, shall bear interest at the Prime Rate from the date of such
request. This indemnity agreement will be in addition to any liability which the
Company may otherwise have.
(b) Each Underwriter will severally indemnify and hold harmless the
Company, each of its directors, each of its officers who signed the Registration
Statement, and each person, if any, who controls the Company within the meaning
of the Act, against any losses, claims, damages, liabilities or expenses to
which the Company, or any such director, officer, or controlling person may
become subject, under the Act, the Exchange Act, or other federal or state
statutory law or regulation, or at common law or otherwise (including in
settlement of any litigation, if such settlement is effected with the written
consent of such Underwriter), insofar as such losses, claims, damages,
liabilities or expenses (or actions in respect thereof as contemplated below)
arise out of or are based upon any untrue or alleged untrue statement of any
material fact contained in the Registration Statement, any Preliminary
Prospectus, the Prospectus, or any amendment or supplement thereto, or arise out
of or are based upon the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, in each case to the extent, but only to the extent, that
such untrue statement or alleged untrue statement or omission or alleged
omission was made in the Registration Statement, any Preliminary Prospectus, the
Prospectus, or any amendment or supplement thereto, in reliance upon and in
conformity
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<PAGE>
with the information furnished to the Company pursuant to Section 3 hereof; and
will reimburse the Company, or any such director, officer, or controlling person
for any legal and other expense reasonably incurred by the Company, or any such
director, officer, or controlling person in connection with investigating,
defending, settling, compromising or paying any such loss, claim, damage,
liability, expense or action. In addition to its other obligations under this
Section 10(b), each Underwriter severally agrees that, as an interim measure
during the pendency of any claim, action, investigation, inquiry or other
proceeding arising out of or based upon any statement or omission, or any
alleged statement or omission, described in this Section 10(b) which relates to
information furnished to the Company pursuant to Section 3 hereof, it will
reimburse the Company (and, to the extent applicable, each officer, director or
controlling person) on a quarterly basis for all reasonable legal or other
expenses incurred in connection with investigating or defending any such claim,
action, investigation, inquiry or other proceeding, notwithstanding the absence
of a judicial determination as to the propriety and enforceability of the
Underwriters' obligation to reimburse the Company (and, to the extent
applicable, each officer, director or controlling person) for such expenses and
the possibility that such payments might later be held to have been improper by
a court of competent jurisdiction. To the extent that any such interim
reimbursement payment is so held to have been improper, the Company (and, to the
extent applicable, each officer, director or controlling person) shall promptly
return it to the Underwriters together with interest, compounded daily,
determined on the basis of the Prime Rate. Any such interim reimbursement
payments which are not made to the Company (and, to the extent applicable, each
officer, director or controlling person) within 30 days of a request for
reimbursement, shall bear interest at the Prime Rate from the date of such
request. This indemnity agreement will be in addition to any liability which
such Underwriter may otherwise have.
(c) Promptly after receipt by an indemnified party under this Section of
notice of the commencement of any action, such indemnified party will, if a
claim in respect thereof is to be made against an indemnifying party under this
Section, notify the indemnifying party in writing of the commencement thereof;
but the omission so to notify the indemnifying party will not relieve it from
any liability which it may have to any indemnified party for contribution or
otherwise than under the indemnity agreement contained in this Section or to the
extent it is not prejudiced as a proximate result of such failure. In case any
such action is brought against any indemnified party and such indemnified party
seeks or intends to seek indemnity from an indemnifying party, the indemnifying
party will be entitled to participate in, and, to the extent that it may wish,
jointly with all other indemnifying parties similarly notified, to assume the
defense thereof with counsel reasonably satisfactory to such indemnified party;
provided, however, if the defendants in any such action include both the
indemnified party and the indemnifying party and the indemnified party shall
have reasonably concluded that there may be a conflict between the positions of
the indemnifying party and the indemnified party in conducting the defense of
any such action or that there may be legal defenses available to it and/or other
indemnified parties which are different from or additional to those available to
the indemnifying party, the indemnified party or parties shall have the right to
select separate counsel to assume such legal defenses and to otherwise
participate in the defense of such action on behalf of such indemnified party or
parties. Upon receipt of notice from the indemnifying party to such indemnified
party of its election so to assume the defense of such action and approval by
the indemnified party of counsel, the indemnifying party will not be liable to
such indemnified party under this Section for any legal or other expenses
subsequently incurred by such indemnified party in connection with the defense
thereof unless (i) the indemnified party shall have employed such counsel in
connection with the assumption of legal defenses in accordance with the proviso
to the next preceding sentence (it being understood, however, that the
indemnifying party shall not be liable for the expenses of more than one
separate counsel, approved by the Representatives in the case of paragraph (a),
representing
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<PAGE>
the indemnified parties who are parties to such action) or (ii) the indemnifying
party shall not have employed counsel reasonably satisfactory to the indemnified
party to represent the indemnified party within a reasonable time after notice
of commencement of the action, in each of which cases the fees and expenses of
counsel shall be at the expense of the indemnifying party.
(d) If the indemnification provided for in this Section 10 is required by
its terms but is for any reason held to be unavailable to or otherwise
insufficient to hold harmless an indemnified party under paragraphs (a), (b) or
(c) in respect of any losses, claims, damages, liabilities or expenses referred
to herein, then each applicable indemnifying party shall contribute to the
amount paid or payable by such indemnified party as a result of any losses,
claims, damages, liabilities or expenses referred to herein (i) in such
proportion as is appropriate to reflect the relative benefits received by the
Company and the Underwriters from the offering of the Common Shares or (ii) if
the allocation provided by clause (i) above is not permitted by applicable law,
in such proportion as is appropriate to reflect not only the relative benefits
referred to in clause (i) above but also the relative fault of the Company and
the Underwriters in connection with the statements or omissions which resulted
in such losses, claims, damages, liabilities or expenses, as well as any other
relevant equitable considerations. The respective relative benefits received by
the Company and the Underwriters shall be deemed to be in the same proportion,
in the case of the Company as the total price paid to the Company for the Common
Shares sold by them to the Underwriters (net of underwriting commissions but
before deducting expenses) bears to the total price to the public set forth on
the cover of the Prospectus, and in the case of the Underwriters as the
underwriting commissions received by them bears to the total price to the public
set forth on the cover of the Prospectus. The relative fault of the Company and
the Underwriters shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or the
omission or alleged omission to state a material fact or the inaccurate or the
alleged inaccurate representation and/or warranty relates to information
supplied by the Company or the Underwriters and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement or omission and any other equitable consideration appropriate under
the circumstances. The amount paid or payable by a party as a result of the
losses, claims, damages, liabilities and expenses referred to above shall be
deemed to include, subject to the limitations set forth in subparagraph (c) of
this Section 10, any legal or other fees or expenses reasonably incurred by such
party in connection with investigating or defending any action or claim. The
provisions set forth in subparagraph (c) of this Section 10 with respect to
notice of commencement of any action shall apply if a claim for contribution is
to be made under this subparagraph (d); provided, however, that no additional
notice shall be required with respect to any action for which notice has been
given under subparagraph (c) for purposes of indemnification. The Company and
the Underwriters agree that it would not be just and equitable if contribution
pursuant to this Section 10 were determined solely by pro rata allocation (even
if the Underwriters were treated as one entity for such purpose) or by any other
method of allocation which does not take account of the equitable considerations
referred to in this subsection. Notwithstanding the provisions of this Section
10, no Underwriter shall be required to contribute any amount in excess of the
amount of the total underwriting commissions received by such Underwriter in
connection with the Common Shares underwritten by it and distributed to the
public. No person guilty of fraudulent misrepresentation (within the meaning of
Section 11(f) of the Act) shall be entitled to contribution from any person who
was not guilty of such fraudulent misrepresentation. The Underwriters'
obligations to contribute pursuant to this Section 10 are several in proportion
to their respective underwriting commitments and not joint.
(e) It is agreed that any controversy arising out of the operation of the
interim reimbursement arrangements set forth in Sections 10(a) and 10(b) hereof,
including the amounts of any requested
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<PAGE>
reimbursement payments and the method of determining such amounts, shall be
settled by arbitration conducted under the provisions of the Constitution and
Rules of the Board of Governors of the New York Stock Exchange, Inc. or pursuant
to the Code of Arbitration Procedure of the NASD. Any such arbitration must be
commenced by service of a written demand for arbitration or written notice of
intention to arbitrate, therein electing the arbitration tribunal. In the event
the party demanding arbitration does not make such designation of an arbitration
tribunal in such demand or notice, then the party responding to said demand or
notice is authorized to do so. Such an arbitration would be limited to the
operation of the interim reimbursement provisions contained in Sections 10(a)
and 10(b) hereof and would not resolve the ultimate propriety or enforceability
of the obligation to reimburse expenses which is created by the provisions of
such Sections 10(a) and 10(b) hereof.
SECTION 11. Default of Underwriters. It shall be a condition to this
-----------------------
Agreement and the obligation of the Company to sell and deliver the Common
Shares hereunder, and of each Underwriter to purchase the Common Shares in the
manner as described herein, that, except as hereinafter in this paragraph
provided, each of the Underwriters shall purchase and pay for all the Common
Shares agreed to be purchased by such Underwriter hereunder upon tender to the
Representatives of all such shares in accordance with the terms hereof. If any
Underwriter or Underwriters default in their obligations to purchase Common
Shares hereunder on either the First or Second Closing Date and the aggregate
number of Common Shares which such defaulting Underwriter or Underwriters agreed
but failed to purchase on such Closing Date does not exceed 10% of the total
number of Common Shares which the Underwriters are obligated to purchase on such
Closing Date, the non-defaulting Underwriters shall be obligated severally, in
proportion to their respective commitments hereunder, to purchase the Common
Shares which such defaulting Underwriters agreed but failed to purchase on such
Closing Date. If any Underwriter or Underwriters so default and the aggregate
number of Common Shares with respect to which such default occurs is more than
the above percentage and arrangements satisfactory to the Representatives and
the Company for the purchase of such Common Shares by other persons are not made
within 48 hours after such default, this Agreement will terminate without
liability on the part of any non-defaulting Underwriter or the Company except to
the extent provided in Section 10 hereof.
In the event that Common Shares to which a default relates are to be
purchased by the non-defaulting Underwriters or by another party or parties, the
Representatives or the Company shall have the right to postpone the First or
Second Closing Date, as the case may be, for not more than five business days in
order that the necessary changes in the Registration Statement, Prospectus and
any other documents, as well as any other arrangements, may be effected. As
used in this Agreement, the term "Underwriter" includes any person substituted
for an Underwriter under this Section. Nothing herein will relieve a defaulting
Underwriter from liability for its default.
SECTION 12. Effective Date. This Agreement shall become effective
--------------
immediately as to Sections 6, 8, 10, 13 and 14 and, as to all other provisions,
(i) if at the time of execution of this Agreement the Registration Statement has
not become effective, at 2:00 P.M., California time, on the first full business
day following the effectiveness of the Registration Statement, or (ii) if at the
time of execution of this Agreement the Registration Statement has been declared
effective, at 2:00 P.M., California time, on the first full business day
following the date of execution of this Agreement; but this Agreement shall
nevertheless become effective at such earlier time after the Registration
Statement becomes effective as you may determine on and by notice to the Company
or by release of any of the Common Shares for sale to the public. For the
purposes of this Section 12, the Common Shares shall be deemed to have been so
released upon the release for publication of any newspaper advertisement
relating to the Common Shares
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or upon the release by you of telegrams (i) advising Underwriters that the
Common Shares are released for public offering, or (ii) offering the Common
Shares for sale to securities dealers, whichever may occur first.
SECTION 13. Termination. Without limiting the right to terminate this
-----------
Agreement pursuant to any other provision hereof:
(a) This Agreement may be terminated by the Company by notice to you or by
you by notice to the Company at any time prior to the time this Agreement shall
become effective as to all its provisions, and any such termination shall be
without liability on the part of the Company to any Underwriter (except for the
expenses to be paid or reimbursed by the Company pursuant to Sections 6 and 8
hereof and except to the extent provided in Section 10 hereof) or of any
Underwriter to the Company (except to the extent provided in Section 10 hereof).
(b) This Agreement may also be terminated by you prior to the First
Closing Date by notice to the Company (i) if additional material governmental
restrictions, not in force and effect on the date hereof, shall have been
imposed upon trading in securities generally or minimum or maximum prices shall
have been generally established on the New York Stock Exchange or on the
American Stock Exchange or in the over the counter market by the NASD, or
trading in securities generally shall have been suspended on either such
Exchange or in the over the counter market by the NASD, or a general banking
moratorium shall have been established by federal, New York or California
authorities, (ii) if an outbreak of major hostilities or other national or
international calamity or any substantial change in political, financial or
economic conditions shall have occurred or shall have accelerated or escalated
to such an extent, as, in the judgment of the Representatives, to affect
adversely the marketability of the Common Shares, (iii) if any adverse event
shall have occurred or shall exist which makes untrue or incorrect in any
material respect any statement or information contained in the Registration
Statement or Prospectus or which is not reflected in the Registration Statement
or Prospectus but should be reflected therein in order to make the statements or
information contained therein not misleading in any material respect, or (iv) if
there shall be any action, suit or proceeding pending or threatened, or there
shall have been any development or prospective development involving
particularly the business or properties or securities of the Company or the
transactions contemplated by this Agreement, which, in the reasonable judgment
of the Representatives, may materially and adversely affect the Company's
business or earnings and makes it impracticable or inadvisable to offer or sell
the Common Shares. Any termination pursuant to this subsection (b) shall
without liability on the part of any Underwriter to the Company on the part of
the Company to any Underwriter (except for expenses to be paid or reimbursed by
the Company pursuant to Sections 6 and 8 hereof and except to the extent
provided in Section 10 hereof.
(c) This Agreement shall also terminate at 5:00 P.M., California time, on
the tenth full business day after the Registration Statement shall have become
effective if the initial public offering price of the Common Shares shall not
then as yet have been determined as provided in Section 4 hereof. Any
termination pursuant to this subsection (c) shall without liability on the part
of any Underwriter to the Company or on the part of the Company to any
Underwriter (except for expenses to be paid or reimbursed by the Company
pursuant to Sections 6 and 8 hereof and except to the extent provided in Section
10 hereof.
SECTION 14. Representations and Indemnities to Survive Delivery. The
---------------------------------------------------
respective indemnities, agreements, representations, warranties and other
statements of the Company, of its officers, and of the several Underwriters set
forth in or made pursuant to this Agreement will remain in full force and
effect,
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<PAGE>
regardless of any investigation made by or on behalf of any Underwriter or the
Company or any of its or their partners, officers or directors or any
controlling person, as the case may be, and will survive delivery of and payment
for the Common Shares sold hereunder and any termination of this Agreement.
SECTION 15. Notices. All communications hereunder shall be in writing
-------
and, if sent to the Representatives shall be mailed, delivered or telegraphed
and confirmed to you at 600 Montgomery Street, San Francisco, California 94111,
Attention: David Baylor, with a copy to Gregory D. Sheehan, Esq., Ropes & Gray,
One International Place, Boston, MA 02110; and if sent to the Company shall be
mailed, delivered or telegraphed and confirmed to the Company at 305 College
Road East, Princeton, NJ 08540 with a copy to Paul Jacobs, Esq., Fulbright &
Jaworski L.L.P., 666 Fifth Avenue, New York, NY 10103. The Company or you may
change the address for receipt of communications hereunder by giving notice to
the others.
SECTION 16. Successors. This Agreement will inure to the benefit of and
----------
be binding upon the parties hereto, including any substitute Underwriters
pursuant to Section 11 hereof, and to the benefit of the officers and directors
and controlling persons referred to in Section 10, and in each case their
respective successors, personal representatives and assigns, and no other person
will have any right or obligation hereunder. No such assignment shall relieve
any party of its obligations hereunder. The term "successors" shall not include
any purchaser of the Common Shares as such from any of the Underwriters merely
by reason of such purchase.
SECTION 17. Representation of Underwriters. You will act as
------------------------------
Representatives for the several Underwriters in connection with all dealings
hereunder, and any action under or in respect of this Agreement taken by you as
Representatives, will be binding upon all the Underwriters.
SECTION 18. Partial Unenforceability. The invalidity or unenforceability
------------------------
of any Section, paragraph or provision of this Agreement shall not affect the
validity or enforceability of any other Section, paragraph or provision hereof.
If any Section, paragraph or provision of this Agreement is for any reason
determined to be invalid or unenforceable, there shall be deemed to be made such
minor changes (and only such minor changes) as are necessary to make it valid
and enforceable.
SECTION 19. Applicable Law. This Agreement shall be governed by and
--------------
construed in accordance with the internal laws (and not the laws pertaining to
conflicts of laws) of the State of New York.
SECTION 20. General. This Agreement constitutes the entire agreement of
-------
the parties to this Agreement and supersedes all prior written or oral and all
contemporaneous oral agreements, understandings and negotiations with respect to
the subject matter hereof. This Agreement may be executed in several
counterparts, each one of which shall be an original, and all of which shall
constitute one and the same document. In this Agreement, the masculine,
feminine and neuter genders and the singular and the plural include one another.
The section headings in this Agreement are for the convenience of the parties
only and will not affect the construction or interpretation of this Agreement.
This Agreement may be amended or modified, and the observance of any term of
this Agreement may be waived, only by a writing signed by the Company and you.
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<PAGE>
If the foregoing is in accordance with your understanding of our agreement,
kindly sign and return to us the enclosed copies hereof, whereupon it will
become a binding agreement among the Company and the several Underwriters
including you, all in accordance with its terms.
Very truly yours,
VOXWARE, INC.
By:__________________________
President
The foregoing Underwriting Agreement
is hereby confirmed and accepted by
us in San Francisco, California as of
the date first above written.
MONTGOMERY SECURITIES
ALEX. BROWN & SONS INCORPORATED
OPPENHEIMER & CO., INC.
Acting as Representatives of the
several Underwriters named in
the attached Schedule A.
By MONTGOMERY SECURITIES
By:_________________________
Partner
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<PAGE>
SCHEDULE A
Number of Firm
Common Shares
Name of Underwriter to be Purchased
------------------- ---------------
Montgomery Securities..............
Alex. Brown & Sons Incorporated....
Oppenheimer & Co., Inc.............
TOTAL ............................. ______________
3,000,000
==============
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EXHIBIT 3.1
CERTIFICATE OF INCORPORATION
OF
ADVANCED COMMUNICATION TECHNOLOGIES, INC.
________________________
Under Section 102 of the
General Corporation Law
_________________________
The undersigned, for the purpose of forming a corporation pursuant to the
provisions of the General Corporation Law of the State of Delaware (the "GCL"),
does hereby certify as follows:
FIRST: The name of the corporation is Advanced Communication Technologies,
Inc.
SECOND: The purpose of the corporation is to engage in any lawful act or
activity for which a corporation may be organized under the GCL.
THIRD: The name and address in the State of Delaware of this corporation's
agent for service of process is: The Corporation Trust Company, Corporation
Trust Center, 1209 Orange Street, Wilmington, Delaware, County of New Castle.
FOURTH: The name and mailing address of the sole incorporator is:
Lawrence A. Spector
c/o Fulbright & Jaworski L.L.P.
666 Fifth Avenue
New York, New York 10103
FIFTH: The total number of shares which the corporation has authority to
issue is two hundred (200) shares of Common Stock, par value $.01 per share.
SIXTH: In the furtherance and not in limitation of the objects, purposes
and powers conferred by statute, the Board of Directors is expressly authorized
to make, alter or repeal the By-laws of the corporation.
SEVENTH: Whenever a compromise or arrangement is proposed between the
corporation and its creditors or any class of them and/or between the
corporation and its stockholders or any class of them, any court of equitable
jurisdiction within the State of Delaware may, on the application in a summary
way of the corporation or of any creditor or stockholder thereof or on the
application of any receiver or receivers appointed for the corporation under the
provisions of section 291 of Title 8 of the
<PAGE>
Delaware Code or on the application of trustees in dissolution or of any
receiver or receivers appointed for the corporation under the provisions of
section 279 of Title 8 of the Delaware Code, order a meeting of the creditors or
class of creditors, and/or of the stockholders or class of stockholders of the
corporation, as the case may be, to be summoned in such manner as the said court
directs. If a majority in number representing three-fourths in value of the
creditors or class of creditors, and/or of the stockholders or class of
stockholders of this corporation, as the case may be, agree to any compromise or
arrangement and to any reorganization of this corporation as consequence of such
compromise or arrangement, the said compromise or arrangement and the said
reorganization shall, if sanctioned by the court to which the said application
has been made, be binding on all the creditors or class of creditors, and/or on
all the stockholders or class of stockholders, of this corporation, as the case
may be, and also on this corporation.
