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As filed with the Securities and Exchange Commission on January 3, 1997
Registration No. 333-
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
______________________
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
NUKO INFORMATION SYSTEMS, INC.
(Exact name of registrant as specified in its charter)
NEW YORK 16-0962874
(State or other jurisdiction (IRS Employer
of incorporation or organization) Identification Number)
______________________
2391 QUME DRIVE
SAN JOSE, CALIFORNIA 95131
(408) 526-0288
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
______________________
Copies to:
PRATAP KESAV KONDAMOORI THOMAS A. EDWARDS, ESQ.
PRESIDENT LATHAM & WATKINS
2391 QUME DRIVE 701 "B" STREET, SUITE 2100
SAN JOSE, CALIFORNIA 95131 SAN DIEGO, CALIFORNIA 92101
(408) 526-0288 (619) 236-1234
(Name, address, including zip code,
and telephone number, including area code,
of agent for service)
Approximate date of commencement of proposed sale to the public: From time to
time after the effective date of this registration statement.
If the only securities being registered on this Form are being offered pursuant
to dividend or interest reinvestment plans, please check the following box. / /
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. /X/
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, please check the following box and list
the Securities Act registration statement number of the earlier effective
registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
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Proposed Proposed
Amount Maximum Maximum Amount of
Title of Shares to be Aggregate Aggregate Registration
to be Registered Registered (1) Price Per Share (2) Offering Price (2) Fee
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<S> <C> <C> <C> <C>
Common Stock, $0.001 par value................. 2,025,000 $11.5625 $23,414,063 $7,096
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</TABLE>
(1) For the purpose of estimating the number of shares of Common Stock to be
included in the Registration Statement of which this Prospectus is a part,
the Company calculated the number of shares of Common Stock issuable in
connection with the conversion of the Company's Series A Convertible
Preferred Stock (the "Convertible Preferred Stock") and the exercise of
warrants issuable upon conversion or redemption thereof (the "Warrants")
five years from the first issuance of Convertible Preferred Stock (to take
into account a 7% accruing premium on the stated value thereof) using a
conversion price of the Convertible Preferred Stock at the time of such
conversion of $10.00, which price is below the closing sale price of the
Common Stock as of December 26, 1996 ($11.75 per share) and was arbitrarily
selected. In addition to the estimated number of shares set forth in the
table, the amount to be registered includes a presently indeterminate number
of shares issuable upon conversion of or otherwise in respect of Convertible
Preferred Stock, or pursuant to Warrants, as such number may be adjusted as
a result of stock splits, stock dividends and antidilution provisions
(including floating rate conversion prices) in accordance with Rule 416.
(2) Estimated solely for the purpose of calculating the amount of the
registration fee pursuant to Rule 457(c), based on an average of the high
and low sales prices reported in the Nasdaq National Market on December 26,
1996.
The Registrant hereby amends this Registration Statement on such date or dates
as may be necessary to delay its effective date until the Registrant shall file
a further amendment which specifically states that this Registration Statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
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Page 1 of 25
Exhibit Index on Page 22
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SUBJECT TO COMPLETION, DATED JANUARY 3, 1997
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
PROSPECTUS
NUKO INFORMATION SYSTEMS, INC.
2,025,000 Shares of Common Stock, Par Value $0.001 Per Share, Issuable
upon Conversion of $10,000,000 Stated Value of Series A Convertible Preferred
Stock and Exercise of Warrants Issuable upon such Conversion.
This Prospectus relates to 2,025,000 shares of common stock, par value
$0.001 per share (the "Common Stock"), of NUKO Information Systems, Inc., a New
York corporation (the "Company"), which may be offered from time to time by one
shareholder of the Company (such holder being hereinafter described as the
"Selling Shareholder"). The Company will not receive any proceeds from the sale
of the shares offered hereby. The Common Stock of the Company is quoted on The
Nasdaq Stock Market National Market System (the "Nasdaq National Market") under
the symbol "NUKO." The last reported sales price of the Company's Common Stock
on the Nasdaq National Market on December 26, 1996 was $11.75 per share.
The shares of Common Stock offered hereby by the Selling Shareholder
consist of a presently indeterminate number of shares issuable upon conversion
of 10,000 shares of the Company's Series A Convertible Preferred Stock with an
aggregate stated value of $10,000,000 (the "Convertible Preferred Stock") or
pursuant to warrants issuable upon such conversion (the "Warrants"). For the
purpose of estimating the number of shares of Common Stock to be included in the
Registration Statement of which this Prospectus is a part, the Company
calculated the number of shares of Common Stock issuable in connection with the
conversion of the Convertible Preferred Stock and the exercise of Warrants on a
date five years from the date of the first issuance of Convertible Preferred
Stock (to take into account a 7% accruing premium on the stated value thereof)
using a conversion price of the Convertible Preferred Stock at the time of such
conversion of $10.00, which price is below the closing sale price of the Common
Stock as of December 26, 1996 ($11.75 per share) and was arbitrarily selected.
Pursuant to the terms of the Convertible Preferred Stock, the minimum number of
shares available for resale no matter when the conversion takes place is
937,500, based on a fixed maximum conversion price of $16.00 per share. Subject
to that minimum, the number of shares included in the Registration Statement and
available for resale is subject to adjustment and could be materially less or
more than the estimated number of shares included in the Registration Statement
depending on factors which cannot be predicted by the Company at this time,
including, among others, the future market price of the Common Stock. If the
Convertible Preferred Stock were actually converted on December 26, 1996, the
conversion price would be $12.275 (the average closing bid price over the ten
trading days prior to December 26, 1996), at which price the number of shares
available for resale upon conversion of $10,000,000 stated value of Convertible
Preferred Stock (including shares underlying Warrants) would be 1,221,996
(exclusive of shares issuable as a result of the 7% accruing premium on the
stated value of the Convertible Preferred Stock). This presentation is not
intended, and should in no way be construed, to constitute a prediction as to
the future market price of the Common Stock. See "Risk Factors -- Convertible
Securities, Warrants and Options; Potential Dilution and Adverse Impact on
Additional Financing" and "Selling Shareholder."
The Selling Shareholder, directly or through agents, broker-dealers or
underwriters, may sell the Common Stock offered hereby from time to time on
terms to be determined at the time of sale, in transactions on the Nasdaq
National Market, in privately negotiated transactions or otherwise. The Selling
Shareholder and any agents, broker-dealers or underwriters that participate in
the distribution of the Common Stock may be deemed to be "underwriters" within
the meaning of the Securities Act of 1933, as amended (the "Act"), and any
commission received by them and any profit on the resale of the Common Stock
purchased by them may be deemed to be underwriting discounts or commissions
under the Act. See "Use of Proceeds" and "Plan of Distribution."
___________________
THE SHARES OF COMMON STOCK HEREBY INVOLVE
A HIGH DEGREE OF RISK. SEE "RISK FACTORS"
AT PAGE 5 OF THIS PROSPECTUS.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION
OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
All expenses of this offering will be paid by the Company except for
commissions, fees and discounts of any underwriters, brokers, dealers or agents
retained by the Selling Shareholder. Estimated expenses payable by the Company
in connection with this offering are approximately $150,000. The aggregate
proceeds to the Selling Shareholder from the Common Stock will be the purchase
price of the Common Stock sold less the aggregate agents' commissions and
underwriters' discounts, if any. The Company has agreed to indemnify the Selling
Shareholder and certain other persons against certain liabilities, including
liabilities under the Act.
The date of this Prospectus is January 3, 1997.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith files reports, proxy statements and other information with
the Securities and Exchange Commission (the "Commission"). These materials can
be inspected and copied at the public reference facilities maintained by the
Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington,
D.C. 20549, and at the Commission's regional offices located at 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661 and 7 World Trade Center, 13th
Floor, New York, New York 10048. Copies of such material can be obtained at
prescribed rates from the public reference section of the Commission at 450
Fifth Street, N.W., Washington, D.C. 20549. Electronic reports, proxy statements
and other information filed through the Commission's Electronic Data Gathering,
Analysis and Retrieval system are publicly available through the Commission's
Web site (http://www.sec.gov). In addition, the Common Stock is listed on The
Nasdaq National Market and similar information concerning the Company can be
inspected and copied at the offices of the National Association of Securities
Dealers, Inc., 1735 "K" Street, N.W., Washington, D.C. 20006.
