<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 14, 1996
REGISTRATION NO. 333-3167
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO. 1
TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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ALPHA MICROSYSTEMS
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C>
CALIFORNIA 95-3108178
(State or other jurisdiction or (I.R.S. employer
incorporation or organization) identification number)
</TABLE>
2722 SOUTH FAIRVIEW STREET, SANTA ANA, CALIFORNIA 92704
(714) 957-8500
(Address, including zip code, and telephone number, including area code of
Registrant's principal executive offices)
DOUGLAS J. TULLIO, PRESIDENT AND CHIEF EXECUTIVE OFFICER
2722 SOUTH FAIRVIEW STREET, SANTA ANA, CALIFORNIA 92704
(714) 957-8500
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
WITH COPIES OF ALL ORDERS, NOTICES AND COMMUNICATIONS TO:
DEBRA DISON HALL, ESQ.
JEREMY D. GLASER, ESQ.
ALLEN, MATKINS, LECK, GAMBLE & MALLORY, LLP
515 SOUTH FIGUEROA STREET
7TH FLOOR
LOS ANGELES, CALIFORNIA 90071
(213) 622-5555
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
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/
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<PAGE> 2
PROSPECTUS
4,442,069 SHARES
ALPHA MICROSYSTEMS
COMMON STOCK
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The 4,442,069 shares (the "Shares") of Common Stock, no par value ("Common
Stock"), of Alpha Microsystems (the "Company") covered by this prospectus (the
"Prospectus") are issuable by the Company (i) upon exercise of redeemable
warrants expiring November 1, 1998 to purchase Common Stock (the "Public
Warrants") issued in connection with a rights offering of units by the Company
on November 1, 1993 (the "Rights Offering") and a public offering of units made
by the Company on November 29, 1993 (collectively with the Rights Offering, the
"1993 Public Offering"); (ii) upon exercise of Underwriters' Warrants expiring
November 1, 1998 (the "Underwriters' Warrants") to purchase units (the "Units")
consisting of a share of Common Stock and a Warrant to purchase a share of
Common Stock (the "Underlying Warrant") issued to the underwriters in connection
with the 1993 Public Offering; (iii) upon exercise of redeemable warrants
expiring November 1, 1998 to purchase Common Stock (the "Dominick Warrants")
issued to Dominick & Dominick Incorporated ("Dominick") and certain officers
and/or employees of Dominick; (iv) upon exercise of warrants expiring July 10,
2000 to purchase Common Stock (the "Silicon Valley Warrants") issued to Silicon
Valley Bank; and (v) upon exercise of redeemable warrants expiring November 1,
1998 to purchase Common Stock (the "Westergaard Warrants") issued to John
Westergaard ("Westergaard"). This Prospectus relates solely to shares of Common
Stock and neither the Units nor the Underlying Warrants nor any other security
is being offered hereby.
The Warrant Agent for the Warrants is Mellon Securities Trust Company, 120
Broadway, 13th Floor, New York, New York 10271. The exercise price of the Public
Warrants, the Dominick Warrants and the Westergaard Warrants is $2.50 per share
(the "Redeemable Warrant Exercise Price"). The exercise price of the
Underwriters' Warrants is $1.95 per Unit and the exercise price of the
Underlying Warrants is $2.50 per share (the "Underwriters' Exercise Prices").
The exercise price of the Silicon Valley Warrants is $1.21875 per share. The
Public Warrants, the Dominick Warrants and the Westergaard Warrants are
collectively referred to as the "Redeemable Warrants", and the Redeemable
Warrants, the Silicon Valley Warrants, the Underwriters' Warrants and the
Underlying Warrants are collectively referred to herein as the "Warrants."
The Company has set June 17, 1996 as the redemption date for the Redeemable
Warrants (the "Redemption Date"). All Redeemable Warrants which are not
exercised prior to the Redemption Date will be redeemed for $0.05 each (the
"Redemption Payment"). The right to exercise the Redeemable Warrants expires at
5:00 p.m., Eastern Daylight Time, on June 17, 1996 (the "Exercise Expiration
Date"). Thereafter, no further exercise of Redeemable Warrants may be made, and
any Redeemable Warrants not duly surrendered for exercise prior to such time on
the Exercise Expiration Date shall be redeemed and the rights of the holders
thereof shall terminate, other than the right to receive the Redemption Payment.
The proceeds from the exercise of the Warrants will be received by the
Company.