EIGHTH: The corporation shall indemnify any person who was or is a party
or is threatened to be made a party to any threatened, pending or completed
action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the corporation) by
reason of the fact that he is or was a director, officer, employee or agent of
the corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, against expenses (including attorneys'
fees), judgment, fines and amounts paid in settlement actually and reasonably
incurred by him in connection with such action, suit or proceeding if he acted
in good faith and in a manner reasonably believed to be in or not opposed to the
best interests of the corporation, and, with respect to any criminal action or
proceedings, had no reasonable cause to believe his conduct was unlawful. The
termination of any action, upon a plea of nolo contendere or equivalent, shall
not, of itself, create a presumption that the person did not act in good faith
and in a manner which he reasonably believed to be in or not opposed to the best
interests of the corporation, and, with respect to interests of the corporation,
and, with respect to any criminal action or proceeding, had reasonable cause to
believe that his conduct was unlawful.
NINTH: The directors of the corporation shall incur no personal liability
to the corporation or its stockholders for monetary damages for any breach of
fiduciary duty as a director; provided, however, that the directors of the
corporation shall continue to be subject to liability (i) for any breach of
their duty of loyalty to the corporation or its stockholders, (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law, (iii) under Section 174 of the GCL or (iv) for any transaction
from which the directors derived an improper benefit. If the GCL is amended
after the date of incorporation of the corporation to authorize corporate action
further eliminating or limiting the personal liability of directors, then the
liability of a director of the corporation shall be eliminated or limited to the
fullest extent permitted by the GCL, as so amended. Any repeal or modification
of the foregoing paragraph by the stockholders of the corporation shall be
-2-
<PAGE>
prospective only, and shall not adversely affect any limitation on the personal
liability of a director of the corporation existing at the time of such repeal
or modification.
TENTH: The corporation reserves the right to amend, alter, change or
repeal any provisions contained in this Certificate of Incorporation, in the
manner now or hereafter prescribed by statute, and all rights conferred upon
stockholders herein are granted subject to this reservation.
IN WITNESS WHEREOF, the undersigned has executed this Certificate this 20th
day of August, 1993.
/s/ Lawrence A. Spector
------------------------------
Lawrence A. Spector
-3-
<PAGE>
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
ADVANCED COMMUNICATION TECHNOLOGIES, INC., a corporation organized and
existing under and by virtue of the General Corporation Law of the State of
Delaware (the "Corporation"), DOES HEREBY CERTIFY:
FIRST: The Sole Director of the Corporation by written consent has duly
adopted the amendment to the Corporation's Certificate of Incorporation set
forth below.
SECOND: Said amendment amends Article FIFTH of the Corporation's
Certificate of Incorporation to read in its entirety as follows:
"FIFTH: The total number of shares of stock which the
Corporation has authority to issue is twelve million (12,000,000)
shares of Common Stock, par value $.001 per share."
THIRD: Upon the effective time of this amendment to the Certificate
of Incorporation whereby Article FIFTH is amended to read as set forth herein,
each share of the Common Stock of the Corporation issued and outstanding or held
by the Corporation shall be automatically reclassified and converted (without
further action on the part of the Corporation) into sixty thousand (60,000)
fully paid and non-assessable shares of New Common Stock.
FOURTH: That in lieu of a meeting and vote of stockholders entitled
to vote thereon, such stockholders have given written consent to said amendment
in accordance with the provisions of Section 228 of the General Corporation Law
of the State of Delaware, and written notice of the adoption of the amendment
has been given
<PAGE>
as provided in Section 228 of the General Corporation Law of the State of
Delaware to every stockholder entitled to such notice.
FIFTH: The aforesaid amendment was duly adopted in accordance with
the applicable provisions of Sections 228 and 242 of the General Corporation Law
of the State of Delaware.
IN WITNESS WHEREOF, Advanced Communication Technologies, Inc. has
caused this Certificate to be signed by its President and Secretary, this 8th
day of December, 1993.
ADVANCED COMMUNICATION
TECHNOLOGIES, INC.
By: /s/ J. Gerard Aguilar
-----------------------------------
J. Gerard Aguilar
President
Attest:
By: /s/ J. Gerard Aguilar
-----------------------------------
J. Gerard Aguilar
Secretary
-2-
<PAGE>
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
ADVANCED COMMUNICATION TECHNOLOGIES, INC., a corporation organized and
existing under and by virtue of the General Corporation Law of the State of
Delaware (the "Corporation"), DOES HEREBY CERTIFY:
FIRST: The Board of Directors of the Corporation, acting by unanimous
written consent, has duly adopted the amendment to the Corporation's Certificate
of Incorporation set forth below.
SECOND: Said amendment amends Article FIFTH of the Corporation's
Certificate of Incorporation to read in its entirety as follows:
"FIFTH: The total number of shares of stock which the
Corporation has authority to issue is twenty million (20,000,000)
shares of Common Stock, par value $.001 per share."
THIRD: That in lieu of a meeting and vote of stockholders entitled to
vote thereon, such stockholders have given written consent to said amendment in
accordance with the provisions of Section 228 of the General Corporation Law of
the State of Delaware, and written notice of the adoption of the amendment has
been given as provided in Section 228 of the General Corporation Law of the
State of Delaware to every stockholder entitled to such notice.
FOURTH: The aforesaid amendment was duly adopted in accordance with the
applicable provisions of Sections 228 and 242 of the General Corporation Law of
the State of Delaware.
IN WITNESS WHEREOF, Advanced Communications Technologies, Inc. has
caused this Certificate to be signed by its President and Secretary, this 25 day
of February, 1994.
ADVANCED COMMUNICATION
TECHNOLOGIES, INC.
By: /s/ Michael Goldstein
-----------------------
Michael Goldstein
President
Attest:
By: /s/ J. Gerard Aguilar
--------------------------
J. Gerard Aguilar
Secretary
<PAGE>
CERTIFICATE OF AMENDMENT
OF
THE CERTIFICATE OF INCORPORATION
OF
ADVANCED COMMUNICATION TECHNOLOGIES, INC.
Advanced Communication Technologies, Inc., a corporation organized and
existing under and by virtue of the General Corporation Law of the State of
Delaware, DOES HEREBY CERTIFY:
FIRST: That by unanimous written consent pursuant to Section 141 of
the General Corporation Law of the State of Delaware, the Board of Directors of
Advanced Communication Technologies, Inc. duly adopted resolutions setting forth
a proposed amendment of the Certificate of Incorporation of said corporation,
declaring said amendment to be advisable and directing that the proposed
amendment be placed before the stockholders of the corporation for consideration
thereof. The resolution setting forth the proposed amendment is as follows:
RESOLVED, that the Certificate of Incorporation of this corporation be
amended by restating Article FIRST thereof to read in its entirety as
follows:
FIRST: The name of the corporation is Voxware, Inc.
SECOND: That thereafter, the stockholders of said corporation, by written
consent of the holders of a majority of the outstanding stock entitled to vote
thereon, in accordance with Section 228 of the General Corporation Law of the
State of Delaware, approved said amendment to the Certificate of Incorporation.
THIRD: That thereafter, written notice of the foregoing action was given
in accordance with Section 228 of the General Corporation Law of the State of
Delaware to those stockholders who have not consented in writing to the
foregoing action.
FOURTH: That said amendment was duly adopted in accordance with the
provisions of Section 242 of the General Corporation Law of the State of
Delaware.
IN WITNESS WHEREOF, the undersigned have signed this Certificate and
affirm, under penalties of perjury that the Certificate is the act and deed of
the Corporation and the facts stated herein are true.
Date: 5/23/94 /s/ Michael Goldstein
--------------- ------------------------------
Michael Goldstein
President
ATTEST:
/s/ Gerard Aguilar
- --------------------------
J. Gerard Aguilar
Secretary
<PAGE>
CERTIFICATE OF AMENDMENT
OF
THE CERTIFICATE OF INCORPORATION
OF
VOXWARE, INC.
(Pursuant to Section 242 of the General
Corporation Law of Delaware)
VOXWARE, INC., a corporation organized and existing under and by
virtue of the General Corporation Law of the State of Delaware (the
"Corporation"), DOES HEREBY CERTIFY:
FIRST: That at a meeting of the Corporation's Board of Directors on
December 7, 1994, the Board of Directors of the Corporation duly adopted a
resolution setting forth the proposed amendment to the Certificate of
Incorporation of the Corporation, declaring said amendment to be advisable and
directing that the proposed amendment be placed before the stockholders of the
Corporation for consideration thereof. The resolution setting forth the
proposed amendment is as follows:
RESOLVED, that the Certificate of Incorporation of the Corporation be
amended by restating Article FIFTH thereof to read in its entirety as
follows:
"FIFTH: The total number of shares of all classes of stock which
the Corporation has authority to issue is Forty million (40,000,000)
shares, consisting of Thirty million (30,000,000) shares of Common
Stock, par value $.001 per share (the "Common Stock"), and Ten million
(10,000,000) shares of Preferred Stock, par value $.001 per share (the
"Preferred Stock"), which Preferred Stock shall have such
designations, powers, preferences and rights as may be authorized by
the Board of Directors from time to time.
The Board of Directors is hereby authorized, subject to the
provisions contained in this Article FIFTH, to issue the Preferred
Stock from time to time in one or more series, which Preferred Stock
shall be preferred to the Common Stock as to dividends and
distribution of assets
<PAGE>
of the Corporation upon the voluntary or involuntary liquidation,
dissolution or winding up of the Corporation, as hereinafter provided,
and shall have such designations as may be stated in the resolution or
resolutions providing for the issuance of such stock adopted by the
Board of Directors. In such resolution or resolutions providing for
the issuance of shares of each particular series, the Board of
Directors is hereby expressly authorized and empowered to fix the
number of shares constituting such series and to fix the designations
and any of the preferences, powers or rights of the shares of the
series so established to the full extent allowable by law except
insofar as such designations, preferences, powers or rights are fixed
herein. Such authorization in the Board of Directors shall expressly
include the authority to fix and determine the designations,
preferences, powers or rights of such shares in all respects
including, without limitation, the following:
(i) the rate of dividend;
(ii) whether shares can be redeemed or called and, if so, the
redemption or call price and terms and conditions of redemption
or call;
(iii) the amount payable upon shares in the event of dissolution,
voluntary and involuntary liquidation or winding up of the
affairs of the Corporation;
(iv) purchase, retirement or sinking fund provisions, if any, for
the call, redemption or purchase of shares;
(v) the terms and conditions, if any, on which shares may be
converted into Common Stock or any other securities;
(vi) whether or not shares have voting rights, and the extent of
such voting rights, if any; and
(vii) whether shares shall be cumulative, noncumulative, or partially
cumulative as to dividends and the dates from which any
cumulative dividends are to accumulate.
COMMON STOCK
------------
Section 1. Voting Rights. The holders of shares of Common Stock
--------- -------------
shall be entitled to one vote for each share so held with respect to
all matters voted on by the stockholders of the Corporation, subject
in all cases to the rights of the Preferred Stock, if any.
-2-
<PAGE>
Section 2. Dividends. Subject to the rights of the Preferred
--------- ---------
Stock, if any, dividends may be paid on the Common Stock as and when
declared by the Board of Directors.
Section 3. Liquidation Rights. Subject to the prior and
--------- ------------------
superior right of the Preferred Stock, if any, upon any voluntary or
involuntary liquidation, dissolution or winding up of the affairs of
the Corporation, the holders of Common Stock shall be entitled to
receive that portion of the remaining funds to be distributed in
accordance with the provisions of this Certificate of Incorporation,
as it may from time to time be amended or supplemented, including
without limitation any supplement effected pursuant to a certificate
of designations, setting forth such prior and superior rights. Such
funds shall be paid to the holders of Common Stock pro rata on the
basis of the number of shares of Common Stock held by each of them.
Section 4. Merger, Consolidation, Sale of Assets. Subject to
--------- -------------------------------------
the prior and superior rights of the Preferred Stock, if any, in the
event of any merger or consolidation of the Corporation with or into
another corporation in which the Corporation shall not survive, or the
sale or transfer of all or substantially all of the assets of the
Corporation to another entity, or a merger or consolidation in which
the Corporation shall be the surviving entity but its Common Stock is
exchanged for stock, securities or property of another entity, the
holders of Common Stock shall be entitled to receive all cash,
securities and other property received by the Corporation pro rata on
the basis of the number of shares of Common Stock held by each of
them.
Section 5. Residual Rights. All rights accruing to the
--------- ---------------
outstanding shares of the Corporation not expressly provided for to
the contrary in this Certificate of Incorporation, as it may from time
to time be amended or supplemented, including without limitation any
supplement effected pursuant to a certificate of designations, shall
be vested in the Common Stock."
SECOND: That pursuant to resolution of the Board of Directors, the
proposed amendment was submitted to the stockholders of the Corporation and was
duly adopted by the stockholders of the Corporation pursuant to a written
consent in accordance with the applicable provisions of Section 228 of the
General Corporation Law of Delaware, and in accordance with such Section 228
written notice has been given to those stockholders who have not consented in
writing.
-3-
<PAGE>
THIRD: That the aforesaid amendment was duly adopted in accordance
with the applicable provisions of Section 242 of the General Corporation Law of
Delaware.
IN WITNESS WHEREOF, the undersigned have signed this Certificate and
affirm, under penalties of perjury that the Certificate is the act and deed of
the corporation and the facts stated herein are true.
/s/ Michael Goldstein
-------------------------------
Date: December 9, 1995 Michael Goldstein
---------------- President
ATTEST
/s/ Kenneth H. Traub
- --------------------
Kenneth H. Traub
Secretary
-4-
<PAGE>
CERTIFICATE OF DESIGNATIONS, POWERS,
PREFERENCES AND RIGHTS
OF THE
Series A CONVERTIBLE PREFERRED STOCK
(Par Value $0.001 Per Share)
OF
VOXWARE, INC.
---------------------------------
Pursuant to Section 151 of the General Corporation Law
of the State of Delaware
---------------------------------
VOXWARE, INC., a corporation organized and existing under the General
Corporation Law of the State of Delaware (the "Company") by its President and
Secretary, DOES HEREBY CERTIFY:
FIRST: That pursuant to the authority expressly vested in the Board
of Directors of said Company by the provisions of its Certificate of
Incorporation, as amended, the said Board of Directors duly adopted the
following resolution providing for the designation and issuance of four million
(4,000,000) shares of Series A Preferred Stock, $.001 par value:
RESOLVED, that this Board of Directors, pursuant to authority
expressly granted to and vested in it by the Certificate of Incorporation of the
Company, hereby authorizes the issue from time to time a series of Preferred
Stock of the Company and hereby fixes the designation, preferences and the
relative, participating, optional or other rights, and the qualifications,
limitations or restrictions thereof, in addition to those set forth in said
Certificate of Incorporation, to be in their entirety as follows:
1. Designation. The series of 4,000,000 shares of Series A
-----------
Convertible Preferred Stock, par value $.001 per share, shall be designated the
"Series A Preferred Stock." The Series A Preferred Stock, which is referred to
herein as the "Series A Preferred Stock" or the "Preferred Stock," shall have
the following rights, terms and privileges:
2. Dividends.
---------
(a) Dividends. The holders of the then outstanding Preferred
---------
Stock shall be entitled to receive, out of funds legally available therefor,
dividends when and as may be declared from time to time by the Board of
Directors of the Company, on each share of Preferred Stock at the same rate on
the same basis as are paid with
<PAGE>
respect to the Company's Common Stock, par value $.001 per share ("Common
Stock") (including fractions of a share) into which it is convertible.
(b) Dividends in Kind. In the event the Company shall make or
-----------------
issue, or shall fix a record date for the determination of holders of Common
Stock entitled to receive, a dividend or other distribution (other than a
distribution made pursuant to the provisions of Section 3) with respect to the
Common Stock payable in (i) securities of the Company other than shares of
Common Stock or (ii) assets, then and in each such event the holders of
Preferred Stock shall receive, at the same time such distribution is made with
respect to Common Stock, the number of securities or such other assets of the
Company which they would have received had their Preferred Stock been converted
into Common Stock immediately prior to the record date for determining holders
of Common Stock entitled to receive such distribution.
3. Liquidation, Dissolution or Winding Up
--------------------------------------
(a) Treatment at Liquidation, Dissolution or Winding Up. In the
---------------------------------------------------
event of any Reorganization (as defined in Section 5(g) and if an election is
made as described in Section 5(g)), liquidation, dissolution or winding up of
the Company, whether voluntary or involuntary, holders of Preferred Stock and
holders of the Common Stock shall be entitled to be paid out of the assets of
the Company available for distribution to holders of the Company's capital stock
of all classes, whether such assets are capital, surplus, or capital earnings,
as follows:
(i) First, the holders of the Preferred Stock, as a class,
and the holders of the Common Stock, as a class, will each receive 50% of the
first $8,000,000 of assets available for distribution to the stockholders (the
"Initial Distribution"). The proceeds of the Initial Distribution paid to the
holders of the Preferred Stock as a class shall be paid pro rata to such holders
and the proceeds of the Initial Distribution paid to the holders of the Common
Stock as a class shall be paid pro rata to such holders.
(ii) Second, after the Initial Distribution has been made in
full to the holders of the Preferred Stock and the holders of the Common Stock
or funds necessary from such payment shall have been set aside by the Company in
trust for the accounts of the holders of Preferred Stock and the holders of
Common Stock, the remaining assets of the Company shall be distributed to the
holders of the Preferred Stock and the holders of the Common Stock then
outstanding, collectively as a class. Such distribution shall be made to the
holders of the Preferred Stock and Common Stock on a pro rata basis, based on
the number of shares of Common Stock into which shares of the Preferred Stock
are then convertible and the number of shares of Common Stock held.
(b) Distributions in Cash. All distributions made pursuant to this
---------------------
Section 3 shall in all events be paid in cash. Wherever a distribution provided
for in this Section 3 is payable in property other than cash, the value of such
distribution shall be
-2-
<PAGE>
the fair market value of such property as determined in good faith by the
Company's Board of Directors.
4. Voting Power. Except as otherwise expressly provided in Section 8
------------
hereof, or as required by law, each holder of Preferred Stock shall be entitled
to vote on all matters and shall be entitled to that number of votes equal to
the largest number of whole shares of Common Stock into which such holder's
shares of Preferred Stock could be converted, pursuant to the provisions of
Section 5 hereof, at the record date for the determination of shareholders
entitled to vote on such matter or, if no such record date is established, at
the date such vote is taken or any written consent of shareholders is solicited.
Except as otherwise expressly provided herein or as required by law, the holders
of shares of Preferred Stock and Common Stock shall vote together as a single
class on all matters.
5. Conversion Rights for the Preferred Stock. The holders of the
-----------------------------------------
Preferred Stock shall have the following rights with respect to the conversion
of the Preferred Stock into shares of Common Stock:
(a) General. Subject to and in compliance with the provisions of
-------
this Section 5, any share of the Preferred Stock may, at the option of the
holder, be converted at any time into fully-paid and non-assessable shares of
Common Stock. The numbers of shares of Common Stock to which a holder of
Preferred Stock shall be entitled upon conversion shall be the product obtained
by multiplying the Applicable Conversion Rate (determined as provided in Section
5(b)) by the number of shares of Preferred Stock being converted.
(b) Applicable Conversion Rate. The conversion rate in effect at
--------------------------
any time (the "Applicable Conversion Rate") shall be the quotient obtained by
dividing (i) 1.00 by the Applicable Conversion Value, calculated as provided in
Section 5(c).
(c) Applicable Conversion Value. The Applicable Conversion Value
---------------------------
shall be $1.00, except that such amounts shall be adjusted from time to time in
accordance with this Section 5.
(d) Adjustments to Applicable Conversion Value.
------------------------------------------
(i) (A) Upon Sale of Common Stock. If the Company shall,
-------------------------
while there are any shares of Preferred Stock outstanding, issue or sell shares
of its Common Stock without consideration or at a price per share less than the
Applicable Conversion Value in effect immediately prior to such issuance or
sale, then in each such case such Applicable Conversion Value for the Preferred
Stock, upon each such issuance or sale, except as hereinafter provided, shall be
lowered so as to be equal to the lowest net price per share at which such Common
Stock has been issued or sold or has been deemed to have been issued or sold.