The Company has filed with the Commission a Registration Statement on
Form S-3 (including all amendments thereto, the "Registration Statement"), with
respect to the securities offered hereby. As permitted by the rules and
regulations of the Commission, this Prospectus does not contain all of the
information set forth in the Registration Statement and the exhibits and
schedules thereto. For further information about the Company and the Securities
offered hereby, reference is made to the Registration Statement and the exhibits
thereto, which may be examined without charge at the public reference facilities
maintained by the Commission at Room 1024, Judiciary Plaza, 450 Fifth Street,
N.W., Washington, D.C. 20549, and copies of which may be obtained from the
Commission upon payment of the prescribed fees.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed by the Company with the Commission are
incorporated herein by reference and shall be deemed to be a part hereof:
(a) Annual Report on Form 10-KSB for the fiscal year ended
December 31, 1995 (eight month period);
(b) Quarterly Report on Form 10-QSB for the quarter ended
September 30, 1996;
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(c) Quarterly Report on Form 10-QSB for the quarter ended June 30,
1996;
(d) Quarterly Report on Form 10-QSB for the quarter ended March
31, 1996;
(e) The Company's Current Reports on Form 8-K dated May 24, 1996,
July 22, 1996, August 16, 1996, September 12, 1996 and
December 20, 1996;
(f) The Company's Proxy Statement for its special meeting of
Shareholders held on December 11, 1996; and
(g) The Company's Registration Statement on Form 8-A registering
the Common Stock under Section 12(g) of the Exchange Act.
All documents filed by the Company pursuant to Section 13(a), 13(c), 14
or 15(d) of the Exchange Act after the date of this Prospectus and prior to the
termination of the offering of the Securities shall be deemed to be incorporated
by reference in this Prospectus and to be a part hereof from the date of filing
of such documents. Any statement contained in a document incorporated or deemed
to be incorporated by reference herein shall be deemed to be modified or
superseded for purposes of this Prospectus to the extent that a statement
contained herein or in any subsequently filed document which also is or is
deemed to be incorporated by reference herein modifies or supersedes such
statement. Any such statement so modified or superseded shall not be deemed,
except as so modified or superseded, to constitute a part of this Prospectus.
A copy of any or all of the documents incorporated herein by reference
(other than exhibits unless such exhibits are specifically incorporated by
reference in any such document) will be provided without charge to any person,
including a beneficial owner, to whom a copy of this Prospectus is delivered,
upon written or oral request. Requests for such copies should be addressed to
the Secretary of the Company, 2391 Qume Drive, San Jose, California 95131
(telephone number: (408) 526-0288).
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THE COMPANY
Certain statements set forth in this Prospectus and incorporated herein
by reference that are not historical fact constitute "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995. Reference is made in particular to the discussions set forth under the
headings "Business" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations" in the Company's Annual Report on Form
10-KSB for the period ended December 31, 1995 (eight months) and the Company's
Quarterly Reports on Form 10-QSB for the periods ended March 31, 1996, June 30,
1996 and September 30, 1996. Such forward-looking statements are based on
current expectations and involve known and unknown risks, uncertainties and
other factors, including the factors discussed under the caption "Risk Factors"
below, which may cause the actual results of the Company to be materially
different from historical results or from any projected results expressed or
implied by such forward-looking statements.
The Company designs, markets and sells one-way and two-way video
networking products that form essential building blocks in the development of
broadband (high capacity) video networks. The Company's standards compliant
products allow its customers to compress and decompress digital video and to
transmit signals over many types of networks using different interfaces and
protocols. The Company's digital compression and decompression products are sold
under the tradenames Highlander and RAVE and its network solutions are sold
under the tradename Intelligent Broadband Services Network ("IBSN"). The Company
markets its products and network solutions for enterprise-wide private networks
and public networks offered by carriers such as telephone companies, cable
companies, satellite companies and microwave communications companies.
The Company's products are comprised of codecs and multiplexors, which
enable video compression and decompression and network interfacing. Such
products enable a user to digitize analog signals and to encode, compress,
transmit, receive, decompress, decode and display multimedia data streams,
allowing the rapid and cost-effective communication of data from the point of
origin to remote locations.
The Company's Highlander products serve the one-way broadcast
television market and markets for corporate broadcasting and remote surveillance
applications. The Company has targeted its RAVE products at two-way video
conferencing, telemedicine, distance learning, remote arraignment and
post-production video editing. The Company sells its Highlander and RAVE
products separately and in combination as part of its IBSN integrated platform.
The Company intends to provide its IBSN customers with Highlander and RAVE
products, other standards compliant products, video network consulting services
and software to integrate the various pieces of the network, creating a turnkey
video network solution.
The Company's principal executive offices are located at 2391 Qume
Drive, San Jose, California 95131, and its telephone number is (408) 526-0288.
The Company was incorporated in 1968 under the laws of the State of New York
under the name Yondata Corporation.
RECENT DEVELOPMENTS
At a special meeting of shareholders on December 11, 1996, the holders
of more than two thirds of the Company's Common Stock voted to approve the
reincorporation of the Company from New York to Delaware. The reincorporation
will be effected by the merger of the New York parent corporation ("NUKO New
York") into its wholly owned Delaware subsidiary ("NUKO Delaware"). Upon the
effective date of the merger, each share of NUKO New York Common Stock and each
share of Convertible Preferred Stock of NUKO New York issued and outstanding
immediately prior thereto shall, by virtue of the merger and without any action
by the constituent corporations, the holder of such shares or any other person,
be converted into and exchanged for one fully paid and nonassessable share of
common stock, $.001 par value ("NUKO Delaware Common Stock"), and one fully paid
and nonassessable share of Convertible Preferred Stock, $.001 par value, of NUKO
Delaware, respectively. In
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addition, NUKO Delaware will assume the obligations of NUKO New York under the
option plans and all other employee benefit plans of NUKO New York. Each
outstanding and unexercised option, warrant or other right to purchase NUKO New
York Common Stock will become an option, warrant or right to purchase NUKO
Delaware Common Stock, respectively. The merger will become effective upon the
Company's filing of a certificate of merger in the State of Delaware, which the
Company intends to do following receipt of a tax clearance certificate from the
Tax Commissioner of the State of New York.
On December 16, 1996, the Company issued to RGC International
Investors, LDC, the Selling Shareholder, 5,000 shares of Convertible Preferred
Stock for an aggregate purchase price of $5,000,000 upon the first closing under
a Securities Purchase Agreement, dated as of December 13, 1996 (the "Purchase
Agreement"), by and between the Company and the Selling Shareholder (the
"Private Placement"). A second closing under the Purchase Agreement pursuant to
which the Company will issue to the Selling Shareholder an additional 5,000
shares of Convertible Preferred for an aggregate purchase price of $5,000,000
will take place upon the effectiveness of the Registration Statement of which
this Prospectus is a part. The shares of Common Stock issuable upon conversion
of such Convertible Preferred Stock and upon exercise of the Warrants issuable
upon such conversion are the subject of this Prospectus. See "Selling
Shareholder."
RISK FACTORS
The purchase of the securities offered hereby involves a high degree of
risk and should be considered only by persons who can afford to sustain a total
loss of their investment. Prospective purchasers should carefully consider,
among other factors, the following:
HISTORY OF LOSSES. Since its decision to enter the video networking
market, the Company has operated at a loss because the Company's revenues were
insufficient to support the comparatively substantial expenses incurred by the
Company, primarily for research and development. The Company recorded net
losses of $703,225 in fiscal 1994, $1,743,862 in fiscal 1995 and $1,957,645
for the eight months ended December 31, 1995 and a loss of $7,977,170 for the
nine months ended September 30, 1996. The Company's accumulated deficit at
September 30, 1996 is $12,350,785. The Company expects to continue to incur
substantial losses in future periods. There can be no assurance that the
Company's products will be widely accepted in the marketplace or to the extent
sales are made, that the volume, pricing and timing will be sufficient to permit
the Company to achieve profitability in the future. As of December 31, 1995, the
Company has net operating loss carry forwards of approximately $3,800,000 and
$1,900,000 available to offset future federal and state taxable income,
respectively, which losses expire at various dates from 1997 to 2011. The
utilization of these losses is contingent upon the Company's ability to generate
taxable income in the future. Management does not believe, based upon available
evidence, that it is more likely than not that the Company will be able to
realize the deferred tax assets.
SHORT OPERATING HISTORY. The Company's operations are subject to all of
the risks inherent in a new business enterprise, including the absence of a
substantial operating history and the expense of new product development.
Various problems, expenses, complications and delays may be encountered in
connection with the development of the Company's products and business. Future
growth beyond present capacity will require significant expenditures for
expansion, marketing, research and development. These expenses must be paid out
of future equity or debt financings or out of generated revenues and Company
profits. The availability of funds from any of these sources cannot be assured.
