United States
Securities and Exchange Commission
Washington, D. C. 20549
Form 10-QSB
{ X } Quarterly Report Pursuant to Section 13 or 15 (d) of the Securities
Exchange Act of 1934 for the Period Ended September 30, 1999.
or
{ } Transition Report Pursuant to Section 13 or 15 (d) of the Securities
Exchange Act of 1934 for the Transition Period From _____________to
_____________
Commission File Number 33-92894
--------
PREFERRED VOICE, INC.
Delaware 75-2440201
------------------------------ --------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
6500 Greenville Avenue
Suite 570
Dallas, TX 75206
- ------------------------------- ---------------------------
(Address of Principal Executive (Zip Code)
Offices)
(214) 265-9580
------------------------------
(Registrant's Telephone Number,
including area code.)
Not Applicable
------------------------------
(Former name, Former Address and
Former Fiscal year, if changed since last report.)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter periods that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes No X
---- ----
Applicable Only to Corporate Issuers
Indicate the number of shares outstanding of each of the issuer's classes of
Common Stock, as of the latest practical date.
Common Stock, $ 0.001 Par Value - 13,103,879 shares as of December 31, 1999.
Transitional Small Business Format Yes No X
---- ----
<PAGE>
INDEX
Preferred Voice, Inc.
Part I. Financial Information 1
Item 1. Financial Statements 1
Balance Sheets-September 30, 1999, September 30, 1998
and March 31, 1999. 1
Statements of Operations-Three Months Ended September
30, 1999 and 1998, and Six Months Ended September 30,
1999 and 1998, and for the Year Ended March 31, 1999. 3
Statements of Cash Flows-Six Months Ended September 30,
1999 and 1998 and for the Year Ended March 31, 1999. 4
Notes to Financial Statements - September 30, 1999. 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 15
Part II. Other Information 18
Item 1. Legal Proceedings 18
Item 2. Changes in Securities 18
Item 3. Defaults upon Senior Securities 18
Item 4. Submission of Matters to a Vote of Security Holders 18
Item 5. Other Information 18
Item 6. Exhibits and Reports on Form 8-K 19
Signatures 20
<PAGE>
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
Preferred Voice, Inc.
Balance Sheets
September 30, 1999 and 1998 and March 31, 1999
<TABLE>
<CAPTION>
<S> <C> <C> <C>
September 30, September 30, March 31,
1999 1998 1999
Assets (Unaudited) (Unaudited) (Audited)
Current Assets:
Cash and Cash Equivalents $ 161,699 $ 494 $ 41,750
Accounts Receivable, net of allowance 284,721 -0- 860
for doubtful accounts of $ -0-, $-0-
and $-0- respectively
Employee Receivables 583 64 2,500
------------------- ------------------- ------------------
Total Current Assets $ 447,003 $ 558 $ 45,110
------------------- ------------------- ------------------
Property and Equipment:
Computer Equipment $ 274,129 $ 142,236 223,046
Furniture and Fixtures 24,495 16,934 16,934
Office Equipmentre 10,393 10,728 12,493
Computer Equipment 248,220 136,032 190,063
LESS: Accumulated Depreciation (217,557) (93,737) (161,049)
------------------- ------------------- ------------------
Net Property and Equipment $ 339,680 $ 212,192 $ 281,487
------------------- ------------------- ------------------
Other Assets:
Deposits $ 85,114 $ 81,012 $ 81,535
Prepaid Expenses 761,018 761,018 761,018
------------------- ------------------- ------------------
Total Other Assets $ 846,132 $ 842,030 $ 842,553
------------------- ------------------- ------------------
Total Assets $ 1,632,815 $ 1,054,780 $1,169,150
=================== =================== ==================
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
September 30, September 30, March 31,
1999 1998 1999
Liabilities and Stockholder's Deficit (Unaudited) (Unaudited) (Audited)
Current Liabilities:
Accounts Payable $ 325,573 $ 351,556 $ 363,834
Accrued Operating & Vacation Expenses 25,237 51,301 19,611
Accrued Payroll and Related Tax 158,109 137,637 226,755
Accrued Interest Payable 261,034 289,289 248,967
Notes Payable 120,866 662,866 103,866
Notes Payable-Related Parties 100,000 50,000 100,000
------------------- ------------------- -------------------
Total Current Liabilities $ 990,819 $ 1,542,649 $ 1,063,033
------------------- ------------------- -------------------
Long Term Debt:
Notes Payable-Related Parties $ -0- $ 590,946 $ 590,946
Deferred Gain on Sale-Leaseback Transaction -0- 136,243 -0-
Long-Term Debt, Net Of Current Maturities -0- -0- 253,000
------------------- ------------------- -------------------
Total Long Term Debt $ -0- $ 727,189 $ 843,946
------------------- ------------------- -------------------
Commitments and Contingencies (Note H)
Stockholders Deficit:
Common Stock, $0.001 par value
20,000,000 shares authorized;
shares issued 11,440,990, 7,679,574
and 9,695,681 respectively $ 11,436 $ 7,679 $ 9,695
Additional Paid In Capital 6,464,620 4,365,586 5,192,033
Accumulated Deficit (5,832,192) (5,586,455) (5,937,689)
Treasury Stock - at cost (1,868) (1,868) (1,868)
------------------- ------------------- -------------------
Total Stockholder Deficit $ 641,996 $ (1,215,058) $ (737,829)
------------------- ------------------- -------------------
Total Liabilities and Stockholder Deficit $ 1,632,815 $ 1,054,780 $ 1,169,150
=================== =================== ===================
</TABLE>
<PAGE>
Preferred Voice, Inc.
Statements of Operations
For The Three Months Ended September 30, 1999 and 1998
And For the Six Months Ended September 30, 1999 and 1998
And For the Year Ended March 31, 1999
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
Three Months Ended Six Months Ended
September 30, September 30, September 30, September 30, March 31,
1999 1998 1999 1998 1999
(Unaudited) (Unaudited) (Unaudited) (Unaudited) (Audited)
-------------- ---------------- ---------------- ----------------- ----------------
Sales $ 227,471 $ - $ 822,645 $ - $ 180,383
Cost of Sales 91,167 415 136,082 415 15,033
-------------- ---------------- ---------------- ----------------- ----------------
Gross Profit (loss) $ 136,304 $ (415) $ 686,563 $ (415) $ 165,350
-------------- ---------------- ---------------- ----------------- ----------------
Costs and Expenses:
General & Administrative 355,992 119,530 589,167 321,053 768,024
Interest Expense 5,450 55,896 21,890 106,724 176,752
-------------- ---------------- ---------------- ----------------- ----------------
Total Costs and Expenses $ 361,442 $ 175,426 $ 611,057 $ 427,777 $ 944,776
-------------- ---------------- ---------------- ----------------- ----------------
Gain/(Loss) Before Income Tax $(225,138) $(175,841) $ 75,506 $ (428,192) $ (779,426)
Provision for Income Tax -0- -0- -0- -0- -0-
-------------- ---------------- ---------------- ----------------- ----------------
Loss Before Extraordinary Item $(225,138) $(175,841) $ 75,506 $ (428,192) $ (779,426)
============== ================ ================ ================= ================
Extraordinary Item:
Gain from Extinguishment of
Debt (less applicable income
taxes of -0-)(Note K) 17,935 88,828 29,991 88,828 88,828
Net Loss $ (207,203) $ (87,013) $ 105,497 $ (339,364) $ (690,598)
============== ================ ================ ================= ================
Per Share Amounts:
Gain/(Loss) from Operations $ (0.02) $ (0.03) $ 0.01 $ (0.07) $ (0.11)
Gain from Extinguishment of Debt $ - $ 0.01 $ - $ 0.01 $ 0.01
Net Gain/Loss (Per Share) $ (0.02) $ (0.02) $ 0.01 $ (0.06) $ (0.10)
</TABLE>
<PAGE>
Preferred Voice, Inc.
Statement of Cash Flows
For the Six Months Ended September 30, 1999 and 1998
And For the Year Ended March 31, 1999
<TABLE>
<CAPTION>
<S> <C> <C> <C>
September 30, September 30, March 31,
1999 1998 1999
(Unaudited) (Unaudited) (Audited)
------------------- ------------------- -------------------
Cash Flows from Operating Activities:
Cash Received from customers $ 595,175 $ 5,247 $ 179,510
Cash Paid to suppliers and employees (796,233) (251,188) (500,572)
Interest Paid (4,442) -0- -0-
------------------- ------------------- -------------------
Net Cash used by Operating Activities $ (205,500) $ (245,941) $ (321,062)
------------------- ------------------- -------------------
Cash Flows from Investing Activities:
Capital Expenditures $ (116,801) $ (79,149) $ (151,772)
Proceeds from Sale of Fixed Assets 250 1,300 1,300
------------------- ------------------- -------------------
Net Cash used by Investing Activities $ (116,551) $ (77,849) $ (150,472)
------------------- ------------------- -------------------
Cash Flows from Financing Activities:
Proceeds from Sale of Stock $ 360,000 -0- -0-
Proceeds from Notes Payable 200,000 148,000 351,000
Note Principal Payments (118,000) (6,000) (20,000)
Proceeds from Sale -Leaseback Transaction -0- 100,000 100,000
------------------- ------------------- -------------------
Net Cash provided by Financing Activities $ 442,000 $ 242,000 $ 431,000
------------------- ------------------- -------------------
Net Increase (Decrease) in Cash and
Cash Equivalents $ 119,949 $ (81,790) $ (40,534)
Cash and Cash Equivalents:
Beginning of Period 41,750 82,285 82,284
------------------- ------------------- -------------------
End of Period $ 161,699 $ 495 $ 41,750
=================== =================== ===================
Supplemental Schedule of non-cash investing and
financing activities:
Issuance of Common Stock in
Exchange for Debt $ 1,173,928 $ 1,051,346 $ 1,879,809
------------------- ------------------- -------------------
Total Non-Cash Investing Activities $ 1,173,928 $ 1,051,346 $ 1,879,809
=================== =================== ===================
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
September 30, September 30, March 31,
1999 1998 1999
(Unaudited) (Unaudited) (Audited)
------------------- ------------------- -------------------
Reconciliation of Net Gain/(Loss) to Net
Cash used by Operating Activities:
Net Gain/(Loss) $ 105,497 $ (339,364) $ (690,598)
------------------- ------------------- -------------------
Adjustments to Reconcile Net Loss to Net Cash
used by Operating Activities:
Depreciation $ 58,083 $ 12,832 $ 80,113
Amortization - 2,869 2,869
(Gain) Loss on Sale of Fixed Assets 275 (216) (186)
Changes in Assets and Liabilities:
(Increase) Decrease in Accounts Receivable (283,860) - (860)
(Increase) Decrease in Employee Receivables 1,917 (64) (2,500)
(Increase) Decrease in Deposits (3,579) 3,398 2,875
(Increase) Decrease in Prepaid Expenses - 38,982 38,982
(Increase) Decrease in Deferred Debt Issue Costs - 2,869 -
Increase (Decrease) in Accounts Payable (18,629) 8,244 58,635
Increase (Decrease) in Accrued Expenses (65,204) 24,509 189,608
------------------- ------------------- -------------------
Total Adjustments $ (310,997) $ 93,423 $ 369,536
------------------- ------------------- -------------------
Net Cash used by Operating Activities $ (205,500) $ (245,941) $ (321,062)
=================== =================== ===================
</TABLE>
<PAGE>
Note A - General organization:
Preferred Voice, Inc. (the "Company") is a Delaware corporation
incorporated in 1992. On February 25, 1997, the Company's stockholders approved
changing the name of the Company to better reflect the nature of the Company's
business. The Company commenced business on May 13, 1994, and was in the
development stage until August 1, 1995. The Company provides products and
services to the telecommunications industry throughout the United States and
maintains its principal offices in Dallas, Texas. The Company has not presented
financial statements for the period from incorporation in 1992 through May 13,
1994, as the Company did not begin its planning and organizational activities
until May 13, 1994. The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from these estimates. Certain
prior year amounts have been reclassified for comparison purposes.
Note B - Summary of significant accounting policies:
Cash and cash equivalents
For purposes of reporting cash flows, cash and cash equivalents include
amounts due from banks.
Accounts receivable
In the normal course of business, the Company extends unsecured credit to
its customers with payment terms generally 30 days. Because of the credit risk
involved, management has provided an allowance for doubtful accounts which
reflects its opinion of amounts which will eventually become uncollectible. In
the event of complete nonperformance by the Company's customers, the maximum
exposure to the Company is the outstanding accounts receivable balance at the
date of nonperformance.
Depreciation
The cost of property and equipment is depreciated over the estimated useful
lives of the related assets. Depreciation is computed on the straight-line
method for financial reporting purposes and the double declining method for
income tax purposes.
Maintenance and repairs are charged to operations when incurred.
Betterments and renewals are capitalized.
The useful lives of property and equipment for purposes of computing
depreciation are as follows:
Computer equipment 5 years
Furniture and fixtures 5 years
Office equipment 5 years
Software development 3 years
Income taxes
Income taxes are accounted for using the liability method under the
provisions of SFAS 109 "Accounting for Income Taxes".
Fair value of financial instruments
The Company defines the fair value of a financial instrument as the amount
at which the instrument could be exchanged in a current transaction between
willing parties. Financial instruments included in the Company's financial
statements include cash and cash equivalents, trade accounts receivable, other
receivables, other assets,
<PAGE>
notes payable and long-term debt. Unless otherwise disclosed in the notes
to the financial statements, the carrying value of financial instruments is
considered to approximate fair value due to the short maturity and
characteristics of those instruments. The carrying value of long-term debt
approximates fair value as terms approximate those currently available for
similar debt instruments.
