-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, WO62Fafs1Wn+4GvpgG2gNbmoq7CQENGRrxhUWc1roA/vo/08nT5ti3KWM3kFx02N icEuX1neVwQQsiiK9/z2yw== 0000950148-97-001761.txt : 19970704 0000950148-97-001761.hdr.sgml : 19970704 ACCESSION NUMBER: 0000950148-97-001761 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19970331 FILED AS OF DATE: 19970703 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: VOICE POWERED TECHNOLOGY INTERNATIONAL INC CENTRAL INDEX KEY: 0000890447 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRONIC COMPONENTS, NEC [3679] IRS NUMBER: 953977501 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10QSB SEC ACT: 1934 Act SEC FILE NUMBER: 001-11476 FILM NUMBER: 97636148 BUSINESS ADDRESS: STREET 1: 18425 BURBANK BLVD STE 508 CITY: TARZANA STATE: CA ZIP: 91356 BUSINESS PHONE: 8187571100 10QSB 1 FORM 10QSB 1 ============================================================================== UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ------------------------ FORM 10-QSB [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarter ended March 31, 1997 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES ACT OF 1934 For the transition period from __________ to ___________ Commission File No. 1-11476 VOICE POWERED TECHNOLOGY INTERNATIONAL, INC. (Name of small business issuer in its charter) California 95-3977501 (State or other jurisdiction of (I.R.S.Employer incorporation or organization) Identification Number) 18425 Burbank Boulevard, Suite 508 91356 Tarzana, California (Zip Code) (Address of principal executive offices) Registrant's telephone number, including area code: (818)757-1100 Check whether the issuer (l) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ____ No __X_ As of May 30, 1997, there were 15,949,072 shares of Voice Powered Technology International, Inc. Common Stock $.001 par value outstanding excluding outstanding options and warrants. =============================================================================== 2 VOICE POWERED TECHNOLOGY INTERNATIONAL, INC. FORM 10-QSB TABLE OF CONTENTS PART I -- FINANCIAL INFORMATION PAGE NUMBER ----------- Item 1. Financial Statements -- unaudited Balance Sheet as of March 31, 1997 3 Statements of Operations for the three months ended March 31, 1997 and 1996 4 Statements of Cash Flows for the three months ended March 31, 1997 and 1996 5 Notes to Financial Statements 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 8 PART II -- OTHER INFORMATION Item 5. Other Information 11 Item 6. Exhibits and Reports on Form 8-K 11 -2- 3 PART 1. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS VOICE POWERED TECHNOLOGY INTERNATIONAL, INC. BALANCE SHEET (Amounts in Thousands) (Unaudited) Assets
Pro forma March 31, March 31, 1997 1997 (Notes 3 - 5) ------- -------------- Current assets Cash and cash equivalents $ 315 $ 913 Restricted cash 75 Receivables, net of allowance for doubtful accounts 418 Receivables sold to financial institution 742 Less initial payments received from financial institution 526 -------- Net amount due from financial institution 216 Inventory 1,939 1,783 Prepaid expenses 49 -------- -------- Total current assets 3,012 3,454 Property and equipment Equipment 1,951 1,854 Other 131 -------- -------- 2,082 1,985 Less accumulated depreciation 1,445 1,418 -------- -------- Net property and equipment 637 567 Patents and technology rights, net of amortization 252 Deferred costs, net of amortization 599 516 Other assets 134 -------- -------- Total assets $ 4,634 $ 4,923 ======== ======== Liabilities and Stockholders' Equity Current liabilities Accounts payable $ 4,170 $ 522 Accrued expenses 774 689 Note payable (Note 2) 500 -- Current obligations under long term debt -- 400 -------- -------- Total current liabilities 5,444 1,611 Long term debt -- 1,300 -------- -------- Total liabilities 5,444 2,911 Commitments and contingencies (Note 6) -- -- Stockholders' equity (deficit) Preferred stock, 10,000,000 shares authorized; none issued (500,000 at $1.00 stated value) -- 500 Common stock, $.001 stated value - shares authorized, 50,000,000; issued and outstanding, 13,949,072 (15,949,072) 14 16 Additional paid-in capital 27,746 27,894 Accumulated deficit (28,570) (26,398) -------- -------- Total stockholders' equity (deficit) (810) 2,012 -------- -------- Total liabilities and stockholders' equity (deficit) $ 4,634 $ 4,923 ======== ========
See accompanying notes to financial statements. -3- 4 VOICE POWERED TECHNOLOGY INTERNATIONAL, INC. STATEMENTS OF OPERATIONS (Amounts in Thousands Except Per Share) (Unaudited)
Three months ended March 31, 1996 1997 ------- ------ Sales $ 2,199 $ 1,341 Less price protection -- 77 ------- ------- Net sales 2,199 1,264 Cost of goods sold 1,361 981 ------- ------- Gross profit 838 283 Operating costs Marketing 435 577 General and administrative 680 652 Research and development 293 225 Warehouse 177 176 ------- ------- Total operating costs 1,585 1,630 ------- ------- Operating loss (747) (1,347) Other expense, net (33) (39) ------- -------- Net loss $ (780) $(1,386) ======= ======== Net loss per common share $ (.06) $ (.10) ======= ======== Weighted average common shares outstanding 13,034 13,949 ====== ======
See accompanying notes to financial statements -4- 5 VOICE POWERED TECHNOLOGY INTERNATIONAL, INC. STATEMENTS OF CASH FLOWS (Amounts in Thousands) (Unaudited)
Three months ended March 31, 1996 1997 -------- -------- Increase (Decrease) in Cash and Cash Equivalents Cash flows from operating activities: Net loss $ (780) $(1,386) Adjustments to reconcile net loss to net cash provided by (used in) operating activities: Compensatory stock options 12 -- Depreciation and amortization 144 181 Changes in operating assets and liabilities: Decrease in restricted cash -- 75 Decrease in receivables 1,782 1,167 (Increase) decrease in inventory 716 (108) Decrease in prepaid expenses 17 52 Increase in deferred costs (168) (64) Increase in other assets (105) (7) Decrease in accounts payable (467) (171) Decrease in accrued expenses (137) (83) -------- ------- Net cash provided by (used in) operating activities 1,014 (344) -------- ------- Cash flows from investing activities: Capital expenditures (58) (68) -------- ------- Net cash used in investing activities (58) (68) -------- ------- Cash flows from financing activities: Proceeds from note payable -- 500 Payments on loan payable (1,692) -- Proceeds from exercise of stock options 15 -- -------- ------- Net cash provided by (used in) financing activities (1,677) 500 -------- ------- Net increase (decrease) in cash and cash equivalents (721) 88 Cash and cash equivalents at the beginning of the year 2,095 227 -------- ------- Cash and cash equivalents, March 31 $ 1,374 $ 315 ======== ======= Supplemental Disclosure Interest paid $ 54 $ 43 ======== ======= Non-cash financing and investing activities: Issuance of compensatory stock options to related party $ 50 $ -- Issuance of common stock to vendor 1,955 -- Conversion of accounts payable to note payable 883 --
See accompanying notes to financial statements -5- 6 VOICE POWERED TECHNOLOGY INTERNATIONAL, INC. NOTES TO FINANCIAL STATEMENTS (Unaudited) NOTE 1 -- The accompanying unaudited financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and the instructions to Form 10-QSB. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting only of normal recurring accruals) considered necessary for a fair presentation have been included. For further information, refer to the financial statements, and footnotes thereto, included in the Company's Annual Report on Form 10-KSB for the year ended December 31, 1996. Operating results for the three month period ended March 31, 1997 are not necessarily indicative of the results that may be expected for the year ending December 31, 1997. NOTE 2 -- In February 1997, the Company entered into a Letter of Intent with Franklin Electronic Publishers, Inc. ("Franklin"), setting forth the intention of the companies to enter into an agreement regarding a merger of the Company with Franklin upon certain terms and conditions including the Company's shareholder approval. Under the terms of the Letter of Intent, in March 1997 Franklin loaned the Company $500,000, secured by a promissory note on which interest accrues on the principal at 9% per year. The interest and principal on the note is payable (whether or not a merger agreement is executed) on December 31, 1997, and is secured by all of the Company's tangible and intangible assets, subordinate only to the financial institution with which the Company has an accounts receivable transfer and purchase agreement. The letter of intent was subsequently terminated, and the note was restructured as part of a May 1997 transaction (Note 3). NOTE 3 -- Subsequent to the first quarter of 1997, in May 1997, the Company consummated a transaction involving two agreements with Franklin. The first agreement was a Purchase and Loan Agreement in which the two companies entered into the following transactions: 1) The Company transferred and sold to Franklin for $450,000 in cash its inventory, rights to work in process, manufacturing assets, marketing assets, and software and hardware design assets for the Company's IQ-VOICE(TM) Organizer Models 5150 and 5160 (IQ-VOICE Pocket Organizers); 2) The Company sold to Franklin for $150,000 in cash 2,000,000 shares of the Company's common stock, par value $.001 per share, representing the approximate market price of the Company's common stock at the time of the transaction; and 3) Franklin loaned the Company cash equal to $1,200,000, in addition to $500,000 previously loaned to the Company, and restructured the payment terms of a new $1,700,000 promissory note. The new note carries interest at a rate of 10% per year. The interest is payable monthly, with principal payments of $400,000 due on April 30 of each year commencing April 30, 1998 and ending April 30, 2001, with the final installment in the amount necessary to repay the full balance of the loan. The second agreement was a Technology Transfer Agreement in which the two companies entered into the following transactions: 1) The Company granted to Franklin a non-exclusive perpetual license for technology rights evidenced by the Company's patent related to operation of Voice Organizer products as well as other technology and software developed by the Company related to or used in the Model 5150 and 5160 for a non-refundable advance royalty of $700,000; and 2) the Company assigned the rights to VoiceLogic(TM) Technology to Franklin, and Franklin granted back to the Company a non-exclusive perpetual license of the VoiceLogic Technology, including the right to sublicense, for the development, manufacture, sale and distribution of Voice Organizer products with recording times in excess of four minutes and any other electronic products that are not Voice Organizers, subject to the Company remaining obligated to pay royalties to Franklin at the same rates for which the Company was obligated to the inventor of the VoiceLogic Technology prior to its assignment to Franklin. The pro forma amounts for March 31, 1997 presented in the accompanying balance sheet include the effect of these transactions which resulted in an increase to cash of $2,500,000; $309,000 in reduction of inventory, net equipment, and net deferred costs; a decrease of $100,000 and an increase of $1,300,000 in current and long term debt, respectively; a $150,000 increase in common stock and additional paid-in capital; $700,000 in royalty revenues; and a $141,000 gain on the sale of assets. NOTE 4 -- Also in May 1997, the Company entered into agreements with Flextronics (Malaysia) SDN. BHD. ("Flextronics") and GSS/Array Technology, Inc. ("GSS"), the manufacturers of the Company's products, relating to the resolution of outstanding liabilities and commitments. The Company entered into a Settlement Agreement with Flextronics -6- 7 under which the Company made a cash payment and assigned the proceeds due pursuant to a licensing agreement with Kong Wah Video for a voice operated television remote control device to Flextronics as full and final