The Company was incorporated in the State of New York in 1968 under the
name Yondata Corporation and, in October 1992, changed its name to Growers
Express Corporation. In May 1994, Growers Express Corporation merged with NUKO
Technologies, Inc., a California corporation, and following the merger, Growers
Express changed its name to NUKO Information Systems, Inc. and commenced
operations through NUKO Technologies, Inc., which survived the merger as the
Company's wholly owned subsidiary. From 1970 to 1994,
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the Company had no operations and no revenues. The Company's management, which
had no affiliation with Growers Express prior to the merger with NUKO
Technologies in May 1994, has almost no knowledge of the Company's activities
between its incorporation in 1968 and the merger, and very few corporate records
relating to the period between 1970 and 1994 are available. As a result, while
management believes that there are no material liabilities related to the
predecessor company, there can be no assurance that there are no potential
liabilities relating to such period or that the Company always has conducted its
corporate activities during this period in accordance with the New York Business
Corporations Law.
EARLY STAGE OF PRODUCT DEVELOPMENT. Since early 1994, the Company has
been primarily engaged in research and development of its technologies, product
design and establishment of strategic alliances on which the Company expects to
depend for manufacturing, sales and distribution of its potential products. The
Company has only recently begun to generate significant revenues from the
commercialization of products. The Company has to date sold its initial products
only in limited quantities, primarily for use in development, demonstration and
testing of prototypes. Certain contracts may relate to new technologies that may
not have been previously deployed on a large-scale commercial basis. The
Company's products are based on technologies that have not been widely deployed,
and there can be no assurance that the Company will be able successfully to
market its initial products to generate the increased revenues necessary to
sustain full scale commercial production or that the Company's products will be
well received when introduced into the marketplace on a full commercial scale.
The Company's products also must interoperate effectively among a wide variety
of different equipment, different protocols and different transmission speeds.
While the Company believes its products interoperate effectively among the
principal configurations of equipment, protocols and transmission speeds that
are currently commercially deployed, there can be no assurances that the
Company's products will continue to interoperate effectively among other
configurations of equipment, protocols and transmissions which may be developed
or utilized in the future. Moreover, management of the Company has limited
experience with the distribution of technologically complex products in
commercial quantities and there can be no assurance that the Company will be
able to make necessary adaptations to successfully move from the research and
development stage to full commercial production and distribution.
COMPETITION. The segments of the telecommunications industry in which
the Company competes are intensely competitive and are characterized by
declining average selling prices and rapid technological change. The Company
competes with major domestic and international companies, virtually all of which
have substantially greater financial, technical, production and marketing
resources than the Company with which to pursue engineering, manufacturing,
sales, marketing and distribution of their products. For example, in its
compression and networking business, the Company competes with vertically
integrated system suppliers including General Instrument Corporation,
Scientific-Atlanta, Inc. and Philips, as well as more specialized suppliers
including the DMV division of News Corp., C-Cube Microsystems' DiviCom Inc.
subsidiary, and the TV/COM subsidiary of Hyundai. In addition, some of the
Company's customers are actual or potential competitors of the Company,
competing against the Company with its own products. The Company believes that
the principal criteria for competition in its market include cost
competitiveness, flexibility, revenue generation capability, compatibility with
existing networks and upgradeability, as well as customer support. There is no
assurance that the Company will be able to compete successfully with these other
companies on these factors or otherwise.
ADDITIONAL CAPITAL REQUIREMENT. Although the Company believes that its
existing cash resources and the proceeds of the Private Placement will provide
adequate funding for its capital requirements through the first quarter of 1997,
the Company expects it will need additional funds to support its operating plan
at some time during 1997. The Company's capital requirements will depend on many
factors, including the progress of its research and development efforts, its
timely receipt of revenue from sales of its products to large customers, the
need to devote resources to manufacturing operations, and the demand for the
Company's products. Additional future financing may occur through the sale of
unregistered Common Stock or convertible securities in exempt offerings or
through the public offering of registered stock or convertible debt. There can
be no assurance that new financing will be available when needed by the Company
or that the terms, if available, will be satisfactory to the Company. If
adequate funds are not available, the Company may be required to delay, scale
back or eliminate one or more of its research and development or manufacturing
programs or to obtain funds through arrangements that may require the Company to
relinquish rights to certain of its technologies or potential products or other
assets that the Company would not otherwise relinquish. The inability of the
Company to raise needed funds would have a material adverse effect on the
Company's business, financial condition and results of operations.
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MANAGEMENT OF GROWTH. During 1996, the Company has begun to experience
significant growth which is expected to continue at a rapid pace for the
foreseeable future. Such growth has placed, and will continue to place,
significant strain on the Company's limited personnel and other resources. The
Company's ability to manage any further growth, should it occur, will require it
to implement and continually expand operational and financial systems, recruit
additional employees and train and manage both current and new employees. There
can be no assurance that the Company will be able to find qualified personnel to
fill needed positions or be able to successfully manage a broader organization.
The failure of the Company to effectively expand or manage these functions
consistent with any growth that may occur could have a material adverse effect
on the Company's business and results of operations.
DEPENDENCE ON CUSTOMER CAPITAL SPENDING REQUIREMENTS AND PURCHASING
TRENDS. The Company's business is directly impacted by capital spending
requirements and funding of the Regional Bell Operating Companies ("RBOCs") and
other major customers in the telecommunications industry. The capital budgets of
these customers or potential customers is beyond the control of the Company and
can be affected by numerous factors completely unrelated to the performance,
quality and price of the Company's products. Should the Company's customers or
potential customers suffer budgeting cutbacks affecting their capital purchasing
plans, the Company's results of operations could be adversely affected. In
addition, in recent years, the purchasing behavior of the Company's customers
has increasingly been characterized by the use of large contracts with few
suppliers. This trend is expected to intensify and will contribute to the
variability of the Company's results. Such larger purchase contracts typically
involve longer negotiating cycles, require dedication of substantial amounts of
working capital and other resources and, in general, require investments that
may substantially precede recognition of associated revenues. Moreover, in
return for larger, longer-term purchase agreements, customers often demand more
stringent acceptance criteria, which may also cause revenue recognition delays.
For example, if customers ask the Company to price its products based on
estimates of such customers' future requirements, and such customers fail to
take delivery of an amount comparable to the estimated amount on which the
Company bases its prices, the Company may recognize lower margins on product
revenue.
RELIANCE ON TELCOS. Before purchasing products such as those of the
Company, telephone companies ("telcos") subject such products to lengthy
approval processes, which can take several years or more for complex products
based on new technologies. The Company expects to be required to submit each
successive generation of its products as well as new products to its telco
customers for approval. The length of the approval process will depend upon a
number of factors, including the complexity of the product involved, development
priorities of telcos, telcos' budgets and regulatory issues affecting telcos.
Moreover, the need for regulatory approval from the Federal Communications
Commission (the "FCC") for certain new telco services prior to their
implementation may delay the approval process. Any such delay would have a
material adverse effect on the Company's business, financial condition and
results of operations.
Historically, telcos have been cautious in implementing new
technologies. Telcos' deployment of the Company's compression and networking
technologies may be prevented or delayed by a number of factors, including
telcos' lengthy product approval and purchase processes; cost; regulatory
barriers that may prevent or restrict telcos from providing interactive
multimedia services; the lack of demand for Internet access and other
interactive multimedia services; the lack of sufficient programming content for
interactive multimedia services; the availability of alternative technologies;
and telcos' policies that favor the use of such alternative technologies. In
addition, telcos are generally reluctant to deploy new technologies available
only from a single source, especially when the supplier is as small as the
Company, and often require alternative sources before deploying a new
technology. This reluctance may put the Company at a competitive disadvantage
relative to some of its competitors. Even if telcos adopt policies favoring
full-scale implementation of the Company's compression and networking
technologies, there can be no assurance that sales of the Company's products
will become significant or that the Company will be able successfully to
introduce its products on a timely basis or to sell those products in material
quantities. The failure of telcos to deploy the Company's technologies would
have a material adverse effect on the
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Company's business, financial condition and results of operations. Even if
demand for the Company's products is high, telcos may have sufficient bargaining
power to demand low prices and other terms and conditions which may have a
material adverse effect on the Company's business, financial condition and
results of operations.
