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 June 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-June 30, 1999, June 30, 1998 and March 31, 1999. 1
Statements of Operations-Three Months Ended June 30, 1999
and 1998 and for the Year Ended March 31, 1999. 3
Statements of Cash Flows-Three Months Ended June 30, 1999
and 1998 and for the Year Ended March 31, 1999. 4
Notes to Financial Statements - June 30, 1999.
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 6
Part II. Other Information 17
Item 1. Legal Proceedings 17
Item 2. Changes in Securities 17
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 18
Signatures 19
<PAGE>
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
Preferred Voice, Inc.
Balance Sheets
June 30, 1999 and 1998 and March 31, 1999
<TABLE>
<CAPTION>
<S> <C> <C> <C>
June 30, June 30, March 31,
1999 1998 1999
Assets (Unaudited) (Unaudited) (Audited)
Current Assets:
Cash and Cash Equivalents $ 390,731 $ 18,053 $ 41,750
Accounts Receivable, net of allowance 1,000 - 860
for doubtful accounts of $ -0-, $-0-
and $-0- respectively
Employee Receivables - 814 2,500
------------------ -------------------- -------------------
Total Current Assets $ 391,731 $ 18,867 $ 45,110
------------------ -------------------- -------------------
Property and Equipment:
Computer Equipment $ 270,062 $ 141,297 $ 223,046
Furniture and Fixtures 20,119 18,134 16,934
Office Equipment 12,493 9,303 12,493
Computer Software 222,405 116,532 190,063
LESS: Accumulated Depreciation (189,215) (89,673) (161,049)
------------------ -------------------- -------------------
Net Property and Equipment $ 335,864 $ 195,593 $ 281,487
------------------ -------------------- -------------------
Other Assets:
Deposits $ 81,535 $ 81,212 $ 81,535
Prepaid Expenses 761,018 761,018 761,018
------------------ -------------------- -------------------
Total Other Assets $ 842,553 $ 842,230 $ 842,553
------------------ -------------------- -------------------
Total Assets $1,570,148 $1,056,690 $1,169,150
================== ==================== ===================
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
June 30, June 30, March 31,
1999 1998 1999
Liabilities and Stockholder's Deficit (Unaudited) (Unaudited) (Audited)
Current Liabilities:
Accounts Payable $ 319,478 $ 349,032 $ 363,834
Accrued Operating & Vacation Expenses 19,611 29,714 19,611
Accrued Payroll and Related Tax 187,057 140,712 226,755
Accrued Interest Payable 262,937 358,309 248,967
Notes Payable 195,866 1,200,866 103,866
Notes Payable-Related Parties 100,000 365,800 100,000
------------------- ------------------ ------------------
Total Current Liabilities $ 1,084,949 $ 2,444,433 $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 9,700,681, 6,173,470
and 9,695,681 respectively $ 11,096 $ 6,173 $ 9,695
Additional Paid In Capital 6,100,961 3,380,205 5,192,033
Accumulated Deficit (5,624,990) (5,499,442) (5,937,689)
Treasury Stock - at cost (1,868) (1,868) (1,868)
------------------- ------------------ ------------------
Total Stockholder Deficit $ 485,199 $ (2,114,932) $(737,829)
------------------- ------------------ ------------------
Total Liabilities and Stockholder Deficit $ 1,570,148 $ 1,056,690 $ 1,169,150
=================== ================== ==================
</TABLE>
<PAGE>
Preferred Voice, Inc.
Statements of Operations
For the Three Months Ended June 30, 1999 and 1998
And For the Year Ended March 31, 1999
<TABLE>
<CAPTION>
<S> <C> <C> <C>
June 30, June 30, March 31,
1999 1998 1999
(Unaudited) (Unaudited) (Audited)
------------------- ------------------- ------------------
Sales $ 595,175 $ - $ 180,383
Cost of Sales 44,916 - 15,033
------------------- ------------------- ------------------
Gross Profit (loss) $ 550,259 $ - $ 165,350
------------------- ------------------- ------------------
Costs and Expenses:
General & Administrative $ 233,175 $ 50,828 $ 768,024
Interest Expense 16,440 201,523 176,752
------------------- ------------------- ------------------
Total Costs and Expenses $ 249,615 $ 252,351 $ 944,776
------------------- ------------------- ------------------
Loss Before Income Tax $ 300,644 $ (252,351) $(779,426)
Provision for Income Tax -0- -0- -0-
------------------- ------------------- ------------------
Loss Before Extraordinary Item $ 300,644 $ (252,351) $(779,426)
Extraordinary Item:
Gain/(Loss) from Extinguishment 12,056 88,828
of Debt (less applicable
income taxes of -0-) (Note K)
Net Gain/(Loss) $ 312,700 $ (252,351) $(690,598)
Per Share Amounts:
Gain/(Loss) from Operations 0.03 (0.04) (0.11)
Gain from Extinguishment of Debt - - $ 0.01
Net Gain/(Loss) Per Share $ 0.03 $ (0.04) $ (0.10)
============================================================
</TABLE>
<PAGE>
Preferred Voice, Inc.