-3-
<PAGE>
(B) Upon Issuance of Warrants. Options and Rights to
------------------------------------------------
Common Stock.
------------
(1) For the purposes of this Section 5(d)(i), the
issuance of any warrants, options, subscriptions, or purchase rights with
respect to shares of Common Stock and the issuance of any securities convertible
into or exchangeable for shares of Common Stock (or the issuance of any
warrants, options or any rights with respect to such convertible or exchangeable
securities) shall be deemed an issuance of such Common Stock at such time if the
Net Consideration Per Share (as hereinafter determined) which may be received by
the Company for such Common Stock shall be less than the Applicable Conversion
Value at the time of such issuance. Any obligation, agreement, or undertaking to
issue warrants, options, subscriptions, or purchase rights at any time in the
future shall be deemed to be an issuance at the time such obligation, agreement
or undertaking is made or arises. No adjustment of the Applicable Conversion
Value shall be made under this Section 5(d)(i) upon the issuance of any shares
of Common Stock which are issued pursuant to the exercise of any warrants,
options, subscriptions, or purchase rights or pursuant to the exercise of any
conversion or exchange rights in any convertible securities if any adjustment
shall previously have been made or deemed not required hereunder, upon the
issuance of any such warrants, options, or subscription or purchase rights or
upon the issuance of any convertible securities (or upon the issuance of any
warrants, options or any rights therefor) as above provided.
Should the Net Consideration Per Share of any such warrants, options,
subscriptions, or purchase rights or convertible securities be decreased from
time to time, then, upon the effectiveness of each such change, the Applicable
Conversion Value shall be adjusted to such Applicable Conversion Value as would
have obtained (1) had the adjustments made upon the issuance of such warrants,
options, rights, or convertible securities been made upon the basis of the
decreased Net Consideration Per Share of such securities, and (2) had
adjustments made to the Applicable Conversion Value since the date of issuance
of such securities been made to the Applicable Conversion Value as adjusted
pursuant to (1) above. Any adjustment of the Applicable Conversion Value with
respect to this paragraph which relates to warrants, options, subscriptions,
purchase rights or convertible securities with respect to shares of Common Stock
shall be disregarded if, as, when and to the extent such warrants, options,
subscriptions, purchase rights or convertible securities expire or are cancelled
without being exercised or converted, so that the Applicable Conversion Value
effective immediately upon such cancellation or expiration shall be equal to the
Applicable Conversion Value in effect at the time of the issuance of the expired
or cancelled warrants, options, subscriptions, purchase rights, or convertible
securities with such additional adjustments as would have been made to that
Applicable Conversion Value had the expired or cancelled warrants, options,
subscriptions, purchase rights or convertible securities not been issued.
-4-
<PAGE>
(2) For purposes of this paragraph, the "Net
Consideration Per Share" which may be received by the Company shall be
determined as follows:
(a) The "Net Consideration Per Share" shall mean
the amount equal to the total amount of consideration, if any, received by the
Company for the issuance of such warrants, options, subscriptions, or other
purchase rights or convertible or exchangeable securities, plus the minimum
amount of consideration, if any, payable to the Company upon exercise or
conversion thereof, divided by the aggregate number of shares of Common Stock
that would be issued if all such warrants, options, subscriptions, or other
purchase rights or convertible or exchangeable securities were exercised,
exchanged, or converted.
(b) The "Net Consideration Per Share" which may
be received by the Company shall be determined in each instance as of the date
of issuance of warrants, options, subscriptions, or other purchase rights or
convertible or exchangeable securities without giving effect to any possible
future upward price adjustments or rate adjustments which may be applicable with
respect to such warrants, options, subscriptions, or other purchase rights or
convertible or exchangeable securities.
(C) Consideration Other than Cash. For purposes of this
-----------------------------
Section 5(d), if a part or all of the consideration received by the Company in
connection with the issuance of shares of the Common Stock or the issuance of
any of the securities described in this Section 5(d) consists of property other
than cash, such consideration shall be deemed to have a fair market value as is
reasonably determined in good faith by the Board of Directors of the Company.
(D) Exceptions. This Section 5(d)(i) shall not apply
----------
under any of the circumstances which would constitute an Extraordinary Common
Stock Event (as hereinafter defined in Section 5(d)(ii)). Further, the
provisions of this Section 5(d) shall not apply to (i) shares issued upon
conversion of the Preferred Stock, (ii) options (and the shares issuable upon
exercise thereof) to purchase up to an aggregate of 2,290,000 shares of Common
Stock (including options outstanding on the date hereof) issued to employees of
the Company, as provided in Section 4.5 of the Series B Preferred Stock Purchase
Agreement by and among the Company, certain Shareholders listed therein and the
Purchasers listed therein, dated December 15, 1995 (the "Purchase Agreement"),
(iii) shares issued upon exercise of 2,000,000 warrants to purchase Common Stock
outstanding on the date hereof and as set forth on Schedule 2.4 of the Purchase
------------
Agreement, (iv) securities issued by the Company in connection with
the acquisition of another corporation by merger, purchase of substantially all
the assets or other reorganization, (v) securities issued by the Company in
connection with the acquisition of any patent or other rights to technology,
including licenses, and (vi) securities issued by the Company in connection with
a corporate collaboration, joint venture, partnership, or marketing,
manufacturing, research, licensing or other arrangement; provided, however, that
-------- -------
the issuance of any securities by the Company
-5-
<PAGE>
as described under Clauses (iv), (v) and (vi) of this Subsection (D) shall be
approved by the affirmative vote of a majority of the Board of Directors (which
majority must include a majority of the directors designated by the holders of
Preferred Stock). The number of shares in this Section (D) shall be
proportionately adjusted to reflect any stock dividend, stock split or other
form of recapitalization occurring after the date hereof.
(E) Termination of Anti-dilution Adjustments. If at any
----------------------------------------
time the Company shall affect a Private Placement (as hereinafter defined), then
effective immediately after the closing of such Private Placement, the
provisions of this Section 5(d)(i) shall no longer apply and shall be of no
further force or effect. For purposes hereof, the term "Private Placement" shall
mean the sale and issuance of shares of any equity security of the Company which
is priced by financial investor (provided, that, such Private Placement may
include a strategic investor as well as a financial investor) in which the
aggregate proceeds received by the Company equal at least $2,000,000 and in
which the price per share of such equity security exceeds $1.00 (as adjusted to
reflect any stock split, stock dividend or other form of recapitalization
occurring after the date hereof).
(ii) Upon Extraordinary Common Stock Event. Upon the happening of
-------------------------------------
an Extraordinary Common Stock Event (as hereinafter defined), the Applicable
Conversion Value for the Preferred Stock shall, simultaneously with the
happening of such Extraordinary Common Stock Event, be adjusted by multiplying
the then effective Applicable Conversion Value with respect to the Preferred
Stock by a fraction, the numerator of which shall be the number of shares of
Common Stock outstanding immediately prior to such Extraordinary Common Stock
Event and the denominator of which shall be the number of shares of Common Stock
outstanding immediately after such Extraordinary Common Stock Event, and the
product so obtained shall thereafter be the Applicable Conversion Value. The
Applicable Conversion Value for the Preferred Stock shall be readjusted in the
same manner upon the happening of any successive Extraordinary Common Stock
Event or Events.
"Extraordinary Common Stock Event" shall mean (A) the issue of
additional shares of Common Stock as a dividend or other distribution
on outstanding Common Stock or on any class or series of preferred
stock, unless made pro rata to holders of Preferred Stock, (B) a
--- ----
subdivision of outstanding shares of Common Stock into a greater
number of shares of Common Stock, or (C) a combination of outstanding
shares of the Common Stock into a smaller number of shares of Common
Stock.
(e) Dividends. In the event the Company shall make or issue, or shall
---------
fix a record date for the determination of holders of Common Stock entitled to
receive, a dividend or other distribution with respect to the Common Stock
payable in (i) securities of the Company other than shares of Common Stock or
(ii) assets, then
-6-
<PAGE>
and in each such event the holders of Preferred Stock shall receive, at the same
time such distribution is made with respect to Common Stock, the number of
securities or such other assets of the Company which they would have received
had their Preferred Stock been converted into Common Stock immediately prior to
the date of such distribution.
(f) Capital Reorganization or Reclassification. If the Common Stock
------------------------------------------
issuable upon the conversion of the Preferred Stock shall be changed into the
same or different number of shares of any class or classes of stock, whether by
capital reorganization, reclassification or otherwise (other than an
Extraordinary Common Stock Event or other subdivision or combination of shares
or stock dividend provided for elsewhere in this Section 5 or by a
Reorganization), then and in each such event, the holder of each share of
Preferred Stock shall have the right thereafter to convert such share into the
kind and amount of shares of stock and other securities and property receivable
upon such capital reorganization, reclassification or other change by holders of
the number of shares of Common Stock into which such shares of Preferred Stock
might have been converted immediately prior to such capital reorganization,
reclassification or other change.
(g) Capital Reorganization, Merger or Sale of Assets. If at any time
------------------------------------------------
or from time to time there shall be a capital reorganization of the Common Stock
(other than a subdivision, combination, reclassification or exchange of shares
provided for elsewhere in this Section 5) or a merger or consolidation of the
Company with or into another corporation, or the sale of all or substantially
all of the Company's properties and assets to any other person, or the sale of a
majority of the voting securities of the Company in one transaction or in a
series of related transactions, any of which events is herein referred to as a
"Reorganization"), then as a part of such Reorganization, provision shall be
made so that the holders of the Preferred Stock shall thereafter be entitled to
receive upon conversion of the Preferred Stock, the number of shares of stock or
other securities or property of the Company, or of the successor corporation
resulting from such Reorganization, to which such holder would have been
entitled if such holder had converted its shares of Preferred Stock immediately
prior to such Reorganization. In any such case, appropriate adjustment shall be
made in the application of the provisions of this Section 5 with respect to the
rights of the holders of the Preferred Stock after the Reorganization, to the
end that the provisions of this Section 5 (including adjustment of the
Applicable Conversion Value then in effect and the number of shares issuable
upon conversion of the Preferred Stock) shall be applicable after that event in
as nearly equivalent a manner as may be practicable.
Except as otherwise provided in Section 3(b), upon the occurrence of a
Reorganization, under circumstances which make the preceding paragraph
applicable, each holder of Preferred Stock shall have the option of electing
treatment for his shares of Preferred Stock under either this Section 5(g) or
Section 3 hereof, notice of which election shall be submitted in writing to the
Company at its principal offices no later than thirty (30) business days before
the effective date of such event, provided that the
-7-
<PAGE>
holders of Preferred Stock shall have been given sixty (60) days prior notice of
the proposed date of such event.
(h) Certificate as to Adjustments; Notice by Company. In each case of
------------------------------------------------
an adjustment or readjustment of the Applicable Conversion Rate, the Company at
its expense will furnish each holder of Preferred Stock with a certificate,
executed by the president and chief financial officer (or in the absence of a
person designated as the chief financial officer, by the treasurer) showing such
adjustment or readjustment, and stating in detail the facts upon which such
adjustment or readjustment is based.
(i) Exercise of Conversion Privilege. To exercise its conversion
--------------------------------
privilege, a holder of Preferred Stock shall surrender the certificate or
certificates representing the shares being converted to the Company at its
principal office, and shall give written notice to the Company at that office
that such holder elects to convert such shares. Such notice shall also state the
name or names (with address or addresses) in which the certificate or
certificates for shares of Common Stock issuable upon such conversion shall be
issued. The certificate or certificates for shares of Preferred Stock
surrendered for conversion shall be accompanied by proper assignment thereof to
the Company or in blank. The date when such written notice is received by the
Company, together with the certificate or certificates representing the shares
of Preferred Stock being converted, shall be the "Conversion Date." As promptly
as practicable after the Conversion Date, the Company shall issue and shall
deliver to the holder of the shares of Preferred Stock being converted, or on
its written order, such certificate or certificates as it may request for the
number of whole shares of Common Stock issuable upon the conversion of such
shares of Preferred Stock in accordance with the provisions of this Section 5,
and cash, as provided in Section 5(j), in respect of any fraction of a share of
Common Stock issuable upon such conversion. Such conversion shall be deemed to
have been effected immediately prior to the close of business on the Conversion
Date, and at such time the rights of the holder as holder of the converted
shares of Preferred Stock shall cease and the person or persons in whose name or
names any certificate or certificates for shares of Common Stock shall be
issuable upon such conversion shall be deemed to have become the holder or
holders of record of the shares of Common Stock represented thereby. The Company
shall pay any taxes payable with respect to the issuance of Common Stock upon
conversion of the Preferred Stock, other than any taxes payable with respect to
income by the holders thereof.
(j) Cash in Lieu of Fractional Shares. The Company may, if it so
---------------------------------
elects, issue fractional shares of Common Stock or scrip representing fractional
shares upon the conversion of shares of Preferred Stock. If the Company does not
elect to issue fractional shares, the Company shall pay to the holder of the
shares of Preferred Stock which were converted a cash adjustment in respect of
such fractional shares in an amount equal to the same fraction of the market
price per share of the Common Stock (as determined in a reasonable manner
prescribed by the Board of Directors) at the close of business on the Conversion
Date. The determination as to whether or not any fractional shares are issuable
shall be based upon the total number
-8-
<PAGE>
of shares of Preferred Stock being converted at any one time by any holder
thereof, not upon each share of Preferred Stock being converted.
(k) Partial Conversion. In the event some but not all of the shares of
------------------
Preferred Stock represented by a certificate or certificates surrendered by a
holder are converted, the Company shall execute and deliver to or on the order
of the holder, at the expense of the Company, a new certificate representing the
number of shares of Preferred Stock which were not converted.
(l) Reservation of Common Stock. The Company shall at all times
---------------------------
reserve and keep available out of its authorized but unissued shares of Common
Stock, solely for the purpose of effecting the conversion of the shares of the
Preferred Stock, such number of its shares of Common Stock as shall from time to
time be sufficient to effect the conversion of all outstanding shares of the
Preferred Stock, and if at any time the number of authorized but unissued shares
of Common Stock shall not be sufficient to effect the conversion of all then
outstanding shares of the Preferred Stock, the Company shall take such corporate
action as may be necessary to increase its authorized but unissued shares of
Common Stock to such number of shares as shall be sufficient for such purpose.
(m) Minimum Adjustment. Any provision of this Section 5 to the
------------------
contrary notwithstanding, no adjustment in the Applicable Conversion Value shall
be made if the amount of such adjustment would be less than 1% of the Applicable
Conversion Value then in effect, but any such amount shall be carried forward
and an adjustment with respect thereto shall be made at the time of and together
with any subsequent adjustment which, together with all amounts so carried
forward, aggregates 1% or more of the Applicable Conversion Value then in
effect.
6. Mandatory Conversion. If at any time the Company shall effect a
--------------------
Qualified Public Offering (as herein after defined), then effective upon the
closing of such Qualified Public Offering, all outstanding shares of Preferred
Stock shall automatically convert into shares of Common Stock on the basis set
forth in Section 5 hereof. For purposes hereof, the term "Qualified Public
Offering" shall mean an underwritten public offering pursuant to an effective
registration statement under the Securities Act of 1933, as amended (the "Act"),
covering the offer and sale of Common Stock for the account of the Company in
which the aggregate net proceeds to the Company equal at least $10,000,000 and
in which the price per share of Common Stock is at least two (2) times the then
Applicable Conversion Value of the Preferred Stock. Holders of shares subject to
conversion shall deliver to the Company at its principal office (or such other
office or agency as the Company may designate by notice in writing) during its
usual business hours, the certificates or certificates for shares of Preferred
Stock being converted, and the Company shall issue and deliver to such holders
certificates for the number of shares of Common Stock to which such holders are
entitled. Until such time as holders of shares of Preferred Stock shall
surrender those certificates therefor as provided above, such certificates shall
be deemed to represent the shares of Common Stock which the holders shall be
entitled upon the surrender thereof.
-9-
<PAGE>
7. No Reissuance of Preferred Stock. No share or shares of Preferred Stock
--------------------------------
acquired by the Company by reason of redemption, purchase, conversion or
otherwise shall be reissued, and all such shares shall be cancelled, retired and
eliminated from the shares which the Company shall be authorized to issue. The
Company may from time to time take such appropriate corporate action as may be
necessary to reduce the authorized number of shares of the Preferred Stock
accordingly.
8. Redemption. At any time on or after December 15, 2000, upon the
----------
written request (such request to be called the "Redemption Notice") of the
holders of at least a majority of the then outstanding Preferred Stock, to the
extent the Company has funds legally available therefor, the Company shall
redeem all the shares of Preferred Stock at the Redemption Price (as defined
below) in twelve equal quarterly installments, with the first payment being due
on the last business day of the calendar month immediately following the date of
the Redemption Notice and, thereafter, on the last business day of each of the
next eleven successive calendar quarters. Notwithstanding the foregoing, the
Company may, in its discretion, accelerate the payment of the Redemption Price
and the redemption of the Preferred Stock. In the event shares of Preferred
Stock scheduled for redemption are not redeemed because of a prohibition under
applicable law, such shares shall be redeemed as soon as such prohibition no
longer exists. The number of shares to be redeemed at the end of any quarter
shall be cumulative, so that any shares subject to redemption at the end of one
quarter and not so redeemed shall be carried forward to the subsequent quarter
and shall be subject to redemption in addition to the shares otherwise
redeemable at the end of such quarter. The Preferred Stock that has not been
redeemed shall remain issued and outstanding until the Redemption Price has been
paid in full and entitled to all rights and preferences provided herein. Shares
of Preferred Stock required to be redeemed shall be redeemed pro rata from all
--------
holders of Preferred Stock. Nothing contained herein shall restrict the right of
the holders of the Preferred Stock to convert their Preferred Stock pursuant to
Section 5. The Company will, 10 days prior to the date of redemption, mail to
each holder of Preferred Stock a notice setting forth the date and place of
redemption and the number of shares and the certificate numbers thereof which
are to be redeemed. Upon the exercise of any redemption right under this Section
8, the holder of the Preferred Stock being redeemed shall deliver certificates
representing such shares to the Company in exchange for the Redemption Price.
Such shares shall no longer be deemed to be outstanding after such date of
redemption and payment of the Redemption Price has been made in full to the
holders of those shares scheduled for redemption. In case less than all the
shares represented by any such certificate are redeemed, a new certificate shall
be issued representing the unredeemed shares without cost to the holder thereof.
The redemption price (the "Redemption Price") for each share of Preferred
Stock redeemed pursuant to this Section 8 shall be equal to $1.00 (subject to
adjustment to reflect any stock dividend, stock split or other form of
recapitalization occurring after the date hereof).
-10-
<PAGE>
9. Restrictions and Limitations.
----------------------------
(a) Corporate Action. Except as expressly provided herein or as
----------------
required by law, so long as at least 10% of the shares of Preferred Stock sold
pursuant to the Purchase Agreement remain outstanding, the Company shall not,
and shall not permit any subsidiary (which shall mean any corporation,
association or other business entity which the Company and/or any of its other
subsidiaries directly or indirectly owns at the time more than fifty percent
(50%) of the outstanding voting shares of such corporation or trust, other than
directors' qualifying shares) to, without the approval by vote or written
consent by the holders of at least 51% of the then outstanding shares of
Preferred Stock, voting as a separate class:
(i) redeem, purchase or otherwise acquire for value (or pay
into or set aside for a sinking fund for such purpose), or declare and pay or
set aside funds for the payment of any dividend with respect to, any share or
shares of capital stock, except as required or permitted hereunder or under the
terms of Section 4.2 of the Purchase Agreement;
(ii) authorize or issue, or obligate itself to authorize or
issue, additional shares of Preferred Stock;
(iii) authorize or issue, or obligate itself to authorize or
issue, any equity security senior to or on parity with the Preferred Stock as to
liquidation preferences, dividend rights, or voting rights;
(iv) merge or consolidate with any other corporation, or sell,
assign, lease or otherwise dispose of or voluntarily part with the control of
(whether in one transaction or in a series of transactions) all, or
substantially all, of its equity or its assets (whether now owned or hereinafter
acquired), or consent to any liquidation, dissolution or winding up of the
Company, or permit any subsidiary to do any of the foregoing, except for (1) any
------
wholly-owned subsidiary may merge into or consolidate with or transfer
assets to any other wholly-owned subsidiary, (2) any wholly-owned subsidiary may
merge into or transfer assets to the Company; or
(v) amend, restate, modify or alter the by-laws of the Company
in any way which adversely affects the rights of the holders of the Preferred
Stock.