Revenue recognition
The Company is engaged as a provider of telecommunication products and
services. Generally, the Company recognizes revenue under the accrual method
when its services and products are provided. During the six month period ended
September 30, 1999, a majority of the Company's revenue consisted of license
fees. A one-time only license fee is paid by customers who purchase the
Company's VIP system. This gives the customer the right to utilize the Company's
software applications on the customer's own equipment. The license fee income
was derived from one major customer and was recognized when the contract became
final. The license fee income was -0-, and $570,000 for the three month and the
six month period ended September 30, 1999, respectively; and $-0- and $-0-for
the three month and the six month period ended September 30, 1998, respectively
and -0- for the period ended March 31, 1999. A one-time only distributor fee is
paid by master distributors in order to obtain distribution rights to the
Company's products and services. The distributor fee income was recognized when
the contract became final. The distributor fee income was $-0- and $25,000 for
the three month and the six month period ended September 30, 1999, respectively;
and $-0- and $-0-for the three month and the six month period ended September
30, 1998, respectively and $170,000 for the period ended March 31, 1999.
Loss per share
The Company adopted the provisions of Statement of Financial Accounting
Standards (SFAS) No. 128, Earnings per Share, during the year ended March 31,
1998. SFAS No. 128 reporting requirements replace primary and fully-diluted
earnings per share (EPS) with basic and diluted EPS. Basic EPS is calculated by
dividing net income (available to common stockholders) by the weighted average
number of common shares outstanding for the period. Diluted EPS reflects the
potential dilution that could occur if securities or other contracts to issue
common stock were exercised or converted into common stock. The adoption of SFAS
128 did not affect per share amounts for 1997 as previously reported.
Loss per share is based on the weighted average number of shares
outstanding of 10,691,809 and 10,007,257 for the three months and six months
ending September 30, 1999, respectively; 6,214,078 and 6,016,107 for the three
months and six months ending September 30, 1998, respectively and 7,205,065 for
the period ending March 31, 1999.
Amortization
Fees and other expenses associated with the issuance of subordinated
convertible debentures are being amortized on the straight-line method over the
term of the debentures beginning in April, 1995. Amortization expense was
$-0-and $-0- for the three months and six months ended September 31, 1999,
respectively; and $200 and $2,869 for the six months and three months ended
September 31, 1998, respectively; and $2,869 for the fiscal year ended March 31,
1999.
Transfers and servicing of financial assets and extinguishment of liabilities
In June 1996, the Financial Accounting Standards Board issued SFAS No. 125,
Accounting for Transfers and Servicing of Financial Assets and Extinguishment of
Liabilities. SFAS No. 125 is effective for transfers and servicing of financial
assets and extinguishment of liabilities occurring after December 31, 1996, and
is to be applied prospectively. This statement provides accounting and reporting
standards for transfers and servicing of financial assets and extinguishment of
liabilities based on consistent application of a financial-components approach
that focuses on control. It distinguishes transfers of financial assets that are
sales from transfers that are secured borrowings. Adoption of this statement did
not have a material impact on the Company's financial position, results of
operations or liquidity.
<PAGE>
Impairment of long-lived assets and long-lived assets to be disposed of
The Company adopted the provisions of SFAS No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of, on
April 1, 1997. This statement requires that long-lived assets and certain
identified intangibles be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. Recoverability of assets to be held and used is measured by a
comparison on the carrying amount of an asset to future net cash flows expected
to be generated by the asset. If such assets are considered to be impaired, the
impairment to be recognized is measured by the amount by which the carrying
amount of the assets exceed the fair value of the assets. Assets to be disposed
of are reported at the lower of the carrying amount or fair value less costs to
sell. Adoption of this statement did not have a material impact on the Company's
financial position, results of operations or liquidity.
Comprehensive income
The Company adopted the provisions of SFAS No. 130, Reporting Comprehensive
Income on April 1, 1998. SFAS No. 130 requires that an enterprise report, by
major components and as a single total, the change in its net assets during the
period from nonowner sources. Adoption of this statement did not have a material
impact on the Company's financial position, results of operations or cash flows,
as the Company did not have any changes in net assets resulting from nonowner
sources during the periods covered by the accompanying financial statements.
Segments of an enterprise and related information
The Company adopted the provisions of SFAS No. 131, Disclosure about
Segments of an Enterprise and Related Information on April 1, 1998. SFAS No. 131
establishes annual and interim reporting standards for an enterprise's operating
segments and related disclosures about its products, services, geographic areas
and major customers. Adoption of this statement did not have a material impact
on the Company's financial position, results of operations or cash flows, as any
effects are limited to the form and content of its disclosures.
New accounting pronouncements
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
Accounting for Derivative Instruments and Hedging Activities. SFAS No.1-33
requires that an entity recognize all derivatives as either assets or
liabilities in the statement of financial position and measure those instruments
at fair value. Adoption of this statement is not expected to impact the
Company's financial position, results of operations or cash flows. This
statement is effective for fiscal years beginning after June 15, 1999.
Note C - Notes payable:
Notes payable consist of the following at September 30, 1999 and 1998, and March
31, 1999:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Sept. 30, Sept. 30, March 31,
1999 1998 1999
-------------- -------------- -------------
Outside interests $ 50,866 $ 50,866 $ 50,866
Related parties 0 640,946 690,946
-------------- -------------- -------------
$ 50,866 $ 691,812 $ 741,812
============== ============== =============
</TABLE>
Note payable to outside interests include:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Sept. 30, Sept. 30, March 31,
1999 1998 1999
----------- ----------- ------------
Note payable, Brite Voice Systems, Inc., dated January 31,
1997. Note is unsecured and payable in monthly installments of
$8,112, including interest at the rate of prime + 2 (8.5% at
March 31, 1999 and 1998) through January 1, 1998. $50,866 $50,866 $50,866
=========== =========== ============
</TABLE>
<PAGE>
The note to Brite Voice Systems, Inc. is currently in dispute and beginning
April 1996, the Company has discontinued the accrual of interest expense.
Interest expense charged to operations related to the note payable to outside
parties was $-0- for each of the three month and six month periods ended
September 30, 1999 and 1998, and March 31, 1999 respectively.
Notes payable to related parties include:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Sept. 30, Sept. 30, March 31,
1999 1998 1999
------------ ------------ -------------
Notes payable to Pegasus Settlement Trust (PST), a stockholder of the
Company. The beneficiary and a trustee of PST are officers of the
Company. The notes are unsecured and bear interest at rates ranging from
9% to 10% and prime rate (8.5% at March 31, 1999 and 1998) with the
principal and accrued interest payable at maturity on various dates
through December 31, 1998. Subsequent to the balance sheet date, the
notes were converted into 787,928 shares of common stock on April 6, 1999. 0 590,946 590,946
Notes payable to a stockholder of the Company. The notes are unsecured
and bear interest at 10% per annum with the principal and interest due
on various maturity dates through October 16, 1999. Subsequent to the
balance sheet date, the notes were paid in full on December 30, 1999. 100,000 50,000 100,000
------------ ------------ -------------
Total related party notes payable $ 100,000 $640,946 $ 690,946
Less current portion 100,000 640,946 100,000
------------ ------------ -------------
Long-term portion $ 0 $ 0 $ 590,946
============ ============ =============
</TABLE>
Related party notes payable that were converted into common stock
subsequent to the balance sheet date have been classified as long-term
liabilities in the accompanying 1999 balance sheet.
Interest expense charged to operations related to the related party notes
payable was $2,500 and $5,985 for the three months and the six months ended
September 31, 1999, respectively; and $15,093 and $29,867 for the three months
and the six months ended September 31, 1998, respectively; $64,199 for the
fiscal year ended March 31, 1999.
Note D - Long-term debt:
Long-term debt consisted of the following at September 30, 1999 and
1998, and March 31, 1999:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Sept. 30, Sept. 30, March 31,
1999 1998 1999
----------- ------------ ------------
Notes payable dated various dates from May 20, 1996 through
September 9, 1996, secured by common stock with principal and
accrued interest due at maturity on various dates through
September 9, 1998. 216,250 warrants to purchase shares of common
stock at $3.00 per share expiring on various dates through
September 9, 1998 were issued to the note holders. These notes
were converted into 1,555,458 shares of common stock on various
dates through June 30, 1999. 60,000 514,000 60,000
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Notes payable to Bisbro Investments Co., Ltd. The notes are
unsecured and bear interest at 10% per annum with the
principal and interest due on various maturity dates through
January 5, 2000. These notes are convertible into shares of
common stock at a conversion price of $.50 per share.
Subsequent to the balance sheet date, the notes were converted
into 120,000 shares of common stock on June 18, 1999. 0 0 60,000
Notes payable to Universal Asset Fund, Ltd. The notes are
unsecured and bear interest at 10% per annum with the principal
and interest due on various maturity dates through November 25,
1999. These notes are convertible into shares of common stock at a
conversion price of $.50 per share. Subsequent to the balance
sheet date, the notes were converted into 80,000 shares of common
stock on June 18, 1999. 0 0 40,000
Notes payable to Capital Growth Fund, Ltd. The notes are unsecured
and bear interest at 10% per annum with the principal and
interest due on various maturity dates through August 14, 1999.
These notes are convertible into shares of common stock at a
conversion price of $.50 per share. Subsequent to the balance
sheet date, the notes were converted into 186,000 shares of
common stock on June 18, 1999. 0 98,000 93,000
Note payable to Equity Communication. This note is unsecured,
non-interest bearing, and due upon demand. 10,000 0 10,000
Note payable to an individual. This note is unsecured and bears
interest at 12% per annum with the principal and interest due on
March 30, 2000. This note is convertible into shares of common
stock at a conversion price of $1.00 per share. This note was
paid in full on June 16, 1999. 0 0 43,000
----------- ------------ --------------
$ 70,000 $ 612,000 $306,000
Less current portion 70,000 612,000 53,000
----------- ------------ --------------
Total $ 0 $ 0 $253,000
=========== ============ ==============
</TABLE>
Current maturities of long-term debt obligations that were converted into
common stock subsequent to the balance sheet date have been classified as
long-term liabilities in the accompanying 1999 balance sheet.
Interest expense charged to operations related to the long term debt was
$2,700 and $5,400 for the three months and the six months ended September 31,
1999, respectively; and $23,121 and $35,031 for the three months and the six
months ended September 31, 1998, respectively; $112,553 for the fiscal year
ended March 31, 1999
Note E - Common stock:
Stock purchase warrants
At September 30, 1999, the Company had outstanding warrants to purchase
2,355,500 shares of the Company's common stock at prices which ranged from $0.50
per share to $4.00 per share. The warrants are exercisable at any time and
expire on dates ranging from June 25, 2000 to March 31, 2004. At September 30,
1999, 2,355,500 shares of common stock were reserved for that purpose.
<PAGE>
Common stock reserved
At September 30, 1999, shares of common stock were reserved for the
following purposes:
Exercise of stock warrants 2,355,500
Exercise and future grants of stock
options and stock appreciation rights 423,000
--------------
2,778,500
==============
Note F - Income taxes:
The Company uses the liability method of accounting for income taxes under
the provisions of Statement of Financial Accounting Standards No. 109. Under the
liability method, a provision for income taxes is recorded based on taxes
currently payable on income as reported for federal income tax purposes, plus an
amount which represents the change in deferred income taxes for the year.
Deferred income taxes are provided for the temporary differences between
the financial reporting basis and the tax reporting basis of the Company's
assets and liabilities. The major areas in which temporary differences give rise
to deferred taxes are accounts receivable, accrued liabilities, start-up
expenditures, accumulated depreciation, and net operating loss carryforwards.
Deferred income taxes are classified as current or noncurrent depending on the
classification of the assets and liabilities to which they relate. Deferred
income taxes arising from temporary differences that are not related to an asset
or liability are classified as current or noncurrent depending on the years in
which the temporary differences are expected to reverse.
The provision for income taxes consists of:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Sept. 30, Sept. 30, March 31,
1999 1998 1999
--------------- ---------------- ---------------
Current income taxes $ 0 $ 0 $ 0
Change in deferred income taxes due
to temporary differences $ 0 $ 0 $ 0
--------------- ---------------- ---------------
$ 0 $ 0 $ 0
=============== ================ ===============
</TABLE>
Deferred tax (liabilities) assets consist of the following:
<TABLE>
<CAPTION>
<S> <C> <C>
1999 1998
--------------- ----------------
Accumulated depreciation $ (30,000) $ (22,000)
--------------- ----------------
Gross deferred tax liabilities $ (30,000) $ (22,000)
--------------- ----------------
Accounts receivable $ 0 $ 29,000
Accrued liabilities 2,000 2,000
Start-up expenditures 7,000 18,000
Net operating loss carryforward 2,010,000 1,727,000
--------------- ----------------
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
Gross deferred tax assets $ 2,019,000 $ 1,776,000
Valuation allowance (1,989,000) (1,754,000)
--------------- ----------------
Net deferred tax assets $ 30,000 $ 22,000
--------------- ----------------
$ 0 $ 0
=============== ================
1999 1998
--------------- ----------------
The increases in the deferred tax valuation
allowance are as follows: $ 235,000 $ 128,000
=============== ================
</TABLE>
The Company has recorded a valuation allowance amounting to the entire
deferred tax asset balance because of the Company's uncertainty as to whether
the deferred tax asset is realizable. However, if the Company is able to utilize
the deferred tax asset in the future, the valuation allowance will be reduced
through a credit to income.
The Company has available at March 31, 1999, a net operating loss
carryforward of approximately $5,910,000 which can be used to offset future
taxable income through the year 2019.