Statement of Cash Flows
For the Three Months Ended June 30, 1999 and 1998
And For the Year Ended March 31, 1999
<TABLE>
<CAPTION>
<S> <C> <C> <C>
June 30, June 30, March 31,
1999 1998 1999
(Unaudited) (Unaudited) (Audited)
------------------- ------------------- -------------------
Cash Flows from Operating Activities:
Cash Received from customers $ 595,035 $ - $ 179,510
Cash Paid to suppliers and employees (318,045) (154,144) (500,572)
Interest Paid (2,467) - -0-
------------------- ------------------- -------------------
Net Cash used by Operating Activities $ 274,523 $ (154,144) $ (321,062)
------------------- ------------------- -------------------
Cash Flows from Investing Activities
Capital Expenditures $ (82,542) $ (55,088) $ (151,772)
Proceeds from Sale of Fixed Assets 1,300
------------------- ------------------- -------------------
Net Cash used by Investing Activities $ (82,542) $ (55,088) $ (150,472)
------------------- ------------------- -------------------
Cash Flows from Financing Activities:
Proceeds from Sale of Stock $ - $ $ -0-
Proceeds from Notes Payable 200,000 45,000 351,000
Note Principal Payments (43,000) (20,000)
Proceeds from Sale -Leaseback Transaction 100,000 100,000
------------------- ------------------- -------------------
Net Cash provided by Financing Activities $ 157,000 $ 145,000 $ 431,000
------------------- ------------------- -------------------
Net Increase (Decrease) in $ 348,981 $ (64,232) $ (40,534)
Cash and Cash Equivalents
Cash and Cash Equivalents:
Beginning of Period 41,750 82,285 82,284
------------------- ------------------- -------------------
End of Period $ 390,731 $ 18,053 $ 41,750
=================== =================== ===================
Supplemental Schedule of non-cash investing
and financing activities:
Issuance of Common Stock in
Exchange for Debt $ 910,329 $ 64,459 $ 1,879,809
------------------- ------------------- -------------------
Total Non-Cash Investing Activities $ 910,329 $ 64,459 $ 1,879,809
=================== =================== ===================
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
June 30, June 30, March 31,
1999 1998 1999
(Unaudited) (Unaudited) (Audited)
------------------ ------------------- ------------------
Reconciliation of Net Gain/(Loss) to Net
Cash used by Operating Activities:
Net Gain/(Loss) $ 312,700 $ (252,351) $ (690,598)
------------------ ------------------- -------------------
Adjustments to Reconcile Net Loss to
Net Cash used by Operating Activities:
Depreciation $ 28,166 $ 6,455 $ 80,113
Amortization - 2,669 2,869
(Gain) Loss on Sale of Fixed Assets - - (186)
Changes in Assets and Liabilities:
(Increase) Decrease in Accounts Receivable (140) - (860)
(Increase) Decrease in Employee Receivables 2,500 (814) (2,500)
(Increase) Decrease in Deposits - 3,398 2,875
(Increase) Decrease in Prepaid Expenses - 38,982 38,982
(Increase) Decrease in Deferred Debt Issue Costs - 2,669 -
Increase (Decrease) in Accounts Payable (44,356) (11,680) 58,635
Increase (Decrease) in Accrued Expenses (24,347) 56,528 189,608
------------------ ------------------- -------------------
Total Adjustments $ (38,177) $ 98,207 $ 369,536
------------------ ------------------- -------------------
Net Cash used by Operating Activities $ 274,523 $ (154,144) $ (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, 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
<PAGE>
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 their services and products are provided. During the current period,
however, 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 for the period ended June 30, 1999, and 1998 and March 31,
1999 was $570,000, $-0- and $-0-, respectively. 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 derived from one
customer and was recognized when the contract became final. The distributor fee
income was $25,000, -0-, and $170,000 for the period ended June 30, 1999, and
1998 and March 31, 1999, respectively.