(b) Amendments to Charter. The Company shall not amend its Certificate
---------------------
of Incorporation without the approval, by vote or written consent, by the
holders of at least fifty-one percent (51%) of the then outstanding shares of
Preferred Stock, if such amendment would amend any of the rights, preferences,
privileges of or limitations provided for herein for the benefit of any shares
of Preferred Stock. Without limiting the generality of the preceding sentence,
the Company will not amend its Certificate of Incorporation without the approval
by the holders of at least fifty-one percent (51%) of the then outstanding
shares of Preferred Stock if such amendment would:
-11-
<PAGE>
(i) change the relative seniority rights of the holders of
Preferred Stock as to the payment of dividends in relation to the holders of any
other capital stock of the Company, or create any other class or series of
capital stock entitled to seniority as to the payment of dividends in relation
to the holders of Preferred Stock;
(ii) reduce the amount payable to the holders of Preferred
Stock upon the voluntary or involuntary liquidation, dissolution or winding up
of the Company, or change the relative seniority of the liquidation preferences
of the holders of Preferred Stock to the rights upon liquidation of the holders
of other capital stock of the Company, or change the dividend rights of the
holders of Preferred Stock;
(iii) cancel or modify the conversion rights of the holders of
Preferred Stock provided for in Section 5 herein; or
(iv) cancel or modify the rights of the holders of the
Preferred Stock provided for in this Section 9.
10. No Dilution or Impairment. The Company will not, by amendment of its
-------------------------
Certificate of Incorporation or through any reorganization, transfer of assets,
consolidation, merger, dissolution, issue or sale of securities or any other
voluntary action, avoid or seek to avoid the observance or performance of any of
the terms of the Preferred Stock set forth herein, but will at all times in good
faith assist in the carrying out of all such terms and in the taking of all such
actions as may be necessary or appropriate in order to protect the rights of the
holders of the Preferred Stock against dilution or other impairment. Without
limiting the generality of the foregoing, the Company (a) will not increase the
par value of any shares of stock receivable on the conversion of the Preferred
Stock above the amount payable therefor on such conversion, (b) will take all
such action as may be necessary or appropriate in order that the Company may
validly and legally issue fully paid and nonassessable shares of stock on the
conversion of all Preferred Stock from time to time outstanding, or (c) will not
consolidate with or merge into any other person or permit any such person to
consolidate with or merge into the Company (if the Company is not the surviving
person), unless such other person shall expressly assume in writing and will be
bound by all of the terms of the Preferred Stock set forth herein.
11. Notices of Record Date. In the event of
----------------------
(a) any taking by the Company of a record of the holders of any class of
securities for the purpose of determining the holders thereof who are entitled
to receive any dividend or other distribution, or any right to subscribe for,
purchase or otherwise acquire any shares of stock of any class or any other
securities or property, or to receive any other right, or
(b) any capital reorganization of the Company, any reclassification or
recapitalization of the capital stock of the Company, any merger of the Company,
or
-12-
<PAGE>
any transfer of all or substantially all of the assets of the Company to any
other corporation, or any other entity or person, or
(c) any voluntary or involuntary dissolution, liquidation or winding up of
the Company,
then and in each such event the Company shall mail or cause to be mailed to each
holder of Preferred Stock a notice specifying (i) the date on which any such
record is to be taken for the purpose of such dividend, distribution or right
and a description of such dividend, distribution or right, (ii) the date on
which any such reorganization, reclassification, recapitalization, transfer,
merger, dissolution, liquidation or winding up is expected to become effective
and (iii) the time, if any, that is to be fixed, as to when the holders of
record of Common Stock (or other securities) shall be entitled to exchange their
shares of Common Stock (or other securities) for securities or other property
deliverable upon such reorganization, reclassification, recapitalization,
transfer, merger, dissolution, liquidation or winding up. Such notice shall be
mailed at least ten (10) business days prior to the date specified in such
notice on which such action is to be taken.
IN WITNESS WHEREOF, the Company has caused this Certificate to be signed in
its name and on its behalf and by the President and attested to this 18 of
December, 1995.
VOXWARE, INC.
By: /s/ Michael Goldstein
----------------------------------
Michael Goldstein
President and Chief Executive
Officer
Attest By: /s/ Kenneth H. Traub
-------------------------------
Name: /s/ Kenneth H. Traub
Title: Executive Vice President
and Chief Financial Officer
15779-3
-13-
<PAGE>
CERTIFICATE OF AMENDMENT
OF
THE CERTIFICATE OF DESIGNATIONS, POWERS,
PREFERENCES AND RIGHTS
OF THE
SERIES A CONVERTIBLE PREFERRED STOCK
(Par Value $.001 Per Share)
of
VOXWARE, INC.
VOXWARE, INC., a corporation organized and existing under the General
Corporation Law of the State of Delaware (the "Corporation"), DOES HEREBY
CERTIFY:
FIRST: That by unanimous written consent pursuant to Section 141 of
the General Corporation Law of the State of Delaware, the Board of Directors of
the Corporation declared advisable and duly adopted resolutions setting forth
proposed amendments of the Certificate of Designations, Powers, Preferences and
Rights (the "Certificate of Designations") of the Corporation's Series A
Convertible Preferred Stock, par value $.001 per share (the "Series A Preferred
Stock"), and directing that the proposed amendments be placed before the holders
of the Series A Preferred Stock and the holders of the Corporation's Common
Stock, par value $.001 per share (the "Common Stock"), for consideration
thereof. The resolutions setting forth the proposed amendments are as follows:
RESOLVED, that, subject to the approval of the holders of the
Corporation's Series A Convertible Preferred Stock, par value $.001 per
share (the "Series A Preferred Stock"), and the holders of the
Corporation's Common Stock, par value $.001 per share (the "Common Stock"),
the Certificate of Designations, Powers, Preferences and Rights of the
Series A Preferred Stock (the "Certificate of Designations") be amended by
restating Section 1 thereof to read in its entirety as follows:
1. Designation. The series of 6,000,000 shares of Series A
-----------
Convertible Preferred Stock, par value $.001 per share, shall be
designated the "Series A Preferred Stock." The Series A Preferred
Stock, which is referred to herein as the "Series A Preferred Stock"
or the "Preferred Stock," shall have the following rights, terms and
privileges:
; and it is further
RESOLVED, that, subject to the approval of the holders of the Series A
Preferred Stock, and the holders of the Common Stock, the Certificate of
Designations be amended by restating the first sentence of Section 3(a)(i)
thereof to read in its entirety as follows:
<PAGE>
(i) First, the holders of the Preferred Stock, as a class, and the
holders of the Common Stock, as a class, will each receive 50% of the
first $13,000,000 of assets available for distribution to the
stockholders (the "Initial Distribution").
SECOND: That thereafter, the holders of the Series A Preferred Stock, by
written consent of the holders of a majority of the outstanding shares of Series
A Preferred Stock entitled to vote thereon in accordance with Section 228 of the
General Corporation Law of the State of Delaware and the Certificate of
Designations, approved said amendment to the Certificate of Designations
THIRD: That thereafter, the holders of the Common Stock, by written
consent of the holders of a majority of the outstanding shares of Common Stock
entitled to vote thereon in accordance with Section 228 of the General
Corporation Law of the State of Delaware, approved said amendment to the
Certificate of Designations.
FOURTH: That thereafter, written notice of the foregoing actions was
given in accordance with Section 228 of the General Corporation Law of the State
of Delaware to those holders of the Series A Preferred Stock and the Common
Stock who have not consented in writing to the foregoing action.
FIFTH: That said amendment was duly adopted in accordance with the
provisions of Section 242 of the General Corporation Law of the State of
Delaware.
IN WITNESS WHEREOF, the undersigned have signed this Certificate and
affirm, under penalties of perjury that the Certificate is the act and deed of
the Corporation and the facts stated herein are true.
Date: March 12, 1996 /s/ Michael Goldstein
---------------------- ------------------------------
Michael Goldstein
President and Chief Executive Officer
ATTEST:
/s/ Kenneth H. Traub
- ----------------------------------
Kenneth H. Traub
Secretary
-2-
<PAGE>
CERTIFICATE OF AMENDMENT
OF
THE CERTIFICATE OF INCORPORATION
OF
VOXWARE, INC.
(Pursuant to Section 242 of the General
Corporation Law of Delaware)
VOXWARE, INC., a corporation organized and existing under and by
virtue of the General Corporation Law of the State of Delaware (the
"Corporation"), DOES HEREBY CERTIFY:
FIRST: That at a meeting of the Corporation's Board of Directors on
June 26, 1996, the Board of Directors of the Corporation duly adopted
resolutions setting forth proposed amendments to the Certificate of
Incorporation of the Corporation, declaring said amendments to be advisable and
directing that the proposed amendments be placed before the stockholders of the
Corporation for consideration thereof. The resolutions setting forth the
proposed amendments are as follows:
RESOLVED, that the Certificate of Incorporation of the Corporation be
amended by restating Article FIFTH thereof to read in its entirety as
follows:
"FIFTH: The total number of shares of all classes of stock which
the Corporation has authority to issue is Fifty million (50,000,000)
shares, consisting of Forty million (40,000,000) shares of Common
Stock, par value $.001 per share (the "Common Stock"), and Ten million
(10,000,000) shares of Preferred Stock, par value $.001 per share (the
"Preferred Stock"), which Preferred Stock shall have such
designations, powers, preferences and rights as may be authorized by
the Board of Directors from time to time.
The Board of Directors is hereby authorized, subject to the
provisions contained in this Article FIFTH, to issue the Preferred
Stock from time to time in one or more series, which Preferred Stock
shall be preferred to the Common Stock as to dividends and
distribution of assets of the Corporation upon the voluntary or
involuntary liquidation, dissolution or winding up of the Corporation,
as hereinafter provided, and shall have such designations as may be
stated in the resolution or
<PAGE>
resolutions providing for the issuance of such stock adopted by the
Board of Directors. In such resolution or resolutions providing for
the issuance of shares of each particular series, the Board of
Directors is hereby expressly authorized and empowered to fix the
number of shares constituting such series and to fix the designations
and any of the preferences, powers or rights of the shares of the
series so established to the full extent allowable by law except
insofar as such designations, preferences, powers or rights are fixed
herein. Such authorization in the Board of Directors shall expressly
include the authority to fix and determine the designations,
preferences, powers or rights of such shares in all respects
including, without limitation, the following:
(i) the rate of dividend;
(ii) whether shares can be redeemed or called and, if so, the
redemption or call price and terms and conditions of redemption
or call;
(iii) the amount payable upon shares in the event of dissolution,
voluntary and involuntary liquidation or winding up of the
affairs of the Corporation;
(iv) purchase, retirement or sinking fund provisions, if any, for
the call, redemption or purchase of shares;
(v) the terms and conditions, if any, on which shares may be
converted into Common Stock or any other securities;
(vi) whether or not shares have voting rights, and the extent of
such voting rights, if any; and
(vii) whether shares shall be cumulative, noncumulative, or partially
cumulative as to dividends and the dates from which any
cumulative dividends are to accumulate.
COMMON STOCK
------------
Section 1. Voting Rights. The holders of shares of Common Stock
--------- -------------
shall be entitled to one vote for each share so held with respect to
all matters voted on by the stockholders of the Corporation, subject
in all cases to the rights of the Preferred Stock, if any.
Section 2. Dividends. Subject to the rights of the Preferred
--------- ---------
Stock, if any, dividends may be paid on the Common Stock as and when
declared by the Board of Directors.
<PAGE>
Section 3. Liquidation Rights. Subject to the prior and
--------- ------------------
superior right of the Preferred Stock, if any, upon any voluntary or
involuntary liquidation, dissolution or winding up of the affairs of
the Corporation, the holders of Common Stock shall be entitled to
receive that portion of the remaining funds to be distributed in
accordance with the provisions of this Certificate of Incorporation,
as it may from time to time be amended or supplemented, including
without limitation any supplement effected pursuant to a certificate
of designations, setting forth such prior and superior rights. Such
funds shall be paid to the holders of Common Stock pro rata on the
basis of the number of shares of Common Stock held by each of them.
Section 4. Merger, Consolidation, Sale of Assets. Subject to
--------- -------------------------------------
the prior and superior rights of the Preferred Stock, if any, in the
event of any merger or consolidation of the Corporation with or into
another corporation in which the Corporation shall not survive, or the
sale or transfer of all or substantially all of the assets of the
Corporation to another entity, or a merger or consolidation in which
the Corporation shall be the surviving entity but its Common Stock is
exchanged for stock, securities or property of another entity, the
holders of Common Stock shall be entitled to receive all cash,
securities and other property received by the Corporation pro rata on
the basis of the number of shares of Common Stock held by each of
them.
Section 5. Residual Rights. All rights accruing to the
--------- ---------------
outstanding shares of the Corporation not expressly provided for to
the contrary in this Certificate of Incorporation, as it may from time
to time be amended or supplemented, including without limitation any
supplement effected pursuant to a certificate of designations, shall
be vested in the Common Stock."
; and it is further
RESOLVED, that the Certificate of Incorporation of the Corporation be
amended by restating Article EIGHTH thereof to read in its entirety as
follows:
"EIGHTH: The corporation shall indemnify any director or officer
of the corporation and may indemnify any other person who was or is a
party or is threatened to be made a party to any threatened, pending
or completed action, suit or proceeding, whether civil, criminal,
administrative or investigative (other than an action by or in the
right of the corporation) by reason of the fact that he is or was a
director, officer, employee or agent of the corporation, or is or was
serving at the request of the corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture,
trust or other enterprise, against expenses (including attorneys'
fees), judgment, fines and amounts paid in
<PAGE>
settlement actually and reasonably incurred by him in connection with
such action, suit or proceeding if he acted in good faith and in a
manner reasonably believed to be in or not opposed to the best
interests of the corporation, and, with respect to any criminal action
or proceedings, had no reasonable cause to believe his conduct was
unlawful. The termination of any action, upon a plea of nolo
contendere or equivalent, shall not, of itself, create a presumption
that the person did not act in good faith and in a manner which he
reasonably believed to be in or not opposed to the best interests of
the corporation, and, with respect to interests of the corporation,
and, with respect to any criminal action or proceeding, had reasonable
cause to believe that his conduct was unlawful."
; and it is further
RESOLVED, that the Certificate of Incorporation of the Corporation be
amended by adding a new Article ELEVENTH thereto which shall read in its
entirety as follows:
"ELEVENTH: From and after the closing of an underwritten public
offering of the Company's securities, any action required to be taken
at any annual or special meeting of stockholders of the Corporation,
or any action which may be taken at any annual or special meeting of
such stockholders, may be taken without a meeting, without prior
notice and without a vote, if a consent in writing, setting forth the
action so taken, shall be signed by the holders of all the outstanding
stock entitled to vote thereon at a meeting of stockholders."
SECOND: That pursuant to resolution of the Board of Directors, the
proposed amendment was submitted to the stockholders of the Corporation and was
duly adopted by the stockholders of the Corporation pursuant to a written
consent in accordance with the applicable provisions of Section 228 of the
General Corporation Law of Delaware, and in accordance with such Section 228
written notice has been given to those stockholders who have not consented in
writing.
THIRD: That the aforesaid amendment was duly adopted in accordance
with the applicable provisions of Section 242 of the General Corporation Law of
Delaware.
<PAGE>
IN WITNESS WHEREOF, the undersigned have signed this Certificate and
affirm, under penalties of perjury that the Certificate is the act and deed of
the corporation and the facts stated herein are true.
Date: July 1, 1996 /s/ Michael Goldstein
------------ ------------------------
Michael Goldstein
President
ATTEST
/s/ Kenny Traub
________________________
<PAGE>
CERTIFICATE OF AMENDMENT
OF
THE CERTIFICATE OF INCORPORATION
OF
VOXWARE, INC.
(Pursuant to Section 242 of the General
Corporation Law of Delaware)
VOXWARE, INC., a corporation organized and existing under and by
virtue of the General Corporation Law of the State of Delaware (the
"Corporation"), DOES HEREBY CERTIFY:
FIRST: That the Board of Directors of the Corporation duly adopted
resolutions setting forth proposed amendments to the Certificate of
Incorporation of the Corporation, declaring said amendments to be advisable and
directing that the proposed amendments be placed before the stockholders of the
Corporation for consideration thereof. The resolutions setting forth the
proposed amendments are as follows:
RESOLVED, that the Certificate of Incorporation of the
Corporation be amended by restating Article FIFTH thereof to read in its
entirety as follows:
"FIFTH: The total number of shares of all classes of stock which
the Corporation has authority to issue is Forty Million (40,000,000)
shares, consisting of Thirty Million (30,000,000) shares of Common
Stock, par value $.001 per share (the "Common Stock"), and Ten Million
(10,000,000) shares of Preferred Stock, par value $.001 per share (the
"Preferred Stock"), which Preferred Stock shall have such
designations, powers, preferences and rights as may be authorized by
the Board of Directors from time to time.
<PAGE>
The Board of Directors is hereby authorized, subject to the
provisions contained in this Article FIFTH, to issue the Preferred
Stock from time to time in one or more series, which Preferred Stock
shall be preferred to the Common Stock as to dividends and
distribution of assets of the Corporation upon the voluntary or
involuntary liquidation, dissolution or winding up of the Corporation,
as hereinafter provided, and shall have such designations as may be
stated in the resolution or resolutions providing for the issuance of
such stock adopted by the Board of Directors. In such resolution or
resolutions providing for the issuance of shares of each particular
series, the Board of Directors is hereby expressly authorized and
empowered to fix the number of shares constituting such series and to
fix the designations and any of the preferences, powers or rights of
the shares of the series so established to the full extent allowable
by law except insofar as such designations, preferences, powers or
rights are fixed herein. Such authorization in the Board of Directors
shall expressly include the authority to fix and determine the
designations, preferences, powers or rights of such shares in all
respects including, without limitation, the following:
(i) the rate of dividend;
(ii) whether shares can be redeemed or called and, if so, the
redemption or call price and terms and conditions of redemption
or call;
(iii) the amount payable upon shares in the event of dissolution,
voluntary and involuntary liquidation or winding up of the
affairs of the Corporation;
(iv) purchase, retirement or sinking fund provisions, if any, for the
call, redemption or purchase of shares;
(v) the terms and conditions, if any, on which shares may be
converted into Common Stock or any other securities;
(vi) whether or not shares have voting rights, and the extent of such
voting rights, if any; and
(vii) whether shares shall be cumulative, noncumulative, or partially
cumulative as to dividends and the dates from which any
cumulative dividends are to accumulate.
-2-
<PAGE>
COMMON STOCK
------------
Section 1. Voting Rights. The holders of shares of Common Stock
--------- -------------
shall be entitled to one vote for each share so held with respect to
all matters voted on by the stockholders of the Corporation, subject
in all cases to the rights of the Preferred Stock, if any.
Section 2. Dividends. Subject to the rights of the Preferred
--------- ---------
Stock, if any, dividends may be paid on the Common Stock as and when
declared by the Board of Directors.
Section 3. Liquidation Rights. Subject to the prior and
--------- ------------------
superior right of the Preferred Stock, if any, upon any voluntary or
involuntary liquidation, dissolution or winding up of the affairs of
the Corporation, the holders of Common Stock shall be entitled to
receive that portion of the remaining funds to be distributed in
accordance with the provisions of this Certificate of Incorporation,
as it may from time to time be amended or supplemented, including
without limitation any supplement effected pursuant to a certificate
of designations, setting forth such prior and superior rights. Such
funds shall be paid to the holders of Common Stock pro rata on the
basis of the number of shares of Common Stock held by each of them.
Section 4. Merger, Consolidation, Sale of Assets. Subject to
--------- -------------------------------------
the prior and superior rights of the Preferred Stock, if any, in the
event of any merger or consolidation of the Corporation with or into
another corporation in which the Corporation shall not survive, or the
sale or transfer of all or substantially all of the assets of the
Corporation to another entity, or a merger or consolidation in which
the Corporation shall be the surviving entity but its Common Stock is
exchanged for stock, securities or property of another entity, the
holders of Common Stock shall be entitled to receive all cash,
securities and other property received by the Corporation pro rata on
the basis of the number of shares of Common Stock held by each of
them.