Note G - Stock option plan:
On November 1, 1994, the Company adopted a stock award and incentive plan
which permits the issuance of options and stock appreciation rights to selected
employees and independent contractors of the Company. The plan reserved 450,000
shares of common stock for grant, of which 27,000 shares have been purchased,
and provides that the term of each award be determined by the committee of the
Board of Directors (Committee) charged with administering the plan.
Under the terms of the plan, options granted may be either nonqualified or
incentive stock options, and the exercise price, determined by the Committee,
may not be less than the fair market value of a share on the date of grant.
Stock appreciation rights granted in tandem with an option shall be exercisable
only to the extent the underlying option is exercisable and the grant price
shall be equal to the exercise price of the underlying option. At September 30,
1999, options to purchase 412,750 shares at exercise prices of $0.20 to $1.50
per share had been granted. No stock appreciation rights had been granted at
September 30, 1999.
Note H - Commitments and contingencies:
Lease commitments
The Company has entered into a non-cancelable operating lease for office
facilities under a lease arrangement commencing on February 3, 1998 and expiring
on December 31, 2003.
Minimum future rentals to be paid on non-cancelable leases as of June 30,
1999 for each of the next five years and in the aggregate are:
Year ending
March 31, Amount
---------------- -----------------
2000 $ 45,062
2001 101,060
2002 103,540
2003 104,856
2004 80,364
=================
$ 434,882
<PAGE>
Total rent expense charged to operations was $14,352 and $28,011 for the
three months and the six months ended September 31, 1999, respectively; and
$6,846 and $13,537 for the three months and the six months ended September 31,
1998, respectively; $27,416 for the fiscal year ended March 31, 1999.
Note I - Barter transaction:
On June 3, 1996, the Company entered into a media purchase agreement for
the promotion of its products and services with Proxhill Marketing, Ltd.
(Proxhill). Under the terms of the agreement, the Company committed to purchase
$1,200,000 of media advertising time in exchange for 200,000 shares of common
stock at a value of $4.00 per share, and $400,000 in cash. The agreement is for
a period of five years. For each purchase of media advertising time, the Company
will receive a barter credit equal to 66.67% of the transaction value with the
remaining balance payable in cash. A prepaid barter credit in the amount of
$761,018 is included in other assets in the accompanying balance sheet as of
September 30, 1999 and 1998 and March 31, 1999, respectively. In connection with
this agreement, the Company issued to Proxhill 50,000 warrants to purchase the
Company's common stock at a price of $4.00 per share. The options expire June 3,
2001.
Note J - Sale - leaseback transaction:
The Company entered into a sale-leaseback arrangement during each of the
years ended March 31, 1999 and 1998. Under these arrangements, the Company sold
telecommunications equipment and leased it back for a period of three years.
Both leases were originally accounted for as operating leases. The gain of
$66,119 and $70,124 realized in these transactions had originally been deferred
and amortized to income in proportion to rental expense over the term of the
lease. In November 1998, the Company agreed to issue 579,971 shares of common
stock to the lessor in exchange for the release of the liability for all future
and past due lease payments.
Note K - Extinguishment of debt:
During the periods ended September 30, 1999 and 1998 and March 31, 1999,
the Company negotiated settlements of amounts owed to certain of its vendors and
employees. The negotiated settlements resulted in a reduction of the Company's
accounts payable and accrued operating expenses in the amount of $17,935 and
$29,991 for the three months and the six months ended September 30, 1999,
respectively; and $88,828 and $88,828 for the three months and the six months
ended September 30, 1998, respectively; and $88,828 for the fiscal year ended
March 31, 1999 which has been reported as an extraordinary item in the
accompanying statements of operations.
Note L - Going concern:
The Company has incurred substantial operating losses to date. In June
1995, the Company issued 600,000 shares of its common stock to Star Resources,
Inc. (Star), a public company, for $24,000. The Company then filed a
registration statement with the Securities and Exchange Commission to allow Star
to distribute to its stockholders the 600,000 shares of common stock. Upon
completion of the Star distribution, the Company became a separate public
company. The Company has raised, and intends to continue to raise, additional
capital through subsequent offerings of its common stock in over-the-counter
securities markets.
On June 3, 1999, the Company entered into a software license agreement with
KMC Telecom Holdings, Inc. (KMC). Under the terms of the agreement, KMC paid the
Company an initial license fee of $570,000. The agreement is for a period of 10
years and provides for a total of 39 installations and grants KMC the ability to
add up to 81 additional installations. The agreement also calls for KMC to pay
the Company a monthly license fee ranging from $1,000 to $3,500 per month for
each software and hardware installation beginning in the 25th month after each
installation. The Company anticipates having the initial 39 installations
completed by June 2000 which would obligate KMC to pay the Company monthly
license fees of $131,500, subject to certain adjustments, beginning July 2002
and continuing through July 2009.
On July 1, 1999 the Company closed a private offering of 320,000 shares of
the Company's $.001 par value common stock for total proceeds of $400,000.
<PAGE>
In view of these matters, realization of a major portion of the assets in
the accompanying balance sheet is dependent upon continued operations of the
Company, which in turn is dependent upon the Company's ability to meet its
financing requirements, and the success of its future operations. Management
believes that actions presently being taken to meet the Company's financial
requirements will provide the Company the opportunity to continue as a going
concern.
<PAGE>
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
This report contains forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended (the "Securities Act"),
and Section 21E of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"). These forward-looking statements are subject to certain risks
and uncertainties that could cause actual results to differ materially from
historical results or anticipated results, including those set forth under
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and elsewhere in, or incorporated by reference into this report.
Overview
The Company integrates and markets speech recognition technologies to
be used by telecommunications providers, to enhance a provider's overall package
of voice services through voice dialing. The Company's key product, the Voice
Integrated Platform ("VIP System" or the "System"), successfully integrates the
Philips Speech Pearl Natural Dialog, Philips Speech Processing's speech
recognition technology, with the Company's proprietary software application. The
System is designed to utilize standard industrial grade hardware and a
rack-mountable microprocessor-based computing system, with a Windows NT
operating system. The System has been developed for collocation at the
telecommunication provider's central office switch. With the VIP System, a
provider's subscriber can use natural conversational speech to access a variety
of enhanced service applications. The Company believes that the Philips speech
recognition technology that its System incorporates is superior to other similar
technologies and that its VIP System's enhanced services will become standard
telephony options offered by telecommunications providers in the 21st century.
The Company was incorporated in Delaware in 1992 under the name of
Direct Connect, Inc. and began operations in the telecommunications industry
under the name of Preferred Telecom, Inc. in April 1995. The Company began as a
long distance telecommunications carrier with a variety of enhanced services,
however, in February 1997 the Company sold to Brite Voice Systems, Inc.
("Brite") a number of assets, including the Company's end-user customer base.
The Company elected to sell these assets because it believed that the growth
prospects of this aspect of the business were limited. The Company has since
focused on enhanced telephone services that feature speech recognition
technology, believing that there are larger market opportunities in offering
enhanced speech recognition services to telecommunications providers.
From June of 1997 until April of 1998, all corporate activities were
focused on the development and testing of services to be deployed to the public
through a platform the Company calls the VIP System. In late April 1998 the
first operational VIP System was collocated in a switch environment. The initial
sales activity focused its efforts on introducing the concept of voice dialing
to prospective customers to gauge consumer response with respect to pricing,
features and viability of the services provided.
In December of 1998, the Company realized that the resources necessary
to sell and market its services directly to subscribers would require extensive
amounts of working capital and began researching venues which already had
inherent customer bases. The first distribution channel that the Company
explored was master distributors in various cities and states around the
country. The Company believes this will be a source of customer addition once
the Company is in the position to locate its VIP Systems in the master
distributor marketing areas. The second is through revenue sharing directly with
incumbent local exchange carriers ("ILECs"), wireless communications carriers
("WCCs"), and competitive local exchange carriers ("CLECs"). This avenue is
extremely attractive to the Company because these entities already have customer
bases and the infrastructure to service large number of customers. In June of
1999, the Company announced its revenue sharing marketing plan to wireline and
wireless telecommunications providers providing services such as The Smart
Linesm, Emma-The Perfect Receptionistsm, ** Talksm, My One Special Number sm ,
and Safety*Talksm.
The Company is at a very early stage of implementing its business plan. It
is subject to risks inherent in the establishment and deployment of technology
with which the consumer has very little experience. As voice recognition becomes
more prevalent in everyday life, such as in computer programs, reservation
systems and
<PAGE>
telecommunications information systems, the public will be more apt to
accept and utilize its many features. In order for the Company to succeed it
must secure adequate financial and human resources to meet its requirements;
establish and maintain relationships with telecommunications providers;
facilitate integration with various switch environments; establish a lead time
for delivery of hardware; achieve user acceptance for its services; generate
reasonable margins on its services; deploy and install VIP Systems on a timely
and acceptable schedule; respond to competitive developments; mitigate risk
associated with obtaining patents and copyrights and other protections of
intellectual property; and continually update its software to meet the needs of
end users. Failure to achieve these objectives could adversely effect the
Company's business, operating results and financial condition.
Results of Operations
For the six month period ended September 30,1999, the Company recorded
net gain of $105,497, or $.01 per share compared to a net loss of $339,364,or
$.06 per share for the six month period ended September 30, 1998. For the three
month period ended September 30, 1999, the Company recorded a net loss of
$207,203, or $.02 per share compared to a net loss of $87,013, or $.02 per share
for the three month period ended September 30, 1998.
Total Revenue
Total revenue for the six months period ended September 30, 1999, was
$822,645 compared to -0- for the six month period ended September 30, 1998. Of
the revenue booked in the six months period ended September 30, 1999, 69% was
generated from one-time licensing fees to KMC Telecom Holdings, 24% was from
sales of its VIP systems, 4% from customer tests, 2.5% from master distributor
fees for specific marketing rights, and the remaining.5% from service fees for
the Company's "Emma the Perfect Receptionist" and "Smart Line". Total revenue
for the three months period ended September 30, 1999 was $227,471 compared to
- -0- for the three month period ended September 30, 1998. Of the revenue booked
in the three months period ended September 30, 1999, 86% was from sales of the
Company's VIP systems, and 14% from customer tests. For the fiscal period ended
March 31, 1999, revenues of $180,383 were generated 94% from master distributor
fees and the remaining 6% from service fees for the Company's end user
customers. The Company does not anticipate significant revenue growth from
either direct sales to ILECs and WCCs as negotiated with KMC or through master
distributorships. However the Company does anticipate significant revenue growth
in the second half of the year 2000 from its revenue sharing agreements and as
more ILEC, WCC and CLEC agreements are completed.
Cost of Sales
Cost of sales for the six months period ended September 30, 1999 was
$136,082 compared to $415 for the six months period ended September 30, 1998.
Cost of sales for the three months period ended September 30, 1999 was $91,167
compared to $415 for the three months period ended September 30, 1998. For the
six months period ended September 30, 1999, 59% of costs were for VIP system
hardware purchased by KMC, 23% direct costs associated with the closing of the
KMC licensing agreement, and 18% for network infrastructure such as
collocations, connectivity, system access and long distance.
Selling, General and Administrative
Selling, general and administrative expenses for the six months period
ended September 30, 1999 was $589,167 compared to $321,053 for the six months
period ended September 30, 1998. Selling, general and administrative expenses
for the three months period ended September 30, 1999 was $355,992 compared to
$119,530 for the three months period ended September 30, 1998.The increase in
the period ended June 30, 1998 and the same period in 1999 was primarily due
from the staffing increases and increased marketing efforts of the Company's
revenue sharing program to wireline and wireless carriers.
The Company expects that selling, general and administrative expenses
will increase significantly as it begins its full deployment of its sales and
marketing plan. To date the Company infrastructure has focused on system
development and now must support its sales, marketing and customer service
departments, as such, the Company believes fiscal 2000 will experience increases
in cost related to increased headcount, lease space, and general overhead.
<PAGE>
Extraordinary Items
The Company has recognized income from the extinguishment of debt of
$29,991 and $88,828 respectively for the six months period ended September 30,
1999 and 1998. For the three months period ended September 30, 1999 and 1998,
the Company recognized income from extinguishment of debt of $17,935 and
$88,828, respectively.
Liquidity and Capital Resources
The Company's cash and cash equivalents at September 30, 1999 were
$161,699 an increase of $119,949 from $41,750 at March 31, 1999. The improved
liquidity was due primarily to the proceeds received on the licensing of the
Company's VIP application software to KMC Telecom Holdings, Inc. (KMC). Under
the terms of the agreement, KMC paid the Company an initial license fee of
$570,000. The agreement is for a period of 10 years and provides for a total of
39 installations and grants KMC the ability to add up to 81 additional
installations. The agreement also calls for KMC to pay the Company a monthly
license fee ranging from $1,000 to $3,500 per month for each software and
hardware installation beginning in the 25th month after each installation. The
Company anticipates having the initial 39 installations completed by June 2000
which would obligate KMC to pay the Company monthly license fees of $131,500,
subject to certain adjustments, beginning July 2002 and continuing through July
2009.
On July 1, 1999, pursuant to Section 4(2), the Company conducted an
offering of 320,000 shares of the Company's common stock at $1.25 per share
providing the Company with $400,000 working capital.
At September 30, 1999, the Company had $284,721 of accounts receivable which the
Company collected on its credit terms of net 30.