DEPENDENCE ON SUPPLIERS. The Company purchases certain of the chips and
chip sets needed in its products from single source suppliers. The Company is
dependent upon such suppliers to deliver parts and components as needed for the
manufacture of the Company's products, but there can be no assurance that such
suppliers will continue to be able to serve the Company's needs. While there are
alternative sources of supply for each of the components outsourced by the
Company, the Company would incur delays if required to switch to another
supplier. Any disruption of the Company's relationships with any of its key
single source suppliers or manufacturers or other limitations on the
availability of these products provided by such suppliers could have an adverse
effect on the Company's business and operating results.
PRICING PRESSURES. The markets into which the Company sells or will
sell its products are characterized by extreme price competition, and the
Company expects the average selling prices of its products will decrease over
the life of each product. In order to partially offset declines in the selling
price of its products, the Company will need to reduce the cost of its products
by implementing cost reduction design changes, obtaining cost reductions as and
if volumes increase and successfully managing manufacturing and subcontracting
relationships. Since the Company does not operate its own manufacturing
facilities and must make binding commitments to purchase products, it may not be
able to reduce its costs as rapidly as companies that operate their own
manufacturing facilities. The failure of the Company to design and introduce
lower cost versions of its products in a timely manner or to successfully manage
its manufacturing relationships would have a material adverse effect on its
business and results of operations.
DEPENDENCE ON SUBCONTRACTORS. The Company's reliance on subcontractors
to manufacture and assemble certain products involves significant risks,
including reduced control over delivery schedules, quality assurance,
manufacturing yields and cost, the potential lack of adequate capacity and
potential misappropriation of its intellectual property. Although the Company
has not experienced material disruptions in supply to date, there can be no
assurance that manufacturing or assembly problems will not occur in the future
or that any such disruptions will not have a material adverse effect upon the
Company's results of operations. Further, there can be no assurance that
suppliers who have committed to provide product will do so, or that the Company
will meet all conditions imposed by such suppliers. Failure to obtain an
adequate supply of products on a timely basis would delay product delivery to
the Company's customers, which would have a material adverse effect on the
Company's business and results of operations. In addition, the Company's
business could also be materially and adversely affected if the operations of
any supplier are interrupted for a substantial period of time, or if the Company
is required, as a result of capacity constraints in its industry or otherwise,
to increase the proportion of goods purchased from higher cost suppliers in
order to obtain adequate product volumes.
DEPENDENCE ON CERTAIN CUSTOMERS. The Company has derived a substantial
amount of its revenues from contracts with a limited number of customers. During
the fourth quarter of 1996, it is expected that Northern Telecom ("Nortel") will
account for at least 60% of the Company's revenues. Although the Company expects
that Nortel will represent a significantly smaller portion of revenues in future
periods, it is anticipated that it will continue to be an important revenue
source for the foreseeable future. Nortel's contract does not require any
minimum purchases. The loss of Nortel as a customer would have a material
adverse effect on the Company's business and results of operations.
FLUCTUATIONS IN QUARTERLY RESULTS; LACK OF BACKLOG. The Company has
experienced, and expects to continue to experience, significant fluctuations in
its quarterly results of operations. Factors that have contributed or may
contribute to future fluctuations in the Company's quarterly results of
operations include the size and timing of customer orders and subsequent
shipments, customer order deferrals in anticipation of new products, timing of
8
<PAGE> 10
product introductions or enhancements by the Company or its competitors, market
acceptance of new products, technological changes in the telecommunications
industry, competitive pricing pressures, accuracy of customer forecasts of
end-user demand, changes in the Company's operating expenses, personnel changes,
changes in the mix of product sales and contract and consulting fees, quality
control of products sold, disruption in sources of supply, regulatory changes,
capital spending, delays of payments by customers and general economic
conditions. The timing and volume of customer orders are difficult to forecast.
The Company does not have a material backlog of orders for its products.
The Company intends to continue to make significant ongoing research
and development expenditures for new products and technologies, which may have a
material adverse effect on the Company's quarterly results of operations. The
Company's expense levels are based in part on expectations of future revenues
and are relatively fixed in the short term. The Company intends to increase
operating expenditures as the Company expands its operations to develop and
market its compression and networking products. Consequently, a shortfall in
quarterly revenues due to a lack of sales of the Company's products or otherwise
would adversely impact the Company's business, financial condition and results
of operations in a given quarter due to the Company's inability to adjust
expenses or inventory to match revenues for that quarter. In addition, there can
be no assurance that, as the Company increases sales of its products, warranty
returns will not become significant or that warranty returns, if significant,
will not have a material adverse effect on the Company's business, financial
condition and results of operations.
GOVERNMENT REGULATION. Although the extensive regulation of telcos by
Federal, state and foreign regulatory agencies, including the FCC and various
state public utility and service commissions, does not directly affect the
Company, the effects of such regulation on the Company's customers may have a
material adverse effect on the Company's business, financial condition and
results of operations. For example, FCC regulatory policies affecting the
availability of telco services, and other terms on which telcos conduct their
business, may impede the Company's penetration of certain markets. Although the
Telecommunications Act of 1996 eliminated or modified many FCC restrictions on
telcos' ability to provide interactive multimedia services, the remaining or any
future restrictions may have a material adverse effect on telcos' demand for the
Company's products. Cable operators, which may become another market for the
Company's products, are also subject to extensive governmental regulations that
may discourage them from deploying the Company's compression and networking
technology. In addition, rates for telecommunications services are generally
governed by tariffs of licensed carriers that are subject to regulatory
approval. These tariffs could have a material adverse effect on the demand for
the Company's products. The imposition of certain tariffs, duties and other
import restrictions on components which the Company intends to obtain from
non-domestic suppliers, the imposition of export restrictions on products which
the Company intends to sell internationally or other changes in laws or
regulations in the United States or elsewhere could also have a material adverse
effect on the Company's business, financial condition and results of operations.
POTENTIAL PRODUCT LIABILITIES. One or more of the Company's products
may contain undetected component, hardware, software or mechanical defects or
failures when first introduced or may develop defects or failures after
commencement of commercial production or shipments. Any such defects or failures
could cause loss of goodwill, if any, with distributors and with customers,
prevent or delay market acceptance of the Company's products, result in
cancellations or rescheduling of orders or shipments or product recalls or
returns and expose the Company to claims from customers. The Company also could
incur unexpected and significant costs, including product redesign costs and
costs associated with customer support. The Company expects to sell its products
with a limited warranty against defects in materials and workmanship. If any of
the Company's products are found within the warranty period to contain such
defects, the Company could be required to repair or replace the defective
products or refund the purchase price. The occurrence of any such defect or
failure could have a material adverse effect on the Company's business,
financial condition and results of operations. The Company does not maintain
insurance to protect against claims associated with the use of its products and
there can be no assurance that the Company will be able to satisfy claims that
may be asserted against the Company.
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<PAGE> 11
INTELLECTUAL PROPERTY AND PROPRIETARY RIGHTS. The Company attempts to
protect its technology through a combination of patents, copyright and trade
secret laws, confidentiality procedures and licensing arrangements. While the
Company currently has no patents, the Company has applied for certain patents
and intends to continue to seek patents on its technology, when appropriate.
There can be no assurance that patents will issue from any of the pending
applications or that any claims allowed from pending patents will be
sufficiently broad to protect the Company's technology. While the Company
intends to protect its intellectual property rights vigorously, there can be no
assurance that any patents issued to the Company will not be challenged,
invalidated or circumvented, or that the rights granted thereunder will provide
competitive advantages to the Company. The Company will endeavor to keep the
results of its research and development program proprietary, but may not be able
to prevent others from using some or all of such information or technology with
or without compensation. The Company's ultimate success will depend to some
extent on its ability to avoid infringement of patent or other proprietary
rights of others. The Company is not aware that it is infringing any such
rights, nor is it aware of proprietary rights of others for which it will be
required to obtain a license in order to market its initial products. However,
there is no assurance that the Company is not infringing proprietary rights of
others or that it will be able to obtain any technology licenses it may require
in the future.
DEPENDENCE ON EMERGING MARKETS. The markets into which the Company is
targeting its products is newly developing. The potential size of the market
opportunities and the timing of their development is uncertain. In addition, the
emergence of markets for certain digital video applications will be affected by
a variety of factors beyond the Company's control. In particular, certain
sectors of the communications market will require the development and deployment
of an extensive and costly communications infrastructure. There can be no
assurance that the communications providers will make the necessary investment
in such infrastructure or that the creation of this infrastructure will occur in
a timely manner. In addition, the deployment of such infrastructure will be
subject to governmental regulatory policies, taxes and tariffs. The development
of such markets could be delayed or otherwise adversely affected by new
governmental regulations or changes in taxes or tariffs, or by the failure of
government agencies to adopt changes to existing regulations necessary to permit
new technologies to enter the market.