settlement for all outstanding liabilities and commitments other than approximately $260,000 in inventory which has already been manufactured by Flextronics. The Company has committed to purchase such inventory prior to June 30, 1997. The Company also entered into a Discounted Payment and Adequate Assurance of Performance Agreement with GSS under which the Company made a cash payment and issued 500,000 shares of non-voting, non-cumulative, convertible preferred stock, with a $0.06 per share mandatory dividend payable annually in cash or common stock at the option of the Company on the anniversary date of issuance, as full and final settlement of outstanding liabilities. The preferred stock will have a $1.00 per share liquidation preference and each share will be convertible into four (4) shares of the Company's common stock. Further, at the option of GSS, for a one year period the Company will agree to either appoint a representative of GSS to the Board of Directors of the Company or to allow a representative to attend Board of Directors meetings as a non-voting observer. Also under the Discounted Payment and Adequate Assurance of Performance Agreement, GSS has agreed to continue to manufacture pursuant to the terms of the original Manufacturing Agreement for a period of not less than six months, and the Company has agreed to provide GSS with a standby letter of credit to secure the Company's payments. Lastly, on or about May 22, 1997, the Company entered into agreements with many of its other trade creditors in which the trade creditors agreed to accept discounted lump sum payments in full consideration of current obligations of the Company. The pro forma amounts for March 31, 1997 presented in the accompanying balance sheet include the effect of these transactions which resulted in a decrease to cash of $1,902,000; a reduction to accounts payable and accrued expenses of $3,923,000; a $500,000 increase in preferred stock; and a $1,521,000 gain on forgiveness of debt. NOTE 5 -- As of May 1, 1997, the Company entered into three agreements with Edward M. Krakauer establishing the terms and conditions under which Mr. Krakauer resigned as the Company's president and CEO. Under the first agreement, a Termination Agreement, Mr. Krakauer's employment agreement was terminated and a negotiated payment plan was established for accrued salaries of $52,000 owed to the date of termination plus a discounted balance of the terminated employment agreement of $190,000. Payments applicable to the foregoing will be made at various intervals through June 30, 1998. Under the terms of the second agreement, a Consulting Agreement, Mr. Krakauer would serve the Company as a consultant through June 30, 1998, at an annual rate of $60,000 per year. Under the third agreement, Mr. Krakauer was granted 75,000 stock options at an exercise price of $.008 per share (which was 20% of the fair market value per share at the time of the grant in accordance with previous options granted by the Company for non-employee directors). Mr. Krakauer will remain The Chairman of the Company's Board of Directors. The pro forma amounts for March 31, 1997 presented in the accompanying balance sheet include the effect of this transaction which resulted in an increase to accrued expenses and an offsetting general and administrative expense of $190,000. NOTE 6 -- The Company had entered into a letter agreement dated May 2, 1996 with Everen Securities Inc. ("ESI") regarding the retention of ESI's services as financial advisor and agent. This agreement was terminated by the Company February 3, 1997. ESI has subsequently asserted a claim against the Company for fees due as a result of the Franklin transactions (Note 3) in the amount of $450,000. The Company and ESI are presently in a dispute as to the validity of this claim. The Company intends to vigorously defend its position on this matter, however no assurances can be made as to the outcome. The Company has not made any accruals relating to this matter at the present time. -7- 8 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The results of the Company's first quarter performance as compared to a year ago are primarily a reflection of the Company's continued efforts to liquidate its older, higher cost products, including discontinued inventory. These efforts, which include selling the older products at book value; price protection costs to reduce the retail price of certain products at retail stores in order to facilitate inventory movement; and entering into additional advertising commitments with customers relating to both the older products and the Company's newer products; have resulted in lower gross profit margins and higher expenses as a percentage of sales. These effects, however, were partially offset by sales of the Company's new products, as well as the Company's efforts to streamline its operations and reduce its expenses. Sales of the Company's new products, which were introduced in the latter portion of 1996, have resulted in larger gross margins and increased sales of the Company's core IQ-VOICE(TM) Organizer products. Further, the streamlining of operations has enabled the Company to begin decreasing fixed costs in all areas of operations. These decreases are expected to become more evident in future quarters. RESULTS OF OPERATIONS For the three months ended March 31, 1997, the Company reported an operating loss of $1,347,000, as compared to an operating loss of $747,000 for the three months ended March 31, 1996. After including other expenses, the Company reported a net loss of $1,386,000, or $.10 per share, for the three months ended March 31, 1997, and a net loss of $780,000, or $.06 per share, for the three months ended March 31, 1996. Sales for the three months ended March 31, 1997 were $1,341,000 while sales for the three months ended March 31, 1996 were $2,199,000. After incurring price protection costs of $77,000 charged against sales during the first quarter of 1997, net sales were $1,264,000. While the Company was able to increase sales of its core business, IQ-VOICE Organizer product lines sold through retail channels, by approximately $280,000, the net decrease in sales was attributable to decreases in direct response sales of $90,000, international sales of $250,000, sales of discontinued products of $345,000, and licensing revenues of $450,000. Included in sales in the first quarter of 1997 was $715,000 in sales through retail channels of new, lower cost IQ-VOICE Organizer products which were introduced in the latter portion of 1996. The price protection costs were incurred to reduce the retail price of the IQ-VOICE Organizer/Pager. Accordingly, established retail accounts were issued credits for on-hand inventory equal to the difference between the wholesale price at which they had purchased the products and their new wholesale price which is based on the reduced retail price. Gross profit and gross profit percentage decreased to $283,000 and 21% for the three months ended March 31, 1997 from $838,000 and 38% for the three months ended March 31, 1996. These decreases, as stated above, resulted from the selling off of older products at book value, as well as the decrease in licensing revenues which carry no related cost of sales. The decreases were partially offset by sales of the newer products which carried a higher gross profit percentage. Total operating expenses for the three months ended March 31, 1997 and 1996 were $1,630,000 and $1,585,000, respectively. The increase in expenses is primarily a result of increased marketing expenses incurred by the Company through advertising commitments with retail customers to stimulate sales of both newer and older product lines, partly offset by the Company's continued efforts to decrease its costs in all areas of operations. Marketing expenses for the three months ended March 31, 1997 and 1996 were $577,000 and $435,000, respectively. As stated, the increase in marketing expenses is associated primarily with increased advertising allowances for retail accounts to accelerate sales of both the older inventory and the new products. The increase was partly offset by decreases in direct response media costs and decreases in commissions associated with the lower sales volume. -8- 9 General and administrative expenses decreased slightly to $652,000 for the three months ended March 31, 1997 from $680,000 for the three months ended March 31, 1996. The decrease is primarily the result of decreased fixed costs including salaries and legal expenses, as well as decreased variable royalty costs associated with the lower sales volume. The decreases were offset by costs and expenses associated with the Company's March 31, 1997 location change, which enabled the Company to significantly reduce its subsequent monthly rent expense. Research and development expenses decreased to $225,000 for the three months ended March 31, 1997 from $293,000 for the three months ended March 31, 1996. The decrease is primarily the result of decreased salaries, partly offset by an increase in amortization expense, as the Company strives to develop new products as well as enhance the VoiceLogic Technology. Warehouse and distribution expenses remained consistent at $176,000 for the three months ended March 31, 1997 and $177,000 for the three months ended March 31, 1996. Other expense was $39,000 and $33,000 for the three months ended March 31, 1997 and March 31, 1996, respectively, primarily relating to interest expense. LIQUIDITY AND CAPITAL RESOURCES At March 31, 1997, the Company had negative working capital of $2,432,000. During the first quarter of 1997, the Company had been actively seeking a strategic relationship, including merger opportunities, product development joint ventures, and distribution agreements in order to grow and strengthen the Company's financial base. Further, the Company had been seeking funding, in the form of equity or debt in order to satisfy cash requirements in the ordinary course of business during 1997, develop a major new voice recognition product, and provide funding for costs that may be associated with effecting such strategic relationship. The Company then entered into a Letter of Intent in February 1997 to merge with Franklin Electronic Publishers, Inc. ("Franklin"), and under that Letter of Intent, received a loan of $500,000 to fund operational cash flow shortages. The Letter of Intent was subsequently terminated, and the note was restructured as part of the transaction described in the following paragraph. In May 1997, the Company consummated a transaction involving two agreements with Franklin. The first agreement was a Purchase and Loan Agreement in which the two companies entered into the following transactions: 1) The Company transferred and sold to Franklin for $450,000 in cash its inventory, rights to work in process, manufacturing assets, marketing assets, and software and hardware design assets for the Company's IQ-VOICE(TM) Organizer Models 5150 and 5160 (IQ-VOICE Pocket Organizers); 2) The Company sold to Franklin for $150,000 in cash 2,000,000 shares of the Company's common stock, par value $.001 per share, representing the approximate market price of the Company's common stock at the time of the transaction; and 3) Franklin loaned the Company cash equal to $1,200,000, in addition to the $500,000 previously loaned to the Company, and restructured the payment terms of a new $1,700,000 promissory note. The new note carries interest at a rate of 10% per year. The interest is payable monthly, with principal payments of $400,000 due on April 30 of each year commencing April 30, 1998 and ending April 30, 2001, with the final installment in the amount necessary to repay the full balance of the loan. The second agreement was a Technology Transfer Agreement in which the two companies entered into the following transactions: 1) The Company granted to Franklin a non-exclusive perpetual license for technology rights evidenced by the Company's patent related to operation of Voice Organizer products as well as other technology and software developed by the Company related to or used in