Future Obligations
During the next twelve months, the Company plans, subject to raising
adequate capital, to increase substantially the marketing of its VIP Systems, to
introduce new services, and to continue refining the services it currently
provides. Subject to the Company's ability to fund the cost, management expects
the Company to hire or contract with approximately 40 additional persons during
the next twelve (12) months, primarily to support its expanding marketing
activities and system installations. At February 7, 2000, the Company employed
fifteen 22 employees.
The ability of the Company to raise capital is, in the opinion of
management, the primary constraint on the implementation of its business plan.
Management estimates that during the next twelve (12) months, the Company will
require approximately $3,000,000 of equity and/or long term debt to finance its
costs of marketing, system deployment, and continued refinement of its services.
In addition, the Company will be required to obtain extensions of its current
debt or raise additional funds of approximately $1,000,000 to retire its debt.
There is no assurance that the Company will be able to secure any such financing
or extensions of its current debt.
Year 2000 Compliance
Many currently installed computer systems and software products are
coded to accept only two digit entries in the date code field. These date code
fields will need to accept four digit entries to distinguish 21st century dates
from 20th century dates. As a result, many companies' computer systems and/or
software may need to be upgraded or replaced to comply with such "Year 2000"
requirements. Significant uncertainty exists in the software industry concerning
the potential effects associated with such compliance.
The Company has reviewed its own software products and believes that
there will be no adverse impact with the Year 2000 date change. All of the
Company's products are designed to record, store, and process calendar dates
occurring before and after January 1, 2000 with the same full year accuracy
(i.e. four numeric characters instead of two).
<PAGE>
An impact analysis has been conducted to identify the risk of failure
within the Company's in-house computer systems. The Company believes that there
will be no adverse impact with the Year 2000 date change. However, this risk to
the Company's business relates not only to the Company's computer systems, but
also to some degree to those of the Company's suppliers and customers. The
Company has developed a policy to ensure that all key customers, suppliers and
strategic partners operate and provide Year 2000 compliant systems and software.
The Company is currently collecting certifications from third parties on
compliance. Also, there is a risk that existing and potential customers may not
purchase the Company's products in the future if the computer systems of such
existing or potential customers are adversely impacted by the Year 2000 date
change.
Based on the information to date, the Company has completed its Year
2000 compliance review and made necessary modifications. However, the issue is
complex and no business can guarantee that there will be no Year 2000 problems.
Some commentators have stated that a significant amount of litigation will arise
out of Year 2000 compliance issues, and the Company is aware of a growing number
of lawsuits against other software vendors. Because of the unprecedented nature
of such litigation, it is uncertain to what extent the Company may be affected
by it.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
The Company is not involved in any material legal proceedings.
Item 2. Changes in Securities.
(a) There have been no material changes in securities during the period
(b) There have been no material changes in the class of securities or the
rights of the holders of the registered securities.
(c) Recent Sales of Unregistered Securities
On July 1, 1999, the Company issued 160,000 shares of common stock to Triton
Capital Investments, Ltd. at a purchase price of $1.25 per share for
$200,000.00. On the same day, the Company also issued 160,000 shares of common
stock to JMG Capital Partners, L.P. at a purchase price of $1.25 per share for
$200,000.00.
On September 21, 1999, the Company issued Southwest Texas Telephone a warrant to
purchase 5,000 shares of common stock of the Company at an exercise price of
$1.66 per share on or before September 20, 2000.
None of these transactions involved an underwriter and no underwriting discounts
or commissions were paid. These transactions are exempt from registration under
the Securities Act of 1933 (the "Securities Act") pursuant to Section 4(2) of
the Securities Act.
Item 3. Defaults upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders.
None.
Item 5. Other Information.
None.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
<PAGE>
Exhibit
Number Description of Exhibits
10.1* Subscription Agreement and Letter of Investment Intent of
Triton Capital Investments, Ltd., dated July 1, 1999
10.2* Subscription Agreement and Letter of Investment Intent of
JMG Capital Partners, L.P., dated July 1, 1999
10.3* Second Amendment to Lease between Dallas Office Portfolio,
L.P. as successor in interest to Greenville Avenue
Properties, Ltd. and Preferred Voice, Inc.
10.4** Software License Agreement between Southwest Texas
Telephone Company and Preferred Voice, Inc.(10.28)
10.5** Marketing Agreement between Southwest Texas Telephone
Company and Preferred Voice, Inc. (10.29)
10.6* Warrant Certificate No. 98 issued to Southwest Texas
Telephone Company, dated September 21, 1999
10.7** Software License Agreement between Rural Cellular
Corporation and Preferred Voice, Inc. (10.26)
10.8** Marketing Agreement between Rural Cellular Corporation and
Preferred Voice, Inc. (10.27)
27* Financial Data Schedule
* Filed herewith.
** Filed as an exhibit to the Company's Form 10-KSB for the fiscal year ended
March 31, 1999 (File No. 33-92894) and incorporated herein by reference.
(b) Reports on Form 8-K
None
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PREFERRED VOICE, INC.
February 11, 2000 /s/ G. Ray Miller
- ----------------- -----------------
Date G. Ray Miller
President, Chief Executive Officer and
Chairman of the Board of Directors
(Principal Executive Officer)
February 11, 2000 /s/ Mary G. Merritt
- ----------------- -------------------
Date Mary G. Merritt
Secretary, Treasurer and Vice President
of Finance (Principal Financial Officer)
IMPORTANT
PLEASE READ CAREFULLY BEFORE SIGNING,
SIGNIFICANT REPRESENTATIONS ARE CALLED FOR HEREIN
SUBSCRIPTION AGREEMENT
AND
LETTER OF INVESTMENT INTENT
The undersigned (the "Subscriber") hereby subscribes to purchase from
Preferred Voice, Inc., a Delaware corporation (the "Company") 160,000 shares of
Preferred Voice, Inc. $.001 par value common stock (the "Securities") at a
purchase price of $1.25. A wire transfer to the account of Preferred Voice, Inc.
in the amount of $ 200,000.00 for such Securities has been made in connection
herewith.
1. General Representations. The Subscriber acknowledges and
represents as follows:
-----------------------
(a) The Subscriber has been given full access to information
regarding the Company (including the opportunity to meet with
Company officers and to review all material books and records,
material contracts and documents that Subscriber may have
requested) and has utilized such access for the purpose of
obtaining all information the Subscriber deems necessary for
purposes of making an informed investment decision. The
Subscriber currently owns other securities issued by the
Company.
(b) The Subscriber understands that the purchase of the Securities
is a highly speculative investment and involves a high degree
of risk, that the Company may need additional financing in the
future, and that the Company makes no assurances whatever
concerning the present or prospective value of the Securities;
(c) The Subscriber has obtained, to the extent he or she deems
necessary, personal professional advice with respect to the
risks inherent in an investment in the Securities and the
suitability of such investment in light of the Subscribe's
personal financial condition and investment needs. Unless the
Subscriber has otherwise advised the Company in writing, the
Subscriber did not employ the services of a purchaser
representative, as defined in the Securities and Exchange
Commission's Regulation D, in connection with this investment;
(d) The Subscriber has sufficient knowledge and experience in
financial and business matters to be capable of evaluating the
merits and risks of a prospective investment in the
Securities; is experienced in making investments which involve
a high degree of risk, and is sophisticated in making
investment decisions; and believes that he or she is able to
bear the economic risk of an investment in the Securities,
including the total loss of such investment;
(e) The Subscriber realizes that (i) the purchase of the
Securities is a long-term investment, (ii) the purchaser of
the Securities must bear the economic risk of the investment
for an indefinite period of time because the Securities have
not been registered under the Securities Act of 1933, as
amended, (the "Act"), or applicable state laws or laws of
other countries and, therefore, the Securities cannot be sold
unless they are subsequently registered under the Act and such
other laws or exemptions from such registration are available,
(iii) the Company is not current in its reporting
responsibilities under the Securities Act of 1934, as amended,
(iv) there is no public market for the Securities and
the Subscriber may not be able to liquidate his or her
investment in the event of an emergency, or pledge the
Securities as collateral security for loans, and (v) the
transferability of the Securities is restricted and (A)
requires conformity with the restrictions contained in
paragraph 2 below, and (B) will be further restricted by a
legend placed on the certificate(s) representing the
Securities stating that the Securities have not been
registered under the Act and applicable state laws and
referencing the restrictions on transferability of the
Securities.
2. No Registration Under the Securities Laws. The Subscriber has been
advised that the Securities are not being registered under the Act or state
securities laws or securities laws of other nations pursuant to exemptions
from the Act and such laws, and that the Company's reliance upon such
exemptions is predicated in part on the representations of the Subscriber
contained herein. The Subscriber represents and warrants that the Securities
are being purchased for the Subscriber's own account and for investment
without the intention of reselling or redistributing the same, that no
agreement has been made with others regarding. the Securities and that the
Subscriber's financial condition is such that it is not likely that it will be
necessary to dispose of the Securities in the foreseeable future. The
Subscriber is aware that, in the view of the Securities and Exchange
Commission and state authorities that administer state securities laws, a
purchase of the Securities with an intent to resell by reason of any
foreseeable specific contingency or anticipated change in market values, or
any change in the condition of the Company or its business, or in connection
with a contemplated liquidation or settlement of any loan obtained for the
acquisition of the Securities and for which the Securities were pledged as
security, would represent an intent inconsistent with the representations set
forth above. The Subscriber further represents and agrees that, if contrary to
the foregoing intentions there should ever be a desire to dispose of or
transfer the Securities in any manner, the Subscriber shall not do so without
first obtaining (a) an opinion of counsel suitable to the Company that such
proposed disposition or transfer lawfully may be made without registration
pursuant to the Act and applicable securities laws of states and other nations
or (b) such registrations (it being expressly understood that the Company
shall not have any obligation to register the Securities for such purpose).
3. Registration Rights. If, at any time within three (3) years of the
date of this purchase, the Company proposes for any reason to register any of
its securities under the Securities Act other than a registration on Form S-8
relating solely to employee stock option or purchase plans, on Form S-4
relating solely to an SEC Rule 145 transaction or on any other form which does
not include substantially the same information as would be required to be
included in a registration statement covering the sale of the Securities, it
shall each such time give written notice to the holder of these Securities
("Holder" for purposes of this Section 3) of the Company's intention to
register such securities, and, upon the written request, given within thirty
(30) days after receipt of any such notice, of the Holders of the Securities
outstanding, to register any of the Securities, the Company shall cause the
Securities so requested by the Holder to be registered, whether such
Securities are outstanding or subject to purchase hereby, to be registered
under the Securities Act, all to the extent requisite to permit the sale or
other disposition by the Holder of the Securities so registered; provided,
however, that the Securities as to which registration had been requested need
not be included in such registration if in the opinion of counsel for the
Company and counsel for the Holder the proposed transfer by the Holder may be
effected without registration under the Securities Act and any certificate
evidencing the Securities need not bear any restrictive legend. In the event
that any registration pursuant to this Section 3 shall be, in whole or in
part, an underwritten offering of securities of the Company, then (i) any
request pursuant to this Section 3 to register the Securities may specify that
such shares are to be included in the underwriting on the same terms and
conditions as the shares of the Company's capital stock otherwise being sold
through underwriters under such registration, (ii) if the managing underwriter
of such offering determines that the number of shares to be offered by all
selling shareholders must be reduced, then the Company shall have the right to
reduce the number of shares registered on behalf of the Holder, provided that
the number of shares to be registered on behalf of the Holder shall not be
reduced to such an extent that the ratio of the shares which the Holder is
permitted to register to the total number of shares the Holder owns is less
than that ratio for any other selling shareholder, and (iii) the Holder will
be bound by the terms of the underwriting agreement and the conditions imposed
by the underwriter on selling shareholders.
4. State of Domicile. The Subscriber represents and warrants that the
Subscriber is a bona fide resident of, and is domiciled in, the state or
country so designated on the signature page hereto, and that the Securities
are being purchased solely for the beneficial interest of the Subscriber and
not as nominee for, or on behalf of, or for the beneficial interest of, or
with the intention to transfer to, any other person, trust, or organization.
5. Obligation to Update. The information provided by the Subscriber is
correct and complete as of the date hereof The Subscriber is informed of the
significance to the Company of the foregoing representations, and they are
made with the intention that the Company will rely upon them. If there should
be any adverse change in such information prior to the subscription being
accepted, the Subscriber will immediately provide the Company with such
information.
6. Entity Representation. The Subscriber makes the following
additional representations:
(a) The Subscriber was not organized for the specific
purpose of acquiring the Securities; and
(b) This Agreement has been duly authorized by all
necessary actions of the Board of Directors,
shareholders, partners, trustees, or other duly
authorized acting body or person on the part of the
Subscriber, has been duly executed by an authorized
officer or representative of the Subscriber, and is a
legal, valid, and binding obligation of the
Subscriber enforceable in accordance with its terms.
Dated: July 1, 1999.
/s/ Jonathan Glasser
-----------------------------
Signature
Jonathan Glasser, Member Manager
--------------------------------
Name Typed or Printed, Title
Triton Capital Investments, Ltd.
--------------------------------
Entity Name
1999 Avenue of the Stars,
Suite 2530
--------------------------------
Address
Los Angeles, California 90067
--------------------------------
City, State and Zip Code
(310) 201-2619
--------------------------------
(Area Code) Telephone Number
N/A - Offshore Fund
--------------------------------
Tax Identification or Social
Security Number
The Subscription Agreement and Letter of Investment Intent is
accepted as of ___________________________, 1999.
PREFERRED VOICE, INC.