Section 5. Residual Rights. All rights accruing to the
--------- ---------------
outstanding shares of the Corporation not expressly provided for to
the contrary in this Certificate of Incorporation, as it may from time
to time be amended or supplemented, including without limitation any
supplement effected pursuant to a certificate of designations, shall
be vested in the Common Stock.
-3-
<PAGE>
Upon the filing of this amendment to the Certificate of Incorporation,
as heretofore amended, whereby Article FIFTH is amended in its
entirety to read as set forth herein, each two (2) issued and
outstanding shares of Common Stock of the Corporation shall
automatically and without further action on the part of the holder
thereof be combined into one (1) share of validly issued, fully paid
and non-assessable shares of Common Stock of the Corporation. No scrip
or fractional shares will be issued by reason of this amendment."
SECOND: That pursuant to resolution of the Board of Directors, the
proposed amendment was submitted to the stockholders of the Corporation and was
duly adopted by the stockholders of the Corporation pursuant to a written
consent in accordance with the applicable provisions of Section 228 of the
General Corporation Law of Delaware, and in accordance with such Section 228
written notice has been given to those stockholders who have not consented in
writing.
THIRD: That the aforesaid amendment was duly adopted in accordance
with the applicable provisions of Section 242 of the General Corporation Law of
Delaware.
IN WITNESS WHEREOF, the undersigned have signed this Certificate and
affirm, under penalties of perjury that the Certificate is the act and deed of
the corporation and the facts stated herein are true.
Date: September 19, 1996 /s/ Michael Goldstein
___________________ ____________________________________
Michael Goldstein
President
ATTEST
/s/ Kenneth H. Traub
________________________
-4-
<PAGE>
EXHIBIT 4.1
VOXWARE, INC.
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
COMMON STOCK COMMON STOCK
THIS IS TO CERTIFIY THAT
is the owner of
FULLY PAID AND NON-ASSESSABLE SHARES OF THE COMMON STOCK,
$.001 PAR VALUE PER SHARE, OF
VOXWARE, INC.
transferable on the books of the Corporation by the registered holder hereof in
person or by its duly authorized attorney, upon surrender of this certificate
properly endorsed.
This certificate and the shares represented hereby are issued and shall be
held subject to all of the provisions of the Certificate of Incorporation as
amended, of the Corporation (a copy of which is on file with the Transfer Agent)
to all of which the holder of this certificate, by acceptance hereof, assents.
This certificate is not valid until countersigned and registered by the
Transfer Agent and Registrar.
Witness the facsimile seal of the Corporation and the facsimile signatures of
its authorized officers.
Dated:
VOXWARE, INC.
CORPORATE
SEAL
1993 DELAWARE
/S/ ___________________ /S/ ________________________________
SECRETARY PRESIDENT AND CHIEF EXECUTIVE OFFICER
<PAGE>
The Corporation will furnish without charge to each stockholder who so
requests a statement of the powers, designations, preferences and relative,
participating, optional or other special rights of each class of stock or series
thereof and the qualifications, limitations or restrictions of such preferences
and/or rights.
The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM--as tenants in common
TEN ENT--as tenants by the entireties
JT TEN --as joint tenants with the right of survivorship and not as tenants
in common
UNIF GIFT MIN ACT--........ Custodian .........
(Cust) (Minor)
under Uniform Gifts to Minors Act ...............
(State)
Additional abbreviations may also be used though not in the above list.
For value received__________ hereby sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
[___________________________________]
________________________________________________________________________________
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE).
________________________________________________________________________________
________________________________________________________________________________
_________________________________________________________________________ shares
of the capital stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint
_______________________________________________________________________ Attorney
to transfer the said stock on the books of the within named Corporation with
full power of substitution in the premises.
Dated ___________________
____________________________________________________________
NOTICE: THE SIGNATURE TO THIS ASSIGNMENT MUST CORRESPOND WITH THE
NAME AS WRITTEN UPON THE FACE OF THE CERTIFICATE IN EVERY
PARTICULAR, WITHOUT ALTERATION OR ENLARGEMENT OR ANY CHANGE
WHATEVER.
Signature(s) Guaranteed
________________________________________________________________________________
THE SIGNATURE(S) SHOULD BE GUARANTEED BY AN ELIGIBLE GUARANTOR INSTITUTION
(BANKS, STOCKBROKERS, SAVINGS AND LOAN ASSOCIATIONS AND CREDIT UNIONS WITH
MEMBERSHIP IN AN APPROVED SIGNATURE GUARANTEE MEDALLION PROGRAM), PURSUANT TO
S.E.C. RULE 17Ad-15.
<PAGE>
[LETTERHEAD OF FULBRIGHT & JAWORSKI L.L.P.]
September 19, 1996
Voxware, Inc.
305 College Road East
Princeton, New Jersey 08540
Dear Sirs:
We have acted as counsel to Voxware, Inc., a Delaware corporation (the
"Company"), in connection with its filing with the Securities and Exchange
Commission of a Registration Statement on Form S-1 (Registration No. 333-08393),
as amended (as so amended, the "Registration Statement"), under the Securities
Act of 1933, as amended. The Registration Statement relates to the proposed
sale by the Company, in a public offering, of 3,000,000 shares of the Company's
Common Stock, par value $.001 per share ("Common Stock"). The Registration
Statement also relates to the proposed sale by the Company of up to an
additional 450,000 shares of Common Stock subject to an option (the "Over-
Allotment Option") from the Company to the underwriters (the "Underwriters") for
the offering, exercisable within thirty (30) days after the effective date of
the Registration Statement, to cover over-allotments.
In connection with this opinion, we have examined the originals, or copies
certified or otherwise identified to our satisfaction, of (i) the Company's
Certificate of Incorporation, as amended, and By-Laws filed as Exhibits 3.1 and
3.2, respectively, to the Registration Statement, (ii) the form of Underwriting
Agreement between the Company and the Underwriters filed as Exhibit 1 to the
Registration Statement (the "Underwriting Agreement"), and (iii) such corporate
records, documents and such questions of law as we have deemed necessary or
appropriate for the purposes of this opinion. In such examinations, we have
assumed the genuineness of signatures and the conformity to original documents
of the documents supplied to us as copies. As to the various questions of fact
material to such opinion, we have relied upon statements and certificates of
officers and representatives of the Company. We have further assumed that all
documents examined by us in the form of drafts will, when executed by the
requisite signatories thereto, conform in substance and form in all material
respects to the drafts that we have examined.
<PAGE>
We assume that appropriate action will be taken, prior to the offer and
sale of the shares of Common Stock, to register and qualify such shares for sale
under all applicable state securities or "blue sky" laws.
Based upon the foregoing, and subject to the qualifications hereinafter set
forth, we are of the opinion that the Common Stock (including, without
limitation, the Common Stock subject to the Over-Allotment Option) have been
duly authorized and, when issued and sold in accordance with the terms and
conditions of the Underwriting Agreement, will be validly issued, fully paid and
nonassessable.
We consent to the filing of this opinion as Exhibit 5 to the Registration
Statement and to the reference to this firm under the caption "Legal Matters" in
the Prospectus contained therein. This consent is not to be construed as an
admission that we are a person whose consent is required to be filed with the
Registration Statement under the provisions of the Securities Act of 1933, as
amended.
The opinion expressed herein is solely for your benefit, and may be relied
upon only by you.
Very truly yours,
/s/ Fulbright & Jaworski LLP
<PAGE>
EXHIBIT 10.20
[Confidential treatment has been requested for portions of this exhibit. The
Confidential portions have been redacted and are denoted by [**]. The
Confidential portions have been separately filed with the commission.]
SOFTWARE LICENSE AGREEMENT
This Software License Agreement is dated as of September 13, 1996
("EFFECTIVE DATE") between Voxware, Inc., a Delaware corporation located at 305
College Road East, Princeton, NJ 08540 ("VOXWARE"), and Lucent Technologies
Inc.-Microelectronics Group, a Delaware corporation having an office located at
Two Oak Way, Berkeley Heights, New Jersey 07922 ("LUCENT").
Lucent and Voxware hereby agree to the following:
I. DEFINITIONS. For purposes of this Agreement, the following terms shall
have the following meanings:
(1) "ESCROW AGREEMENT" shall mean that certain Sourceflex Software Source
Code Escrow Agreement, dated as of December 4, 1995, between Voxware and
FileSafe, Inc.
(2) "INTEGRATION SUPPORT" shall mean technical assistance provided to third
parties in conjunction with Lucent to incorporate the VOCODER Products into a
third-party system application in accordance with paragraph 3 of Section V
below.
(3) "LUCENT PRODUCTS" shall mean the products which are being developed by
Lucent and are described on Appendix A hereto, as amended from time to time in
----------
accordance with this Agreement with the consent of both parties, which consent
shall not be unreasonably withheld.
(4) "LUCENT PROPRIETARY INFORMATION" and "VOXWARE PROPRIETARY INFORMATION"
have the respective meanings ascribed thereto in Paragraph 1 of Section IX.
(5) "MATERIAL BREACH" shall mean a breach by Lucent of any of its
confidentiality obligations to Voxware set forth herein; a use by Lucent of
Voxware Proprietary Information, including without limitation, the Source Code
and the Voxware Technologies, in a manner not permitted by this Agreement; or
non-payment.
(6) "PC-95" shall mean a computer that supports Windows 95 (Windows NT)
applications.
(7) "PORTING TEAM" shall mean those persons designated by Lucent who have a
need to know the Source Code in order to assist in the porting of the Voxware
Technologies and to develop the Lucent Products. The Porting Team will not
include, and Lucent will not assign to the Porting Team, any person who is
employed in a technical group that is responsible for developing vocoder
technology directly competitive with the Voxware Technologies.
<PAGE>
(8) "ROYALTY PAYMENT REPORT" shall have the meaning set forth in Paragraph
2 of Section III.
(9) "SOURCE CODE" shall mean the source code for the decode only components
of the VOCODER Products necessary for porting for development of the Lucent
Products.
(10) "TECHNICAL SUPPORT" shall have the meaning set forth in Paragraph 2 of
Section V.
(11) "UPDATES" shall mean such corrections, modifications and improvements
of the VOCODER Products or portions thereof, in source code form for
corrections, modifications and minor improvements relating to the decode only
function and in object code form for all other such corrections, modifications
and minor improvements, as Voxware deems appropriate and which Voxware
distributes generally to its other licensees of the VOCODER Products.
(12) "VOCODER PRODUCTS" shall mean the decode only components of VR12 and
VR15HQ ported to the Lucent Products.
(13) "VOXWARE TECHNOLOGIES" shall mean (i) the decode only components of
Voxware's VR12 codec, a variable-rate averaged 1,200 bps VOCODER ("VR12"), and
of Voxware's VR15HQ (High Quality) codec, a variable-rate averaged 1,500 bps
VOCODER ("VR15HQ"), including such codecs as ported to any platform generally,
when used in reference to the Lucent Products and (ii) the encode and decode
components of VR12 and VR15HQ when used in reference to Servers and Telephony
Applications (as defined in Appendix C). The Voxware Technologies are more
----------
completely described in Appendix B hereto (which may be amended only by mutual
----------
consent).
(14) "VR12-PC-95" shall mean the encode and decode components of VR12
ported to the PC-95 platform.
(15) "VR15HQ-PC-95" shall mean the encode and decode components of VR15HQ
ported to the PC-95 platform.
II. GRANT OF LICENSE
1. Subject to the terms and conditions of this Agreement, Voxware grants
to Lucent a worldwide, non-exclusive, non-transferable license under any of
Voxware's intellectual property rights (i) to use, reproduce and adapt the
Source Code (subject to Paragraph 4 of Section II below) for the VOCODER
Products solely for development of, and incorporation into, the Lucent Products,
and (ii) to use, reproduce, translate, adapt, promote, market and distribute
object code for the Voxware Technologies (including the VOCODER Products)
incorporated in the Lucent Products, Servers or Telephony Applications. Lucent
may grant to its distribution channels (including
-2-
<PAGE>
original equipment manufacturers) the distribution rights set forth in clause
(ii) above solely for the purpose of the distribution of the Lucent Products.
Lucent is responsible for using at least the same level of diligence and take
the same measures to enforce its distributors' obligations with respect to the
Voxware Technologies that it applies for its own valuable products that are
bundled or integrated with other products and generate substantial revenue for
Lucent. Notwithstanding anything herein to the contrary, any such distributors
shall not have access to the Source Code and, other than as provided in
Paragraph 4 of Section II below, the Voxware Technologies are provided and
licensed to Lucent in object code form only.
2. The Voxware Technologies may only be distributed to end users by
Lucent and its distribution channels in an integrated bundle where the Voxware
Technologies are intended to be used in support of the Lucent Products, Servers
and Telephony Applications. Lucent will give Voxware reasonable recognition for
its contribution to the Lucent Product in all documentation for such a bundle.
3. Lucent may ship the Voxware Technologies incorporated in Lucent
Products distributed free of charge for evaluation purposes only. Lucent may
ship the Voxware Technologies in beta versions of Lucent Products to Lucent beta
sites, provided that the beta versions of the Lucent Products do not permit the
user to use such Lucent Products for more than a period of time consistent with
customary Lucent practices for beta versions of its products after delivery to
such user.
4. Notwithstanding anything herein to the contrary, the Source Code shall
be delivered to Lucent personnel on the Porting Team and the Source Code shall
be disclosed to, and access thereto shall remain at all times exclusively with,
the Porting Team. Lucent agrees to provide Voxware with reasonable prior notice
of the identities of the persons who are to be members of the Porting Team from
time to time. Promptly, and in any event within 30 days, after the earlier of
(i) termination of this Agreement or (ii) successful completion of the porting
of the decode only components of VR12 and VR15HQ to the targeted platform
required for the VOCODER Products, Lucent shall return to Voxware any of the
original and all copies (whether whole or partial) of the Source Code in its
possession or certify that all such copies (whether whole or partial) have been
destroyed. Lucent shall be permitted to retain, with custody and access limited
to the Porting Team, a limited number of copies of the source code as optimized
by the parties (not to exceed three copies) for purposes of maintenance and
ongoing support of the Lucent Products.
5. No license, express or implied, is granted to Voxware hereunder to any
Lucent intellectual property.
III. PRICE; TERMS OF PAYMENT; AUDIT
1. The fees for the Voxware Technologies for the term of this Agreement
shall be those fees and royalties set forth in Appendix C hereto. Any
----------
applicable sales, use, personal property, excise or other taxes (other than
income or corporate franchise
-3-
<PAGE>
taxes) will be added to the fees and royalties unless Lucent demonstrates a
valid exemption from such taxes.
2. All royalty payments will be due within 60 days of the end of each
calendar quarter with respect to Production Units (as defined in Appendix C)
----------
shipped in such period. Within 30 days of the end of each calendar quarter,
Lucent shall provide Voxware with a Royalty Payment Report accurately
delineating: (a) the number of Production Units shipped (other than the beta
versions) during the applicable period with respect to the VOCODER Products, (b)
the number of applications embedded in PC-based Telephony Applications (as
defined in Appendix C) for VR12-PC-95 and VR15HQ-PC-95, (c) the number of
----------
Servers (as defined in Appendix C) for Server licenses of VR12-PC-95 and VR15HQ-
----------
PC-95 and (d) the calculation of the amount due. Voxware shall have the right
from time to time (but no more than once annually) upon 15 days' prior written
notice to Lucent to review and audit relevant Lucent books and records to verify
the accuracy of the Royalty Payment Reports. Such audits shall be conducted
during normal business hours, by auditors of a "Big Six" accounting firm. Such
audits shall be at Voxware's expense; provided, however, that should the audit
show that Voxware has been underpaid by more than ten percent (10%), Lucent will
bear the costs of the audit. Any payment adjustment indicated as a result of
such audit shall be made within 30 days of receipt of the audit report. The
third party auditor shall maintain the confidentiality of the information
obtained from Lucent, and shall disclose to Voxware only such information as is
reasonably necessary for Voxware to verify the accuracy of the Royalty Payment
Reports, or the nature and extent of any inaccuracies in such Reports. All
information learned by Voxware from such audit shall be treated as Lucent
Proprietary Information and governed by Section IX below.
IV. DELIVERY, INSTALLATION AND ACCEPTANCE OF VOXWARE TECHNOLOGIES
1. Voxware shall deliver the Voxware Technologies to Lucent in the form
specified and in accordance with the schedule set forth in Appendix D hereto.
----------
It is Lucent's responsibility, without charge to Voxware, to incorporate the
Voxware Technologies into the Lucent Products and to perform all necessary
porting of the Voxware Technologies in connection with the development,
manufacture or operation of the Lucent Products, other than porting the Voxware
Technologies to the Lucent DSP1615 platform. The parties will work together to
achieve the porting of the decode only components of VR12 and VR15HQ to the
Lucent DSP1615 platform.
2. Acceptance of the Voxware Technologies shall be deemed to have
occurred (i) when Lucent completes an audit of Voxware's documentation of the
Voxware Technologies for compliance with the requirements described in Appendix
--------
D hereto and (ii) upon successful completion of a mutually agreed upon
- -
acceptance test of the Voxware Technologies which acceptance test would include,
but not be limited to (A) compliance with a suite of mutually agreed input test
vectors; (B) compliance with a suite of mutually agreed executive calling tests,
(C) compliance with a suite of mutually agreed interface protocol tests; (D) the
Voxware Technologies meeting or
-4-
<PAGE>
improving MIPS and memory utilization targets to be mutually agreed upon; and
(E) satisfactory performance during mutually agreed stability and stress
testing. In the event the parties cannot in good faith agree on the parameters
of the acceptance test within 90 days of the date hereof (or such longer period
as may be mutually agreed by the parties), or in the event that the Voxware
Technologies do not meet the requirements of the acceptance test, despite the
Technical Support provided by Voxware and the good faith assistance of Lucent as
set forth in Paragraph 1, of this Section IV, within 90 days after delivery of
the Voxware Technologies to Lucent, either party may terminate this Agreement
upon notice to the other party, and neither party shall have any liability or
further obligation to the other party. If no such notice is given within such
time period, the Voxware Technologies will be deemed accepted by Lucent. Upon
any such termination, each party shall forthwith return to the other (or destroy
in accordance with written instruction) any technology or proprietary
information belonging to the other party. The parties will work together in
good faith to achieve acceptance of the Voxware Technologies.
V. UPDATES AND SUPPORT SERVICES
1. Voxware will, at such intervals as Voxware deems appropriate,
distribute Updates to Lucent. Lucent shall, upon receipt of any Update,
implement its use such that it replaces entirely any previous version of the
VOCODER Products or portion thereof to which the Update applies. Upon
implementation, an Update shall constitute part of the Voxware Technologies and
shall be subject to all the terms and conditions of this Agreement.
Notwithstanding the foregoing, Lucent shall not be obligated to implement any
Update in the following situations: (a) work in process, (b) customer
applications wherein the customer does not desire the Update, (c) Lucent does
not agree with or accept the Update and (d) applications that are already in the
field and are being used by customers.
2. During the term of this License Agreement Voxware will provide
technical support ("TECHNICAL SUPPORT") to Lucent consisting of (i) using
reasonable commercial efforts to correct or replace and/or providing services
necessary to remedy or avoid any programming error in the VOCODER Products,
VR12-PC-95 or VR15HQ-PC-95 which significantly affects the use of the VOCODER
Products, VR12-PC-95 or VR15HQ-PC-95, as the case may be, by Lucent in the
development, manufacture and sale of the Lucent Products, (ii) providing
revisions and modifications to supporting documentation as necessary and (iii)
providing Updates of the core architecture that maintains equivalent bit stream
characteristics. Lucent will provide Voxware with access to the optimized
source code and such other information as may be reasonably necessary in order
for Voxware to provide the Technical Support described in this paragraph and the
Integration Support described below.
3. Upon request by Lucent, Voxware will provide, in conjunction with
Lucent, Integration Support to third parties following release of the VOCODER
Products. Voxware shall use its best efforts to answer Lucent's questions
relating to use, application and functioning of the VOCODER Products to enable
Lucent to fulfill its
-5-
<PAGE>
support obligations to its customers; provided that, other than Integration
Support, Voxware shall not be required to provide support directly to end users
of the Lucent Products (which support shall be provided by Lucent).