the Model 5150 and 5160 for a non-refundable advance royalty of $700,000; and 2) the Company assigned the rights to the VoiceLogic(TM) Technology to Franklin, and Franklin granted back to the Company a non-exclusive perpetual license of the VoiceLogic Technology, including the right to sublicense, for the development, manufacture, sale and distribution of Voice Organizer products with recording times in excess of four minutes and any other electronic products that are not Voice Organizers, subject to the Company remaining obligated to pay royalties to Franklin at the same rates for which the Company was obligated to the inventor of the VoiceLogic Technology prior to its assignment to Franklin. These transactions resulted in an increase to cash of $2,500,000; $309,000 in reduction of inventory, net equipment, and net deferred costs; a decrease of $100,000 and an increase of $1,300,000 in current and long term debt, respectively; a $150,000 increase in common stock and additional paid-in capital; $700,000 in royalty revenues; and a $141,000 gain on the sale of assets. Also in May 1997, the Company entered into agreements with Flextronics (Malaysia) SDN. BHD. ("Flextronics") and GSS/Array Technology, Inc. ("GSS"), the manufacturers of the Company's products, relating to the -9- 10 resolution of outstanding liabilities and commitments. The Company entered into a Settlement Agreement with Flextronics under which the Company made a cash payment and assigned the proceeds due pursuant to a licensing agreement with Kong Wah Video for a voice operated television remote control device to Flextronics as full and final settlement for all outstanding liabilities and commitments other than approximately $260,000 in inventory which has already been manufactured by Flextronics. The Company has committed to purchase such inventory prior to June 30, 1997. The Company also entered into a Discounted Payment and Adequate Assurance of Performance Agreement with GSS under which the Company made a cash payment and issued 500,000 shares of non-voting, non-cumulative, convertible preferred stock, with a $0.06 per share mandatory dividend payable annually in cash or common stock at the option of the Company on the anniversary date of issuance, as full and final settlement of outstanding liabilities. The preferred stock will have a $1.00 per share liquidation preference and each share will be convertible into four (4) shares of the Company's common stock. Further, at the option of GSS, for a one year period the Company will agree to either appoint a representative of GSS to the Board of Directors of the Company or to allow a representative to attend Board of Directors meetings as a non-voting observer. Also under the Discounted Payment and Adequate Assurance of Performance Agreement, GSS has agreed to continue to manufacture pursuant to the terms of the original Manufacturing Agreement for a period of not less than six months, and the Company has agreed to provide GSS with a standby letter of credit to secure the Company's payments. Lastly, on or about May 22, 1997, the Company entered into agreements with many of its other trade creditors in which the trade creditors agreed to accept discounted lump sum payments in full consideration of current obligations of the Company. These transactions resulted in a decrease to cash of $1,902,000; a reduction to accounts payable and accrued expenses of $3,923,000; a $500,000 increase in preferred stock; and a $1,521,000 gain on forgiveness of debt. The effect of the transactions with Franklin, Flextronics, GSS, and the other trade creditors have improved the Company's working capital position and its stockholders' equity. However, the Company anticipates continued losses from operations through the first nine months of 1997, and believes that such losses will continue unless the Company is successful in its efforts to increase sales from its current distribution channels and diversify its product line. As a result, management continues to seek a strategic relationship including merger opportunities, product development joint ventures, and distribution agreements in order to grow and strengthen the Company's financial base. The Company also continues to seek additional equity funding in order to satisfy cash requirements for the remainder of 1997, inclusive of planned product development activities and to further strengthen its working capital position. At present, no definitive agreements exist, and failure to either consummate a strategic relationship agreement or obtain additional funding could result in the Company's having insufficient cash resources to meet its obligations in 1997. These factors raise substantial doubt about the Company's ability to continue as a going concern. The decrease in accounts receivable of $1,167,000 is attributable mainly to collections on customer receivables which existed at December 31, 1996. Such decrease was offset partially by new receivables from customers from sales made in the first quarter of 1997. The net decrease in accounts payable and accrued expenses of $254,000 as of March 31, 1997 is mainly attributable to payments made to the Company's contract manufacturer. Except for the historical information, the matters discussed herein are forward looking statements that involve risks to and uncertainties in the Company's business, including, among other things, the availability of adequate working capital, changes in technology, the impact of competitive products, the Company's dependence on third party component supplies and manufacturers, and other risks and uncertainties that may be detailed from time to time in this and other of the Company's SEC reports. -10- 11 PART II. OTHER INFORMATION The Company was not required to report any matters or changes for any items of Part II except as disclosed below. ITEM 5. OTHER INFORMATION In March 1997, Mr. Ernest Townsend resigned as a director due to personal commitments which would have limited his future availability to the Company. Subsequent to the first quarter 1997, in May 1997, Mr. Edward Krakauer resigned as the Company's president and CEO, however, he remains Chairman of the Company's Board of Directors. Mr. Krakauer will serve as a part-time consultant to the Company through June 30, 1998. Further in May 1997, Mitchell B. Rubin was appointed by the Board of Directors to fill the positions of president and CEO. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibit 3(I) -- Articles of Incorporation (b) Exhibit 11 -- Calculations of Earnings Per Share (c) The Company filed a Current Report on Form 8-K, dated May 22, 1996, with the Commission, reporting information under Item 2 and Item 5 of said Form. -11- 12 SIGNATURES In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. VOICE POWERED TECHNOLOGY INTERNATIONAL, INC. Date: July 3, 1997 By: /s/ Mitchell B. Rubin -------------------------------- Mitchell B. Rubin, President and Chief Executive Officer In accordance with the Exchange Act, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. Signature Title Date /s/ Edward M. Krakauer - ---------------------- Edward M. Krakauer Chairman of the Board July 3, 1997 /s/ Mitchell B. Rubin - --------------------- Mitchell B. Rubin President and Chief July 3, 1997 Executive Officer -12- EX-3.(I) 2 EXHIBIT 3.(I) 1 EXH. 3(I) ENDORSED FILED In the office of the Secretary of State of the State of California JUN 19 1997 /s/ Bill Jones ------------------------------ BILL JONES, Secretary of State CERTIFICATE OF DETERMINATION OF PREFERENCE OF PREFERRED STOCK OF VOICE POWERED TECHNOLOGY INTERNATIONAL, INC. a California corporation Mitchell B. Rubin hereby certifies that: ONE: He is the President and the Secretary of Voice Powered Technology International, Inc., a California corporation. TWO: Pursuant to authority given by this corporation's Restated Articles of Incorporation, the Board of Directors of this corporation has duly adopted the following resolutions: WHEREAS, the Restated Articles of Incorporation of this corporation provide for a class of shares known as Special Preferred Stock, par value $.001 per share, issuable from time to time in one or more series; and WHEREAS, the Board of Directors of this corporation is authorized to determine or alter the rights, preferences, privileges and restrictions granted to or imposed upon any wholly unissued series of Special Preferred Stock, to fix the number of shares constituting any such series and to determine the designation thereof; and WHEREAS, this corporation has not issued any shares of Special Preferred Stock and the Board of Directors of this corporation desires, pursuant to its authority as aforesaid, to determine and fix the rights, preferences, privileges and restrictions relating to the initial series of the Special Preferred Stock and the number of shares constituting and the designation of that series; and WHEREAS, there are presently no issued and outstanding shares of this corporation's Preferred Stock, Series B 14% Convertible Cumulative Preferred Stock and Series C 12% Convertible Cumulative Preferred Stock (collectively, the "Other Preferred Stock"); NOW, THEREFORE, BE IT RESOLVED, that the Board of Directors hereby fixes and determines the designation of, the number of shares constituting, and the rights, preferences, privileges and restrictions relating to, the initial series of Preferred Stock as follows: 1. Designation of Series. The initial series of Special Preferred Stock shall be designated "Series A Special Preferred." 2. Number of Shares. The number of shares constituting the Series A Special Preferred stock shall be 500,000. 2 3. Dividends. The holders of outstanding shares of Series A Special Preferred stock shall be entitled to receive, when and as declared by the Board of Directors, out of funds legally available therefore, dividends in cash at the annual rate of $0.06 per share on the fifteenth day of June in each year (the "Dividend Date"), beginning on June 15, 1998. Payment of dividend pursuant to this Section 3 shall be mandatory: PROVIDED, however, that the Board of Directors may, in its sole and absolute discretion, elect to pay any dividend due under this Section 3 in shares of the corporation's Common Stock, par value $.001 per share (the "Common Stock"). If the Board of Directors elects to pay any dividend due under this Section 3 in Common Stock, the number of shares of Common Stock to be delivered to the holders of Series A Special Preferred stock shall be determined by (i) multiplying the number of shares of Series A Special Preferred stock held by a holder as of the record date set by the Board of Directors for the payment of the dividend, by $.06; and (ii) dividing that amount by Dividend Price (as defined below). No fractional shares of Common Stock shall be issued upon the payment of a dividend in shares of Common Stock. In lieu of any fractional shares to which the holder would otherwise be entitled, the corporation shall pay cash equal to such fraction multiplied by the then effective Dividend Price. Dividends may be declared and paid on the Common Stock and the Other Preferred Stock in any fiscal year of the corporation only if the dividends required under this Section 3 shall have been paid in cash, or shall have been declared and sufficient cash set aside for the payment thereof. As used in this Section 3, "Dividend Price" shall mean the average market price for the ten (10) consecutive trading days immediately preceding the Dividend Date. The market price for each such trading day shall be: (i) if the Common Stock is listed or admitted to trading on any national securities exchange or NASDAQ, the closing price on such day, or if no such sale takes place on such day, the average of the closing bid and asked prices on such day, (ii) if the Common Stock is not listed or admitted to trading on any national securities exchange or NASDAQ, the last reported sale price on such day or, if no sale takes place on such day, the average of the closing bid and asked prices on such day, as reported by a reliable quotation source designated by the Company, or (iii) if the Common Stock is not listed or admitted to trading on any national securities exchange or NASDAQ and no such last reported sale price or closing bid and asked prices are available, the average of the reported high bid and low asked prices on such day, as reported by a reliable quotation source designated by the Company, or if there shall be no bid and asked prices on such day, the average of the high bid and low asked prices, as so reported, on the most recent day (not more than 10 days prior to the date in question) for which prices have been so reported; provided that if there are no bid and asked prices reported during the 10 days prior to the date in question, the Dividend price of the Common Stock shall be determined by the Company acting in good faith on the basis of such quotations and other information as it considers, in its reasonable judgment, appropriate. 