/s/ G. Ray Miller
-------------------------------
BY: G. Ray Miller
Its: President & CEO
IMPORTANT
PLEASE READ CAREFULLY BEFORE SIGNING,
SIGNIFICANT REPRESENTATIONS ARE CALLED FOR HEREIN
SUBSCRIPTION AGREEMENT
AND
LETTER OF INVESTMENT INTENT
The undersigned (the "Subscriber") hereby subscribes to purchase from
Preferred Voice, Inc., a Delaware corporation (the "Company") 160,000 shares of
Preferred Voice, Inc. $.001 par value common stock (the "Securities") at a
purchase price of $1.25. A wire transfer to the account of Preferred Voice, Inc.
in the amount of $ 200,000.00 for such Securities has been made in connection
herewith.
1. General Representations. The Subscriber acknowledges and
represents as follows:
(a) The Subscriber has been given full access to information
regarding the Company (including the opportunity to meet with
Company officers and to review all material books and records,
material contracts and documents that Subscriber may have
requested) and has utilized such access for the purpose of
obtaining all information the Subscriber deems necessary for
purposes of making an informed investment decision. The
Subscriber currently owns other securities issued by the
Company.
(b) The Subscriber understands that the purchase of the Securities
is a highly speculative investment and involves a high degree
of risk, that the Company may need additional financing in the
future, and that the Company makes no assurances whatever
concerning the present or prospective value of the Securities;
(c) The Subscriber has obtained, to the extent he or she deems
necessary, personal professional advice with respect to the
risks inherent in an investment in the Securities and the
suitability of such investment in light of the Subscribe's
personal financial condition and investment needs. Unless the
Subscriber has otherwise advised the Company in writing, the
Subscriber did not employ the services of a purchaser
representative, as defined in the Securities and Exchange
Commission's Regulation D, in connection with this investment;
(d) The Subscriber has sufficient knowledge and experience in
financial and business matters to be capable of evaluating the
merits and risks of a prospective investment in the
Securities; is experienced in making investments which involve
a high degree of risk, and is sophisticated in making
investment decisions; and believes that he or she is able to
bear the economic risk of an investment in the Securities,
including the total loss of such investment;
(e) The Subscriber realizes that (i) the purchase of the
Securities is a long-term investment, (ii) the purchaser of
the Securities must bear the economic risk of the investment
for an indefinite period of time because the Securities have
not been registered under the Securities Act of 1933, as
amended, (the "Act"), or applicable state laws or laws of
other countries and, therefore, the Securities cannot be sold
unless they are subsequently registered under the Act and such
other laws or exemptions from such registration are available,
(iii) the Company is not current in its reporting
responsibilities under the Securities Act of 1934, as amended,
(iv) there is no public market for the Securities and
the Subscriber may not be able to liquidate his or her
investment in the event of an emergency, or pledge the
Securities as collateral security for loans, and (v) the
transferability of the Securities is restricted and (A)
requires conformity with the restrictions contained in
paragraph 2 below, and (B) will be further restricted by a
legend placed on the certificate(s) representing the
Securities stating that the Securities have not been
registered under the Act and applicable state laws and
referencing the restrictions on transferability of the
Securities.
2. No Registration Under the Securities Laws. The Subscriber has been
advised that the Securities are not being registered under the Act or state
securities laws or securities laws of other nations pursuant to exemptions
from the Act and such laws, and that the Company's reliance upon such
exemptions is predicated in part on the representations of the Subscriber
contained herein. The Subscriber represents and warrants that the Securities
are being purchased for the Subscriber's own account and for investment
without the intention of reselling or redistributing the same, that no
agreement has been made with others regarding. the Securities and that the
Subscriber's financial condition is such that it is not likely that it will be
necessary to dispose of the Securities in the foreseeable future. The
Subscriber is aware that, in the view of the Securities and Exchange
Commission and state authorities that administer state securities laws, a
purchase of the Securities with an intent to resell by reason of any
foreseeable specific contingency or anticipated change in market values, or
any change in the condition of the Company or its business, or in connection
with a contemplated liquidation or settlement of any loan obtained for the
acquisition of the Securities and for which the Securities were pledged as
security, would represent an intent inconsistent with the representations set
forth above. The Subscriber further represents and agrees that, if contrary to
the foregoing intentions there should ever be a desire to dispose of or
transfer the Securities in any manner, the Subscriber shall not do so without
first obtaining (a) an opinion of counsel suitable to the Company that such
proposed disposition or transfer lawfully may be made without registration
pursuant to the Act and applicable securities laws of states and other nations
or (b) such registrations (it being expressly understood that the Company
shall not have any obligation to register the Securities for such purpose).
3. Registration Rights. If, at any time within three (3) years of the
date of this purchase, the Company proposes for any reason to register any of
its securities under the Securities Act other than a registration on Form S-8
relating solely to employee stock option or purchase plans, on Form S-4
relating solely to an SEC Rule 145 transaction or on any other form which does
not include substantially the same information as would be required to be
included in a registration statement covering the sale of the Securities, it
shall each such time give written notice to the holder of these Securities
("Holder" for purposes of this Section 3) of the Company's intention to
register such securities, and, upon the written request, given within thirty
(30) days after receipt of any such notice, of the Holders of the Securities
outstanding, to register any of the Securities, the Company shall cause the
Securities so requested by the Holder to be registered, whether such
Securities are outstanding or subject to purchase hereby, to be registered
under the Securities Act, all to the extent requisite to permit the sale or
other disposition by the Holder of the Securities so registered; provided,
however, that the Securities as to which registration had been requested need
not be included in such registration if in the opinion of counsel for the
Company and counsel for the Holder the proposed transfer by the Holder may be
effected without registration under the Securities Act and any certificate
evidencing the Securities need not bear any restrictive legend. In the event
that any registration pursuant to this Section 3 shall be, in whole or in
part, an underwritten offering of securities of the Company, then (i) any
request pursuant to this Section 3 to register the Securities may specify that
such shares are to be included in the underwriting on the same terms and
conditions as the shares of the Company's capital stock otherwise being sold
through underwriters under such registration, (ii) if the managing underwriter
of such offering determines that the number of shares to be offered by all
selling shareholders must be reduced, then the Company shall have the right to
reduce the number of shares registered on behalf of the Holder, provided that
the number of shares to be registered on behalf of the Holder shall not be
reduced to such an extent that the ratio of the shares which the Holder is
permitted to register to the total number of shares the Holder owns is less
than that ratio for any other selling shareholder, and (iii) the Holder will
be bound by the terms of the underwriting agreement and the conditions imposed
by the underwriter on selling shareholders.
4. State of Domicile. The Subscriber represents and warrants that the
Subscriber is a bona fide resident of, and is domiciled in, the state or
country so designated on the signature page hereto, and that the Securities
are being purchased solely for the beneficial interest of the Subscriber and
not as nominee for, or on behalf of, or for the beneficial interest of, or
with the intention to transfer to, any other person, trust, or organization.
5. Obligation to Update. The information provided by the Subscriber is
correct and complete as of the date hereof The Subscriber is informed of the
significance to the Company of the foregoing representations, and they are
made with the intention that the Company will rely upon them. If there should
be any adverse change in such information prior to the subscription being
accepted, the Subscriber will immediately provide the Company with such
information.
6. Entity Representation. The Subscriber makes the following
additional representations:
---------------------
(a) The Subscriber was not organized for the specific
purpose of acquiring the Securities; and
(b) This Agreement has been duly authorized by all
necessary actions of the Board of Directors,
shareholders, partners, trustees, or other duly
authorized acting body or person on the part of the
Subscriber, has been duly executed by an authorized
officer or representative of the Subscriber, and is a
legal, valid, and binding obligation of the
Subscriber enforceable in accordance with its terms.
Dated: July 1, 1999.
/s/ Jonathan Glasser
-----------------------------
Signature
Jonathan Glasser, Member Manager
--------------------------------
Name Typed or Printed, Title
JMG Capital Partners, L.P.
--------------------------------
Entity Name
1999 Avenue of the Stars,
Suite 2530
--------------------------------
Address
Los Angeles, California 90067
--------------------------------
City, State and Zip Code
(310) 201-2619
--------------------------------
(Area Code) Telephone Number
68-0271606
--------------------------------
Tax Identification or Social
Security Number
The Subscription Agreement and Letter of Investment Intent is
accepted as of July 1, 1999.
PREFERRED VOICE, INC.
/s/ G. Ray Miller
-------------------------------
BY: G. Ray Miller
Its: President & CEO
SECOND AMENDMENT TO LEASE
This SECOND AMENDMENT TO LEASE (the "Agreement") is made as of this
30th day of August , 1999 by and between DALLAS OFFICE PORTFOLIO, L.P., a
Delaware limited partnership ("Landlord") as successor-in- interest to
GREENVILLE AVENUE PROPERTIES, LTD. ("Previous Landlord") and PREFERRED VOICE,
INC. having an address at 6500 Greenville Avenue, Suite 570, Dallas, Texas,
75206 ("Tenant").
WITNESSETH:
WHEREAS, Landlord and Tenant entered into a Lease dated February 3,
1998, as amended by that First Amendment to Lease dated March 1, 1999 (the
"Lease") with respect to the Premises consisting of approximately 3,588 square
feet ("Existing Space") known as Suite 570, in the building known as 6500
Greenville Place, located at 6500 Greenville Avenue, Dallas, Texas, which
premises are more particularly described in the Lease; and;
WHEREAS, Landlord and Tenant now mutually desire to amend the Lease to
reflect (i) the addition of 2,535 square feet (the "Expansion Space") as shown
on Exhibit "B-2" annexed hereto and made a part thereof, which all space
combined (including the Expansion Space and Existing Space) shall be known as
Suite 570, consisting of 6,123 rentable square feet as shown on Exhibit "B- 1"
annexed hereto and made a part hereof (the "Premises"), and (ii) the then
subsequent extension of lease on the Existing Space and to further amend the
terms and conditions of the Lease as set forth below; and;
NOW, THEREFORE, in consideration of the mutual covenants herein
contained, and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, Landlord and Tenant hereby
covenant and agree as follows:
1. The provisions of this Agreement shall supersede any inconsistent
provisions contained in the Lease, regardless of whether such inconsistent
provisions are contained in the printed portion of the Lease or any rider
annexed thereto and made a part thereof. All capitalized items not otherwise
defined herein shall have the same meanings ascribed to them in the Lease.
2. The Effective Date for the first 1,409rsf ("First Expansion Space"
refer to Exhibit B-2 for location) expansion shall commence October 1, 1999
("Primary Effective Date") and subsequently, the Effective Date for the
remaining 1,126rsf ("Second Expansion Space" refer to Exhibit B-2 for location)
shall commence January 1, 2000 ("Secondary Effective Date")
3. A).Effective from and after the day following substantial completion
of the Work in the Existing Space and the First Expansion Space ("Substantial
Completion Date" which is estimated to be September 30, 1999), Tenant shall then
occupy both the Existing Space and the First Expansion Space ("Primary Effective
Date"). Landlord and Tenant shall confirm the Primary Effective Date in an
acceptance letter or other written instrument after the Primary Effective Date
within fifteen (15) days of demand therefore by Landlord, provided, however,
that the failure of Landlord and Tenant to execute such letter or instrument
shall not affect the Primary Effective Date as established pursuant to this
Paragraph 3(A). If the Primary Effective Date occurs on a day other than the
first day of a calendar month, rent and such other amounts constituting
additional rental under the Lease with respect to the First Expansion Space
shall be prorated on a per diem basis for the month in which the Primary
Effective Date shall occur. Tenant expressly waives any right to rescind this
Agreement or the Lease, or any damages, direct or indirect, which may result
from Landlord's failure to deliver the First Expansion Space by September 30,
1999. If Landlord shall be unable to deliver to Tenant possession of the First
Expansion Space by September 30, 1999, then rent for the Existing Space shall
continue and rent for the First Expansion Space only shall abate for such period
as possession by Tenant is delayed unless Tenant shall cause such delay in which
case rent shall not abate and rent for the Existing Space and the First
Expansion Space shall commence October 1, 1999 (according to the rent schedule
as addressed in paragraph 5 below). The abatement of rent with respect to the
First Expansion Space, does constitute full settlement of all claims which
Tenant might otherwise have against Landlord by reason of the First Expansion
Space not being ready for occupancy by September 30, 1999 and no such failure by
Landlord to deliver possession of the First Expansion Space shall affect or
impair the validity of the Agreement or the Lease, or the obligations of Tenant
hereunder or give rise to any claim for damages by Tenant or claim for
<PAGE>
rescission of this Agreement or the Lease. Notwithstanding anything contained
herein to the contrary, if Landlord is unable to deliver the First Expansion
Space to Tenant by September 30, 1999, then the term of this Lease shall be
extended by the number of days of such delay in commencement of the Primary
Effective Date and the Base Annual Rent for that extension period shall be equal
to the per diem rate Tenant paid during the month of December, 2003. If
Substantial Completion can be achieved earlier than September 30, 1999, then
Landlord shall give Tenant ten (10) days prior written notice and Tenant shall
agree to move into the First Expansion Space the next morning following
Substantial Completion and commence the Primary Effective Date on that date at a
daily rate (for the First Expansion Space) of $61.76 for those days occupied by
Tenant prior to October 1, 1999.