The Company has retained Sutro & Co. Incorporated ("Sutro") as the
Company's exclusive financial advisor in connection with the redemption of the
Redeemable Warrants. In addition, the Company has granted Sutro an option,
exercisable in Sutro's sole discretion, to purchase from the Company the shares
of Common Stock that otherwise would have been delivered upon exercise of
Redeemable Warrants that are either (i) duly surrendered for redemption on or
prior to the Redemption Date or (ii) not duly surrendered for exercise on or
prior to the Exercise Expiration Date or for redemption on or prior to the
Redemption Date. If Sutro elects to purchase such shares of Common Stock, such
shares will be purchased for an aggregate purchase price equal to the aggregate
Redeemable Warrant Exercise Price for the shares of Common Stock issuable upon
exercise of those Redeemable Warrants. The Company has agreed to indemnify Sutro
against, and to provide contribution with respect to, certain liabilities,
including liabilities under the Securities Act of 1933, as amended (the
"Securities Act"). See "Plan of Distribution."
The Common Stock of the Company is included for quotation on the National
Association of Securities Dealers Automated Quotation System (the "Nasdaq")
National Market under the symbol "ALMI". On May 1, 1996 the closing price of the
Common Stock as reported on the Nasdaq National Market was $4.75 per share.
------------------------
THE SECURITIES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" BEGINNING ON PAGE 4 HEREOF.
------------------------
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.
------------------------
MAY 14, 1996
<PAGE> 3
AVAILABLE INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form S-3 (the "Registration
Statement") under the Securities Act with respect to the securities offered by
this Prospectus. 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. Statements
contained or incorporated by reference in this Prospectus as to the contents of
any contract or other document referred to herein are not necessarily complete
and in each instance reference is made to the copy of such contract or other
document filed as an exhibit to, or incorporated by reference in, the
Registration Statement of which this Prospectus is a part, each such statement
being qualified in all respects by such reference. For further information with
respect to the Company and the securities offered hereby, reference is made to
the Registration Statement and the exhibits and schedules thereto, which may be
examined without charge at the public reference facilities maintained by the
Commission at 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. In addition, 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 Commission. Such reports, proxy statements and other
information may be inspected at the public reference facilities of the
Commission at Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549.
Copies of such material can be obtained at prescribed rates from the Public
Reference Section of the Commission at such address. Such reports, proxy
statements and other information can also be inspected at the Commission's
regional offices at 7 World Trade Center, 13th Floor, New York, New York 10048
and at 500 West Madison, Chicago, Illinois 60661. The Common Stock of the
Company is quoted on the Nasdaq National Market. Consequently, such reports,
proxy statements and other information concerning the Company may also be
inspected at the National Association of Securities Dealers, Inc. at 9513 Key
West Avenue, Rockville, Maryland 20850.
DOCUMENTS INCORPORATED BY REFERENCE
The following documents filed by the Company with the Commission are
incorporated in this Prospectus by reference:
(i) the Company's Annual Report on Form 10-K for the fiscal year ended
February 25, 1996; and
(ii) the description of the Common Stock contained in the Company's
Form 8-A Registration Statement filed with respect to the Common Stock
pursuant to Section 12 of the Exchange Act.
All documents filed by the Company with the Commission pursuant to Sections
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 securities hereunder shall be
deemed to be incorporated herein by reference and shall be a part hereof from
the date of the filing of such documents. Any statements contained in a document
incorporated or deemed to be incorporated by reference herein shall be deemed to
be modified or replaced for purposes of this Prospectus to the extent that a
statement contained herein or in any other subsequently filed document which
also is or is deemed to be incorporated by reference herein modifies or replaces
such statement. Any such statement so modified or replaced shall not be deemed,
except as so modified or replaced, to constitute a part of this Prospectus.
The Company will provide without charge to each person, including any
beneficial owner, to whom a Prospectus is delivered, upon written or oral
request of such person, a copy of any document incorporated by reference in this
Prospectus and the Company's most recent definitive proxy statement filed with
the Commission, other than exhibits to such documents not specifically
incorporated by reference. Such requests should be directed to Alpha
Microsystems, 2722 S. Fairview Street, Santa Ana, CA 92704, Attn.: Michael J.
Lowell, Chief Financial Officer (Telephone (714) 957- 8500).
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<PAGE> 4
THE COMPANY
The following is qualified in its entirety by, and should be read in
conjunction with, the more detailed information appearing elsewhere in this
Prospectus and incorporated by reference herein. This Prospectus refers to
various trademarks of the Company and certain trademarks of other companies.
Alpha Microsystems, founded in 1977, is a supplier of information
technology products and services targeted at specific market niches. The Company
has historically had two principal lines of business: (1) the sale of computer
and networking hardware and software products, and (2) the service of its own
and third party hardware and software products, as well as installation,
training and consulting services. In recognition of the intensely competitive
nature of the computer hardware industry and the migration towards open system
environments and away from proprietary systems such as those primarily sold by
the Company, the Company has in the last several years as part of a transition
plan focused its efforts on vertical niche markets, such as dental practice
management, and the expansion of its service business. In fiscal 1996, service
revenues accounted for 55.8% of total revenues and product sales accounted for
44.2% of total revenues, as compared to fiscal 1992, when service revenues
accounted for 33.3% of total revenues and product sales accounted for 66.7% of
total revenues.