4. In exchange for Updates, Technical Support and Integration Support to
be provided by Voxware hereunder, Lucent will pay to Voxware the support fees
described in Appendix C hereto for the first year subsequent to acceptance as
----------
defined in Section IV of this Agreement. Subsequent payments will be included
in royalty payments described in Appendix C hereto.
----------
VI. TERMINATION
1. Either party hereto shall have the right to terminate this Agreement
upon a material default by the other party of any of its material obligations
under this Agreement, unless within 30 days after written notice of such default
such party remedies such default; provided, however, in the case of a default
which cannot with due diligence be remedied by such party within a period of 30
days, if such party proceeds as promptly as may be reasonably possible after the
service of such notice and with all due diligence to remedy the default and
thereafter to prosecute the remedying of such default with all due diligence,
the period of time after the giving of such notice within which to remedy the
default shall be extended for such period as may be necessary to remedy the same
with all due diligence. Upon termination of this Agreement, for any reason,
Lucent shall cease use, reproduction, translation, marketing, distribution and
promotion of the Voxware Technologies, including the VOCODER Products, in
connection with the Lucent Products, except as expressly permitted herein.
After the termination date, Lucent will not release any new version of a Lucent
Product incorporating any portion or derivative of the Voxware Technologies.
Notwithstanding the foregoing, after termination of this Agreement for any
reason other than a Material Breach, Lucent shall have the right to (i) complete
such work in process as may be completed within the 90 day period after
termination and (ii) sell its existing inventory of Lucent Products which
incorporate the VOCODER Products, VR12-PC-95 or VR15HQ-PC-95 (including such
inventory as is produced within the 90 day period after termination in
accordance with the preceding clause (i)); provided, that, as soon as
-------- ----
practicable after termination, and in any event, within 30 days after
termination, Lucent shall provide Voxware with an itemized statement of such
inventory (including a projection with regard to inventory to be produced in
accordance with clause (i) of the preceding sentence). Royalties shall be due
on all sales of such inventory of Lucent Products in accordance with the terms
of this Agreement.
2. Notwithstanding anything herein to the contrary, termination of this
Agreement by either party for any reason shall not relieve Lucent of its
obligation to pay royalties with respect to any Lucent Products sold theretofore
or thereafter. Upon termination, each party shall forthwith return to the other
(or destroy in accordance with written instructions) any technology or other
proprietary information belonging to the other party.
-6-
<PAGE>
VII. PUBLICITY
1. The parties agree to use all reasonable commercial efforts to ensure
that during the initial announcement of their relationship that: (a) the timing
of such announcements will be compatible with each party's overall public
relations strategy, (b) each will review and approve the other party's relevant
press releases and other public relations materials and (c) executives from each
company shall be reasonably available for other public relations activities.
Each party may disseminate the information contained in such press release in
whole or in part and from time to time without the consent of the other party.
2. Voxware will have the right to mention that Lucent is a licensee of
the Voxware Technologies and Lucent has the right to mention that Voxware is a
licensor of the Voxware Technologies in all relevant advertising, public
relations and marketing materials; provided, that Lucent is given a reasonable
opportunity to review and comment on any such advertising, public relations and
marketing materials as they relate to Lucent in advance of release by Voxware;
and provided, that Voxware will not mention the existence or terms of this
Agreement until Lucent makes a public announcement of such (subject to
disclosure in connection with Voxware's proposed initial public offering).
VIII. WARRANTIES, INDEMNIFICATION, EXCLUSIVE REMEDY AND LIABILITY LIMITATIONS
1. Voxware warrants that it possesses full right, power and authority to
enter into this Agreement; that the making of this Agreement by Voxware does not
violate any other agreement existing between Voxware and any other party; that
it is the sole owner of the Voxware Technologies; to the knowledge of Voxware,
the Voxware Technologies are not in the public domain; and, to the knowledge of
Voxware, the Voxware Technologies do not infringe on any existing patent,
copyright or proprietary rights of others.
2. EXCEPT AS EXPRESSLY SET FORTH IN PARAGRAPH 1 OF THIS SECTION VIII, AND
NOTWITHSTANDING ANY OTHER PROVISION OF THIS AGREEMENT, INCLUDING WITHOUT
LIMITATION, SECTION V AND ALL OTHER PARAGRAPHS OF SECTION VIII HEREOF, VOXWARE
GRANTS NO WARRANTIES OF ANY KIND, EXPRESS OR IMPLIED, INCLUDING ANY WARRANTY
WITH RESPECT TO THE MERCHANTABILITY OF THE VOCODER PRODUCTS OR ANY OF THE
VOXWARE TECHNOLOGIES OR THE FITNESS OF ANY OF THE VOCODER PRODUCTS OR ANY OF THE
VOXWARE TECHNOLOGIES FOR A PARTICULAR PURPOSE OR (II) A GUARANTEE THAT ANY OF
THE TECHNICAL SUPPORT, INTEGRATION SUPPORT OR OTHER EFFORTS OF VOXWARE HEREUNDER
WILL ACHIEVE THE DESIRED RESULT. Voxware's provision of Technical Support and
Integration Support and Lucent's right to terminate as provided in Section VI
hereof shall be the sole and exclusive remedies of Lucent hereunder with respect
to the performance or failure to perform of the VOCODER Products, VR12-PC-95 and
VR15HQ-PC-95 or any of the Voxware
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<PAGE>
Technologies, except that in connection with any action brought by Lucent within
one year of the date of this Agreement, Lucent shall also have a remedy of money
damages, if any, limited to the lesser of (i) the aggregate amount of the
License Fees and Support Fees (as set forth on Appendix C hereto) and royalties
----------
paid by Lucent to Voxware hereunder and (ii) [**].
IN NO EVENT SHALL VOXWARE BE LIABLE UNDER ANY LEGAL THEORY (INCLUDING BUT NOT
LIMITED TO CONTRACT, NEGLIGENCE, UNINTENTIONAL MISREPRESENTATION, STRICT
LIABILITY IN TORT OR WARRANTY OF ANY KIND) FOR ANY INDIRECT, SPECIAL, INCIDENTAL
OR CONSEQUENTIAL DAMAGES (INCLUDING BUT NOT LIMITED TO LOST PROFITS), EVEN IF
VOXWARE HAS NOTICE OF THE POSSIBILITY OF SUCH DAMAGES. THIS LIMITATION SHALL
APPLY NOTWITHSTANDING ANY DETERMINATION THAT THE EXCLUSIVE REMEDY REFERRED TO
ABOVE FAILED OF ITS ESSENTIAL PURPOSE.
3. Voxware agrees to defend and indemnify Lucent for and against all
claims arising from the alleged breach of any warranty given herein, and against
all claims of infringement of any patent, copyright, trademark, trade secret or
proprietary rights by third parties arising from the Voxware Technologies;
provided that Lucent gives Voxware prompt written notice of any such claim;
provided, however, that, Voxware's liability to Lucent pursuant to this
- -------- -------
Paragraph 3 of Section VIII shall not exceed the lesser of (i) the aggregate
amount of the License Fees and Support Fees (as set forth on Appendix C hereto)
----------
and royalties received by Voxware from Lucent pursuant to this Agreement and
(ii) [**]. Lucent agrees to defend and indemnify Voxware for and against all
claims arising from (i) the Lucent Products or their use, manufacture,
packaging, distribution, promotion, sale or exploitation, including, without
limitation, any claims of product liability, and (ii) the breach of any
representation, warranty or covenant by Lucent hereunder, provided that Voxware
gives Lucent prompt written notice of any such claim.
4. In the event that during the term of this Agreement, Voxware or Lucent
becomes aware that the Voxware Technologies or any portion thereof infringes or
may infringe any patent, copyright or other intellectual property right of a
third party, Voxware or Lucent, as the case may be, shall provide prompt notice
thereof to the other party. Thereafter, Voxware shall be entitled either to (i)
obtain rights from such third party for Lucent to continue to use the Voxware
Technologies or (ii) modify the Voxware Technologies or any portion thereof, as
appropriate, to avoid such infringement or such possible infringement. Any such
modification to the Voxware Technologies shall be deemed an Update hereunder.
In the event that Voxware is not able to avoid such infringement or such
possible infringement either (a) by agreement with such third party under terms
acceptable to Voxware or (b) by using best efforts to modify the Voxware
Technologies or any portion thereof, as appropriate, Voxware, in consultation
with Lucent, shall be entitled to terminate this Agreement upon written notice
to Lucent. In the event of such termination, Voxware's liability to Lucent, if
any, shall be limited to the lesser of (i) the aggregate amount of the License
Fees and
-8-
<PAGE>
Support Fees (as set forth on Appendix C hereto) and royalties paid by Lucent to
----------
Voxware hereunder and (ii) [**].
IX. PROPRIETARY INFORMATION
1. Voxware and Lucent each acknowledge that they may be furnished with or
may otherwise receive or have access to information which relates to past,
present or future products, software, research, development, inventions,
processes, techniques, designs or other technical information and data,
marketing plans, etc. of Lucent or Voxware as the case may be ("LUCENT
PROPRIETARY INFORMATION" or "VOXWARE PROPRIETARY INFORMATION", as the case may
be). Voxware Proprietary Information includes, without limitation, the Source
Code, the Voxware Technologies, the VOCODER Products, VR12-PC-95 and VR15HQ-PC-
95. Lucent Proprietary Information includes, without limitation, all Lucent
source code, Lucent Products and Lucent proprietary algorithms.
2. Voxware agrees to preserve and protect the confidentiality of the
Lucent Proprietary Information and all physical forms thereof, whether disclosed
to Voxware before this Agreement is signed or afterward, including the terms of
this Agreement. In addition, Voxware shall not disclose or disseminate the
Lucent Proprietary Information for its own benefit or for the benefit of any
third party. Voxware shall not take nor cause to be taken any physical or
electronic forms of Lucent Proprietary Information from Lucent's offices (nor
make copies of same) without Lucent's written permission. Within 30 days after
the termination of this Agreement (or any other time at Lucent's request),
Voxware shall return to Lucent (or, upon Lucent's request, destroy and certify
as to such destruction) all copies of Lucent Proprietary Information in tangible
form.
3. Lucent agrees to preserve and protect the confidentiality of the
Voxware Proprietary Information and all physical forms thereof, whether
disclosed to Lucent before this Agreement is signed or afterward, including the
terms of this Agreement. In addition, Lucent shall not disclose or disseminate
the Voxware Proprietary Information for its own benefit or for the benefit of
any third party. Notwithstanding the foregoing, Lucent shall have the right to
disclose Voxware Proprietary Information to Lucent contractors and consultants
for the purpose of adapting the Source Code to meet Lucent's requirements,
provided that prior to disclosing Voxware Proprietary Information to any such
contractor or consultant, the name of such contractor or consultant shall be
provided to Voxware and such contractor or consultant shall have entered into an
agreement providing in substance for protection of the Voxware Proprietary
Information in the form attached hereto as Exhibit I. Lucent shall not take nor
---------
cause to be taken any physical or electronic forms of Voxware Proprietary
Information from Voxware's offices (nor make copies of same) without Voxware's
written permission. Within 30 days after the termination of this Agreement for
any reason (or any other time at Voxware's request), Lucent shall return to
Voxware (or, upon Voxware's request, destroy and certify as to such destruction)
all copies of Voxware Proprietary Information in tangible form. The information
contained in the Voxware Technologies (and all other material that Voxware may
provide as part of
-9-
<PAGE>
Technical Support and Integration Support) is considered a trade secret and
shall be treated as such by Lucent.
4. The foregoing obligations shall not apply to any information which (i)
is publicly known; (ii) is given to Voxware or Lucent, as the case may be, by
someone else who is not obligated to maintain confidentiality; (iii) is
independently developed by a party without access to the proprietary information
that is disclosed by the other party; (iv) is disclosed to third parties by the
disclosing party without restriction; or (v) Voxware or Lucent, as the case may
be, had already developed prior to the day this Agreement is signed, as
evidenced by documents. Notwithstanding any other provisions of this Agreement,
the requirements of this Section IX shall survive any termination of this
Agreement. Both parties shall make a reasonable effort to protect all
copyrights and trade secrets related to the VOCODER Products, the Voxware
Technologies and the other Voxware Proprietary Information and to the Lucent
Proprietary Information. Both parties shall be obligated to this
confidentiality for a period of five (5) years from the later of (i) the
termination of this Agreement and (ii) the termination of any license granted
hereunder.
5. If Lucent or Voxware, as the case may be, commits a breach, or
threatens to commit a breach, of any of the provisions of this Section IX,
Voxware or Lucent, as the case may be, shall have the right and remedy to seek
to have the provisions of this Section IX specifically enforced by any court
having equity jurisdiction, it being acknowledged and agreed that any such
breach or threatened breach will cause irreparable injury to Voxware or Lucent
and that money damages will not provide an adequate remedy to Voxware or Lucent.
If any portion of this Section IX is for any reason declared invalid or
unenforceable, the validity of the remaining portions shall not be affected and
the court considering this Section shall have the power to modify same so that
the Section as modified may be enforced. Both parties recognize that there can
be no assurance that Lucent's customers will not seek to reverse engineer or
decompile the Voxware Technologies.
6. Except as expressly and unambiguously provided herein and as
conditions of Lucent's license hereunder, Lucent covenants and agrees (a) not to
disassemble, decompile or otherwise reverse engineer or attempt to derive source
code (or the underlying ideas, algorithms, structure or organization) from the
Voxware Technologies, including the VOCODER Products, (b) to comply with good
business practices and all laws and regulations relevant to this Agreement or
the subject matter hereof, (c) to keep Voxware informed as to any problems
encountered with the Voxware Technologies and any resolutions arrived at for
those problems, and to communicate promptly to Voxware modifications, design
changes or improvements of the Voxware Technologies suggested by customers,
employees and agents and (d) to comply with all export laws and restrictions and
regulations of the Department of Commerce or other United States or foreign
agency or authority, and not to export, or allow the export or re-export of any
confidential information of Voxware or the Voxware Technologies or any direct
product thereof in violation of any such restrictions, laws or regulations.
-10-
<PAGE>
X. PROPRIETARY RIGHTS
1. Except to the extent of the licenses expressly and unambiguously
granted hereunder by Voxware, Voxware retains all rights, title and interest in
and to the Voxware Technologies, the VOCODER Products and, VR12-PC-95 and
VR15HQ-PC-95. Voxware shall have no ownership in the Lucent Products, other
than the rights in the Voxware Products described in the preceding sentence.
2. Lucent shall include, and shall not alter or remove, any applicable
copyright, patent, trade secret, trademark or other proprietary notices or
legends on all copies (in whatever form) of the VOCODER Products, VR12-PC-95 and
VR15HQ-PC-95 and the packaging in which it may be contained.
3. If end users of a Lucent Product are required to sign a license
agreement or if a "shrink wrap" or other form of license is used in connection
with a Lucent Product, such license agreement shall also include such end-user
license terms and conditions with respect to the Voxware Technologies,
consistent with this Agreement, as are reasonably requested by Voxware.
XI. SOFTWARE ESCROW.
1. Upon execution of the Agreement by both parties, Voxware shall add
Lucent as a beneficiary to the Escrow Agreement, which Escrow Agreement shall
provide for the release of the Source Code of the VOCODER Products and, VR12-PC-
95 and VR15HQ-PC-95 to Lucent for the purposes and upon the occurrence of the
release conditions described below. Voxware and Lucent further agree to modify
such Escrow Agreement (as it relates to Lucent) to provide for release terms and
dispute resolution terms substantially similar to clauses (i) and (ii) below:
(i) Upon notice to the escrow agent by Lucent (in the form of an affidavit
or declaration by a duly authorized representative of Lucent) of the
occurrence of a release condition as defined below, the escrow agent
shall so notify Voxware by certified mail with a copy of the notice
from Lucent. If Voxware provides contrary instruction within ten (10)
days of the mailing of the notice to Voxware, the escrow agent shall
not deliver the deposited Source Code to Lucent except as provided
below.
(ii) "CONTRARY INSTRUCTION" means the filing of an affidavit or declaration
with the escrow agent by an officer of Voxware stating that a release
condition has not occurred, or has been cured. The escrow agent will
send a copy of the affidavit or declaration by certified mail to
Lucent. Upon receipt of contrary instruction, the escrow agent shall
not deliver a copy of the deposited Source Code and shall continue to
store the deposited Source Code until otherwise directed by Voxware
and Lucent jointly, or until resolution of the dispute pursuant to
Paragraph 1 of Section XII hereof.
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<PAGE>
2. The Source Code may be released from escrow to Lucent permanently,
only if, during the term of this Agreement, (i) Voxware becomes unable to
perform its obligations under this Agreement and (ii) one or more of the
following release conditions occurs:
(i) Voxware becomes insolvent or admits insolvency or admits a
general inability to pay its debts as they become due; or
(ii) Voxware files a petition for protection under the Bankruptcy Code
of the United States, or an involuntary petition in bankruptcy is
filed against Voxware and is not dismissed within sixty (60) days
thereafter.
XII. MISCELLANEOUS
1. GOVERNING LAW; ARBITRATION. This Agreement shall be subject to and
governed in all respects by the statutes and laws of the State of New Jersey
without regard to the conflicts of laws principles thereof. The prevailing
party in any dispute regarding the interpretation or enforcement of the terms of
this Agreement shall be entitled to its reasonable attorneys' fees, costs and
expenses from the other party. Any dispute between the parties arising out of
this Agreement (other than as set forth in Paragraph 6 of Section IX and as
provided in the Escrow Agreement) shall be submitted to binding arbitration
before a panel of three neutral arbitrators in New York, New York in accordance
with the commercial rules of the American Arbitration Association.
2. ENTIRE AGREEMENT. This Agreement, including Exhibits and Appendices,
constitutes the entire Agreement and understanding between the parties and
supersedes all prior discussions between them related to its subject matter. No
modification of any of the terms of this Agreement shall be valid unless in
writing and signed by an authorized representative of each party.
3. ASSIGNMENT. This Agreement is not assignable by either party without
the prior written consent of the other party, except that a party may assign
this Agreement in connection with any merger, acquisition, sale of substantially
all of its assets or similar transaction without the other party's consent.
This Agreement shall apply to and bind any permitted successors or assigns of
the parties hereto.
4. NOTICES. All notices required or permitted hereunder shall be given
in writing addressed to the respective parties as set forth below and shall
either be (a) personally delivered; (b) transmitted by postage prepaid certified
mail, return receipt requested; or (c) transmitted by nationally-recognized
private express courier, and shall be deemed to have been given on the date of
receipt if delivered personally, or two (2) days after deposit in mail or
express courier. Either party may change its address for purposes hereof by
written notice to the other in accordance with the provisions of this
Subsection. The address for the parties are as follows:
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<PAGE>
Voxware, Inc. Lucent Technologies Inc.
305 College Road East 1247 South Ceder Crest Boulevard
Princeton, NJ 08540 Allentown, PA 18103
Attn: Chief Financial Officer Attn: Director, Business Operations
5. FORCE MAJEURE. Neither party will be responsible for any failure to
perform its obligations under this Agreement due to causes beyond its reasonable
control, including but not limited to acts of God, war, riot, embargoes, acts of
civil or military authorities, fire, floods or accidents.
6. WAIVER. A waiver, expressed or implied, by either party of any
default by the other in the observance and performance of any of the conditions,
covenants or duties set forth herein shall not constitute or be construed as a
waiver of any subsequent or other default.
7. HEADINGS. The headings to the Sections and Subsections of this
Agreement are included merely for convenience of reference and shall not affect
the meaning of the language included therein.
8. INDEPENDENT CONTRACTORS. The parties acknowledge and agree that they
are dealing with each other hereunder as independent contractors. Nothing
contained in this Agreement shall be interpreted as constituting either party
the joint venturer or partner of the other party or as conferring upon either
party the power or authority to bind the other party in any transaction with
third parties.
9. SEVERABILITY. Except as otherwise set forth in this Agreement, the
provisions of this Agreement are severable, and if any one or more such
provisions shall be determined to be invalid, illegal or unenforceable, in whole
or in part, the validity, legality and enforceability of any of the remaining
provisions or portions thereof shall not in any way be affected thereby and
shall nevertheless be binding between the parties hereto. Any such invalid,
illegal or unenforceable provision or portion thereof shall be changed and
interpreted so as to best accomplish the objectives of such provision or portion
thereof within the limits of applicable law.
10. COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument. For purposes hereof, a
facsimile copy of this Agreement, including the signature pages hereto shall be
deemed to be an original.
VOXWARE, INC. LUCENT TECHNOLOGIES INC.