4. Liquidation Preference. In the event of a voluntary or involuntary liquidation, dissolution, or winding up of the corporation, the holders of Series A Special Preferred shares shall be entitled to receive, out of the assets of the corporation, whether those assets are capital or surplus of any nature, an amount equal to $1.00 per share of Series A Special Preferred stock, and a further amount equal to any dividends thereon declared and 2 3 unpaid on the date of that distribution, and no more, before any payment shall be made or any assets distributed to the holders of Common Stock or the Other Preferred Stock. After payment or distribution to the holders of Series A Special Preferred shares of the full preferential amounts, the holders of Series A Special Preferred shares shall be entitled to no further distributions. A consolidation or merger of the corporation with or into any other corporation or corporations, or a sale of all or substantially all of the assets of the corporation, shall not be deemed to be a liquidation, dissolution, or winding up, within the meaning of this Section 4. 5. Redemption. Subject to the provisions of the California General Corporation Law and to any other applicable restrictions on the right of a corporation to redeem its own shares, the corporation, at the option of the Board of Directors, may at any time or from time to time redeem the whole or any part of the outstanding Series A Special Preferred shares. If less than all the outstanding shares of Series A Special Preferred are redeemed pursuant to this Section 5, such shares shall be redeemed pro rata among the holders thereof. Upon redemption, the corporation shall pay cash in the amount of $1.00 per share for each share redeemed, plus an amount equal to all dividends thereon declared but unpaid on the date fixed for redemption. The total amount payable per share is called the ""Redemption Price" below. At least twenty days' previous notice by mail, postage prepaid, shall be given to the holders of record of the Series A Special Preferred shares to be redeemed as of the date of mailing or as of a record date lawfully fixed. Such notice shall be addressed to each such shareholder at the address of that holder appearing on the books of the corporation or given by that holder to the corporation for the purpose of notice, or if no such address appears or is so given, at the place where the principal office of the corporation is located. The notice shall state the date fixed for redemption, the redemption price, and shall call upon the holder to surrender to the corporation on the date fixed and at the place designated in the notice the holder's certificate or certificates representing the shares to be redeemed. On or after the date fixed for redemption and stated in that notice, each holder of Series A Special Preferred shares called for redemption shall surrender the certificate evidencing the shares to the corporation at the place designated in the notice and shall thereupon be entitled to receive payment of the Redemption Price. If less than all the shares represented by any such surrendered certificate are redeemed, a new certificate shall be issued representing the unredeemed shares. If the notice of redemption shall have been duly given, and if on the date fixed for redemption funds necessary for the redemption shall be available to pay the Redemption Price, then, notwithstanding that the certificates evidencing any Series A Special Preferred shares so called for redemption shall not have been surrendered, the dividends with respect to the shares so called for redemption shall cease to accrue after the date fixed for redemption and all rights with respect to the shares so called for redemption, shall after that date cease and determine, except 3 4 only the right of the holders to receive the Redemption Price without interest upon surrender of their certificates. 6. Conversion. The holders of the Series A Special Preferred shares shall have conversion rights as follows (the "Conversion Rights"): (a) Right to Convert. Each share of the Series A Special Preferred shall be convertible, at the option of the holder thereof, at any time after the date of issuance of such share, at the office of the corporation or any transfer agent for the Series A Special Preferred shares, into such number of fully paid and nonassessable shares of Common Stock, as is equal to the Conversion Factor (as defined below). The "Conversion Factor," as used in this Section 6, shall initially be four (4), but shall be subject to adjustments as hereinafter provided. Upon conversion, all declared and unpaid dividends on the Series A Special Preferred shall be paid either in cash or in shares of Common Stock of the corporation, at the election of the Board of Directors as provided in Section 3. (b) Mechanics of Conversion. No fractional shares of Common Stock shall be issued upon conversion of the Series A Special Preferred shares. In lieu of any fractional shares to which the holder would otherwise be entitled, the corporation shall pay cash equal to such fraction multiplied by the then effective Conversion Price. Before any holder of Series A Special Preferred shares shall be entitled to convert the same into full shares of Common Stock and to receive certificates therefor, the holder shall surrender the certificate or certificates therefor, duly endorsed, at the office of the corporation or of any transfer agent for the Series A Special Preferred shares, or notify the corporation or its transfer agent that such certificates have been lost, stolen or destroyed and execute an agreement satisfactory to the corporation to indemnify the corporation from any loss incurred by it in connection with such certificates, and shall give written notice to the corporation at such office that the holders elects to convert the same; provided, however, that the corporation shall, as soon as practicable after such delivery, or such agreement and indemnification in the case of a lost certificate, issue and deliver at such office to such holder of Series A Special Preferred shares, a certificate or certificates for the number of shares of Common Stock to which the holder shall be entitled as aforesaid and a check payable to the holder in the amount of any cash amounts payable as the result of a conversion into fractional shares of Common Stock. Such conversion shall be deemed to have been made immediately prior to the close of business on the date of such surrender of the shares of Series A Special Preferred to be converted, and the person or persons entitled to receive the shares of Common Stock issuable upon such conversion shall be treated for all purposes as the record holder or holders of such shares of Common Stock on such date. 4 5 (c) Adjustment of Conversion Factor for Series A Special Preferred Shares. The Conversion Factor shall be subject to adjustment from time to time as follows: (i) Adjustments for Subdivisions, Combinations or Consolidation of Common Stock. Following the date that a Certificate of Determination concerning the Series A Special Preferred stock is filed with the Secretary of State of the State of California (the "Certificate"), in the event the outstanding shares of Common Stock shall be subdivided by stock split, stock dividends or otherwise, into a greater number of shares of Common Stock, the Conversion Factor then in effect shall, concurrently with the effectiveness of such subdivision, be proportionately increased. In the event the outstanding shares of Common Stock shall be combined or consolidated, by reclassification or otherwise, into a lesser number of shares of Common Stock, the Conversion Factor then in effect shall, concurrently with the effectiveness of such combination or consolidation, be proportionately decreased. (ii) Adjustments for Reclassification, Exchange and Substitution. Except as provided in Section 4, upon any liquidation, dissolution or winding up of the corporation, if the Common Stock issuable upon conversion of the Series A Special Preferred shares shall be changed into the same or a different number of shares of any other class or classes of stock, whether by capital reorganization, reclassification or otherwise (other than a subdivision or combination of shares provided for above), each share of Series A Special Preferred shall thereafter be convertible into the number of shares of stock or other securities or property to which a holder of the number of shares of Common stock of the corporation deliverable upon conversion of such share of Series A Special Preferred shall have been entitled upon such reorganization. (d) Adjustments for Stock Dividends and Other Distributions. In the event the corporation at any time or from time to time makes, or fixes a record date for the determination of holders of Common Stock entitled to receive any distribution (excluding any repurchases of securities by the corporation not made on a pro rata basis from all holders of any class of the corporation's securities) payable in property or in securities of the corporation other than shares of Common Stock, and other than as otherwise adjusted in this Section 6, then and in each such event the holders of Series A Special Preferred shares shall receive at the time of such distribution, the amount of property or the number of securities of the corporation that they would have received had their Series A Special Preferred shares been converted into Common Stock on the date of such event. 5 6 (e) No Impairment. The corporation will not, by amendment of its Restated Articles of Incorporation or the Certificate, or through any reorganization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms to be observed or performed hereunder by the corporation but will at all times in good faith assist in carrying out all of the provisions of this Section 6 and in the taking of all such action as may be necessary or appropriate in order to protect the Conversion Rights of the holders of the Series A Special Preferred shares against impairment. (f) Certificate as to Adjustments. Upon the occurrence of each adjustment or readjustment of the Conversion Factor pursuant to this Section 6, the corporation at its expense shall promptly compute such adjustment or readjustment in accordance with the terms hereof and furnish to each holder of Series A Special Preferred stock a certificate setting forth such adjustment or readjustment and showing in detail the facts upon which such adjustment or readjustment is based. (g) Notices of Record Date. In the event that this corporation shall propose at any time: (i) to declare any dividend or distribution upon its Common Stock, whether in cash, property, stock or other securities, whether or not a regular cash dividend and whether or not out of earnings or earned surplus; or (ii) to merge or consolidate with or into any other corporation, or sell, lease or convey all or substantially all its property or business, or to liquidate, dissolve or wind up; then, in connection with each such event, this corporation shall send to the holders of Series A Preferred stock: (1) at least 20 days' prior written notice of the date on which a record shall be taken for such dividend or distribution (and specifying the date on which the holders of Common Stock shall be entitled thereto) or for determining rights to vote in respect of the matters referred to in (i) and (ii) above; and (2) in the case of the matters referred to in (i) and (ii) above, at least 20 days' prior written notice of the date when the same shall take place (and specifying the date on which the holders of Common Stock shall be entitled to exchange their Common Stock for securities or other property deliverable upon the occurrence of such event). Each such written notice shall be delivered personally or given by first class mail, postage prepaid, addressed to the holders of Series A Special Preferred stock at the address for each such holder as shown on the books of this corporation. 