B).Effective from and after the day following substantial
completion of the Work in the Second Expansion Space ("Substantial Completion
Date" which is defined as December 31, 1999), Tenant shall then also occupy the
Second Expansion Space ("Secondary Effective Date"). Landlord and Tenant shall
confirm the Secondary Effective Date in an acceptance letter or other written
instrument after the Secondary Effective Date within fifteen (15) days of demand
therefore by Landlord, provided, however, that the failure of Landlord and
Tenant to execute such letter or instrument shall not affect the Secondary
Effective Date as established pursuant to this Paragraph 3(B). If the Secondary
Effective Date occurs on a day other than the first day of a calendar month,
rent and such other amounts constituting additional rental under the Lease with
respect to the Second Expansion Space shall be prorated on a per diem basis for
the month in which the Secondary Effective Date shall occur. Tenant expressly
waives any right to rescind this Agreement or the Lease, or any damages, direct
or indirect, which may result from Landlord's failure to deliver the Second
Expansion Space by December 31, 1999. If Landlord shall be unable to deliver to
Tenant possession of the Second Expansion Space by December 31, 1999, then rent
for the Existing Space and the First Expansion Space shall continue and rent for
the Second Expansion Space only shall abate for such period as possession by
Tenant is delayed unless Tenant shall cause such delay in which case rent shall
not abate and rent for the Second Expansion Space shall commence January 1,
2000. The abatement of rent with respect to the Second Expansion Space, does
constitute full settlement of all claims which Tenant might otherwise have
against Landlord by reason of the Second Expansion Space not being ready for
occupancy by December 31, 1999 and no such failure by Landlord to deliver
possession of the Second Expansion Space shall affect or impair the validity of
the Agreement or the Lease, or the obligations of Tenant hereunder or give rise
to any claim for damages by Tenant or claim for rescission of this Agreement or
the Lease. Notwithstanding anything contained herein to the contrary, if
Landlord is unable to deliver the Second Expansion Space to Tenant by December
31, 1999, then the term of this Lease shall be extended by the number of days of
such delay in commencement of the Secondary Effective Date and the Base Annual
Rent for that extension period shall be equal to the per diem rate Tenant paid
during the month of December, 2003. If Tenant should wish to occupy the Second
Expansion Space earlier than January 1, 2000, Tenant shall then give Landlord 45
days prior written notice of such request, and within 10 days following
Landlord's notice of early commencement, sign Landlord's document signifying
such early required commencement. If Landlord is then able to achieve
Substantial Completion earlier than December 31, 1999, then Landlord shall give
Tenant ten (10) days prior written notice and Tenant shall agree to move in the
morning following Substantial Completion and commence the Secondary Effective
Date on that date at a daily rate (for the Second Expansion Space) of $49.36 for
those days prior occupied by Tenant to January 1, 2000.
4. Upon Tenant's execution thereof, Tenant shall pay to Landlord the
sum of $3,578.58 to be held by Landlord as additional security pursuant to
Article 6 of the Fundamental Lease Provisions of the Lease, for a total Security
Deposit held of $8,512.08.
5. Effective from and after October 1, 1999, Base Annual Rent, as
reflected in Article 4 of the Fundamental Lease Provisions shall be:
*October 1, 1999 -December 31, 1999:$6,662.67 per
month January 1, 2000-December 31, 2000:$8,357.90 per
month January 1, 2001-December 31, 2001:$8,613.02 per
month January 1, 2002-December 31, 2002:$8,674.25 per
month January 1, 2003 -December 3 1, 2003:$ 8,929.3 8
per month
* If the Primary or Secondary Effective Dates should commence prior to the dates
specified in paragraphs 3(A) and (B) above, then the monthly rental shall be
adjusted as provided for therein.
<PAGE>
6. For and in consideration of the covenants contained in the Lease to
which this Agreement has been made a part, Landlord and Tenant agree that the
ending date, as defined in Paragraph (3) of the Fundamental Lease Provisions
section of the Lease shall become December 31, 2003, unless otherwise adjusted
as detailed in paragraphs 3(A) & 3(B) above.
7. (A) Landlord, at its sole cost and expense, shall provide Tenant
requested improvements (the "Improvements") to the Existing Space and the First
Expansion Space only, in a building standard manner for a cost to Landlord not
to exceed $16.986.59 ("Landlord's Primary Allowance") and in the manner
specified in Exhibit "A-1" ("Work Letter") and the contractor's bid (Exhibit
A-2) herein attached. In the event the cost of completing the Improvements
exceeds Landlord's Allowance or if Tenant makes any changes to the Improvements,
Tenant expressly agrees that the costs attributable to those changes shall be
the sole responsibility of Tenant and Tenant shall pay same to Landlord upon
demand as specified in Exhibit A-1. Except for the Improvements, Tenant
acknowledges and agrees that it has made a full and complete inspection of the
Existing Space and the First Expansion Space and accepts such in its present
"as-is" condition as suitable for Tenant's intended use and occupancy and/or
continued occupancy thereof. Upon Tenant's possession of the First Expansion
Space, it shall be conclusively presumed that same has been so accepted by
Tenant, is in satisfactory conditions and complies fully with Landlord's
covenants and obligations.
(B) Landlord, at its sole cost and expense, shall provide
Tenant requested improvements (the "Improvements") to the Second Expansion Space
only, in a building standard manner for a cost to Landlord not to exceed
$12,795.15 ("Landlord's Secondary Allowance") and in the manner specified in
Exhibit "A-3" ("Work Letter") and the contractor's bid (Exhibit A-4) herein
attached. In the event the cost of completing the Improvements exceeds
Landlord's Allowance or if Tenant makes any changes to the Improvements, Tenant
expressly agrees that the costs attributable to those changes shall be the sole
responsibility of Tenant and Tenant shall pay same to Landlord upon demand as
specified in Exhibit A-3. Except for the Improvements, Tenant acknowledges and
agrees that it has made a full and complete inspection of the Second Expansion
Space and accepts such in its present "as-is" condition as suitable for Tenant's
intended use and occupancy thereof. Upon Tenant's possession of the Second
Expansion Space, it shall be conclusively presumed that same has been so
accepted by Tenant, is in satisfactory conditions and complies fully with
Landlord's covenants and obligations.
8. Tenant expressly warrants and represents that the sole brokers who
negotiated and brought about this transaction was Transwestern Commercial
Services ("Landlord's Agent") and Swearingen Realty Group ("Tenant's Agent").
Tenant represents it neither consulted nor negotiated with any brokers other
than those named herein with regard to the Promises. Tenant agrees to indemnify,
defend and save Landlord harmless from and against any claims for fees or
commissions from anyone or any entity other than those brokers named herein,
with whom Tenant has dealt in connection with this Agreement. The foregoing
provisions contained in this Paragraph 8 shall survive the expiration or early
termination of the Lease.
9. (A) Effective from and after the Primary Effective Date, Tenant's
parking as referred to in Section 12 of the Fundamental Lease Provisions shall
be amended to read: "A total of four (4) Garage parking spaces at no charge
during the term and eleven (11) Lot spaces at no charge during the term, all on
a first come first serve basis."
(B) Effective from and after the Secondary Effective Date,
Tenant's parking as referred to in Section 12 of the Fundamental Lease
Provisions shall be amended to read: "A total of six (6) Garage parking spaces
at no charge during the term and seventeen (17) Lot spaces at no charge during
the term, all on a first come first serve basis."
10. Effective from and after the Primary and Secondary Effective Dates,
#10 of the First Amendment to Lease shall be modified to include the entire
Premises (including the Existing Space, the First Expansion Space and the
Secondary Expansion Space) so that Landlord's Annual Operating Cost Contribution
(as addressed in Section 5 of the Fundamental Lease Provisions) shall be Actual
Expenses for Calendar Year 1999 for building standard services, with no cap of
any kind.
11. Effective from and after the Primary Effective Date, #11 of the
First Amendment to Lease shall become null and void and Tenant shall no longer
have any Right of First Refusal under this lease.
Dallas1 571383 v 1, 99999.00001
<PAGE>
12. This Agreement shall not constitute an Agreement by Landlord and
shall not be binding upon Landlord unless and until this Agreement shall be
executed by Landlord and Tenant and shall be delivered by Landlord to Tenant.
13. This Agreement may not be changed orally, and shall be binding upon
and shall inure to the benefit of the parties to it, their respective heirs,
successors and, as permitted, their assigns.
14. Except as hereby modified or amended, all of the terms,
covenants and conditions of the Lease shall remain unmodified and in full force
and effect.
IN WITNESS WHEREOF, Landlord and Tenant have duly executed this
Agreement as of the day and year first above written.
LANDLORD: TENANT:
Dallas Office Portfolio, L.P., Preferred Voice, Inc.
a Delaware limited partnership
By: Suburban Dallas Office Portfolio, LLC,
a Delaware limited liability company, its
sole general partner
By: Beacon Capital Partners, L.P., a Delaware
limited partnership, its sole member
By: Beacon Capital Partners, Inc., a Maryland
corporation, its sole general partner
By: /s/ E. Valker Wheeler By: /s/ Mary Merritt
--------------------- ------------------
Name: E. Valker Wheeler Name: Mary Merritt
----------------------- ------------------
Title: S.V.P. Title: VP Finance
------------- ------------------
Hereunto Duly
Authorized
Date Signed: 8/30/99 Date Signed:8/25/99
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<PAGE>
EXHIBIT "A-1"
WORK LETTER
TO
OFFICE LEASE AGREEMENT
BETWEEN
DALLAS OFFICE PORTFOLIO, L.P.,
a Delaware limited partnership
AND
PREFERRED VOICE, INC.
This Exhibit sets forth the respective obligations of, and the
procedures to be followed by, Landlord and Tenant in the design and construction
of those improvements that will prepare the Existing Premises and the First
Expansion Space described in Exhibit B-2 of the Lease for Tenant's use and/or
continued occupancy.
1. The Work.
--------
The "Work" will consist of leasehold improvements described in the
floor plan and specifications attached to this Lease as Exhibit C-1 ("Final
Plan-1").
B. Landlord will pay all costs and fees incurred in connection with
construction of the leasehold improvements as described in the Final Plan-1 up
to a cost of $16,986.59. Tenant will pay all costs and fees incurred in
connection with preparation of plans and working drawings (if should later be
required) and construction resulting from a change requested by Tenant pursuant
to Paragraph 2 of this Exhibit and any amount in excess of $16,986.59 incurred
by Landlord in connection with the design and construction of the Work
(collectively, "Tenant's Cost"). Tenant's Cost hereunder will be deemed
additional rent under the Lease.
2. Changes.
-------
A. If Tenant desires any changes, alterations or additions to the Final
Plan-1, Tenant must submit a detailed written request to Landlord ("Change
Order"). If reasonable and practicable and generally consistent with the Final
Plan-1 previously approved, Landlord will comply with the Change Order, but all
costs in connection therewith, including without limitation any additional
plans, drawings and engineering reports or opinions or modifications of such
existing items, will be paid for by Tenant. Landlord may at any time reasonably
estimate Tenant's Cost for a Change Order, in advance, and, Tenant will deposit
the estimated amount with Landlord within five (5) days after requested by
Landlord. If such estimated amount exceeds the actual amount of Tenant's Cost,
Tenant will receive a refund of the difference, and if the actual amount exceeds
the estimated amount, Tenant will pay the difference to Landlord within five (5)
days after requested by Landlord. If any additional plans, drawings or
specifications, or modifications of such items, are required to construct a
Change Order, the same will be prepared (at Tenant's cost by Tenant's architect)
and approved in the manner described above. Under no circumstances will any
Change Orders serve to abate the rentals under the Lease.
3. Substantial Completion.
----------------------
A. Landlord will be deemed to have "substantially completed" the Work
for the purposes thereof if Landlord has caused all of the Work to be completed
substantially except for so called "punch list items," e.g., minor details of
construction or decoration or mechanical adjustments which do not substantially
interfere with Tenant's occupancy of the First Expansion space and/or continued
occupancy of Existing Premises to be made by Tenant. If there is any dispute as
to whether Landlord has substantially completed the Work, the good faith
decision of Landlord's architect will be final and binding on the parties.
B. If Landlord notifies Tenant in writing that the Work is
substantially completed, and Tenant fails to object thereto in writing within
three (3) days thereafter specifying in reasonable detail the items of Work
needed to be performed in order for substantial completion, Tenant will be
deemed conclusively to have agreed that the Work is substantially completed, for
purposes of commencing rental under the Lease.
<PAGE>
C. Substantial completion will not prejudice Tenant's rights to require
full completion of any remaining items of Work. However, if Landlord notifies
Tenant in writing that the Work is fully completed, and Tenant fails to object
thereto in writing within fifteen (15) days thereafter specifying in reasonable
detail the items of work needed to be completed and the nature of work needed to
complete said items, Tenant will be deemed conclusively to have accepted the
Work as fully completed (or such portions thereof as to which Tenant has not so
objected).
4. Construction.
------------
A. Landlord reserves the right to substitute comparable or better
materials and items for those shown in the attached Final Plan-1.
B. Landlord warrants that Landlord will employ an experienced, licensed
contractor to construct the leasehold improvements and will require in the
construction contract that such contractor construct the leasehold improvements
in a good and workmanlike manner and in compliance with all applicable laws,
ordinances and building codes; provided, however, Tenant will be solely
responsible for determining whether or not Tenant is a public accommodation
under The Americans with Disabilities Act and Texas Architectural Barriers Act
and whether or not the Final Plan-1 complies with such laws and the regulations
thereunder.
5. Liability.
---------
The parties acknowledge that Landlord is not an architect or engineer,
and that the Work will be performed by Landlord's independent contractor.
Accordingly, Landlord does not guarantee or warrant that the Final Plan- 1 will
be free from errors or omissions, nor that the Work will be free from defects,
and Landlord will have no liability therefor. In the event of such errors,
omissions, or defects, by the independent contractor, Landlord will cooperate in
any action Tenant desires to bring against such party.
6. Incorporation Into Lease: Default .
----------------------------------
THE PARTIES AGREE THAT THE PROVISIONS OF THIS EXHIBIT ARE HEREBY
INCORPORATED BY THIS REFERENCE INTO THE LEASE FULLY AS THOUGH SET FORTH THEREIN.