Advertising expense
The Company expenses advertising costs when the advertisement occurs. Total
advertising expense amounted to $3,568, $42,269, and $42,269 for the period
ended June 30, 1999, and 1998 and March 31, 1999, respectively.
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 9,315,182 and 5,749,848 and 7,205,065 for the period ended June
30, 1999, and 1998 and March 31, 1999, respectively.
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-,
$2,669, and $2,869 for the period ended June 30, 1999, and 1998 and March 31,
1999, respectively.
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.
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
<PAGE>
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 June 30, 1999 and 1998, and March 31,
1999:
June 30, June 30, March 31,
1999 1998 1999
-------------- -------------- -------------
Outside interests $ 50,866 $ 50,866 $ 50,866
Related parties 0 956,746 690,946
-------------- -------------- -------------
$ 50,866 $ 1,007,612 $ 741,812
============== ============== =============
Note payable to outside interests include:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
June 30, June 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>
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 periods ended June 30, 1999 and 1998, and March
31, 1999 respectively.
<PAGE>
Notes payable to related parties include:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
June 30, June 30, March 31,
1999 1998 1999
------------ ------------ -------------
Note payable to a director and officer, dated September 1, 1994, due on
December 31, 1998, and unsecured, interest was payable semi-annually at
the rate of prime +2 (8.5% at March 31, 1998). This note was converted
into 15,000 shares of common stock on September 30, 1998. $ 0 $ 7,500 $ 0
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 and several affiliated
trusts of which the stockholder is the trustee. The notes were unsecured
and bore interest at rates ranging from 9% to 10% and prime (8.5% at
March 31, 1998) with principal and accrued interest payable at various
dates through December 31, 1998. These notes were converted into 869,276
shares of common stock on September 3, 1998. 0 348,300 0
Note payable to an officer dated May 20, 1996, secured by common stock
with principal and accrued interest due at maturity on May 20, 1998.
This note was converted into 33,975 shares of common stock on
September 30, 1998. 0 10,000 0
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 0 100,000
------------ ------------ -------------
Total related party notes payable $ 100,000 $ 956,746 $ 690,946
Less current portion 100,000 956,746 100,000
------------ ------------ -------------
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 $3,485, $23,774 and $64,199 for the periods ended June 30, 1999 and
1998, and March 31, 1999 respectively.
Note D - Long-term debt:
Long-term debt consisted of the following at June 30, 1999 and 1998,
and March 31, 1999:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
June 30, June 30, March 31,
1999 1998 1999
----------- ------------ -------------
12% convertible debentures due December 25, 1997, convertible into
shares of common stock at a conversion price of $.87 per share.
Principal and interest were payable on demand at maturity.
Convertible debentures were secured by a media purchase credit
(see Note J). These notes were converted into 367,816 shares of
common stock on September 30, 1998. $ 0 $ 320,000 $ 0
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. 60,000 785,000 60,000
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 45,000 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
April 22, 2000. This note is convertible into shares of common
stock at a conversion price of $1.00 per share. Subsequent to the
balance sheet date, $37,500 of the note was used to exercise
75,000 warrant shares at $.50 per share and the remaining note
balance of $37,500 was paid in full on July 8, 1999. 37,500 0 0
Note payable to an individual. This note is unsecured and bears
interest at 12% per annum with the principal and interest due on
April 23, 2000. This note is convertible into shares of common
stock at a conversion price of $1.00 per share. Subsequent to the
balance sheet date, $37,500 of the note was used to exercise
75,000 warrant shares at $.50 per share and the remaining note
balance of $37,500 was paid in full on July 8, 1999. 37,500 0 0
<PAGE>
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
----------- ------------ --------------
$ 145,000 $ 1,150,000 $ 306,000
Less current portion 145,000 1,150,000 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, $26,768 and $112,553 for the periods ended June 30, 1999 and 1998, and
March 31, 1999 respectively.
Note E - Common stock:
Stock purchase warrants
At June 30, 1999, the Company had outstanding warrants to purchase
2,405,500 shares of the Company's common stock at prices which ranged from $0.20
per share to $4.88 per share. The warrants are exercisable at any time and
expire on dates ranging from August 31, 1999 to March 31, 2004. At June 30,
1999, 2,405,500 shares of common stock were reserved for that purpose.