7. Voting Rights. Except as otherwise provided by law, by the corporation's Restated Articles of Incorporation, or in the Certificate, the holders of the Series A Special Preferred shares shall not be entitled to notice of any shareholders' meetings or to vote upon the election of directors or upon any other matter. 6 7 8. Residual Rights. All rights accruing to the outstanding shares of this corporation not expressly provided for to the contrary herein shall be vested in the Common Stock. 9. Consent for Certain Repurchases of Common Stock Deemed to be Distributions. Each holder of an outstanding share of Series A Special Preferred shall be deemed to have consented, for purposes of Sections 502, 503 and 506 of the General Corporation Law, to distributions made by the corporation in connection with the repurchase of shares of Common Stock issued to or held by officers, directors, employees or consultants upon termination of their employment or services pursuant to agreements or as otherwise set forth in the Bylaws of the corporation providing for such right of repurchase between the corporation and such persons. THREE: That the authorized number of shares of Special Preferred Stock of this corporation is 10,000,000 and the number of shares constituting Series A Special Preferred Stock, none of which has been issued, is 500,000. We further declare under penalty of perjury under the laws of the State of California that the matters set forth in this Certificate are true and correct of our own knowledge. Executed at Tarzana, California, this 16th day of June, 1997. /s/ MITCHELL B. RUBIN ------------------------------------------ Mitchell B. Rubin, President and Secretary 7 8 ENDORSED FILE In the office of the Secretary of State of the State of California JUL 28, 1992 MARCH FONG EU, Secretary of State A421223 RESTATED ARTICLES OF INCORPORATION OF VOICE POWERED TECHNOLOGY INTERNATIONAL, INC. W. MICHAEL BISSONNETTE and TOVA FEDER hereby certify that: 1. They are the President and the Secretary, respectively, of VOICE POWERED TECHNOLOGY INTERNATIONAL, INC., a California corporation. 2. The Articles of Incorporation of the corporation are hereby amended and restated to read as follows: "RESTATED ARTICLES OF INCORPORATION OF VOICE POWERED TECHNOLOGY INTERNATIONAL, INC. I The name of this corporation is VOICE POWERED TECHNOLOGY INTERNATIONAL, INC. II The purpose of this corporation is to engage in any lawful act or activity for which a corporation may be organized under the General Corporation Law of California, other than the banking business, the trust company business or the practice of a profession permitted to be incorporated by the California Corporations Code. III (a) Preferred Stock, Series B 14% Convertible Cumulative Preferred Stock, Series C 12% Convertible Cumulative Preferred Stock, Special Preferred Stock and Common Stock. The corporation is authorized to issue five classes of shares designated "Preferred Stock," "Series B 14% Convertible Cumulative Preferred Stock," "Series C 12% Convertible Cumulative Preferred Stock," "Special Preferred Stock" and "Common Stock," respectively. The number of shares of Preferred Stock authorized to be issued is 5,000,000 shares, $0.001 par value, the number of shares of -1- 9 Series B 14% Convertible Cumulative Preferred Stock authorized to be issued is 2,000,000 shares, $0.001 par value, the number of shares of Series C 12% Convertible Cumulative Preferred Stock authorized to be issued is 2,500,000 shares, $0.001 par value, the number of shares of Special Preferred Stock authorized to be issued is 10,000,000 shares, $0.001 par value, and the number of shares of Common Stock authorized to be issued is 50,000,000 shares of $0.001 par value. The rights, preferences, provisions and restrictions imposed upon the five classes of shares are set forth in the succeeding Sections of Article III. (b) Dividends. The Preferred Stock (hereinafter referred to as "Preferred Stock") and Series B 14% Convertible Cumulative Preferred Stock (hereinafter referred to as "Series B") are entitled to receive, out of funds legally available therefore, cumulative dividends at the annual rate of Fourteen Cents ($0.14) per share and no more, payable in one yearly installment on the 1st day of May of each year commencing on May 1, 1992 when and as declared by the Board of Directors provided, however, unless otherwise prohibited by the California Corporations Code, the Board of Directors shall timely declare and have the corporation pay such dividends. The Series C 12% Convertible Cumulative Preferred Stock (hereinafter referred to an "Series C") are entitled to receive, out of funds legally available therefore, cumulative dividends at the annual rate of Twelve Cents ($0.12) per share and no more, payable in two equal semi-annual installments on the 1st day of January and the 1st day of July of each year commencing on January 1, 1993 when and as declared by the Board of Directors; providing, however, if by July 1, 1993, the corporation has not effected a Public Event (as defined in subdivision (g)), then beginning on July 1, 1993 and continuing until a share of Series C is redeemed or repurchased by the Corporation, or if earlier, until after the next dividend payment is due after a Public Event has occurred, each share of Series C shall bear an annual cumulative dividend of Fifteen Cents ($0.15) per share payable in two equal semi-annual installments on the 1st day of January and the 1st day of July of each year; provided, further, unless otherwise prohibited by the California Corporations Code, the Board of Directors shall timely declare and have the corporation pay such dividends. All such dividends shall accrue from the date of issuance whether or not earned so that no dividends or other distributions shall be made with respect to the Common Stock, and no Common Stock shall be purchased or redeemed until cumulative dividends on the Preferred Stock, Series B and Series C for all past dividend periods and for the then current year dividend period shall have been declared and paid or set apart. After cumulative dividends on the Preferred Stock, Series B and Series C for all past dividend periods and for the then current year dividend period shall have been declared and paid or set apart, if -2- 10 the Board of Directors shall elect to declare additional dividends out of funds legally available therefore, such additional dividends may be declared on the Common Stock. (c) Liquidation and Dissolution. Upon the voluntary or involuntary liquidation, winding up or dissolution of the corporation, out of the assets available for distribution to shareholders each share of Preferred stock, Series B and Series C shall be entitled to receive, in preference to any payment on the Common Stock only, an amount equal to One Dollar ($1.00) per share, plus cumulative dividends as provided in subdivision (b) hereof accrued and unpaid to the date payment is made available to the Preferred Stock, Series B and Series C. After the full preferential liquidation amount has been paid to, or determined and set apart for, Preferred Stock, Series B and Series C, the remaining assets shall be payable to the common Stock. In the event the assets of the corporation are insufficient to pay the full preferential liquidation amount required to be paid to the Preferred Stock, Series B and Series C, first the Preferred Stock shall receive all the assets pro rata on a share for share basis until the full liquidation preference on the Preferred Stock is paid in full, then, if any funds are still available, the Series B shall receive such funds pro rata on a share for share basis until the full liquidating preference or the Series B is paid in full, then, if any funds are still available, the Series C shall receive such funds pro rata on a share for share basis until the full liquidating preference or the Series C is paid in full, and the balance, if any, to the Common Stock. A reorganization shall not be considered to be a liquidation, winding up or dissolution within the meaning of this subdivision (c) and the Preferred Stock, Series B and Series C shall be entitled only to the rights provided in the plan of reorganization and Chapters 12 and 13 of the California General Corporation Law and elsewhere herein. (d) Voting. A holder of a share of Preferred Stock, Series B, Series C and Common Stock shall be entitled to one vote on any and all matters, including the election of directors, and shall, except as otherwise may be provided by law, vote as a single class. (e) Conversion. The holders of Preferred Stock, Series B and Series C have the following conversion rights (the "Conversion Rights"): (i) Right to Convert. Each share of Preferred Stock shall be convertible at the option of the holder thereof, at any time after the date of issuance of such share, at the office of the corporation or any transfer agent for such shares, into such number of fully paid and nonassessable shares of Common Stock as is determined by dividing $1.00 by the Conversion Price, determined as -3- 11 hereinafter provided in effect at the time of conversion. The price at which shares of Common stock shall be deliverable upon conversion of the Preferred Stock (the "Preferred Stock Conversion Price") shall be initially $1.00 per share of Common Stock. Each share of Series B shall be convertible at any time after the date of issuance of such share, at the office of the corporation or any transfer agent for such shares, into such number of fully paid and nonassessable shares of Common Stock as in determined by dividing $1.00 by the Series B Conversion Price, determined as hereinafter provided, in effect at the time of conversion. The price at which shares of Common Stock shall be deliverable upon conversion of the Series B (the "Series B Conversion Price") shall be initially $1.00 per share of Common Stock. Each share of Series C shall be convertible on and after the Initial Public Offering (as defined in subdivision (e)(xii)) has occurred until the close of business on the date prior to the date set for redemption at the office of the corporation or any transfer agent for such shares, into such number of fully paid and nonassessable shares of Common Stock as is determined by dividing $1.00 by the Series C Conversion Price, determined as hereinafter provided, in effect at the time of conversion. The price at which shares of Common Stock shall be deliverable upon conversion of a share of Series C (the "Series C Conversion Price") shall be equal to Seventy Percent (70%) of the "Market Price," as defined in subdivision (h) on the day before a notice of conversion. Such initial Preferred Stock Conversion Price and initial Series B Conversion Price shall be subject to adjustment as hereinafter provided. Notwithstanding the above, each share of Series C may upon the Initial Public Offering be convertible into the shares of common Stock (or Units, if such Units include a share or shares of Common Stock, plus any other security) issuable on the initial closing of such Initial Public Offering at a price equal to seventy percent (70%) of the initial public offering price of such shares of Common Stock (or Units) with each share of Series C being equal to $1.00 per share, plus any accrued but unpaid dividends to the date of such closing, for purposes of determining how many shares of Common Stock (or