In the event of any express inconsistencies between the Lease and this Exhibit,
the latter will govern and control. Any default by Tenant hereunder will
constitute a default by Tenant under the Lease and Tenant will be subject to the
remedies and other provisions applicable thereto under the Lease.
INITIALED FOR INITIALED FOR
IDENTIFICATION: IDENTIFICATION:
BY LANDLORD: BY TENANT:
- ------------------ ----------------------
<PAGE>
EXHIBIT "A-2"
CONTRACTOR'S BID
[chart outlining break-down of bid]
<PAGE>
EXHIBIT "A-3"
WORK LETTER
TO
OFFICE LEASE AGREEMENT
BETWEEN
DALLAS OFFICE PORTFOLIO, L.P.,
a Delaware limited partnership
AND
PREFERRED VOICE, INC.
This Exhibit sets forth the respective obligations of, and the
procedures to be followed by, Landlord and Tenant in the design and construction
of those improvements that will prepare the Second Expansion Space described in
Exhibit B-2 of the Lease for Tenant's use and occupancy.
1. The Work.
--------
The "Work" will consist of leasehold improvements described in the
floor plan and specifications attached to this Lease as Exhibit C-2 ("Final
Plan-2").
B. Landlord will pay all costs and fees incurred in connection with
construction of the leasehold improvements as described in the Final Plan-2 up
to a cost of $12,795. 15. Tenant will pay all costs and fees incurred in
connection with preparation of plans and working drawings (if should later be
required) and construction resulting from a change requested by Tenant pursuant
to Paragraph 2 of this Exhibit and any amount in excess of $12,795.15 incurred
by Landlord in connection with the design and construction of the Work
(collectively, "Tenant's Cost"). Tenant's Cost hereunder will be deemed
additional rent under the Lease.
2. Changes.
-------
A. If Tenant desires any changes, alterations or additions to the Final
Plan-2, Tenant must submit a detailed written request to Landlord ("Change
Order"). If reasonable and practicable and generally consistent with the Final
Plan-2 previously approved, Landlord will comply with the Change Order, but all
costs in connection therewith, including without limitation any additional
plans, drawings and engineering reports or opinions or modifications of such
existing items, will be paid for by Tenant. Landlord may at any time reasonably
estimate Tenant's Cost for a Change Order, in advance, and, Tenant will deposit
the estimated amount with Landlord within five (5) days after requested by
Landlord. If such estimated amount exceeds the actual amount of Tenant's Cost,
Tenant will receive a refund of the difference, and if the actual amount exceeds
the estimated amount, Tenant will pay the difference to Landlord within five (5)
days after requested by Landlord. If any additional plans, drawings or
specifications, or modifications of such items, are required to construct a
Change Order, the same will be prepared (at Tenant's cost by Tenant's architect)
and approved in the mariner described above. Under no circumstances will any
Change Orders serve to abate the rentals under the Lease.
3. Substantial Completion.
----------------------
A. Landlord will be deemed to have "substantially completed" the Work
for the purposes thereof if Landlord has caused all of the Work to be completed
substantially except for so called "punch list items," e.g., minor details of
construction or decoration or mechanical adjustments which do not substantially
interfere with Tenant's occupancy of the Second Expansion space to be made by
Tenant. If there is any dispute as to whether Landlord has substantially
completed the Work, the good faith decision of Landlord's architect will be
final and binding on the parties.
<PAGE>
4. Construction.
------------
A. Landlord reserves the right to substitute comparable or better
materials and items for those shown in the attached Final Plan-2.
B. Landlord warrants that Landlord will employ an experienced, licensed
contractor to construct the leasehold improvements and will require in the
construction contract that such contractor construct the leasehold improvements
in a good and workmanlike manner and in compliance with all applicable laws,
ordinances and building codes; provided, however, Tenant will be solely
responsible for determining whether or not Tenant is a public accommodation
under The Americans with Disabilities Act and Texas Architectural Barriers Act
and whether or not the Final Plan-2 complies with such laws and the regulations
thereunder.
5. Liability..
---------
The parties acknowledge that Landlord is not an architect or engineer,
and that the Work will be performed by Landlord's independent contractor.
Accordingly, Landlord does not guarantee or warrant that the Final Plan-2 will
be free from errors or omissions, nor that the Work will be free from defects,
and Landlord will have no liability therefor. In the event of such errors,
omissions, or defects, by the independent contractor, Landlord will cooperate in
any action Tenant desires to bring against such party.
6. Incorporation Into Lease: Default.
---------------------------------
THE PARTIES AGREE THAT THE PROVISIONS OF THIS EXHIBIT ARE HEREBY
INCORPORATED BY THIS REFERENCE INTO THE LEASE FULLY AS THOUGH SET FORTH THEREIN.
In the event of any express inconsistencies between the Lease and this Exhibit
the latter will govern and control. Any default by Tenant hereunder will
constitute a default by Tenant under the Lease and Tenant will be subject to the
remedies and other provisions applicable thereto under the Lease.
INITIALED FOR INITIALED FOR
IDENTIFICATION IDENTIFICATION
BY LANDLORD: BY TENANT:
------------------ ------------------
<PAGE>
Exhibits "C-1" and "C-2"
[Graphics of site plans or layout of leased spaces]
These Warrants have not been registered under the Securities Act of
1933, as amended (the "Act"), and may not be sold, transferred,
assigned or otherwise disposed of unless the person requesting the
transfer of the Warrants shall provide an opinion of counsel to
Preferred Voice, Inc. (the "Company") (both counsel and opinion to be
satisfactory to the Company) to the effect that such sale, transfer,
assignment or disposition will not involve any violation of the
registration provisions of the Act or any similar or superseding
statute.
No. 98 5,000 Warrants
-------------- -----------
PREFERRED VOICE, INC.
WARRANT CERTIFICATE
This warrant certificate ("Warrant Certificate") certifies that for
value received Southwest Texas Telephone (the "Initial Warrant Holder") or
registered assigns is the owner of the number of warrants specified above, each
of which entitles the holder thereof to purchase, at any time on or before the
Expiration Date hereinafter provided, one fully paid and non-assessable share of
common Stock, $0.001 par value per share, of Preferred Voice, Inc., a Delaware
corporation (the "Company"), at a purchase price of $1.66 per share of Common
Stock payable in lawful money of the United States of America, in cash, by
official bank or certified check, or by wire transfer ("Warrants").
1. Warrant; Purchase Price
Each Warrant shall entitle the holder thereof to purchase one share of
Common Stock, $0.001 par value per share, of the Company ("Common Stock") during
the period commencing on the date hereof and ending on the Expiration Date. The
purchase price payable upon exercise of a Warrant shall be $1.66 (the "Purchase
Price"). The Purchase Price and number of Warrants evidenced by this Warrant
Certificate are subject to adjustment as provided in Article 7. Common Stock
purchased or subject to purchase pursuant to the Warrants shall be called
"Warrant Shares" herein.
2. Exercise; Expiration Date
2.1 Each Warrant is exercisable, at the option of the holder, at any
time after issuance and on or before the Expiration Date. In the case of
exercise of less than all the Warrants represented by a Warrant Certificate, the
Company shall cancel the Warrant Certificate upon the surrender thereof and
shall execute and deliver a new Warrant Certificate for the balance of such
Warrants.
2.2 The term "Expiration Date" shall mean 5:00 p.m. Dallas time on
September 20, 2000, or if such date shall in the State of Texas be a holiday or
a day on which banks are authorized to close, then 5:00 p.m. Dallas time the
next following day which in the State of Texas is not a holiday or a day on
which banks are authorized to close.
<PAGE>
3. Registration and Transfer on Company Books
3.1 The Company shall maintain books for the registration and
transfer of Warrant Certificates.
3.2 Prior to due presentment for registration of transfer of this
Warrant Certificate, the Company may deem and treat the registered holder as the
absolute owner thereof.
3.3 The Company shall register upon its books any transfer of a Warrant
Certificate upon surrender of same to the Company accompanied (if so required by
the Company) by a written instrument of transfer duly executed by the registered
holder or by a duly authorized attorney. Upon any such registration of transfer,
new Warrant Certificate(s) shall be issued to the transferee(s) and the
surrendered Warrant Certificate shall be cancelled by the Company. A Warrant
Certificate may also be exchanged, at the option of the holder, for new Warrant
Certificates representing in the aggregate the number of Warrants evidenced by
the Warrant Certificate surrendered.
4. Securities Law Registration
4.1 The Warrant Shares will not be registered under the Securities Act
or any state securities law and shall not be transferrable unless registered or
an exemption from registration is available. A legend to the foregoing effect
will be placed on any certificate representing such shares.
4.2 If, at any time within five (5) years of the date of this Warrant
Certificate, the Company proposes for any reason to register any of its
securities under the Securities Act other than a registration on Form S-8
relating solely to employee stock option or purchase plans, on Form S-4 relating
solely to an SEC Rule 145 transaction or on any other form which does not
include substantially the same information as would be required to be included
in a registration statement covering the sale of the Warrant Shares, it shall
each such time give written notice to the holder of these Warrants or the
Warrant Shares ("Holder" for purposes of this Section 4) of the Company's
intention to register such securities, and, upon the written request, given
within thirty (30) days after receipt of any such notice, of the Holders of the
Warrants and Warrant Shares outstanding, to register any of the Warrant Shares,
the Company shall cause the Warrant Shares so requested by the Holder to be
registered, whether such Warrant Shares are outstanding or subject to purchase
hereby, to be registered under the Securities Act, all to the extent requisite
to permit the sale or other disposition by the Holder of the Warrant Shares so
registered; provided, however, that the Warrant Shares as to which registration
had been requested need not be included in such registration if in the opinion
of counsel for the Company and counsel for the Holder the proposed transfer by
the Holder may be effected without registration under the Securities Act and any
certificate evidencing the Warrant Shares need not bear any restrictive legend.
In the event that any registration pursuant to this Section 4.2 shall be, in
whole or in part, an underwritten offering of securities of the Company, then
(i) any request pursuant to this Section 4.2 to register Warrant Shares may
specify that such shares are to be included in the underwriting on the same
terms and conditions as the shares of the Company's capital stock otherwise
being sold through underwriters under such registration, (ii) if the managing
underwriter of such offering determines that the number of shares to be offered
by all selling shareholders must be reduced, then the Company shall have the
right to reduce the number of shares
-2-
<PAGE>
registered on behalf of the Holder, provided that the number of shares to be
registered on behalf of the Holder shall not be reduced to such an extent that
the ratio of the shares which the Holder is permitted to register to the total
number of shares the Holder owns is less than that ratio for any other selling
shareholder, and (iii) the Holder will be bound by the terms of the underwriting
agreement and the conditions imposed by the underwriter on selling shareholders.
4.3 If and whenever the Company is under an obligation pursuant to the
provisions of this Warrant Certificate to register any Warrant Shares, the
Company shall, as expeditiously as practicable:
(a) prepare and file with the Securities and Exchange
Commission (the "Commission") a registration statement with respect to
such shares and use its best efforts to cause such registration
statement to become and remain effective for at least nine (9) months;
(b) prepare and file with the Commission such amendments and
supplements to such registration statement and the prospectus used in
connection therewith as may be necessary to keep such registration
statement effective for at least nine months and to comply with the
provisions of the Securities Act with respect to the sale or other
disposition of all Warrant Shares covered by such registration
statement;
(c) furnish to the Holder a suitable number of copies of all
preliminary and final prospectuses to enable the Holder to comply with
the requirements of the Securities Act, and such other documents as the
Holder may reasonably request in order to facilitate the public sale or
other disposition of the Warrant Shares;
(d) use its best efforts to register or qualify the Warrant
Shares covered by such registration statement under such securities or
blue sky laws of such jurisdictions as the Holder shall reasonably
request and where registration or qualification will not involve
unreasonable expense or delay and provided, however, that the Company
will not have to register or qualify in any state in which solely
because of such registration or qualification it would have to qualify
to do business; and the Company shall do any and all other reasonable
acts and things which may be necessary or advisable to enable the
Holder to consummate the public sale or other disposition of the
Warrant Shares in such jurisdiction;
(e) notify the Holder, at any time when a prospectus relating
to the Warrant Shares is required to be delivered under the Securities
Act within the appropriate period mentioned in clause (b) of this
Section 4.3, of the happening of any event as a result of which the
prospectus included in such registration statement, as then in effect,
includes an 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 in the light of the circumstances
then existing, and at the request of the Holder prepare and furnish to
the Holder a reasonable number of copies of a supplement to or an
amendment of such prospectus as may be necessary so that, as thereafter
delivered to the purchasers of the Warrant Shares, such prospectus
shall not include an untrue statement of a
-3-
<PAGE>
material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein not misleading in
the light of the circumstances then existing; and
(f) exercise its best efforts to furnish, at the request of
the Holder on the date that the Warrant Shares are delivered to the
underwriters for sale pursuant to such registration or, if the Warrant
Shares are not being sold through underwriters, on the date that the
registration statements with respect to such Warrant Shares are
declared effective, (1) an opinion, dated such date, of the counsel
representing the Company for the purposes of such registration,
addressed to the Holder, stating that such registration statement has
become effective under the Securities Act and that (i) to the best of
the knowledge of such counsel, no stop order suspending the
effectiveness thereof has been issued and no proceedings for that
purpose have been instituted or are pending or contemplated under the
Securities Act; (ii) the registration statement, the related
prospectus, and each amendment or supplement thereto, comply as to form
in all material respects with the requirements of the Securities Act
and the applicable rules and regulations of the Commission thereunder
(except that such counsel need express no opinion as to financial
statements and other financial data contained therein); and (iii) such
counsel has no reason to believe that either the registration statement
or the prospectus, or any amendment or supplement thereto, 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; and (2) a letter dated such date, from the
independent certified public accountants of the Company, stating that
they are independent certified public accountants within the meaning of
the Securities Act and the rules and regulations of the Commission
thereunder and that in the opinion of such accountants, the financial
statements and other financial data of the Company included in the
registration statement or the prospectus, or any amendment or
supplement thereof, comply as to form in all material respects with the
applicable accounting requirements of the Securities Act and the rules
and regulations of the Commission thereunder. Such letter from the
independent certified public accountants shall additionally cover such
other financial matters (including information as to periods ending not
more than five business days prior to the date of such letter) as the
Holder may reasonably request.