By: /s/ Kenneth H. Traub By: /s/ Lucent Technologies Inc.
_______________________ ________________________________
Print Name:_______________ Print Name:_____________________
Title:____________________ Title:__________________________
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<PAGE>
APPENDIX A
LUCENT PRODUCTS
(a) DSP1615/POMP-15 (also known as POMP-LIV)
(b) POMP-13
(c) POMP-23
(d) DSPs which are functionally equivalent successor DSPs to DSP 1615/POMP-15,
POMP-13 and/or POMP-23
POMP-13 and POMP-23 are DSPs based on the same core as the DSP1615
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APPENDIX B
TECHNICAL FEATURES OF THE VOXWARE TECHNOLOGIES
VR12 bit rate: Variable rate with average rate of 1,200 bps (89 bps to 1,867
bps). Note that the worst- case rate
would be 1,867 bps.
VR15HQ bit rate: Variable rate with average rate of 1,500 bps (89 bps to 2,267
bps). Note that the worst-case rate would be 2,267 bps.
Pitch Invariant Multi-rate Playback (PIMP): VR12 and VR15HQ provide a speed-
up/slowdown capability that allows users to playback pre-recorded speech
at their own desired speed-up or slowdown by five times normal speed
without any material degradation in voice quality or shifting of vocal
pitch. It is anticipated that the application only requires a PIMP ratio
of [**]. This parameter shall be compile time determined.
Algorithmic Delay: Assuming a [**] msec frame rate the encoder delay is [**]
msec and the decoder delay is
[**] msec for an end-to-end delay of [**] msec.
Floating Point C-Code Complexity: Native signal-processing on an Intel 133 MHz
Pentium Processor is [**]
of CPU for encoder and [**] of CPU for decoder.
Fixed Point Complexity: Estimated DSP1615 MIPS is for Voxware a maximum of [**]
and an average of [**] MIPS for decoder, and it would be reasonable to expect
that such amounts can be further optimized by Lucent to a maximum of [**] with
an average of [**] MIPS for decoder.
DSP1600 Memory Requirements:/*/
Decoder: RAM: [**] Bytes for [**] PIMP ratios
DROM: [**] Bytes plus or minus [**]%
PROM: [**] Bytes plus or minus [**]%
- --------------------------------
/*/ PROM size unknown until actual port is completed. This is the best
estimate based upon previous work and analysis. These estimates are subject to
change by mutual agreement of the parties.
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<PAGE>
APPENDIX C
FEES AND ROYALTIES
LUCENT would pay to VOXWARE the following fees at the specified schedule:
NRE:
POMP-VR12_DEC $[**] was paid upon signing of Memorandum of
Understanding
VR15HQ_PC95 $[**] was paid upon signing of Memorandum of
Understanding
POMP-VR15HQ_DEC $[**] was paid upon signing of Memorandum of
Understanding
License Fees:
VR12 PRODUCTION $[**] [**]% at signing of this Agreement
VR15HQ PRODUCTION $[**] [**]% at signing of this Agreement
[**]% at acceptance of VOCODER PRODUCTS for
release
$[**] per PRODUCTION UNIT at quarterly tallies for
the first [**] PRODUCTION UNITS of the Lucent
Products containing the VOCODER PRODUCTS
$[**] per PRODUCTION UNIT at quarterly tallies for
all remaining PRODUCTION UNITS of the Lucent
Products containing the VOCODER PRODUCTS
$[**] per Telephony Application for the first [**]
licenses at a quarterly tally
$[**] per Telephony Application for the remaining
licenses at a quarterly tally
$[**] per SERVER application for the first [**]
server licenses containing the Voxware
Technologies at a quarterly tally
$[**] per SERVER application for the remaining
server licenses containing the Voxware
Technologies at a quarterly tally
Support Fees:
VOCODER PRODUCTS $[**] [**]% at acceptance by LUCENT of VOCODER
PRODUCTS for release. [**]% at first release of
VOCODER PRODUCTS for PRODUCTION to OEM; [**]% [**]
months thereafter; [**]% [**] months thereafter.
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<PAGE>
APPENDIX C
FEES AND ROYALTIES
(continued)
A PRODUCTION UNIT is defined as LUCENT manufactured device that includes the
VOCODER PRODUCTS as part of the embedded application code. PRODUCTION UNITS
would be identified by a LUCENT manufacturing code. VOXWARE would be notified
by LUCENT of all such manufacturing codes in writing to: Voxware, Inc., 305
College Road East, Princeton, NJ 08540, Attn: Kenneth H. Traub, CFO.
A TELEPHONY APPLICATION is defined as a Windows 95 or NT software application
that executes encode and/or decode functions on a host processor for the sole
purposes of enabling the Lucent Products.
A SERVER is defined as a hardware and software configuration that executes
multiple encode and/or decode functions simultaneously on a host processor of
at least 133 mhz for the sole purpose of enabling the Lucent Products.
DEC when applied to any technology or product name shall signify containing the
decode only components of the Voxware Technologies.
All Support Fees to VOXWARE by LUCENT would be initiated by a billing invoice
from VOXWARE sent to: Lucent Technologies Inc., 1247 South Ceder Crest Blvd.,
Allentown, PA 18103, Attn: David Bambu, POMP_VR15HQ VOCODER PRODUCTS, POMP_VR12
VOCODER PRODUCTS
The billed amount would be paid after verification of conformance to the terms
and conditions established for the billed activity or fee.
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<PAGE>
APPENDIX D
DELIVERY SCHEDULE AND FORM OF DELIVERY
Availability of the VR15HQ on the PC-95 platform: The VR15HQ will be available
on or before the date of execution of this Agreement 1996 on the PC-95 platform.
A high-end Pentium processor is recommended for encoding.
Availability of the VR12 on the PC-95 platform: The VR12 will be available on
or before the date of execution of this Agreement on the PC-95 platform. A
high-end Pentium processor is recommended for encoding.
Availability of the VR15HQ_DEC on DSP1615: The VR15HQ_DEC will be available on
or before the date of execution of this Agreement as a final release.
Availability of the VR12_DEC on DSP1615: The VR12_DEC will be available on or
before the date of execution of this Agreement as a final release.
All VOCODER technology would be delivered on appropriate media to accomplish the
required task for implementation and production. The VOCODER PRODUCTS would be
delivered in the appropriate object format that supports the required
application integration for the given platform. The delivery media and format
would be specified as part of the VOCODER PRODUCTS documentation.
The VOCODER PRODUCTS would be fully documented by VOXWARE providing necessary
details on the implementation of the VOCODER PRODUCTS for the intended
application. The level of documentation will be consistent with examples
previously provided by Lucent. This documentation would be sufficient to
provide all information known and required for unassisted integration of the
VOCODER PRODUCTS into the final embedded application for wireless messaging.
The VOCODER PRODUCTS bit stream would be characterized in a manner that provides
the details necessary to identify and protect critical information in the
VOCODER PRODUCTS bit stream for robust operation in a wireless application.
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<PAGE>
EXHIBIT 1
TO LUCENT LICENSE
AGREEMENT BETWEEN SUPPLIER EMPLOYEE AND LUCENT TECHNOLOGIES INC. REGARDING
INTELLECTUAL PROPERTY
In consideration of payment for the performance of work or assignments for
Lucent Technologies Inc. or any of its affiliates (hereinafter "Lucent"), and
other good and valuable consideration, including the use on behalf of Lucent of
its material, private or proprietary information either owned or controlled by
Lucent, or its facilities;
A. I hereby assign and agree to assign to Lucent all my right, title, and
interest in and to all inventions, discoveries, improvements, ideas,
computer or other apparatus programs and related documentation, and other
works of authorship (hereinafter each designated "Intellectual Property"),
whether or not patentable, copyrightable or subject to other forms of
protection, made, created, developed, written or conceived by me during the
period of such work or performance of assignments, whether during or
outside of regular working hours, either solely or jointly with another, in
whole or in part, either
1. in the course of such work or assignment or
2. which are suggested by or result from any task assigned to me or work
performed for or on behalf of Lucent relating to my assignment, or
3. with the use of Lucent's time, material, private or proprietary
information, or facilities;
B. I will, without charge to Lucent but at its expense, execute a specific
assignment of title to Lucent and do anything else reasonably necessary to
enable Lucent to secure a patent, copyright or other form of protection for
said Intellectual Property anywhere in the world;
C. I further agree that I will keep in confidence and will not, except as
required in the conduct of Lucent's business or as authorized in writing on
behalf of Lucent, publish, disclose or use, during and after the period of
my work or assignment, any private or proprietary information which I may
in any way acquire, learn, develop or create by reason of such work or
assignment;
D. I further agree that this Agreement does not constitute a contract for
employment, nor does it confer any rights by license or otherwise in any
Intellectual Property to which I may have access; and
<PAGE>
E. Lucent and I agree that, notwithstanding that I may not be Lucent's
employee for other purposes, the copyrights in Intellectual Property
created within the scope of my work or assignment shall be considered a
work made for hire to the extent it qualifies as such under the copyright
law;
F. I agree that I will not disclose to Lucent or any of its employees any
information which I consider to be proprietary or confidential, or any
information that is or may be proprietary or confidential to any of my
employers or other clients. Except for information owned by Lucent under
this Agreement, all specifications, drawings, sketches, models, samples,
tools, computer or other apparatus programs, technical or business
information or data, written, oral or otherwise, furnished by me to Lucent
under this Agreement, or in contemplation of this Agreement shall not be
---
considered by me to be confidential or proprietary;
G. In the event that either my employer or I have previously executed an
agreement with Lucent relating to the work which I am about to undertake,
it is understood and agreed that any terms and provisions of this agreement
will be superseded by any conflicting terms and conditions of such
previously executed agreement.
_________________________
(Signature)
_________________________
(Printed Name)
_________________________
(Social Security Number)
_________________________
(Date)
<PAGE>
EXHIBIT 10.21
VOXWARE, INC.
1996 EMPLOYEE STOCK PURCHASE PLAN
ARTICLE I
PURPOSE
-------
1.01. Purpose. The purpose of the Plan is to provide eligible
-------
employees of the Company and its Subsidiaries with a convenient way to acquire
shares of the Company's Common Stock. The Plan is intended to qualify as an
"employee stock purchase plan" under Section 423 of the Internal Revenue Code of
1986, and the Plan will be interpreted and construed accordingly.
ARTICLE II
DEFINITIONS
-----------
Wherever used herein, the masculine includes the feminine, the
singular includes the plural, and the following terms have the following
meanings unless a different meaning is clearly required by the context.
2.01. "Account" means the bookkeeping account established in the name
of each Participant to reflect the payroll deductions made hereunder on behalf
of the Participant.
2.02. "Board" means the Board of Directors of the Company.
2.03. "Code" means the Internal Revenue Code of 1986, as it now
exists and is hereafter amended.
<PAGE>
2.04. "Committee" means the administrative committee appointed by the
Board to administer the Plan.
2.05. "Common Stock" means the common stock of the Company, $.0001
par value per share.
2.06. "Company" means Voxware, Inc., a Delaware corporation, and any
successor corporation.
2.07. "Compensation" means all cash compensation paid by the Company
or a Subsidiary to a Participant which is required to be reported as wages on
the Participant's Form W-2 and such additional amounts which are not includable
in gross income by reason of Sections 125,402(a) or 402(L(i)(B) of the Code.
2.08. "Employee" means an individual who performs services for the
Company or a participating Subsidiary in an employer-employee relationship and
whose customary employment is at least twenty hours per week and more than five
months per year. For purposes of the Plan, the employment relationship shall be
treated as continuing intact while the individual is on sick leave or other
leave of absence approved by the Company. Where the period of leave exceeds 90
days and the individual's right to reemployment is not guaranteed either by
statute or by contract, the employment relationship will be deemed to have
terminated on the 91st day of such leave.
-2-
<PAGE>
2.09. "Enrollment Date" means the first day of an Offering Period.
2.10. "Exercise Date" means the last business day of an Offering
Period.
2.11. "Fair Market Value" means the closing sale price per share as
published by a national securities exchange on which shares of the Common Stock
are traded on such date or, if there is no sale of Common Stock on such date,
the average of the bid and asked prices on such exchange at the closing of
trading on such date or, if shares of the Common Stock are not listed on a
national securities exchange on such date, the closing price or, if none, the
average of the bid and asked prices in the over the counter market at the close
of trading on such date, or if the Common Stock is not traded on a national
securities exchange or the over the counter market, the fair market value of a
share of the Common Stock on such date as determined in good faith by the
Committee. For the purposes of the Enrollment Date under the first Offering
Period under the Plan, the Fair Market Value of the Common Stock shall be the
price to the public as set forth in the final prospectus included within the
Registration Statement on Form S-1 filed with the Securities and Exchange
Commission for the initial public offering of the Common Stock.
2.12. "Offering Period" means the six-month period beginning on each
December 1 and June 1 and ending on each May 31 and November 30, respectively;
provided, however, that the first Offering Period shall be the period beginning
with the first business day on or after the date on which the Company's
registration statement on Form S-1 (or any successor form thereof) is declared
effective by the Securities and
-3-
<PAGE>
Exchange Commission and terminating on the last business day in the period
ending May 31, 1997. The Committee shall have the power to change the duration
of Offering Periods and the commencement dates thereof without stockholder
approval if such change is announced to Employees at least five days prior to
the scheduled beginning of the first Offering Period to be affected thereafter.
2.13. "Participant" means any Employee for whom an Account is
maintained under the Plan.
2.14. "Subsidiary" means a corporation 50% or more of the total
combined voting power of which is owned directly or indirectly by the Company as
described in Section 424(f) of the Code.
ARTICLE III
PARTICIPATION IN PLAN
---------------------
3.01. General. An Employee will be eligible to become a Participant
-------
in the Plan on the Enrollment Date next following the date he becomes an
Employee.
3.02. Restrictions on Participation. Notwithstanding any provisions
-----------------------------
of the Plan to the contrary, no Employee may be granted the right to purchase
Common Stock under the Plan if and to the extent that:
(a) immediately after the grant, such Employee would directly or
indirectly own stock and/or hold outstanding options to purchase
stock, possessing 5% or more of the total combined voting power or
value of all
-4-
<PAGE>
classes of stock of the Company (determined in accordance with Section
424(d) of the Internal Revenue Code of 1986); or
(b) the Employee's right to purchase stock under all employee
stock purchase plans of the Company would accrue at a rate which
exceeds $25,000 in fair market value (determined at the time of grant)
for each calendar year in which such right is outstanding.
3.03. Enrollment. An eligible Employee may become a Participant for
----------
an Offering Period by completing a Plan enrollment form authorizing payroll
deductions and filing it with the Company prior to the first day of the Offering
Period. Payroll deductions for a Participant shall commence on the first
payroll following the first Enrollment Date following such filing and shall end
on the last payroll in the Offering Period to which such authorization is
applicable, unless sooner terminated by the Participant in accordance with the
provisions hereof.
ARTICLE IV
ISSUANCE OF STOCK PURCHASE RIGHTS
---------------------------------
4.01. Payroll Deduction. At the time a Participant enrolls in the
-----------------
Plan, he must elect the amount to be deducted from each paycheck during the
Offering Period(s) covered by the election, provided, however, that no more than
10% of a Participant's pay may be withheld under the Plan on any pay date. All
payroll deductions made for a Participant shall be credited to his Account under
the Plan and will be withheld in whole percentages only. A Participant may not
make any additional payments into such account. Unless the Committee determines
otherwise, interest shall
-5-
<PAGE>
not accrue on any amounts credited to a Participant's Account. The rate of a
Participant's contribution, once established, shall remain in effect for all
subsequent Offering Periods unless changed by the Participant in writing at such
time and in such manner as the Committee may prescribe.
4.02. Stock Subject to Plan. The Company may issue and sell a total
---------------------
of up to 200,000 shares of its Common Stock pursuant to the Plan. Such shares
may be either authorized and unissued shares of Common Stock, shares of Common
Stock held by the Company in its treasury or shares of Common Stock reacquired
by the Company upon purchase in the open market.
4.03. Purchase Price. The purchase price of Common Stock issued
--------------
under the Plan on the Exercise Date for any Offering Period will be equal to 85%
of the lesser of (a) the Fair Market Value on the Exercise Date, or (b) the Fair
Market Value on the first business day of the Offering Period.
4.04. Purchase of Shares. On each Exercise Date, the amount credited
------------------
to a Participant's Account shall be used to purchase a whole number of shares of
Common Stock, the number of which will be determined by dividing the amount of
the Participant's Account by the purchase price per share. Any amount remaining
in a Participant's Account may be returned to the Participant if requested. If
such return is not requested, the balance (representing amounts which would
purchase only fractional shares) will remain in the Participant's Account for
the next Offering Period. If the total number of shares of Common Stock to be
purchased as of an Exercise Date
-6-
<PAGE>
(when aggregated with shares of Common Stock previously purchased for all
Employees under the Plan) exceeds the number of shares then authorized under the
Plan, a pro-rata allocation of the available shares will be made among the
Participants based upon the amounts in their respective Accounts as of the
Exercise Date.
4.05. Issuance of Common Stock. As promptly as practicable after
------------------------
each Exercise Date on which a purchase of shares occurs, the Company shall
arrange the delivery to each Participant, as appropriate, of a certificate
representing the shares of Common Stock purchased upon exercise of his right.
4.06. Discontinuance and Withdrawal of Contributions; Change of Rate
--------------------------------------------------------------
of Payroll Deductions. (a) At any time during an Offering Period, a
- ---------------------
Participant may notify the Company that he wishes to discontinue contributions
under the Plan. This notice shall be in writing and shall become effective as
soon as practicable following its receipt by the Company. A Participant may
elect to withdraw all, but not less than all, of the amount of his Account at
any time during an Offering Period except on the Exercise Date with respect to
that Offering Period. If a withdrawal is made during an Offering Period, no
further contributions will be permitted during that Offering Period by the
withdrawing Participant.
(b) At any time during an Offering Period, a Participant may increase or
decrease the rate of his payroll deductions during the Offering Period by
completing or filing with the Company a new enrollment form authorizing a change
in payroll deduction rate. The Committee may, in its discretion, limit the
number of payroll deduction rate changes during any Offering Period. The change
in rate shall be
-7-
<PAGE>
effective with the first full payroll period following five (5) business days
after the Company's receipt of the new enrollment form unless the Company elects
to process a given change more quickly.
4.07. Termination of Employment. Any Participant whose employment
-------------------------
with the Company and its Subsidiaries is terminated for any reason before an
Exercise Date shall thereupon cease being a Participant, and he will be deemed
to have elected to withdraw from the Plan and the payroll deductions credited to
such Participant's account during the Offering Period but not yet used to
exercise the right will be returned to such Participant or, in the case of his
death, to the person or persons entitled thereto under Section 6.02 hereof, and
such Participant's right will be automatically terminated. The balance of the
Participant's Account shall be paid to such Participant or his legal
representative as soon as practical after his termination of employment.
ARTICLE V
ADMINISTRATION
--------------
5.01. Administration. The Plan will be administered by a committee
--------------
(the "Committee") consisting of at least two directors appointed by and serving
at the pleasure of the Board; provided that, notwithstanding anything herein to
the contrary, the Board shall have all the powers of the Committee under the
Plan and the Board may, in its sole and absolute discretion, determine not to
appoint a Committee. Subject to the provisions of the Plan, the Committee,
acting in its sole and absolute discretion, will have full power and authority
to construe, interpret and apply the provisions of the Plan, to adopt rules and
regulations for administering the Plan and to make all
-8-
<PAGE>
determinations and take all actions as may be necessary or desirable in order to
carry out the provisions of the Plan. A majority of the members of the
Committee will constitute a quorum. The Committee may act by the vote of a
majority of its members present at a meeting at which there is a quorum or by
unanimous written consent. The decision of the Committee as to any disputed
question, including questions of construction, interpretation and
administration, will be final and conclusive on all persons. The Committee will
keep a record of its proceedings and acts and will keep or cause to be kept such
books and records as may be necessary in connection with the proper
administration of the Plan. The Company shall indemnify and hold harmless each
member of the Committee and any employee or director of the Company or of a
Subsidiary to whom any duty or power relating to the administration or
interpretation of the Plan is delegated from and against any loss, cost,
liability (including any sum paid in settlement of a claim with the approval of
the Board), damage and expense (including legal and other expenses incident
thereto) arising out of or incurred in connection with the Plan, unless and
except to the extent attributable to such person's fraud or willful misconduct.