Units) that may be acquired. (ii) Automatic Conversion. Each outstanding share of Preferred Stock and Series B shall be converted automatically into fully paid and nonassessable shares of Common Stock at the then effective Preferred Stock Conversion Price or Series B Conversion Price, respectively, on May 2, 1993. Upon automatic conversion provided for herein, the Secretary of the corporation shall promptly deliver notice of such conversion to each holder of Preferred Stock and Series B, who shall thereupon surrender the certificates representing such shares at the office of the corporation or of any transfer agent for such Preferred -4- 12 Stock or Series B. The corporation shall, as soon as practicable thereafter, issue and deliver at such office to such holder a certificate or certificates for the number into which such shares of Preferred Stock or Series B, as the case may be, have been automatically converted. (iii) Mechanics of Conversion. Before any holder of shares of Preferred Stock, Series B or Series C shall be entitled to convert the same into full shares of Common Stock pursuant to subdivision (e)(i), he shall surrender the certificate or certificates therefore, duly endorsed, at the office of the corporation or of any transfer agent for such Preferred Stock, Series B or Series C, as the case may be, and shall give written notice to the corporation at such office that he elects to convert the same and shall state therein his name or the name or names of his nominees in which he wishes the certificate or certificates for shares of Common Stock to be issued. The corporation shall, as soon as practicable thereafter, issue and deliver at such office to such holder, or to his nominee or nominees, a certificate or certificates for the number of full shares of Common Stock to which he shall be entitled as aforesaid. Conversion pursuant to subdivision (e)(i) shall be deemed to have occurred immediately prior to the close of business on the date of such surrender of the shares of Preferred Stock, Series B or Series C to be converted, and the person or persons entitled to receive the shares of Common Stock issuable upon such conversion shall be treated for all purposes as the record holder or holders of such shares of Common Stock on such date. Upon any conversion pursuant to subdivision (e)(i) or (ii), cumulative dividends as provided in subdivision (b), accrued and unpaid on the Preferred Stock or Series B shall be disregarded and not paid. Notwithstanding anything to the contrary in this subdivision (e)(iii), if conversion of Series C is to take place on the closing of the Initial Public Offering pursuant to the last sentence of subdivision (e)(1), a holder of Series C must agree to convert any of his shares of Series C he desires to convert on such closing in writing within ten days of being notified in writing of the possibility of such closing by the corporation, and if such holder of Series C so desires to convert on such closing, such conversion shall automatically deem to occur as of such closing and such holder upon being notified by the corporation that the closing and such automatic conversion has occurred, shall surrender such share at the office of the corporation or of any transfer agent for such Series C he is so converting. The corporation shall, as soon as practical thereafter, issue at such office to such holder a certificate or certificates for the number of shares of Common Stock (or Units) which Series C has been converted into. -5- 13 (iv) Adjustments to Preferred Stock Conversion Price, Series B Conversion Price, and Series C Conversion Price. (A) Special Definition. For purposes of this subdivision (e)(iv), the following definition shall apply: "Original Issue Date" shall mean, for Preferred Stock, Series B or Series C, the original date on which a share of Preferred Stock, Series B or Series C, respectively, was first issued. (B) Adjustment for Stock Splits and Combinations. If the corporation shall at any time or from time to time after the Original Issue Date applicable to Preferred Stock or Series B effect a subdivision of the outstanding Common Stock, the applicable Preferred Stock Conversion Price or Series B Conversion Price then in effect immediately before that subdivision shall be proportionately decreased and, conversely, if the corporation shall at any time or from time to time after the Original Issue Date applicable to Preferred Stock or Series B combine the outstanding shares of Common Stock, the applicable Preferred Stock Conversion Price or Series B Conversion Price then in effect immediately before the combination shall be proportionately increased. Any adjustments under this subdivision (e)(iv)(B) shall become effective at the close of business on the date the subdivision or combination becomes effective. (C) Adjustment for Certain Dividends and Distributions. In the event the corporation at any time, or from time to time after the Original Issue Date applicable to Preferred Stock or Series B shall make or issue, or fix a record date for the determination of holders of Common Stock entitled to receive, a dividend or other distribution payable in shares of Common Stock, then and in each such event the applicable Preferred Stock Conversion Price or Series B Conversion Price then in effect shall be decreased as of the time of such issuance or, in the event such a record date shall have been fixed, as of the close of business on such record date, by multiplying the applicable Preferred Stock Conversion Price or Series B Conversion Price then in effect by a fraction: (1) the numerator of which shall be the total number of shares of Common Stock issued and outstanding immediately prior to the time of such issuance or the close of business on such record date, and (2) the denominator of which shall be the total number of shares of Common Stock issued and outstanding immediately prior to the time of such issuance or the close of business on such record date plus the number -6- 14 of shares of Common Stock issuable in payment of such dividend or distribution; provided, however, if such record date shall have been fixed and such dividend is not fully paid or if such distribution is not fully made on the date fixed therefore, the applicable Preferred Stock Conversion Price or Series B Conversion Price shall be recomputed accordingly as of the close of business on such record date and thereafter such Preferred Stock Conversion Price or Series B Conversion Price shall be adjusted pursuant to this subdivision (e)(iv)(C) as of the time of actual payment of such dividends or distributions. (D) Adjustment for Other Dividend and Distributions. In the event the corporation at any time or from time to time after the Original Issue Date of Preferred Stock or Series B shall make or issue, or fix a record date for the determination of holders of Common Stock entitled to receive, a dividend or other distribution payable in securities of the corporation other than shares of Common Stock, then and in such event provisions shall be made so that the holders of Preferred Stock or Series B, shall receive upon conversion thereof in addition to the number of shares of Common Stock receivable thereupon, the amount of securities of the corporation which they would have received had their Preferred Stock or Series B been converted into Common Stock on the date of such event and had thereafter, during the period from the date of such event to and including the conversion date, retained such securities (together with any distributions payable thereon during such period) receivable by them as aforesaid during such period, giving application to all adjustments called for during such period under this subdivision (a) with respect to the rights of the holders of the Preferred Stock or Series D. In the event the corporation at any time or from time to time after the original Issue Date of Series C shall make or issue, or fix a record date for the determination of holders of Common Stock entitled to receive, a dividend or other distribution payable in securities of the corporation other than shares of Common Stock, then and in such event provisions shall be made so that the holders of Series C, shall receive upon conversion thereof in addition to the number of shares of common stock receivable thereupon, the amount of securities of the corporation which they would have received had the dividend or other distribution occurred on the date of conversion. (E) Adjustment for Reclassification. Exchange, or Substitution. If the Common Stock issuable upon the conversion of the Preferred Stock or Series B at any time or from time to time after the Original Issue Date applicable to Preferred Stock or Series B, shall be changed into the same or different number of shares of any class or classes of stock, whether by capital reorganization, -7- 15 reclassification, or otherwise (other than a subdivision or combination of shares or stock dividends provided for in subdivision (e) (iv) (B) and (C) or a reorganization, merger, consolidation, or sale of assets provided for in subdivision (e) (iv) (F)), then, and in each such event, provisions shall be made (by adjustment to the Preferred Stock Conversion Price or Series B Conversion Price or otherwise) so that the holder of each share of Preferred Stock or Series B shall have the right thereafter to convert such shares into the kind and amount of shares of stock and other securities receivable upon such reorganization, reclassification, or other change, by holders of the number of shares of Common Stock into which such share of Preferred Stock or Series B might have been converted immediately prior to such reorganization, reclassification, or change, all subject to further adjustment as provided herein. If the Common Stock issuable upon the conversion of the Series C at any time or from time to time after the original Issue Date applicable to Series C, shall be changed into the same or different number of shares of any class or classes of stock, whether by capital reorganization, reclassification, or otherwise (other than a reorganization, merger, consolidation, or sale of assets provided for in subdivision (e)(iv)(F)), then, and in each such event, provisions shall be made (by adjustment to Series C Conversion Price or otherwise) so that the holder of each share of Series C shall have the right thereafter to convert such share into the kind of shares of stock and other securities receivable upon such reorganization, reclassification, or other change, by holders of the number of shares of Common Stock into which such share of Series C might have been converted if such reorganization, reclassification, or change had accrued on the date of conversion. (F) Adjustment for Reorganization, Merger, Consolidation or Sales of Assets. If at any time or from time to time after the Original Issue Date of the Preferred Stock or Series B there shall be a capital reorganization of the corporation (other than a subdivision, combination, reclassification, exchange or substitution of shares provided for in subdivision (e)(iv)(B) and (E)) or a merger or consolidation of the corporation with or into another corporation, or the sale of all or substantially all of this corporations properties and assets to any other person, then, as a part of such reorganization, merger, consolidation, or sale, provision shall be made (by adjustment to the applicable Preferred Stock Conversion Price or Series B Conversion Price or otherwise) so that the holders of the Preferred Stock or Series B shall thereafter be entitled to receive upon conversion of the Preferred Stock or Series B, the number of shares of stock or other securities or property of the corporation, or of any successor corporation resulting from such merger or consolidation or sale, to which a holder of Common Stock -8- 16 deliverable upon conversion of such shares would have been entitled on such capital reorganization, merger, consolidation, or sale. In any such case, appropriate adjustment shall be made in the application of the provisions of this subdivision (e)(iv) with respect to the rights