As part of its transition plan, the Company has taken steps to reduce
operating expenses, including reducing its workforce, downsizing its European
operations, outsourcing much of its hardware manufacturing operation, and
reorganizing its hardware business as a division within its service
organization. The Company has also, as part of the transition, redirected its
available resources and assets towards the development and sale of software and
information technology services.
Software products introduced during the last two fiscal years include the
Alpha 2000 software for dental practice management, and PANDA, a software
package designed for use in institutional (primarily educational) food service
administration applications. The Company has recently introduced for beta test a
newly developed product, AlphaCONNECT, an Internet/Intranet software product for
data mining, harvesting, formatting, manipulation and delivery, and for the
creation of dynamically self-updating Web pages.
The Company's service organization provides multi-vendor hardware and
software maintenance and repair services in the United States and Canada through
a network of 44 field offices linked to a national dispatch and advisory center.
The technical support and service operations of the Company's European
subsidiary serve the Company's European dealers and users. Through the Alpha
Micro Technical Assistance Center, the Company responds to questions from
dealers and end-users around the world by electronic and telephone
communications channels.
The Company sells a family of business-oriented computer systems based on
the Motorola 680XX family of microprocessors. The Company's product lines
incorporate AMOS, the Company's proprietary operating system which is installed
on most of the Company's computers worldwide.
The Company markets its hardware products primarily through a network of
approximately 221 dealers and distributors. The Company markets its software
products through dealers, distributors and direct sales.
The Company's headquarters are located at 2722 S. Fairview Street, Santa
Ana, California 92704 (telephone number 714-957-8500). The Company's World Wide
Web address is http://www.alphamicro.com.
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<PAGE> 5
RISK FACTORS
The securities offered hereby are speculative and involve a high degree of
risk and should not be purchased by anyone who cannot afford the loss of his,
her or its entire investment. In addition to the other information contained or
incorporated by reference in this Prospectus, prospective investors should
carefully consider, among other things, the following risk factors in evaluating
the Company and its business before purchasing any shares of Common Stock
offered hereby. This Prospectus contains and incorporates by reference
forward-looking statements within the meaning of Section 27A of the Securities
Act and Section 21E of the Exchange Act. The Company's actual results could
differ materially from those discussed in the forward-looking statements.
Factors that might cause such a difference include, but are not limited to
economic, competitive, governmental and technological factors affecting the
Company's operations, markets, products, services and prices, and other factors
discussed below and elsewhere in, or incorporated by reference in, this
Prospectus.
DECLINING REVENUES AND CASH FLOW FROM OPERATIONS; LOSSES
Since the late 1980s, the Company's revenues from its traditional
proprietary hardware business have declined in each of the Company's fiscal
years. The Company believes that worldwide demand for midrange computers used in
business applications similar to those traditionally produced by the Company has
also declined during this period. During the fiscal year ended February 25, 1996
("fiscal 1996"), the Company's product sales fell by 23.1% from such sales
during the prior fiscal year. Moreover, during fiscal 1996, the Company's
service revenues declined 8.3% from the prior fiscal year. As a result of each
of the foregoing, the Company's total revenues for fiscal 1996 declined 15.5%
from the prior fiscal year.
The Company has also been experiencing declining cash flow from operations.
During fiscal 1996, the Company's cash flow used in operations was $293,000 and
its working capital position decreased by $2,366,000 from $3,188,000 at end of
fiscal 1995 to $822,000 at the end of fiscal 1996. During fiscal 1996, the
Company satisfied its financial obligations through use of cash on hand and by
periodically drawing upon a credit facility provided by a third party lender.
The Company's current assets have decreased from $10,914,000 at the end of
fiscal 1995 to $7,199,000 at the end of fiscal 1996. As of February 25, 1996,
the Company had borrowed $500,000 on its credit facility which provides for a
maximum availability of $2,000,000 subject to a limitation equal to 50% of the
Company's eligible accounts receivable, which at February 26, 1996, resulted in
maximum available borrowings of $1,290,000. Management believes that the Company
has sufficient capital resources to meet its financial obligations during the
next twelve months. However, if total revenues decline at a higher rate than
anticipated, the Company may not be able to generate sufficient cash flow, when
combined with available cash balances and bank borrowings, to satisfy the
Company's financial obligations as they become due. In such event, the Company
may, among other things, be forced to discontinue expenditures for product
development and/or expansion of its service operations that are contemplated as
part of its transition strategy.