If the Holder exercises its rights to have the Warrant Shares
registered, it is understood that the Holder shall furnish to the Company such
information regarding the securities held by it and the intended method of
disposition thereof as the Company shall reasonably request and as shall be
required in connection with the action to be taken by the Company.
4.4 All Registration Expenses incurred in connection with any
registration pursuant to this Warrant Certificate shall be borne by the Company.
All Selling Expenses in connection with any registration pursuant to this
Warrant Certificate shall be borne by the Holder.
For purposes of Section 4.4, all expenses incurred by the company in
complying with Section 4.3, including, without limitation, all registration and
filing fees, fees and expenses of complying with securities and blue sky laws,
printing expenses, and fees and disbursements of counsel and of independent
public accountants for the Company (including the expense of any special audits
in connection with any such registration), are herein called "Registration
Expenses", and all underwriting discounts and selling
-4-
<PAGE>
commissions applicable to the Warrant Shares covered by any such registration
and all fees and disbursements of counsel for the Holder are herein called
"Selling Expenses".
4.5 In the event of any registration of any Warrant Shares under the
Securities Act pursuant to this Warrant Certificate, the Company shall indemnify
and hold harmless the Holder, each underwriter of such shares, if any, each
broker, and any other person, if any, who controls any of the foregoing persons
within the meaning of the Securities Act, against any losses, claims, damages or
liabilities, joint or several, to which any of the foregoing persons may become
subject under the Securities Act or otherwise, insofar as such losses, claims,
damages or liabilities (or actions in respect thereof) arise out of or are based
upon an untrue statement or alleged untrue statement of a material fact
contained in any registration statement under which the Warrant Shares were
registered under the Securities Act, any preliminary prospectus or final
prospectus contained therein, or any amendment or supplement thereto, or any
document incident to registration or qualification of any Warrant Shares
pursuant to paragraph 4.3(d) above, 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 or,
with respect to any prospectus, necessary to make the statements therein, in the
light of the circumstances under which they were made, not misleading, or any
violation by the Company of the Securities Act or state securities or blue sky
laws applicable to the Company and relating to action or inaction required of
the company in connection with such registration or registration or
qualification under such state securities or blue sky laws; and shall reimburse
the Holder and such underwriter, broker or other person acting on behalf of the
Holder and each such controlling person for any legal or any other expenses
reasonably incurred by any of them in connection with investigating or defending
any such loss, claim, damage, liability or action; provided, however, that the
Company shall not be liable in any such case to the extent that any such loss,
claim, damage, or liability arises out of or is based upon an untrue statement
or alleged untrue statement or omission or alleged omission made in reliance
upon and in conformity with written information furnished to the Company in an
instrument duly executed by the Holder or such underwriter specifically for use
in the preparation thereof. The indemnity agreement set forth in this Section
4.5, insofar as it relates to any such omission, alleged omission, untrue
statement or alleged untrue statement made in a preliminary prospectus but
eliminated or remedied in the final prospectus, shall not inure to the benefit
of any of the beneficiaries named in this Section 4.5 whose responsibility it
was to send, furnish or give a copy of the final prospectus to a person
asserting a claim for which indemnification is sought (the "Claimant") unless a
copy of the final prospectus was so sent, furnished or given to the Claimant at
or prior to the time such action is required by the Act.
Before Warrant Shares held or purchasable by the Holder shall be
included in any registration pursuant to this Warrant Certificate, the Holder
and any underwriter acting on its behalf shall have agreed to indemnify and hold
harmless (in the same manner and to the same extent as set forth in the
preceding paragraph) the Company, each director of the Company, each officer of
the Company who shall sign such registration statement and any person who
controls the Company within the meaning of the Securities Act, with respect to
any failure of the Holder or such underwriter to comply with all laws, rules and
regulations in connection with the offer and sale of Warrant Shares, or any
statement or omission from such registration statement, any preliminary
prospectus or final prospectus contained therein, or any amendment or supplement
thereto, if such statement or omission was made in reliance upon and in
conformity with written
-5-
<PAGE>
information furnished to the Company in an instrument duly executed by the
Holder or such underwriter specifically for use in the preparation of such
registration statement, preliminary prospectus, final prospectus or amendment or
supplement.
Promptly after receipt by an indemnified party of notice of the
commencement of any action involving a claim referred to in the preceding
paragraphs of this Section 4.5, such indemnified party will, if a claim in
respect thereof is to be made against an indemnifying party, give written notice
to the indemnifying party of the commencement of such action. In case any such
action is brought against an indemnified party, the indemnifying party will be
entitled to participate in and to assume the defense thereof, jointly with any
other indemnifying party similarly notified to the extent that it may wish, with
counsel reasonably satisfactory to such indemnified party, and after notice from
the indemnifying party to such indemnified party of its election so to assume
the defense thereof, the indemnifying party will not be liable to such
indemnified party for any legal or other expenses subsequently incurred by the
latter in connection with the defense thereof.
5. Reservation of Warrant Shares
The Company covenants that it will at all times reserve and keep
available out of its authorized Common Stock, solely for the purpose of issue
upon exercise of the Warrants, such number of shares of Common Stock as shall
then be issuable upon the exercise of all outstanding Warrants. The Company
covenants that all shares of Common Stock which shall be issuable upon exercise
of the Warrants shall be duly and validly issued and fully paid and
non-assessable and free from all taxes, liens and charges with respect to the
issue thereof.
6. Loss or Mutilation
Upon receipt by the Company of reasonable evidence of the ownership of
and the loss, theft, destruction or mutilation of any Warrant Certificate and,
in the case of loss, theft or destruction, of indemnity reasonably satisfactory
to the Company, or, in the case of mutilation, upon surrender and cancellation
of the mutilated Warrant Certificate, the Company shall execute and deliver in
lieu thereof a new Warrant Certificate representing an equal number of Warrants.
7. Adjustment of Purchase Price and Number of Warrant Shares Deliverable
7.1 The Purchase Price and the number of shares of Common Stock
purchasable pursuant to this Warrant shall be subject to adjustment from time to
time as hereinafter set forth in this Article 7. Whenever reference is made in
this Article 7 to the issue or sale of shares of Common Stock, or simply shares,
such term shall mean any stock of any class of the Company other than preferred
stock with a fixed limit on dividends and a fixed amount payable in the event of
any voluntary or involuntary liquidation, dissolution or winding up of the
Company. The shares issuable upon exercise of the Warrants shall however be
shares of Common Stock of the Company, par value $0.001 per share, as
constituted at the date hereof, except as otherwise provided in Sections 7.3 and
7.4.
-6-
<PAGE>
7.2 In case the Company shall at any time change as a whole, by
subdivision or combination in any manner or by the making of a stock dividend,
the number of outstanding shares into a different number of shares, with or
without par value, (i) the number of shares which immediately prior to such
change the holder of each Warrant shall have been entitled to purchase pursuant
to this Warrant shall be increased or decreased in direct proportion to the
increase or decrease, respectively, in the number of shares outstanding
immediately prior to such change, and (ii) the Purchase Price in effect
immediately prior to such change shall be increased or decreased in inverse
proportion to such increase or decrease in the number of such shares outstanding
immediately prior to such change. For the purpose of this Section 7.2, the
number of shares outstanding at any given time shall not include shares in the
treasury of the Company.
7.3 In case of any capital reorganization or any reclassification of
the capital stock of the Company or in case of the consolidation or merger of
the Company with another corporation, or in case of any sale, transfer or other
disposition to another corporation of all or substantially all the property,
assets, business and good will of the Company, the holder of each Warrant shall
thereafter be entitled to purchase (and it shall be a condition to the
consummation of any such reorganization, reclassification, consolidation,
merger, sale, transfer or other disposition that appropriate provision shall be
made so that such holder shall thereafter be entitled to purchase) the kind and
amount of shares of stock and other securities and property receivable in such
transaction which a shareholder receives who holds the number of shares which
the Warrant entitled the holder to purchase immediately prior to such capital
reorganization, reclassification of capital stock, consolidation, merger, sale,
transfer or other disposition; and in any such case appropriate adjustments
shall be made in the application of the provisions of this Article 7 with
respect to rights and interests thereafter of the holder of the Warrants to the
end that the provisions of this Article 7 shall thereafter be applicable, as
nearly as reasonably may be, in relation to any shares or other property
thereafter purchasable upon the exercise of the Warrants.
7.4 In the event the Company shall declare a dividend upon the Common
Stock payable otherwise than out of earnings or earned surplus or otherwise than
in shares of Common Stock or in stock or obligations directly or indirectly
convertible into or exchangeable for such shares, the holder of each Warrant
shall, upon exercise of the Warrant, be entitled to purchase, in addition to the
number of shares deliverable upon such exercise, against payment of the Warrant
Price therefor but without further consideration, the cash, stock or other
securities or property which the holder of the Warrant would have received as
dividends (otherwise than out of such earnings or earned surplus and otherwise
than in shares or in obligations convertible into or exchangeable for Common
Stock) if continuously since the date hereof such holder (i) had been the holder
of record of the number of shares deliverable upon such exercise and (ii) had
retained all dividends in stock or other securities (other than shares or such
convertible or exchangeable stock or obligations) paid or payable in respect of
said number of shares or in respect of any such stock or other securities so
paid or payable as such dividends.
7.5 No certificate for fractional shares shall be issued upon the
exercise of the Warrants, but in lieu thereof the Company shall purchase any
such fractional interest calculated to the nearest cent.
-7-
<PAGE>
7.6 Whenever the Purchase Price is adjusted as herein provided, the
Company shall forthwith deliver to each Warrant holder a statement signed by the
President of the Company and by its Treasurer or Secretary stating the adjusted
Purchase Price and number of shares determined as herein specified. Such
statement shall show in detail the facts requiring such adjustment, including a
statement of the consideration received by the Company for any additional stock
issued.
7.7 In the event at any time:
(i) The Company shall pay any dividend payable in stock upon
its Common Stock or make any distribution (other than cash
dividends) to the holders of its Common Stock; or
(ii) The Company shall offer for subscription pro rata to
the holders of its Common Stock any additional shares of stock
of any class or any other rights; or
(iii) The Company shall effect any capital reorganization or
any reclassification of or change in the outstanding capital
stock of the Company (other than a chance in par value, or a
change from par value to no par value, or a change from no par
value to par value, or a change resulting solely from a
subdivision or combination of outstanding shares), or any
consolidation or merger, or any sale, transfer or other
disposition of all or substantially all its property, assets,
business and good will as an entirety, or the liquidation,
dissolution or winding up of the Company; or
(iv) The Company shall declare a dividend upon its Common
Stock payable otherwise than out of earnings or earned surplus
or otherwise than in Common Stock or any stock or obligations
directly or indirectly convertible into or exchangeable for
Common Stock;
then, in any such case, the Company shall cause at least thirty days' prior
notice to be mailed to the registered holder of each Warrant at the address of
such holder shown on the books of the Company. Such notice shall also specify
the date on which the books of the Company shall close, or a record be taken,
for such stock dividend, distribution or subscription rights, or the date on
which such reclassification, reorganization, consolidation, merger, sale,
transfer, disposition, liquidation, dissolution, winding up or dividend, as the
case may be, shall take place, and the date of participation therein by the
holders of shares if any such date is to be fixed, and shall also set forth such
facts with respect thereto as shall be reasonably necessary to indicate the
effect of such action on the rights of the holders of the Warrants.
-8-
<PAGE>
8. Governing Law
8.1 This Warrant Certificate shall be governed by and construed in
accordance with the laws of the State of Delaware.
IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to
be duly executed by its officers thereunto duly authorized and its corporate
seal to be affixed hereon as of the 21st day of September, 1999.
PREFERRED VOICE, INC.
BY:
Chairman of the Board
Attest:
Secretary
-9-
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000946822
<NAME> PREFERRED VOICE, INC.
<CURRENCY> US-DOLLARS
<S>
<C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAR-31-2000
<PERIOD-START> JUL-01-1999
<PERIOD-END> SEP-30-1999
<EXCHANGE-RATE> 1
<CASH> 161,699
<SECURITIES> 0
<RECEIVABLES> 284,721
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 447,003
<PP&E> 557,237
<DEPRECIATION> (217,557)
<TOTAL-ASSETS> 1,632,815
<CURRENT-LIABILITIES> 990,819
<BONDS> 0
0
0
<COMMON> 11,436
<OTHER-SE> 630,560
<TOTAL-LIABILITY-AND-EQUITY> 1,632,815
<SALES> 227,471
<TOTAL-REVENUES> 227,471
<CGS> 91,167
<TOTAL-COSTS> 91,167
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5,450
<INCOME-PRETAX> (225,138)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 17,935
<CHANGES> 0
<NET-INCOME> (207,203)
<EPS-BASIC> (0.2)
<EPS-DILUTED> (0.2)
</TABLE>