ARTICLE VI
MISCELLANEOUS
-------------
6.01. Amendment or Termination. (a) The Board may at any time or
------------------------
from time to time amend the Plan in any respect, except that, without approval
of the Company's stockholders, no amendment may (i) increase the number of
shares of Common Stock reserved under the Plan other than as provided herein
with respect to adjustments for certain capital changes and reorganizations,
(ii) reduce the purchase
-9-
<PAGE>
price per share or (iii) make the Plan available to any person who is not an
Employee. The Board reserves the right to terminate the Plan at any time.
Except as set forth in Section 6.05, no such action amending or terminating the
Plan may affect adversely any outstanding right without the consent of each
Participant who is so affected; provided that, an Offering Period may be
terminated by the Board on any Exercise Date if the Board determines that the
termination of the Plan is in the best interests of the Company and its
stockholders.
(b) Without stockholder consent and without regard to whether any
Participant rights may be considered to have been "adversely affected," the
Board (or the Committee) shall be entitled to change the Offering Periods, limit
the frequency and/or number of changes in the amount withheld during an Offering
Period, establish the exchange ratio applicable to amounts withheld in a
currency other than U.S. dollars, permit payroll withholding in excess of the
amount designated by a Participant in order to adjust for delays or mistakes in
the Company's processing of properly completed withholding elections, establish
reasonable waiting and adjustment periods and/or accounting and crediting
procedures to ensure that amounts applied toward the purchase of Common Stock
for each Participant properly correspond with amounts withheld from the
Participant's Compensation, and establish such other limitations or procedures
as the Board (or the Committee) determines in its sole discretion advisable
which are consistent with the Plan.
6.02. Transferability. Neither payroll deductions credited to a
---------------
Participant's Account nor any rights with regard to the exercise of a right to
purchase Common Stock or to receive shares under the Plan may be assigned,
transferred,
-10-
<PAGE>
pledged or otherwise disposed of in any way (other than by will, the laws of
descent and distribution or as expressly provided below) by the Participant.
Any such attempt as assignment, transfer, pledge or other disposition shall be
without effect, except that the Company may treat such act as an election to
withdraw funds from an Offering Period in accordance with Section 4.06 hereof.
During the lifetime of each Participant, the rights granted hereunder are only
exercisable by such Participant. A Participant may file a written designation
of a beneficiary who is to receive any shares of Common Stock and cash, if any,
from the Participant's Account under the Plan in the event of such Participant's
death subsequent to an Exercise Date on which the right is exercised but prior
to delivery to such Participant of such shares and cash. In addition, a
Participant may file a written designation of a beneficiary who is to receive
any cash from the Participant's Account under the Plan in the event of such
Participant's death prior to the exercise of the right. Such designation of
beneficiary may be changed by the Participant at any time by written notice. In
the event of the death of a Participant and in the absence of a beneficiary
validly designated under the Plan who is living at the time of such
Participant's death, the Company shall deliver such shares and/or cash to the
executor or administrator of the estate of the Participant, or if no such
executor or administrator has been appointed (to the knowledge of the Company),
the Company, in its discretion, may deliver such shares and/or cash to the
spouse or to any one or more dependents or relatives of the Participant, or if
no spouse, dependent or relative is known to the Company, then to such other
person as the Company may designate.
6.03. No Rights of Employment. The Plan will not be deemed to
-----------------------
constitute a contract between the Company or a Subsidiary and any individual or
to be
-11-
<PAGE>
a consideration or inducement for the employment of any individual. Nothing
contained in the Plan shall be deemed to give any individual the right to be
retained in the service of the Company and its Subsidiaries or to interfere with
the right of the Company and its Subsidiaries to discharge him or her at any
time.
6.04. Use of Funds. All payroll deductions received or held by the
------------
Company under the Plan may be used by the Company for any corporate purpose, and
the Company shall not be obligated to segregate such payroll deductions.
6.05. Adjustments Upon Changes in Capitalization, Dissolution,
--------------------------------------------------------
Liquidation, Merger or Asset Sale.
- ---------------------------------
(a) Changes in Capitalization. Subject to any required action by the
-------------------------
stockholders of the Company, the number and class of shares which may be issued
under the Plan as well as the price per share of Common Stock covered by each
right under the Plan which has not yet been exercised shall be proportionately
adjusted for any increase or decrease in the number of issued shares of Common
Stock resulting from a stock split, reverse stock split, stock dividend,
combination of reclassification of the Common Stock, or any other increase or
decrease in the number of shares of Common Stock effected without receipt of
consideration to the Company; provided, however, that conversion of any
convertible securities of the Company shall not be deemed to have been "effected
without receipt of consideration". Except as expressly provided herein, no
issuance by the Company of shares of stock of any class, or securities
convertible into shares of stock of any class, shall affect, and no adjustment
-12-
<PAGE>
by reason thereof shall be made with respect to, the number or price of shares
of Common Stock subject to a right.
(b) Dissolution or Liquidation. In the event of the proposed
--------------------------
dissolution or liquidation of the Company, the Offering Period will terminate
immediately prior to the consummation of such proposed action, unless otherwise
provided by the Board or the Committee.
(c) Merger or Asset Sale. In the event of a proposed sale of all or
--------------------
substantially all of the assets of the Company, or the merger of the Company
with or into another corporation, each right under the Plan shall be assumed or
an equivalent right shall be substituted by such successor corporation or a
parent or subsidiary of such successor corporation, unless the Board or the
Committee determines, in the exercise of its sole discretion and in lieu of such
assumption or substitution, to shorten the Offering Period then in progress by
setting a new Exercise Date (the "New Exercise Date"). If the Board or the
Committee shortens the Offering Period then in progress in lieu of assumption or
substitution in the event of a merger or sale of assets, the Board or the
Committee shall notify each participant in writing, at least ten (10) business
days prior to the New Exercise Date, that the Exercise Date for his right has
been changed to the New Exercise Date and that his right will be exercised
automatically on the New Exercise Date, unless prior to such date he has
withdrawn from the Offering Period as provided in Section 4.06 hereof. For
purposes of this paragraph, a right granted under the Plan shall be deemed to be
assumed if, following the sale of assets or merger, the right confers the right
to purchase, for each share of Common Stock subject to the right immediately
prior to the sale of assets or merger, the consideration (whether stock, cash or
other securities or property) received
-13-
<PAGE>
in the sale of assets or merger by holders of Common Stock for each share of
Common Stock held on the effective date of the transaction (and if such holders
were offered a choice of consideration, the type of consideration chosen by the
holders of a majority of the outstanding shares of Common Stock); provided,
however, that if such consideration received in the sale of assets or merger was
not solely common stock of the successor corporation or its parent (as defined
in Section 424(e) of the Code), the Board or the Committee may, with the consent
of the successor corporation, provide for the consideration to be received upon
exercise of the right to be solely common stock of the successor corporation or
its parent equal in Fair Market Value to the per share consideration received by
holders of Common Stock and the sale of assets or merger.
(d) Fractional Shares. In the event of any adjustment in the number
-----------------
of shares of Common Stock covered by any right pursuant to the provisions
hereof, any fractional shares resulting from such adjustment will be disregarded
and each such right will cover only the number of full shares of Common Stock
resulting from the adjustment.
(e) Determination of Board or the Committee to be Final. All
---------------------------------------------------
adjustments under this paragraph shall be made by the Board or the Committee,
and its determination as to what adjustments shall be made, and the extent
thereof, shall be final, binding and conclusive.
6.06. Legal Requirements. The Company's obligation to sell and
------------------
deliver shares of Common Stock under the Plan is at all times subject to all
approvals of, or filings with, any governmental authorities required in
connection with the
-14-
<PAGE>
authorization, issuance, sale or delivery of such shares. Shares shall not be
issued with respect to a right unless the exercise of such right and the
issuance and delivery of such shares pursuant thereto shall comply with all
applicable provisions of law, domestic or foreign, including, without
limitation, the Securities Act of 1933, as amended, the Securities Exchange Act
of 1934, as amended, the rules and regulations promulgated thereunder, and the
requirements of any stock exchange upon which the shares may then be listed, and
shall be further subject to the approval of counsel for the Company with respect
to such compliance.
As a condition to the exercise of a right, the Company may require the
person exercising such right to represent and warrant at the time of any such
exercise that the shares are being purchased only for investment and without any
present intention to sell or distribute such shares if, in the opinion of
counsel for the Company, such a representation is required by any of the
aforementioned applicable provisions of law.
6.07. Headings. Any headings or subheadings in the Plan are inserted
--------
for convenience of reference only and are to be ignored in the construction of
any provisions hereof.
6.08. Governing Law. This Plan shall be construed in accordance with
-------------
the laws of the State of Delaware and, where appropriate, the Internal Revenue
Code of 1986.
-15-
<PAGE>
EXHIBIT A
---------
VOXWARE, INC.
1996 EMPLOYEE STOCK PURCHASE PLAN
ENROLLMENT FORM
_____ Original Application Enrollment Date: __________
_____ Change in Payroll Deduction Rate
_____ Change of Beneficiary(ies)
1. _______________________hereby elects to participate in the Voxware 1996
Employee Stock Purchase Plan (the "Employee Stock Purchase Plan") and
subscribes to purchase shares of the Company's Common Stock in accordance
with the provisions hereof and the Employee Stock Purchase Plan.
2. I hereby authorize payroll deductions from each paycheck in the amount of
% of my Compensation on each payday (1-10%) during the Offering Period in
accordance with the Employee Stock Purchase Plan. (Please note that no
fractional percentages are permitted.)
3. I understand that said payroll deductions shall be accumulated for the
purchase of shares of Common Stock at the applicable purchase price
determined in accordance with the Employee Stock Purchase Plan. I
understand that if I do not withdraw from an Offering Period, any
accumulated payroll deductions will automatically be used to purchase
shares of Common Stock.
4. I have received a copy of the complete Employee Stock Purchase Plan. I
understand that my participation in the Employee Stock Purchase Plan is in
all respects subject to the terms of such Plan. I understand that my
ability to purchase shares of Common Stock is subject to obtaining
stockholder approval of the Employee Stock Purchase Plan.
5. Shares purchased for me under the Employee Stock Purchase Plan should be
issued in the name(s) of (Employee or Employee and spouse only): __________
_____________________________.
6. I understand that if I dispose of any shares received by me pursuant to the
Employee Stock Purchase Plan within 2 years after the Enrollment Date (the
first day of the Offering Period during which I purchased such shares) or
one year after the Exercise Date, I will be treated for Federal income tax
purposes as having received ordinary income at the time of such disposition
in an amount equal to the excess of the fair market value of the shares at
the time such shares were purchased over the price which I paid for the
shares. I HEREBY AGREE TO NOTIFY THE COMPANY IN WRITING WITHIN 30 DAYS
--------------------------------------------------------------
AFTER THE DATE OF ANY DISPOSITION OF MY SHARES AND I WILL MAKE ADEQUATE
-----------------------------------------------------------------------
PROVISION FOR FEDERAL, STATE OR OTHER TAX
-----------------------------------------
-16-
<PAGE>
WITHHOLDING OBLIGATIONS, IF ANY, WHICH ARISE UPON THE DISPOSITION OF THE
------------------------------------------------------------------------
COMMON STOCK. The Company may, but will not be obligated to, withhold from
-------------
my compensation the amount necessary to meet any applicable withholding
obligation including any withholding necessary to make available to the
Company any tax deductions or benefits attributable to sale or early
disposition of Common Stock by me. If I dispose of such shares at any time
after the expiration of the 2-year and 1-year holding periods, I understand
that I will be treated for federal income tax purposes as having received
income only at the time of such disposition, and that such income will be
taxed as ordinary income only to the extent of an amount equal to the
lesser of (1) the excess of the fair market value of the shares at the time
of such disposition over the purchase price which I paid for the shares, or
(2) 15% of the fair market value of the shares on the first day of the
Offering Period. The remainder of the gain, if any, recognized on such
disposition will be taxed as capital gain.
7. I hereby agree to be bound by the terms of the Employee Stock Purchase
Plan. The effectiveness of this election is dependent upon my eligibility
to participate in the Employee Stock Purchase Plan.
8. In the event of my death, I hereby designate the following as my
beneficiary(ies) to receive all payments and shares due me under the
Employee Stock Purchase Plan:
NAME: (Please print)__________________________________________________________
(First) (Middle) (Last)
_________________________________ _________________________________
Relationship
_________________________________
(Address)
Employee's Social
Security Number:
Employee's Name and Address: _________________________________
_________________________________
_________________________________
-17-
<PAGE>
I UNDERSTAND THAT THIS ELECTION SHALL REMAIN IN EFFECT THROUGHOUT SUCCESSIVE
OFFERING PERIODS UNLESS TERMINATED BY ME.
Dated:__________________________ ___________________________________
Signature of Employee
___________________________________
Spouse's Signature
(If beneficiary other than spouse)
-18-
<PAGE>
EXHIBIT B
---------
VOXWARE, INC.
1996 EMPLOYEE STOCK PURCHASE PLAN
NOTICE OF WITHDRAWAL
The undersigned participant in the Offering Period of the Voxware, Inc.
Employee Stock Purchase Plan which began on _____________________ 19_____ (the
"Enrollment Date") hereby notifies the Company that he or she hereby withdraws
from the Offering Period. He or she hereby directs the Company to pay to the
undersigned as promptly as practicable all the payroll deductions credited to
his or her account with respect to such Offering Period. The undersigned
understands and agrees that his or her right for such Offering Period will be
automatically terminated. The undersigned understands further that no further
payroll deductions will be made for the purchase of shares in the current
Offering Period and the undersigned shall be eligible to participate in
succeeding Offering Periods only by delivering to the Company a new Enrollment
Form.
Name and Address of Participant:
___________________________________________
___________________________________________
___________________________________________
Signature:
___________________________________________
Date: _____________________________________
-19-
<PAGE>
EXHIBIT 10.22
SILICON VALLEY BANK
Financing Proposal
VOXWARE, INC.
August 9, 1996 (Modified August 23, 1996)
Type: a) Revolving Line of Credit
----
b) Equipment Term Loan
Amount: a) Up to $2,000,000 (a sublimit for Letters of Credit
------
will be established); increasing to $5,000,000 upon
completion of an IPO and meeting the stepped up financial
covenants.
b) Up to $500,000.
Aggregate Credit initially shall not exceed $2,500,000.
After the IPO and meeting the stepped up financial
covenants, aggregate credit shall not exceed $5,500,000.
Rate: a) Prime + 1.00%; reducing to Prime + 0.00% when IPO
-----
is completed.
b) Prime + 1.00%.
Fee: a) 0.50% per annum.
----
b) None.
Availability: a) 12 months from commitment date.
-------------
b) Initial advance will be funded at one time to finance
equipment purchased during Fiscal 1996. This initial
advance will be termed-out over a 36 month period. A 9
month draw period will be made available to finance
equipment purchases during Fiscal 1997. At the end of the
draw period, the then outstanding balance will be termed-
out over a 36 month period.
Advance Rate: a) (1) Up to $500,000 without any borrowing formula
------------
(available through December 31, 1996); (2) 60% of the next
6 months Contractual Payments due from Netscape; (3) 95%
against pledged cash; plus (4) 80% against eligible billed
domestic accounts receivable.
Eligible Accounts Receivable will include those accounts
outstanding 90 days or less from invoice date subject to
certain exclusions for foreign, contra,
related/intercompany, and unbilled accounts, retentions
and cross agings over 50%. Accounts owing from one
account debtor, TO THE EXTENT they exceed 25% of the total
eligible Accounts Receivable outstanding, will also be
ineligible.
<PAGE>
Voxware, Inc.
August 9, 1996 (Modified August 23, 1996)
Page 2
(b) (1) Advances up to, but not to exceed 50% of the
invoice price excluding freight, taxes and other soft
costs for fixed assets purchased during Fiscal 1996; (2)
Advances up to, but not to exceed 100% of the Invoice
price excluding freight, taxes and other soft costs for
fixed assets purchased after June 30, 1996. No more than
25% of the line can be used to finance Software purchases.
And, no more than 30% of the line can finance Tenant
Improvements.
Repayment: a) Principal is due at maturity. Interest to be paid
---------
monthly.
b) Each loan will reduce over 36 months in level
principal payments after the draw period. Interest to be
paid monthly.
Collateral: UCC-1 Financing Statement on all corporate assets.
----------
COVENANTS: Tested Monthly
- --------- --------------
The following are based on the currently available
information and may need to be modified based upon the
Bank's receipt of a Balance Sheet forecast.
Liquidity: Minimum Quick Ratio of 1.50x. Upon completion of IPO,
---------
Minimum Quick Ratio covenant will be increased to 2.00x.
Calculated as follows: Cash plus marketable securities
plus accounts receivable divided by Current Liabilities.
Tangible Net Worth: Minimum $2,000,000. Upon completion of IPO, Minimum
------------------
Tangible Net Worth covenant will be increased to 90% of
the net proceeds of the IPO.
Calculated as follows: Shareholders' Equity plus debt
formally subordinated to the Bank less any intangible
assets.
Leverage: Maximum of 1.00x.
--------
Calculated as follows: Total Liabilities less debt
formally subordinated to the Bank divided by Tangible Net
Worth.
Profitability: To be discussed.
-------------
2
<PAGE>
Voxware, Inc.
August 9, 1996 (Modified August 23, 1996)
Page 3
REPORTING:
- ---------
(1) If a public reporting company, audited financial statement and Form
10-K within 5 days of filing with Securities and Exchange Commission
(SEC). If a private company, audited financial statements within 90
days of fiscal year end.
(2) If a public reporting company, Compliance Certificate/1/ and Form 10-Q
within 5 days of filing 10-Q with SEC. If a private company, monthly
financial statements and Compliance Certificates within 30 days of
month end.
(3) If borrowing under the revolving line of credit. Monthly Accounts
Receivable Agings, Accounts Payable Agings and Borrowing Base
Certificate/1/ within 20 days of month end.
OTHER:
- -----
(1) BORROWER will maintain its primary banking relationship at SILICON
VALLEY BANK.
(2) Examination of Company's A/R by an agent of the Bank at Company's
expense.
(3) Subject to further due diligence and to the Bank's formal approval.
(4) Copy of the Netscape Agreement evidencing Contractual Obligations.
(5) Proposal to expire September 5, 1996.
The proposed terms and conditions outlined above are furnished for discussion
purposes only and do not constitute an offer, agreement, or commitment to lend.
The actual terms and conditions upon which the Bank might extend credit are
subject to completion of due diligence with results satisfactory to the Bank,
committee approval, satisfactory completion and execution of definitive loan
documentation and such other terms and conditions as are determined by the Bank.
If these general terms and conditions meet with your approval, please indicate
your acceptance below and return this proposed term sheet to me with a good
faith deposit of $2,500 payable to Silicon Valley Bank. The deposit, less out-
of-pocket expenses, will be returned to you in the event the Bank fails to
provide a commitment letter with substantially the same terms and conditions.
At closing the good faith deposit, less out-
- ------------------------
/1/ Compliance Certificate and Borrowing Base Certificate are Bank forms.
3
<PAGE>
Voxware, Inc.
August 9, 1996 (Modified August 23, 1996)
Page 4
of-pocket expenses, will be applied to the commitment fee. We look forward to
your favorable reply and to a mutually rewarding relationship.
Agreed and Accepted
by: Voxware, Inc.
_______________________
Name:
Title:
4
<PAGE>
EXHIBIT 11
VOXWARE, INC.
COMPUTATION OF PER SHARE EARNINGS
<TABLE>
<CAPTION>
YEAR ENDED
JUNE 30, 1996
-------------
<S> <C>
Net loss......................................................... $(2,867,312)
===========
Weighted average shares outstanding.............................. 7,129,377
Incremental shares considered outstanding (1).................... 1,574,824
-----------
Shares used in computing pro forma net loss per share............ 8,704,201
===========
Pro forma net loss per share..................................... $ (0.33)
===========
</TABLE>
- ----------------
(1) Pursuant to the requirements of the Securities and Exchange Commission,
stock, stock options and warrants issued by the Company during the twelve
months immediately preceding the initial public offering have been included
in computing pro forma net loss per share as if they were outstanding for
all periods using the treasury stock method.
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our report
and all references to our firm included in or made part of this registration
statement.
/s/ Arthur Andersen LLP
Arthur Andersen LLP
Philadelphia, Pa.,
September 19, 1996