Common stock reserved
At June 30, 1999, shares of common stock were reserved for the following
purposes:
Exercise of stock warrants 2,405,500
Exercise and future grants of stock
options and stock appreciation rights 423,000
--------------
2,828,500
==============
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.
<PAGE>
The provision for income taxes consists of:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
June 30, June 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
--------------- ----------------
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.
<PAGE>
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 June 30, 1999,
options to purchase 382,750 shares at exercise prices of $0.20 to $1.25 per
share had been granted. No stock appreciation rights had been granted at June
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 $ 59,414
2001 101,060
2002 103,540
2003 104,856
2004 80,364
-----------------
$ 449,234
=================
Total rent expense charged to operations was $14,352, $6,692 and $27,416
for the periods ended June 30, 1999 and 1998 and March 31, 1999, respectively.
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
June 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.
<PAGE>
Note K - Extinguishment of debt:
During the periods ended June 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 $12,056, -0-
and $88,828, respectively, 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.
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. 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
Line(sm), Emma-The Perfect Receptionist(sm), ** Talk(sm), My One Special
Number(sm) , and Safety*Talk(sm).
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 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
<PAGE>
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
The Company recorded a net gain of $312,700 for the period ended June
30, 1999, compared to a net loss of $252,351 for the period ended June 30, 1998.
Total Revenue
Total revenue for the period ended June 30, 1999, was $595,175 compared
to -0- for the period ended June 30, 1998. Total revenues consisted of $570,000
from licensing fees for the Company's VIP application software, $25,000 from
master distributor fees for specific marketing rights and the remaining from
service fees for the Company's "Emma the Perfect Receptionist" and "Smart Line".
The Company anticipates that revenues from the sale of its services will grow
gradually in the first half of 2000 as it installs VIP Systems in the ILECs and
WCCs which have already signed revenue sharing agreements and as VIP Systems are
purchased and installed at KMCs switch locations. The Company's agreement with
KMC is for 39 VIP Systems which are expected to be installed by the end of the
year 2000. The Company does not intend to sell its systems in the future but to
enter into revenue sharing agreements where the Company retains title to the VIP
Systems. The Company does not anticipate substantial revenue going forward from
master distributor agreements.
Cost of Sales
Cost of sales for the period ended June 30, 1999 was $44,916 compared
to -0- for the period ended June 30, 1998. Cost of sales consisted primarily of
direct costs associated with the licensing agreement completed during the period
and system access costs related to the basic infrastructure requirements to
provide the Company's "Emma the Perfect Receptionist" and "Smart Line" service
to current and future end users.
Selling, General and Administrative
Selling, general and administrative expenses for the period ended June
30, 1999 were $233,175 compared to $50,828 for the period ended June 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 expectes that selling, general and adminstrative expenses
will increase in fiscal year 2000, such expenses to include costs related to the
number of employees, office space requirements and general overhead. However,
the Company believes that such expenses will not increase proportionately with
revenues from sales.
Extraordinary Items
The Company has recognized income from the extinguishment of debt of
$12,056, -0-, and $88,828 for the period ended June 30, 1999 and 1998, and March
31, 1999, respectively.
Liquidity and Capital Resources
The Company's cash and cash equivalents at June 30, 1999 were $390,731
an increase of $348,981 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) of the Securities Act of 1933,
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.
<PAGE>
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 January 15, 2000,
the Company employed fifteen (16) 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 $900,000 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).
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.
<PAGE>
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.
<PAGE>
(c) Recent Sales of Unregistered Securities
On May 3, 1999, the Company issued John Meleky a warrant to purchase 1,250
shares of common stock of the Company at an exercise price of $1.37 per share on
or before May 3, 2001.
On May 3, 1999, the Company issued Karl Koelker a warrant to purchase 2,672
shares of common stock of the Company at an exercise price of $1.37 per share on
or before May 3, 2001.
On May 3, 1999, the Company issued Louis R. Battista a warrant to purchase
10,539 shares of common stock of the Company at an exercise price of $1.37 per
share on or before May 3, 2001.
On May 3, 1999, the Company issued Mark Battista a warrant to purchase 10,539
shares of common stock of the Company at an exercise price of $1.37 per share on
or before May 3, 2001.