POSSIBLE TECHNOLOGICAL ADVANCES. The market for the Company's initial
products is expected to be characterized by rapidly changing technology,
evolving industry standards and frequent new product introductions. The
Company's future success will depend in part upon its ability to successfully
bring to market and then enhance its existing products and to introduce new
products and features to meet changing customer requirements and emerging
industry standards. There can be no assurance that the Company will successfully
complete the development of its future products or that the Company's initial or
future products will achieve market acceptance. Any delay or failure of these
products to achieve market acceptance would adversely affect the Company's
business. In addition, there can be no assurance that products or technologies
developed by others will not render the Company's initial or future products or
technologies non-competitive or obsolete.
ANTI-TAKEOVER EFFECTS OF CERTAIN CHARTER PROVISIONS. Certain provisions
of the Company's Restated Certificate of Incorporation and Bylaws could
discourage potential acquisition proposals, could delay or prevent a change in
control of the Company and could make removal of management more difficult. The
Company's charter and bylaws will contain similar provisions following
reincorporation of the Company in Delaware. Such provisions could diminish the
opportunities for a shareholder to participate in tender offers, including
tender offers that are priced above the then current market value of the Common
Stock. The provisions also may inhibit increases in the market price of the
Common Stock that could result from takeover attempts. Additionally, the Board
of Directors of the Company, without further shareholder approval, may issue
up to 4,990,000 shares of Preferred Stock, in one or more series, with such
terms as the Board of Directors may determine, including rights such as voting,
dividend and conversion rights which could adversely affect the voting power
and other rights of the holders of Common Stock. Preferred Stock may be issued
quickly with terms which delay or prevent the change in control of the
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<PAGE> 12
Company or make removal of management more difficult. Also, the issuance of
Preferred Stock may have the effect of decreasing the market price of the Common
Stock.
DEPENDENCE ON KEY PERSONNEL. The ability of the Company to build and
maintain its competitive technological position will depend, in large part, on
the continued service of its key technical and management personnel and on its
ability to attract and retain highly-skilled technical, marketing and management
personnel. Competition for such personnel is intense and there is no assurance
that qualified people will be available when required. The Company does not
currently have employment agreements with any of its key employees other than
John H. Gorman, the Company's Vice President--Finance, Chief Financial Officer,
Treasurer and Secretary. The Company does not have, and is not contemplating
securing, key man life insurance on any of its executive officers or other key
personnel. There can be no assurance that any of these individuals or any other
key employee will not voluntarily terminate his or her employment with the
Company. The loss of certain key employees, particularly the Company's
President and Chief Executive Officer, Pratap Kesav Kondamoori, would have a
material adverse effect on the business of the Company. In addition, there can
be no assurance that the Company will be able to enforce noncompetition
agreements against employees who have executed such agreements.
CONTROL BY OFFICERS AND DIRECTORS. As of December 26, 1996, the
officers and directors of the Company control, directly or indirectly,
approximately 29.5% of the voting power of the Company's voting stock, including
options and warrants immediately exercisable or exercisable within 60 days.
Although management does not control a majority of the outstanding voting stock,
it holds a sufficient amount to make it more difficult for an independent third
party to effect a change in control of the Company than would be the case if the
stock ownership were less concentrated among members of management.
STOCK MARKET VOLATILITY; VOLATILITY OF THE COMPANY'S COMMON STOCK.
There have been periods of extreme volatility in the stock market that, in many
cases, were unrelated to the operating performance of, or announcements
concerning, the issuers of the affected securities. General market price
declines or volatility in the future could adversely affect the price of the
Common Stock. There can be no assurance that the Common Stock will maintain its
current market price. Short-term trading strategies of certain investors can
have a significant effect on the price of specific securities. The price of the
Company's Common Stock, in particular, has been extremely volatile.
ABSENCE OF DIVIDENDS. The Company does not expect to declare or pay any
cash or stock dividends in the foreseeable future, but instead intends to retain
all earnings, if any, to invest in the Company's operations. The payment of
future dividends is within the discretion of the Board of Directors and will
depend upon the Company's future earnings, if any, its capital requirements,
financial condition and other relevant factors.
CONVERTIBLE SECURITIES, WARRANTS AND OPTIONS; POTENTIAL DILUTION AND
ADVERSE IMPACT ON ADDITIONAL FINANCING. As of December 26, 1996, the Company had
outstanding options and warrants to purchase an aggregate of 3,164,760 shares of
Common Stock at a weighted average exercise price of $5.25 per share. The
Company also is obligated to issue additional Warrants to acquire 407,332 shares
of Common Stock and 814,664 shares of Common Stock upon conversion of the
Convertible Preferred Stock based on a conversion price of the Convertible
Preferred Stock at the time of such conversion of $12.275 (the average closing
bid price over the ten trading days prior to December 26, 1996). Pursuant to the
terms of the Convertible Preferred Stock, the minimum number of shares available
for resale is 937,500 (including shares underlying Warrants), based on a fixed
maximum conversion price of $16.00 per share. Subject to such minimum number,
the exact number of shares of Common Stock issuable upon conversion of
Convertible Preferred Stock and exercise of Warrants issued pursuant to such
conversion cannot be estimated with certainty because such issuances of Common
Stock will vary inversely with the market price of the Common Stock at the time
of such conversion. The number of warrants and shares of Common Stock issuable
upon conversion of the Convertible Preferred Stock is also subject to various
adjustments to prevent dilution resulting from stock splits, stock dividends or
similar transactions. To the extent that such options and warrants are exercised
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<PAGE> 13
or shares of Convertible Preferred Stock are converted (and the Warrants
issuable upon such conversion are exercised), substantial dilution of the
interests of the Company's shareholders is likely to result and the market price
of the Common Stock may be materially adversely affected. In the case of the
Convertible Preferred Stock, such dilution will be greater if the future market
price of the Common Stock decreases. For the life of such warrants, options and
convertible securities the holders will have the opportunity to profit from a
rise in the price of the underlying securities. The existence of such warrants,
options and convertible securities is likely to affect materially and adversely
the terms on which the Company can obtain additional financing, and the holders
of warrants and options can be expected to exercise them at a time when the
Company would otherwise, in all likelihood, be able to obtain additional
capital by an offering of its unissued capital stock on terms more favorable
to the Company than those provided by such warrants, options and convertible
securities.
SHARES ELIGIBLE FOR FUTURE SALE. Future sales of Common Stock by
existing shareholders under Rule 144 of the Act, pursuant to an effective
registration statement or otherwise could have an adverse effect on the price of
the Common Stock. As of December 31, 1996, there will be more than 9,350,000
shares of Common Stock eligible for sale in the public market, subject to
compliance with Rule 144. In May 1996, the Commission declared effective a
registration statement covering the resale of approximately 5,000,000 shares
of such shares, a portion of which has not been publicly resold as of the date
hereof, but could be so resold at any time. The Company has registered
1,500,000 shares for issuance under its 1995 Stock Option Plan. In addition,
the Company intends to register up to 2,700,000 shares for issuance under its
1996 Stock Option Plan and 1996 Director Stock Option Plan. The possibility
that substantial amounts of Common Stock may be sold in the public market may
adversely affect the prevailing market price for the Common Stock and could
impair the Company's ability to raise additional capital through the sale of
equity securities.
USE OF PROCEEDS
The proceeds from the sale of the shares of Common Stock offered hereby
are solely for the account of the Selling Shareholder. Accordingly, the Company
will receive none of the proceeds from the sale thereof. However, certain of the
shares of Common Stock offered hereby are issuable in the future upon the
exercise of the warrants issuable upon conversion of the Convertible Preferred
Stock, and the Company will receive the exercise prices payable upon any
exercise of the warrants. There can be no assurance that all or any part of the
warrants will be exercised.
SELLING SHAREHOLDER
The Selling Shareholder has not had a material relationship with the
Company within the part three years other than as a result of its ownership of
shares of Convertible Preferred Stock of the Company.
The following table sets forth the name of the Selling Shareholder, the
number of shares of Common Stock owned by the Selling Shareholder as of
December 31, 1996, and the number of shares which may be offered for resale
pursuant to this Prospectus. For the purposes of calculating the number of
shares of Common Stock owned and offered by the Selling Shareholder, the Company
has calculated the number of shares of Common Stock issuable in connection with
the conversion of the Convertible Preferred Stock based on a hypothetical
conversion price of the Convertible Preferred Stock at the time of such
conversion of $10.00, which price is below the market price of the Common Stock
as of December 26, 1996 (which was $11.75). Pursuant to the terms of the
Convertible Preferred Stock, the minimum number of shares available for resale
is 937,500, based on a fixed maximum conversion price of $16.00 per share.