of the holders of the Preferred Stock or Series B after the reorganization, merger, consolidation, or sale to the end that the provisions of this subdivision (e) (iv) (including adjustment of the applicable Preferred Stock Conversion Price or Series B Conversion Price then in effect and the number of shares of stock or other securities deliverable upon conversion of the Preferred Stock or Series B) shall be applied after that event in as nearly an equivalent manner as may be practicable. If at any time or from time to time after the Original Issue Date of Series C there shall be a capital reorganization of the corporation (other than a subdivision, combination, reclassification, exchange or substitution of shares provided for in subdivision (e) (iv) (E) or a merger or consolidation of the corporation with or into another corporation, or the sale of all or substantially all of this corporations properties and assets to any other person, then, as a part of such reorganization, merger, consolidation, or sale, provision shall be made (by adjustment to the applicable Series C Conversion Price or otherwise) so that the holders of the Series C shall thereafter be entitled to receive upon conversion of the Series C, the kind of shares of stock or other securities or property of the corporation, or of any successor corporation resulting from such merger or consolidation or sale, to which a holder of Common Stock deliverable upon conversion of such shares would have been entitled as if such capital reorganization, merger, consolidation, or sale accrued on the date of the conversion. (v) No Impairment. The corporation will not, by amendment of its Articles of Incorporation or through any reorganization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms to be observed or performed hereunder by the corporation, but will at all times in good faith assist in the carrying out of all the provisions of this subdivision (a) and in the taking of all such action as may be necessary or appropriate in order to protect the conversion rights of the holders of the Preferred Stock, Series B or Series C against impairment. (vi) Certificate as to Adjustments. Upon the occurrence of each adjustment or readjustment of the Preferred Stock Conversion Price, Series B Conversion Price or Series C Conversion Price or any other adjustment pursuant to this subdivision (e), the corporation at its expense shall promptly compute such adjustment or -9- 17 readjustment in accordance with the terms hereof and furnish to each holder of such Preferred Stock, Series B or Series C, as the case may be, a certificate setting forth such adjustment or readjustment and showing in detail the facts upon which such adjustment or readjustment is based. The corporation shall, upon the written request at any time of any holder of such affected Preferred Stock, Series B or Series C, furnish or cause to be furnished to such holder a like certificate setting forth (i) such adjustments and readjustments, (ii) the applicable Preferred Stock Conversion Price, Series B Conversion Price or Series C Conversion Price at the time in effect, and (iii) the number of shares of Common Stock and the amount, if any, of other property which at the time would be received upon the conversion of a share of such Preferred Stock, Series B or Series C. (vii) Notice of Record Date. In the event that: (1) this corporation shall set a record date for the purpose of entitling the holders of its shares other Common Stock to receive a dividend, or other distribution, payable otherwise than in cash; (2) this corporation shall set a record date for the purpose of entitling the holders of its shares of Common Stock to subscribe for or purchase any shares of any class or to receive any other rights; (3) there shall occur any capital reorganization of this corporation, reclassification of the shares of this corporation (other than a subdivision or combination of its outstanding Common Stock), consolidation or merger of this corporation with or into another corporation, or conveyance of all or substantially all of the assets of this corporation to another corporation; or (4) there shall occur a voluntary or involuntary dissolution, liquidation or winding up of this corporation; then, and in any such case, this corporation shall cause to be mailed to the holders of record of the outstanding shares of the Preferred Stock, Series B and Series C, at least fifteen (15) days prior to the date hereinafter specified, a notice stating (a) the date which (x) has been set as the record date for the purpose of such dividend, distribution, or rights, or (y) such reclassification, reorganization, consolidation, merger, conveyance, dissolution, liquidation or winding up is to take place and (b) the record date as of which holders of Common Stock of record shall be entitled to other property deliverable upon such reclassification reorganization, consolidation, merger, conveyance, dissolution, liquidation or winding up. -10- 18 (viii) Notices. Any notice required by the provisions of this subdivision (e) to be given to the holders of shares of Preferred Stock, Series B or Series C shall be in writing and may be delivered by personal service or sent by telegraph or cable or sent by registered or certified mail, return receipt requested, with postage thereon fully prepaid. All such communications shall be addressed to each holder of record at its address appearing on the books of this corporation. If sent by telegraph or cable, a conformed copy of such telegraphic or cabled notice shall promptly be sent by mail (in the manner provided above) to the holders. service of any such communication made only by mail shall be deemed complete on the date of actual delivery as shown by the addressee's registry or certification receipt or at the expiration of the fourth (4th) business day after the date of mailing, whichever is earlier in time. (ix) Fractional Shares. No fractional shares of Common Stock shall be issued upon conversion of Preferred Stock, Series B or Series C. In lieu of any fractional shares to which the holder would otherwise be entitled, the corporation shall pay cash equal to the product of such fraction multiplied by the fair market value of one share of the corporation's Common Stock on the date of conversion, as determined in good faith by the Board of Directors. (x) Reservation of Common Stock. The corporation shall at all times reserve and keep available, out of its authorized but unissued shares of Common Stock, solely for the purpose of effecting the conversion of the Preferred Stock, Series B or Series C, the full number of shares of Common Stock deliverable upon the conversion of all shares of Preferred Stock, Series B or Series C from time to time outstanding. The corporation shall from time to time in accordance with the laws of the State of California, increase the authorized number of shares of common Stock if the remaining unissued authorized shares of common Stock shall not be sufficient to permit the conversion of all of the Preferred Stock, Series B or series C at the time outstanding. (xi) Retirement of Preferred Stock. Series B or Series C Converted. No shares of Preferred Stock, Series B or Series C that have been converted shall ever again be reissued, and all such shares so converted shall, upon such conversion, cease to be a part of the authorized shares of the corporation. (xii) Initial Public Offering. For purpose hereof, Initial Public offering shall mean the first underwritten public offering of Common Stock (or Units including the Common Stock) registered and effective under the Securities Act of 1933, as amended, or any successor -11- 19 statute pursuant to which Common Stock (or Units) are actually sold. (f) No Preemptive Rights. Except as provided in subdivision (e) hereof, no holder of the Preferred Stock, Series B, series C and Common Stock shall be entitled as of right to subscribe for, purchase, or receive any part of any new or additional shares of any class, whether now or hereafter authorized, or of bonds, debentures, or other evidences of indebtedness convertible into or exchangeable for shares of any class, but all such new or additional shares of any class, or bond, debentures, or other evidences of indebtedness convertible into or exchangeable for shares, may be issued and disposed of by the Board of Directors on such terms and for such consideration (to the extent permitted by law), and to such person or persons as the Board of Directors in their absolute discretion may deem advisable. (g) Public Event. For the purpose hereof, a Public Event shall be: (i) The effectiveness of a registration statement under the Securities Act of 1933, as amended, or any successor securities statute, registering any of the Common Stock. (ii) Any merger or corporate reorganization, or sale of all or substantially all the corporation's assets, whereby the corporation's Common Stock (or any securities exchanged for any such securities) become subject to being eligible for broker/dealers to quote such securities under Rule 15c-2(11) promulgated under the Securities Exchange Act of 1934, as amended, or being registered under Section 12(b) or 12(g) of such Act, any successor rule under such Act or any successor statute. (iii) The corporation filing and the effectiveness of a registration statement under Section 12(b) or 12(g) of the Securities Exchange Act of 1934, as amended, or any successor statute. (iv) The corporation publishing and disseminating the information required by Rule 15c-2(11) under the Securities Exchange Act of 1934, as amended, or any successive rules and any successor statute. (h) Market Price. For the purpose hereof "Market Price" for the Common Stock shall be: (i) If the Common Stock is listed on a National securities Exchange or admitted to unlisted trading privileges on such exchange or listed for trading on the NASDAQ Quotation System, the last reported sale price of the Common Stock on such Exchange or System on the day prior to -12- 20 the date of the receipt by the corporation of a respective notice of conversion, or if no such sale is made on such day, the average closing bid and asked prices for such day on such Exchange or System; or (ii) If the Common Stock is not listed or admitted to unlisted trading privileges, the last reported bid and asked prices reported by the National Quotation Bureau, Inc. on the day prior to the date of the receipt by the corporation of a respective notice of conversion. (i) Potential Mandatory Redemption of Series C. (i) If a Public Event has not occurred by July 1, 1993, then the corporation, for the purchase of Series C, shall set aside in cash out of any moneys legally available therefore (hereinafter called the "Sinking Fund"), after full payment or provision for payment of accumulated, but unpaid dividends on the Preferred Stock, Series B and Series C dividends for all prior periods through the end of the last preceding dividend period for such respective shares, on January 1 and July 1 of each year (hereinafter called the "Sinking Fund Payment Date") commencing on January 1, 1994 and ending with the next January 1 or July 1, occurring simultaneously or immediately after a Public Event occurs, a sum equal to Two Percent (2%) of the Net Sales (as defined in subdivision (i)(iv)) for the immediately preceding two fiscal quarters. If on any Sinking Fund payment date the funds of the corporation legally available therefore shall be insufficient to discharge such Sinking Fund requirements in full, funds to the extent legally available for such purpose shall be set aside for the Sinking Fund. Such Sinking Fund requirements shall be cumulative, so that if for any period or periods such requirements shall not be fully discharged as they accrue, funds legally available therefore, after such payment or provision for dividends as set forth above, for each fiscal year thereafter shall be applied thereto until such requirements are fully discharged. (ii) At any Sinking Fund Payment Date, the cash in the Sinking Fund shall be used to acquire shares of Series C at the price of One Dollar ($1.00) per share of Series C, plus accrued dividends thereon to the date of such purchase (herein called the "redemption price"), which dividends shall be paid from the general fund of the corporation and not from the Sinking Fund. Upon retirement of all Series C any cash remaining in the Sinking Fund in excess of that required to complete payment for any shares purchased or agreed to be purchased through the operation of the Sinking Fund, shall become a part of the general funds of the Corporation. Redemptions from the Sinking Fund shall be pro rata based on the amount of Series C which can be redeemed times each holder's percentage of the total shares of Series C, provided, however, fractional Series C shares -13- 21 shall not be redeemed but the amount to redeem such fractional shares shall remain in the Sinking Fund. Amounts in the Sinking Fund may be invested by the corporation and any earnings on such investments shall be retained in the Sinking Fund and used to acquire shares of Series C. (iii) The corporation, at its option, shall be entitled to use as a credit against its Sinking Fund requirement for any period, an amount equal to One Dollar ($1.00) per share of Series C which the Corporation shall have theretofore acquired by purchase or redemption, (including, as provided in subdivision (j)) otherwise than through the operation of the Sinking Fund, and for which credit shall not theretofore have been taken against any Sinking Fund requirement. (iv) For purposes of this subdivision (i), "Net Sales" means the gross sales or licensing revenues of the corporation less any discount, allowances, returns or taxes. (v) The corporation shall mail a notice of redemption to each holder of record of shares of Series C to be redeemed addressed to the holder at the address of such holder appearing on the books of the corporation or given by the holder to the corporation for the purpose of notice, or if no such address appears or is given at the place where the principal executive office of the corporation is located, not earlier than 60 nor later than 20 days before the date fixed for redemption. The notice of redemption shall include (i) the shares of Series C to be redeemed, (ii) the date fixed for redemption, (iii) the redemption price, (iv) the place at which the shareholders may obtain payment of the redemption price upon surrender of their share certificates, and (v) the last date prior to the date of redemption that the right of conversion may be exercised, which is the close of business on the day prior to the date fixed for redemption. If funds are available on the date fixed for the redemption, then whether or not the share certificates are surrendered for payment of the redemption price, the shares shall no longer be outstanding and the holders thereof shall cease to be shareholders of the corporation with respect to the shares redeemed on an after the date fixed for redemption and shall be entitled only to receive the redemption price without interest upon surrender of the share certificate. If less than all the shares represented by one share certificate are to be redeemed, the corporation shall issue a new share certificate for the shares not redeemed. (vi) If, on or prior to any date fixed for redemption, the corporation deposits with any bank or trust company in this State as a trust fund a sum sufficient to redeem, on the date fixed for redemption thereof, the shares called for redemption, with irrevocable instructions and -14- 22 authority to the bank or trust company to publish the notice of redemption thereof (or to complete such publication if theretofore commenced) and to pay, on and after the date fixed for redemption or prior thereto, the redemption price of the shares to their respective holders upon the surrender of their share certificates, then from and after the date of the deposit (although prior to the date fixed for redemption) the shares so called shall be redeemed and dividends on those shares shall cease to accrue after the date fixed for redemption. The deposit shall constitute full payment of the shares to their holders and from and after the date of the deposit the shares shall no longer be outstanding and the holders thereof shall cease to be shareholders with respect to such shares and shall have no rights with respect thereto except the right to receive from the bank or trust company payment of the redemption price of the shares without interest, upon surrender of their certificates therefore and the right to convert the shares in accordance with subdivision (e). After two years, the bank or trust company shall return to the corporation funds deposited and not claimed and thereafter the holder of a share certificate for shares redeemed shall look to the corporation for payment. (j) Optional Redemption of Series C. (i) On and after July 1, 1993, Series C is subject to redemption, out of funds legally available therefore, in whole, or from time to time in part, at the option of the board of directors of the Corporation. If only a part of the shares of Series C is to be redeemed, the redemption shall be carried out prorata subject to adjustment to avoid redemption of fraction shares. The redemption price shall be One Dollar Twenty-five Cents ($1.25) per share plus cumulative dividends as provided in subdivision (b) accrued and unpaid to the date fixed for redemption (herein also called the "redemption price"). (ii) The provisions of subdivisions (i) (v) and (vi) shall also apply to redemption under this subdivision (j). (k) Potential Mandatory Dividend of Series C. If a Public Event has not occurred by July 1, 1993, the corporation shall pay a stock dividend to record holders of Series C on such date of one-fifth (1/5) of a share of Series C for each one (1) share of Series C outstanding on such date. Any fractional shares resulting from such stock dividend owned by any record owner shall be combined into whole shares and the resulting fractional share shall be rounded up into a whole share. (l) Reverse Stock Split of the Common Stock. Upon the filing of these Restated Articles of Incorporation, each outstanding share of Common Stock of the par value -15- 23 $0.001 per share is combined and converted into 0.33% shares of $0.001 par value Common Stock. Any fractional shares resulting from such combination and conversion owned by any record owner shall be combined into whole shares and the resulting fractional share shall be rounded up into a whole share. As a result of such reverse stock split of the Common Stock, upon the filing of these Restated Articles of Incorporation, the Preferred Stock Conversion Price and the Series B Conversion Price shall be adjusted to $0.33% and $0.331%, respectively. (m) Special Preferred Stock. The Special Preferred Stock may be divided into such number of series as the Board of Directors may determine. Subject to the rights granted to the Preferred Stock, Series B and Series C, the Board of Directors is authorized to determine and alter the rights, preferences, privileges and restrictions granted to or imposed upon any wholly unissued series of Special Preferred Stock, and to fix the number of shares of any series of Special Preferred Stock and the designation of any such series of Special Preferred Stock. The Board of Directors, within the limits and restrictions stated in any resolution or resolutions of the Board of Directors originally fixing the number of shares constituting any series, may increase or decrease (but not below the number of shares of such series then outstanding) the number of shares of any series subsequent to the issue of shares of that series. IV The liability of this corporation's directors for monetary damages shall be eliminated to the fullest extent permissible under California law. Any repeal or modification of this Article IV shall not adversely affect any rights or protections to which this corporation's directors were entitled prior to such repeal or modification. V This corporation is authorized to indemnify agents (as defined in California Corporations Code Section 317) for breach of duty to this corporation and its stockholders through bylaw provisions or through agreements with the agents, or both, in excess of the indemnification otherwise permitted by California Corporations Code Section 317, subject to the limits on such excess indemnification set forth in California Corporations Code Section 204. Any repeal or modification of this Article V shall not adversely affect any rights or protections to which the corporation's agents were entitled prior to such repeal or modification." -16- 24 3. The foregoing amendment and restatement of the Articles of Incorporation have been duly approved by the Board of Directors of the corporation. 4. The foregoing amendment and restatement of the Articles of Incorporation have been duly approved by the required vote of the shareholders of the corporation, in accordance with Section 903 of the California Corporations Code. The total number of outstanding shares of the corporation entitled to vote on the foregoing amendment is Fourteen Million One Hundred Thirty-five Thousand Three Hundred Twenty-eight (14,135,328) shares, including Ten Million Eleven Thousand Twenty-eight (10,011,028) shares of Common Stock, Two Million Four Hundred Sixty-nine Thousand Eight Hundred (2,469,800) Shares of Preferred Stock and One Million Six Hundred Fifty-four Thousand Five Hundred (1,654,500) shares of Series B. The total number of shares voting in favor of the amendments equaled or exceeded the vote required, which percentage vote required was more than -17- 25 fifty percent (50%) of the outstanding voting shares, and fifty percent (50%) of the outstanding Common Stock. /s/ W. MICHAEL BISSONNETTE ----------------------------------- W. MICHAEL BISSONNETTE President /s/ TOVA FEDER ----------------------------------- TOVA FEDER Secretary The undersigned declares under penalty of perjury under the laws of the State of California that the matters set forth in the foregoing Restated Articles of Incorporation are true and correct of his or her own knowledge. DATED: July 15, 1992 /s/ W. MICHAEL BISSONNETTE ----------------------------------- W. MICHAEL BISSONNETTE /s/ TOVA FEDER ----------------------------------- TOVA FEDER -18- EX-11 3 EXHIBIT 11 1 EXHIBIT 11 VOICE POWERED TECHNOLOGY INTERNATIONAL, INC. COMPUTATION OF LOSS PER COMMON SHARE (Unaudited)
Three Months Ended Three Months Ended 3/31/96 3/31/97 ------------------ ------------------ ENDING MARKET PRICE PER SHARE $ 1.56 $ .16 ----------- ----------- AVERAGE MARKET PRICE PER SHARE $ 1.66 $ .27 ----------- ----------- EARNINGS: Net loss applicable to common stock $ (780,400) $(1,386,300) =========== =========== PRIMARY EARNINGS PER SHARE: Weighted average number of common shares outstanding 13,034,429 13,949,072 Incremental shares assuming all dilutive options and warrants exercised and proceeds used to purchase shares in the market at the average stock price during the period 0 0 ----------- ----------- Total 13,034,429 13,949,072 =========== =========== Primary loss per share $ (.06) $ (.10) =========== =========== FULLY DILUTED LOSS PER SHARE: Weighted average number of common shares outstanding 13,034,429 13,949,072 Incremental shares assuming all dilutive options and warrants exercised and proceeds used to purchase shares in the market at the average stock price during the period, or the stock price at the end of the period, whichever is higher 0 0 ----------- ----------- Total 13,034,429 13,949,072 =========== =========== Fully diluted loss per share $ (.06) $ (.10) =========== ===========
Note: Common stock equivalents for 1996 and 1997 have not been considered as their effect would be anti-dilutive. EX-27 4 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE COMPANY'S BALANCE SHEET AND STATEMENT OF OPERATIONS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 3-MOS DEC-31-1997 MAR-31-1997 390 0 634 0 1,939 3,012 2,082 1,445 4,634 5,444 0 0 0 14 (810) 4,634 1,264 1,264 981 1,630 39 0 0 (1,386) 0 (1,386) 0 0 0 (1,386) (0.10) (0.10)
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