None of these transactions involved an underwriter and no underwriting discounts
or commissions were paid. All of these transactions are exempt from registration
under the Securities Act of 1933 (the "Securities Act") pursuant to Section 4(2)
of the Securities Act.
Additional sales of unregistered securities made during the reporting period
covered by this Form 10-QSB have been previously reported in Part II of the
Company's 10-KSB for the fiscal year ended March 31, 1999, filed with the
Securities and Exchange Commission on December 1, 1999.
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
Exhibit
Number Description of Exhibits
<TABLE>
<CAPTION>
<S> <C>
10.1* Warrant Certificate No. 93 issued to John Meleky, dated May 3, 1999
10.2* Warrant Certificate No. 94 issued to Karl Koelker, dated May 3, 1999
10.3* Warrant Certificate No. 95 issued to Louis R. Battista, dated May 3, 1999
10.4* Warrant Certificate No. 96 issued to Mark Battista, dated May 3, 1999
10.5** Master Distributor Agreement between Voice Retrieval, Inc. and Preferred Voice, Inc.
10.6** Software License Agreement between KMC Telecom Holdings, Inc. and Preferred Voice, Inc.
10.7* Form of Promissory Note and Schedule
</TABLE>
* 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.
/s/ G. Ray Miller
February 10, 2000 --------------------------------------
G. Ray Miller
President, Chief Executive Officer
and Chairman of the Board of Directors
(Principal Executive Officer)
/s/ Mary G. Merritt
February 10, 2000 --------------------------------------
Mary G. Merritt
Secretary, Treasurer and
Vice President of Finance
(Principal Financial Officer)
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. 93 1,250 Warrants
------------- ----------
PREFERRED VOICE, INC.
WARRANT CERTIFICATE
This warrant certificate ("Warrant Certificate") certifies that for
value received John Meleky (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 $1.37 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 $.1.37 (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 May
3, 2001, 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 jurisdictions;
(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 material fact or omit to
state a material fact required to be stated therein or necessary to
make the
-3-
<PAGE>
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 commissions applicable to
the Warrant Shares covered by any such registration and all fees and
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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 information furnished to the Company in an instrument
duly executed by the Holder or such underwriter
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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.
7.2 In case the Company shall at any time change as a whole, by
subdivision or combination
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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.
7.6 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
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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.
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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 3rd day of May, 1999.
PREFERRED VOICE, INC.
BY:
Chairman of the Board
Attest:
Secretary
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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. 94 2,672 Warrants
-------------- ------------
PREFERRED VOICE, INC.
WARRANT CERTIFICATE
This warrant certificate ("Warrant Certificate") certifies that for
value received Karl Koelker (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 $1.37 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 $.1.37 (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 May
3, 2001, 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.
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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
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<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
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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
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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
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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 3rd day of May, 1999.
PREFERRED VOICE, INC.
BY:
Chairman of the Board
Attest:
Secretary
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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. 95 10,539 Warrants
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PREFERRED VOICE, INC.
WARRANT CERTIFICATE
This warrant certificate ("Warrant Certificate") certifies that for
value received Louis R. Battista (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 $1.37 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 $.1.37 (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 May
3, 2001, 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
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<PAGE>
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.
4.3 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
-3-
<PAGE>
delivered to the purchasers of the Warrant Shares, such prospectus
shall not include an untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to
make the statements therein not misleading 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
-4-
<PAGE>
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 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,
-5-
<PAGE>
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 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
-6-
<PAGE>
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.
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
-7-
<PAGE>
in lieu thereof the Company shall purchase any such fractional interest
calculated to the nearest cent.
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 3rd day of May, 1999.
PREFERRED VOICE, INC.
BY:
Chairman of the Board
Attest:
Secretary
-9-
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. 96 10,539 Warrants
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PREFERRED VOICE, INC.
WARRANT CERTIFICATE
This warrant certificate ("Warrant Certificate") certifies that for
value received Mark Battista (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 $1.37 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 $1.37 (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 May
3, 2001, 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.
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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
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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.
4.3 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
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delivered to the purchasers of the Warrant Shares, such prospectus
shall not include an untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to
make the statements therein not misleading 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
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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 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,
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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 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
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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.
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
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in lieu thereof the Company shall purchase any such fractional interest
calculated to the nearest cent.
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.
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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 3rd day of May, 1999.
PREFERRED VOICE, INC.