Subject to that minimum, the number of shares included in the Registration
Statement of which this Prospectus is a part and available for resale is subject
to adjustment and could be materially less or more than such estimated amount
depending on factors which cannot be predicted by the Company at this
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<PAGE> 14
time, including, among others, the future market price of the Common Stock. The
use of such hypothetical price is not intended, and should in no way be
construed, to constitute a prediction as to the future market price of the
Common Stock.
The information included below is based upon information provided by
the Selling Shareholder. Because the Selling Shareholder may offer all, some or
none of its Common Stock, no definitive estimate as to the number of shares
thereof that will be held by the Selling Shareholder after such offering can be
provided and the following table has been prepared on the assumption that all
shares of Common Stock offered under this Prospectus will be sold to
unaffiliated parties.
<TABLE>
<CAPTION>
SHARES OF COMMON STOCK SHARES OF SHARES OWNED AFTER
NAME OWNED PRIOR TO COMMON STOCK OFFERING (4)
OFFERING(1)(2)(3) BEING OFFERED(2)(3)
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
RGC International Investors, LDC 2,025,000 2,025,000 0
</TABLE>
(1) The Selling Shareholder has sole voting and sole investment power with
respect to all shares owned.
(2) Assumes, arbitrarily, that the Convertible Preferred Stock is converted
on a date five years from the first issuance of Convertible Preferred
Stock (taking into account a 7% accruing premium on the stated value
thereof) at a conversion price of $10.00, the maximum number of
Warrants issuable upon conversion are issued and exercised, and no
limits or adjustments are applicable. Pursuant to the terms of the
Convertible Preferred Stock, if the Convertible Preferred Stock were
actually converted on December 26, 1996, the conversion price would be
$12.275 (based on the average closing bid prices for the ten trading
days immediately preceeding such date), at which price the number of
shares owned by the Selling Shareholder (including shares underlying
Warrants) would be approximately 1,221,996. Therefore, the arbitrarily
assumed conversion price and holding period described above result in
ownership substantially greater than what actual ownership would be if
conversion took place on December 26, 1996. In addition, pursuant to
the terms of the Convertible Preferred Stock and the Warrants, the
Convertible Preferred Stock is convertible and the Warrants are
exercisable by the holders thereof only to the extent that the number
of shares of Common Stock thereby issuable, together with the number of
shares of Common Stock then held by such holder and its affiliates (not
including shares underlying unconverted shares of Convertible Preferred
Stock and unexercised Warrants), would not exceed 4.9% of the then
outstanding Common Stock as determined in accordance with Section 13(d)
of the Exchange Act. Accordingly, the number of shares of Common Stock
set forth for the Selling Shareholder exceeds the actual number of
shares of Common Stock that the Selling Shareholder could own
beneficially at any given time through its ownership of the Convertible
Preferred Stock and Warrants. In that regard, beneficial ownership of
the Selling Shareholder set forth in the table is not determined in
accordance with Rule 13d-3 under the Exchange Act.
(3) Except as set forth in footnote 2 above, ownership is determined in
accordance with Rule 13d-3 under the Exchange Act. Subject to the
provisions of footnote 2 above, the actual number of shares of Common
Stock beneficially owned and offered for sale hereunder is subject to
adjustment and could be materially less or more than the estimated
amount indicated depending upon factors which cannot be predicted by
the Company at this time, including, among others, the market price of
the Common Stock prevailing at the actual date of conversion of
Convertible Preferred Stock and the amount of the premium on the stated
value of the Convertible Preferred Stock accrued from the date of
issuance at a rate of 7% per annum.
(4) Assumes the sale of all shares offered hereby to persons who are not
affiliates of the Selling Shareholder.
The shares offered hereby are issuable upon the conversion of 10,000
shares of the Convertible Preferred Stock, with an aggregate stated value of
$10,000,000, and the exercise of the Warrants issuable upon such conversion.
Pursuant to the terms of the Securities Purchase Agreement between the Company
and the Selling Shareholder, the Selling Shareholder purchased one-half of the
shares of Convertible Preferred Stock at a closing held on December 16, 1996.
The remaining one-half of the shares of Convertible Preferred Stock are
purchasable by the Selling Shareholder for an aggregate purchase price of
$5,000,000 upon a second closing, which is conditioned upon, among other things,
the effectiveness of the Registration Statement of which this Prospectus is a
part. No condition to such closing is within the Selling Shareholder's control.
Upon conversion of the Convertible Preferred Stock, holders will be
entitled to receive a number of shares of Common Stock determined by dividing
the stated value of the Preferred Stock ($1,000 per share), plus a premium in
the amount of 7% per annum of the stated value from the date of issuance
(prorated to the conversion date), by a conversion price equal
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<PAGE> 15
to the lesser of (i) $16.00 and (ii) a percentage (100% on or before January 30,
1997, 90% before March 17, 1997 (but after January 30, 1997), and 85% on or
after March 17, 1997) of the average of the closing bid prices for shares of
Common Stock for the ten trading day period immediately prior to conversion,
subject to adjustment upon the occurrence of certain dilutive events. The
Convertible Preferred Stock may be converted by holders at any time prior to
December 16, 2001, and must be converted on that date. Upon conversion of the
Convertible Preferred Stock, holders also will be entitled to receive Warrants
to acquire, at an exercise price of $18.00 per share, a number of additional
shares of Common Stock equal to one-half the number of shares of Common Stock
issuable to them upon such conversion, subject to certain limitations and to
adjustment upon the occurrence of certain dilutive events. The Warrants may be
exercised by the holders at any time prior to the fifth anniversary of their
issuance. The Certificate of Amendment to the Company's Certificate of
Incorporation, which contains the designations, preferences and rights of the
Convertible Preferred Stock (the "Certificate of Designation"), provides that
the Company may, at its option, on one occasion only redeem all or part of the
outstanding Convertible Preferred Stock for a combination of cash and Warrants.
In addition, under certain limited circumstances, the Company may be required to
redeem the outstanding Convertible Preferred Stock for a combination of cash and
Warrants. The number of Warrants issuable upon such redemption would be equal to
100% of the redemption price divided by the then-applicable conversion price of
the Convertible Preferred Stock. In general, the terms of the Convertible
Preferred Stock do not entitle the holder thereof to vote. The foregoing summary
is qualified in its entirety by the terms of the Convertible Preferred Stock and
Warrants.
Under the applicable conversion formula, the number of shares of Common
Stock issuable upon conversion of the Convertible Preferred Stock will be higher
if the market price of the Common Stock at the time of conversion is lower. In
addition, the number of shares issuable upon the conversion of the Convertible
Preferred Stock and the exercise of the Warrants is subject to adjustment upon
the occurrence of certain dilutive events. The shares of Common Stock referenced
in the Selling Shareholder table represent the number of shares which would be
issuable if the Convertible Preferred Stock Preferred Stock were converted five
years from the first issuance of Convertible Preferred Stock at a conversion
price equal to $10.00, the maximum number of Warrants issuable upon conversion
were issued and exercised, and no limitations or adjustments were applicable.
Additional shares that may become issuable as a result of the anti-dilution
provisions of the Convertible Preferred Stock (including, without limitation,
the provisions relating to the floating rate conversion price described therein)
and Warrants are also included in the Registration Statement of which this
Prospectus is a part and offered hereby pursuant to Rule 416 under the
Securities Act.
PLAN OF DISTRIBUTION
The Company is registering the shares of Common Stock offered by the
Selling Shareholder hereunder pursuant to contractual registration rights.
The shares of Common Stock offered hereunder may be sold from time to
time by the Selling Shareholder, or by pledgees, donees, transferees or other
successors in interest. Such sales may be made on the Nasdaq National Market or
in the over-the-counter market or otherwise at prices and on terms then
prevailing or related to the then current market price, or in negotiated
transactions. The shares of Common Stock may be sold to or through one or more
broker-dealers, acting as agent or principal in underwritten offerings, block
trades, agency placements, exchange distributions, brokerage transactions,
privately negotiated transactions, short sales or otherwise, or in any
combination of transactions.
In connection with any transaction involving the Common Stock,
broker-dealers or others may receive from the Selling Shareholder, and may in
turn pay to other broker-dealers or others, compensation in the form of
commissions, discounts or concessions in amounts to be negotiated at the time.
Broker-dealers and any other persons participating in a distribution of the
Common Stock may be deemed to be "underwriters" within the meaning of the Act in
connection with such distribution, and any such commissions, discounts or
concessions may be deemed to be underwriting documents or commissions under the
Act.