BY:
Chairman of the Board
Attest:
Secretary
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This Note has 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 Note shall provide an opinion
of counsel to Preferred/telecom, 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.
PROMISSORY NOTE
$ ________ Dallas, Texas ______, 1999
FOR VALUE RECEIVED, Preferred Voice, Inc., a Delaware corporation, promises to
pay to the order of at or at such other address as the holder hereof may
designate, the principal sum of ($___________), together with interest on the
unpaid principal balance from the date hereof until this note is paid in full at
a rate of ____% per annum.
Principal and interest shall be payable as follows:
a. Upon funding of KMC Telecom agreement, or
b. Through payment of 50% of proceeds from sales of master
distributorships sold after this date, or
c. One year from issuance of this note,
whichever is earlier until note and interest is fully paid.
All payments received shall be applied first to the payment of accrued
interest and then to the payment of principal.
Maker shall have the right to prepay any and all amounts due hereunder
without penalty for the privilege of doing so.
No payment shall be considered in default unless it is not paid within
ten (10) days after delivery of written notice of nonpayment.
Any time prior to repayment, Holder will have the right to convert this
note into shares of common stock, $.001 par value per share, of Maker, at the
conversion rate of one share of common stock for each $1.00 of principal and
interest due on the note on the date of conversion.
In the event default is made in the payment of this Note, the unpaid
balance on this Note shall at once become due and payable, without notice, at
the option of the Holder. Failure to exercise this option shall not constitute a
waiver of the right to declare the entire principal due and payable at once at
any subsequent time.
<PAGE>
All past due principal on this Note shall bear interest at a rate of
18% per annum from maturity until paid.
In the event default is made in the payment of this Note, then the
holder will have the right from and after such default to convert the unpaid
balance on this Note into the number of shares of common stock, $.001 par value
per share, of maker (the "Stock"), derived from dividing the unpaid balance by
the conversion rate where the conversion rate equals one-half of the average
closing price of the Stock on the exchange on which it is traded for the 45 day
period prior to conversion or if the Stock is not then traded on an exchange,
one-half of the average of the last bid price for the 45 day period prior to the
conversion.
If, after default, this Note is placed in the hands of an attorney for
collection, or if colleted through judicial proceeding, Maker shall pay, in
addition to the sums referred to above, a reasonable sum as a collection or
attorneys' fee and all other costs incurred by Holder in collection of the
unpaid amounts due hereunder.
Each maker, surety, guarantor, endorser or other party liable for the
payment of this Note, in whole or in part, hereby expressly waives presentment
and demand for payment, notice of intention to accelerate maturity, notice of
acceleration of maturity, protest and notice of protest and nonpayment, bringing
of suit and diligence in taking any action to collect sums owing hereon, and
agree that this Note, and any payment hereunder, may be extended from time to
time without in any way affecting such liability.
MAKER:
Preferred Voice, Inc.
By:
-------------------------------
G. RAY MILLER
Chief Executive Officer
<PAGE>
Schedule of Promissory Notes
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Interest Rate
Name Address Date Issued Amount (per annum)
John B. Davies 1259 Western Avenue 4/7/99 $50,000.00 12%
Westfield, MA 01085
Larry Kupferberg 39 West 83rd Street, Apt. #2 4/22/99 $75,000.00 12%
New York, NY 10024-5242
Jacqueline Knapp 947 Huron Road 4/23/99 $75,000.00 12%
Franklin Lakes, NJ 07417
</TABLE>
<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> APR-1-1999
<PERIOD-END> JUN-30-1999
<EXCHANGE-RATE> 1
<CASH> 390,731
<SECURITIES> 0
<RECEIVABLES> 1,000
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 391,731
<PP&E> 525,079
<DEPRECIATION> (189,215)
<TOTAL-ASSETS> 1,570,148
<CURRENT-LIABILITIES> 1,084,949
<BONDS> 0
0
0
<COMMON> 11,096
<OTHER-SE> 474,103
<TOTAL-LIABILITY-AND-EQUITY> 1,570,148
<SALES> 595,175
<TOTAL-REVENUES> 595,175
<CGS> 44,916
<TOTAL-COSTS> 44,916
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 16,440
<INCOME-PRETAX> (300,644)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 12,056
<CHANGES> 0
<NET-INCOME> (312,700)
<EPS-BASIC> (0.3)
<EPS-DILUTED> (0.3)
</TABLE>