Any or all of the sales or other transactions involving the Common
Stock described above, whether effected by the Selling Shareholder, any broker
dealer or others, may be made pursuant to this Prospectus. In addition, any
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<PAGE> 16
shares of Common Stock that qualify for sale pursuant to Rule 144 under the Act
may be sold under Rule 144 rather than pursuant to this Prospectus.
To comply with the securities laws of certain states, if applicable,
the Common Stock may be sold in such jurisdictions only through registered or
licensed brokers or dealers. In addition, shares of Common Stock may not be sold
unless they have been registered or qualified for sale or an exemption from
registration or qualification requirements is available and is complied with
under applicable state securities laws.
The Company and the Selling Shareholder have agreed, and hereafter may
further agree, to indemnify each other and certain persons, including
broker-dealers or others, against certain liabilities in connection with any
offering of the Common Stock, including liabilities arising under the Act.
The Company paid a finder's fee of $200,000 to Hughes Capital Group in
connection with the Private Placement of the Convertible Preferred Stock to the
Selling Shareholder.
EXPERTS
The consolidated financial statements of the Company as of December
31, 1995, and for the eight months ended December 31, 1995, and for each of the
two years in the period ended April 30, 1995, incorporated by reference in this
Prospectus have been incorporated by reference in reliance upon the report of
Grant Thornton LLP, independent certified public accountants, given upon the
authority of said firm as experts in accounting and auditing.
LEGAL MATTERS
The validity of the Common Stock offered hereby will be passed upon for
the Company by Latham & Watkins, San Diego, California.
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No dealer, salesperson or other individual has been authorized to give
any information or make any representations other than those contained in this
Prospectus and, if given or made, such information or representations must not
be relied upon as having been authorized by the Company. This Prospectus does
not constitute an offer by the Company to sell, or a solicitation of an offer to
buy, the securities offered hereby in any jurisdiction where, or to any person
to whom, it is unlawful to make an offer or solicitation. Neither the delivery
of this Prospectus nor any sale made hereunder shall, under any circumstances,
create an implication that there has been any change in the affairs of the
Company since the date hereof or that the information contained herein is
correct or complete as of any time subsequent to the date hereof.
__________________________
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
Available Information....................................2
Incorporation of Certain
Documents by Reference...............................2
The Company..............................................4
Recent Developments......................................4
Risk Factors ............................................5
Use of Proceeds ........................................12
Selling Shareholder ....................................12
Plan of Distribution ...................................14
Experts.................................................15
Legal Matters...........................................15
</TABLE>
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Shares of Common Stock Issuable Upon Conversion
of Series A Convertible Preferred Stock and
Exercise of Warrants Issuable Upon Such Conversion
NUKO INFORMATION
SYSTEMS, INC.
__________________________
P R O S P E C T U S
__________________________
____________, 1996
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<PAGE> 18
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution.
The following is an itemized statement of expenses to be incurred in
connection with this Registration Statement. All such expenses will be paid by
the Company.
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee........... $ 7,096
Blue Sky fees and expenses.................................... 5,000
Public accountants' fees...................................... 35,000
Company legal fees and expenses............................... 50,000
Miscellaneous expenses........................................ 52,904
--------
TOTAL............................................... $150,000
========
</TABLE>
All of the above items except the registration fee are estimates.
Item 15. Indemnification of Directors and Officers.
As noted above under the caption "Recent Developments," the Company has
received shareholder approval for the reincorporation of the Company from New
York to Delaware and the Company currently is seeking to effect such
reincorporation. Consequently, the Company has set forth below descriptions of
the statutes, charter provisions, by-laws and contracts that currently insure or
indemnify officers or directors of the Company in accordance with New York law
and the statutes, charter provisions, by-laws and contracts that will insure or
indemnify officers or directors following reincorporation.
The New York Business Corporations Law (the "NYBCL"), permits a
corporation, through a provision in its certificate of incorporation, to
eliminate the personal liability of a director to the Company for monetary
damages in an action brought by or in the right of the Company for breach of a
director's duties to the Company and its shareholders. Under current New York
law, liability is not eliminated for the liability of any director if a judgment
or other final adjudication adverse to him establishes that his acts or
omissions were in bad faith or involved intentional misconduct or a knowing
violation of law or that he personally gained in fact a financial profit or
other advantage to which he was not legally entitled or that his acts violated
section 719 of the NYBCL. Such provision does not eliminate the liability of any
director for any act or omissions prior to the adoption of the provision.
The NYBCL provides a detailed statutory framework covering
indemnification of any officer or director of the corporation who is made or
threatened to be made a party to any legal proceeding by reason of his or her
service on behalf of the corporation. Such law provides that indemnification
against expenses actually and reasonably incurred in connection with any such
proceeding shall be made to any such person who has been successful "on the
merits or otherwise" in the defense of any such proceeding. The law provides
that a corporation may indemnify directors and officers against expenses,
judgments, fines, settlements and other amounts actually and reasonably incurred
in a third party proceeding against such person by reason of his or her service
on behalf of the corporation, provided the person acted in good faith, in a
manner he or she reasonably believed to be in the best interests of the
corporation and had no reasonable cause to believe that his or her conduct was
unlawful. This determination may be made by a majority vote of a disinterested
quorum of the directors, independent legal counsel (if a quorum of independent
directors is not obtainable), a majority vote of a quorum of the shareholders
(excluding shares owned by the indemnified party), or the court handling the
action. The law further provides that in derivative suits, the corporation may
indemnify such person against expenses incurred in such a proceeding, provided
such person acted in good faith and in a manner he or she reasonably believed to
be in the best interests of the corporation and its shareholders.
Indemnification is not available in derivative actions (i) for amounts paid or
expenses incurred in connection with a matter that is settled or otherwise
disposed of without court approval or (ii)
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with respect to matters for which the officer or director shall have been
adjudged to be liable to the corporation, unless the court shall determine that
such person is entitled to indemnification.
The law permits the advancing of expenses incurred in defending any
proceeding against a corporate agent by reason of his or her service on behalf
of the corporation upon the giving of a promise to repay any such sums in the
event it is later determined that such person is not entitled to be indemnified.
The NYBCL further provides that the indemnification provided by the statute is
not exclusive of other rights to which those seeking indemnification may be
entitled, by law, agreement or otherwise, to the extent additional rights are
authorized in the corporation's certificate of incorporation. Finally, the law
further permits the corporation to procure insurance on behalf of its directors,
officers and agents against any liability incurred by any such individual.
Under Section 145 of the Delaware General Corporation Law, the Company
has broad powers to indemnify its directors and officers against liabilities
they may incur in such capacities, including liabilities under the Securities
Act.
The Amended and Restated Certificate of Incorporation (effective
immediately prior to the reincorporation merger) and Bylaws of NUKO Delaware
provide that the Company will indemnify its directors and officers to the
fullest extent permitted by Delaware law. Delaware law permits, but does not
require, a corporation to indemnify officers, directors, employees or agents and
expressly provides that the indemnification provided for under Delaware law
shall not be deemed exclusive of any indemnification right under any bylaw, vote
of stockholders or disinterested directors, or otherwise. Delaware law permits
indemnification against expenses and certain other liabilities arising out of
legal actions brought or threatened against such persons for their conduct on
behalf of the Company, provided that each such person acted in good faith and in
a manner that he or she reasonably believed was in or not opposed to the
Company's best interests and in the case of a criminal proceeding, had no
reasonable cause to believe his or her conduct was unlawful. Delaware law does
not allow indemnification of directors in the case of an action by or in the
right of the Company (including stockholder derivative suits) unless the
directors successfully defend the action or indemnification is ordered by the
court.
The Company intends to enter into indemnification agreements with
certain officers and directors to effectuate these indemnity provisions
following effectiveness of the reincorporation merger.
Item 16. Exhibits.
3.1 Restated Certificate of Incorporation of the Company
(incorporated by reference to Exhibit 3.1 to the Company's
Registration Statement on Form SB-2 filed February 26, 1996).
3.2 Certificate of Correction of Restated Certificate of
Incorporation of the Company (incorporated by reference to
Exhibit 3.2 to the Company's Current Report on Form 8-K filed
with the Commission on December 20, 1996).
3.3 Certificate of Amendment to Certificate of Incorporation of
the Company containing the designations, preferences and
rights of the Company's Series A Convertible Preferred Stock
(incorporated by reference to Exhibit 3.3 to the Company's
Current Report on Form 8-K filed with the Commission on
December 20, 1996).
4.1 Securities Purchase Agreement, dated as of December 13, 1996,
by and between the Company and RGC International Investors,
LDC, including the Form of Stock Purchase Warrant attached as
Exhibit B thereto (incorporated by reference to Exhibit 4.1 to
the Company's Current Report on Form 8-K filed with the
Commission on December 20, 1996).
4.2 Registration Rights Agreement, dated as of December 13, 1996,
by and between the Company and RGC International Investors,
LDC (incorporated by reference to Exhibit 4.2 the Company's
Current Report on Form 8-K field with the Commission on
December 20, 1996).
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5.1 Opinion of Latham & Watkins.
23.1 Consent of Latham & Watkins (included in Exhibit 5.1 hereto).
23.2 Consent of Grant Thornton LLP.
24.1 Power of Attorney (included on signature page hereto).
Item 17. Undertakings.
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this Registration Statement
to include any additional or changed material information on the
plan of distribution.
(2) For determining liability under the Securities Act, to treat
each post-effective amendment as a new registration statement
of the securities offered, and the offering of the securities
at that time to be the initial bona fide offering.
(3) To file a post-effective amendment to remove from registration
any of the securities that remain unsold at the end of the
offering.
The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
Registrant's annual report pursuant to section 13(a) or section 15(d) of the
Securities Exchange Act of 1934 that is incorporated by reference in this
Registration Statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Company pursuant to the foregoing provisions, or otherwise, the Company has been
advised that in the opinion of the Commission such indemnification is against
public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Company of expenses incurred or paid
by a director, officer or controlling person of the Company in the successful
defense of any action, suit or proceeding) is asserted by such director, officer
or controlling person in connection with the securities being registered, the
Company will, unless in the opinion of its counsel the matter has been settled
by controlling precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public policy as
expressed in the Securities Act and will be governed by the final adjudication
of such issue.
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SIGNATURES
Pursuant to the requirements of the Securities Act, the Company has
duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of San Jose, State of
California, on the 30th day of December, 1996.
NUKO INFORMATION SYSTEMS, INC.
By:/S/ PRATAP KESAV KONDAMOORI
---------------------------
Pratap Kesav Kondamoori
Chairman, President and
Chief Executive Officer
POWER OF ATTORNEY
Pursuant to the requirements of the Securities Act, this Registration
Statement has been signed by the following persons in the capacities and on the
dates indicated. Each person whose signature appears below hereby authorizes
Pratap Kesav Kondamoori and John H. Gorman, and either of them, with full power
of substitution and resubstitution, as his true and lawful attorneys-in-fact,
for him in any and all capacities, to sign any amendments (including
post-effective amendments or supplements) to this Registration Statement and to
file the same, with exhibits thereto, and other documents in connection
therewith, with the Commission.
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
Chairman, President and Chief Executive December 30, 1996
Officer (Principal Executive Officer)
/S/ PRATAP KESAV KONDAMOORI
___________________________
Pratap Kesav Kondamoori
Vice President, Finance, Chief Financial December 30, 1996
Officer and Secretary (Principal
/S/ JOHN H. GORMAN Financial and Accounting Officer)
___________________________
John H. Gorman
Vice President, Strategic Planning, December 30, 1996
/S/ H.R. KEDLAYA Assistant Secretary and Director
___________________________
H.R. Kedlaya
Director December 30, 1996
___________________________
Anders O. Field, Jr.
Director December 30, 1996
___________________________
Marc Dumont
/S/ ROBERT C. MARSHALL Director December 30, 1996
___________________________
Robert C. Marshall
</TABLE>
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<PAGE> 22
EXHIBIT INDEX
The following exhibits are filed as part of this Registration Statement
on Form S-3 or are incorporated herein by reference.
<TABLE>
<CAPTION>
Exhibit No. Description Page
- ----------- ----------- ----
<S> <C> <C>
3.1 Restated Certificate of Incorporation of the --
Company (incorporated by reference to Exhibit
3.1 to the Company's Registration Statement on
Form SB-2 filed February 26, 1996).
3.2 Certificate of Correction of Restated Certificate --
of Incorporation of the Company (incorporated by
reference to Exhibit 3.2 to the Company's Current
Report on Form 8-K filed with the Commission on
December 20, 1996).
3.3 Certificate of Amendment to Certificate of --
Incorporation of the Company containing the
designations, preferences and rights of the
Company's Series A Convertible Preferred Stock
(incorporated by reference to Exhibit 3.3 to the
Company's Current Report on Form 8-K filed with
the Commission on December 20, 1996).
4.1 Securities Purchase Agreement, dated as of --
December 13, 1996, by and between the Company and
RGC International Investors, LDC, including the
following exhibit: Form of Stock Purchase Warrant
(incorporated by reference to Exhibit 4.1 to the
Company's Current Report on Form 8-K filed with
the Commission on December 20, 1996).
4.2 Registration Rights Agreement, dated as of --
December 13, 1996, by and between the Company and
RGC International Investors, LDC (incorporated by
reference to Exhibit 4.2 the Company's Current
Report on Form 8-K field with the Commission on
December 20, 1996).
5.1 Opinion of Latham & Watkins. 23
23.1 Consent of Latham & Watkins (included in --
Exhibit 5.1 hereto).
23.2 Consent of Grant Thornton LLP. 25
24.1 Power of Attorney (included on signature page --
hereto).
</TABLE>
<PAGE> 1
EXHIBIT 5.1
[LETTERHEAD OF LATHAM & WATKINS]
January 3, 1997
NUKO INFORMATION SYSTEMS, INC.
2391 Qume Drive
San Jose, California 95131
Re: Registration Statement on Form S-3;
2,025,000 Shares of Common Stock, Par Value $.001
Per Share
Ladies and Gentlemen:
In connection with the registration by NUKO Information
Systems, Inc., a New York corporation (the "Company"), of 2,025,000 shares of
common stock of the Company, par value $.001 per share, together with additional
shares included therein pursuant to Rule 416 (the "Shares"), under the
Securities Act of 1933, as amended (the "Act"), on a Registration Statement on
Form S-3 filed with the Securities and Exchange Commission (the "Commission") on
December 30, 1996 (the "Registration Statement"), you have requested our opinion
with respect to the matters set forth below.
The Shares offered by the Selling Shareholder pursuant to the
Registration Statement consist of a presently indeterminate number of shares
issuable upon conversion of 10,000 shares of the Company's Series A Convertible
Preferred Stock or pursuant to warrants issuable upon such conversion (the
"Warrants").
In our capacity as your counsel in connection with such
registration, we are familiar with the proceedings taken and proposed to be
taken by the Company in connection with the authorization, issuance and sale of
the Shares, and for the purposes of this opinion, have assumed such proceedings
have been timely completed in the manner described in the Registration
Statement. In addition, we have made such legal and factual examinations and
inquiries, including an examination of originals or copies certified or
otherwise identified to our satisfaction of such documents, corporate records
and instruments, as we have deemed necessary or appropriate for purposes of this
opinion.
In our examination, we have assumed the genuineness of all
signatures, the authenticity of all documents submitted to us as originals, and
the conformity to authentic original documents of all documents submitted to us
as copies.
We are opining herein as to the effect on the subject
transaction only of the internal laws of the State of New York and the General
Corporation Law of the State of Delaware, and we express no opinion with respect
to the applicability thereto, or the effect thereon, of the laws of any other
jurisdiction or, in the case of Delaware, any other laws, or as to any matters
of municipal law or the laws of any other local agencies within the state.
<PAGE> 2
Subject to the foregoing, it is our opinion that, as of the
date of this letter, the Shares have been duly authorized and upon conversion of
the Series A Preferred Stock and exercise of the Warrants in accordance with the
terms of the Certificate of Amendment to the Company's Certificate of
Incorporation containing the designations, preferences and rights of Series A
Convertible Preferred Stock (the "Certificate of Designation") and the Warrants,
as applicable, will be validly issued, fully paid and nonassessable.
We consent to your filing this opinion as an exhibit to the
Registration Statement and to the reference to our firm contained under the
heading "Legal Matters."
Very truly yours,
LATHAM & WATKINS
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We have issued our report dated February 14, 1996, accompanying the
consolidated financial statements of NUKO Information Systems, Inc. appearing in
the Company's Annual Report on Form 10-K for the period ended December 31, 1995
(eight months), which are incorporated by reference in this Registration
Statement and Prospectus. We consent to the incorporation by reference in the
Registration Statement and Prospectus of the aforementioned report, and to the
use of our name as it appears under the caption "Experts."
Grant Thornton LLP
San Jose, California
January 3, 1997