In response to its declining revenues and cash flow from operations, the
Company has refocused its business towards areas which the Company believes
offer higher growth potential, divested itself of certain non-strategic and/or
unprofitable operations and product lines, and changed its manufacturing
emphasis from the manufacturing of hardware products toward assembling and
integrating outsourced assemblies and components. These steps have eliminated
certain unprofitable subsidiaries and product lines and significantly reduced
the Company's cost of overhead, direct labor, inventory and leased premises.
Nevertheless, the Company has continued to incur net losses. For fiscal 1996,
the Company reported a net loss of $3,575,000, which included a write down of
intangible assets of $1,995,000, primarily due to the Company's determination
that the PANDA and Alpha HealthCare product lines were not performing to the
Company's expectations. For the 1995 and 1994 fiscal years, the Company reported
a net loss of $6,247,000 and net income of $336,000, respectively. As of
February 25, 1996, the Company had an accumulated deficit of $14,694,000.
TRANSITION STRATEGY
The computer hardware industry is intensely competitive and is
characterized by constant pricing competition and pressures towards open system
environments and away from proprietary systems such as
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<PAGE> 6
those primarily sold by the Company. In addition, the market for midrange
computers similar to those traditionally sold by the Company has been declining,
primarily due to heightened competition from the rapidly increasing capabilities
of personal computers and networked work stations. For these reasons, despite
prior acquisitions of assets and businesses intended to improve sales of the
Company's hardware systems and products, such sales have been declining and
profit margins have deteriorated. In recognition of increasing price competition
and lower margins for the Company's products, the Company has been implementing
a transition strategy which involves consolidating its operations and reducing
expenses, shifting away from manufacturing and toward systems assembly and
integration, concentrating on new vertical market niches, emphasizing service
operations and introducing selected new products, including vertical niche
software products such as PANDA and Alpha 2000 and horizontal software products
such as the recently announced AlphaCONNECT.
The Company's efforts to grow its service operations have, in the past,
focused on the acquisition of new service businesses and increased marketing of
its existing service capabilities. Nonetheless, due to the continued decrease in
hardware sales, the Company's service revenues derived from the support of its
traditional hardware products have declined during fiscal 1996 at a rate that
has more than offset any increases in service revenues attributable to
acquisitions and development of new service business.
Successful implementation of the Company's transition strategy and
expansion of the Company's vertical market niches, service operations and
software business depends upon a number of factors including the availability of
adequate financing, sound management of the transition, hiring and retaining
technical, sales and marketing personnel with experience in such markets,
continued enhancement of software and related technology, and general worldwide
market conditions for computer equipment, software and related services. There
can be no assurances that the Company's transition strategy will be successful.
Moreover, even if the transition strategy is fully implemented, there can be no
assurances that the transition strategy will generate new revenue rapidly enough
to compensate for the overall decline in revenue from the Company's traditional
products or that the Company will not continue to experience losses in the
future.
NEW PRODUCT DEVELOPMENT; UNPROVEN COMMERCIAL VIABILITY OF ALPHACONNECT
As part of the Company's transition strategy, the Company invested in
vertical software applications for use in institutional food service
administration (PANDA) and dental practice management (Alpha 2000). The
performance of these products has not been satisfactory due to a number of
factors, including insufficient management and marketing personnel due to the
Company's limited financial resources, product shortcomings and, with respect to
PANDA, changes in federal funding and standards with respect to school breakfast
and lunch programs. No assurance can be given that the Company will be able to
successfully market either of these products in the future.
The Company has recently developed AlphaCONNECT, a software tool for
collecting data from legacy applications running on corporate intranets and
local area networks, as well as from Internet sites using Hyper Text Transfer
Protocol ("HTTP") and File Transfer Protocol ("FTP") standards. As of the date
of this Prospectus, the Company has distributed AlphaCONNECT over the Internet
for a limited trial period as part of the Company's beta-test phase of this new
product and the Company has realized no revenues from sales of this product.
AlphaCONNECT may, in its present state, either contain defects that render
AlphaCONNECT unviable for commercial sale, undetected errors that require
extensive design modification, or lack, based on the results of such beta test,
sufficient potential market acceptance to warrant further investment of Company
resources. Alternatively, if AlphaCONNECT is commercially viable, any delays in
the commencement of commercial delivery of AlphaCONNECT or any enhancements or
error corrections, may result in customer dissatisfaction and delay or loss of
revenue, if any, from AlphaCONNECT. Any failure of AlphaCONNECT to become a
commercially viable product could have a material adverse effect on the
Company's business, results of operations, financial condition and prospects
and, consequently, on the market price of the Company's securities.
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<PAGE> 7
COMPETITION; TECHNOLOGICAL CHANGE
The computer industry is characterized by rapid technological changes and
product obsolescence and the Company, in particular, faces severe competitive
pressures as many competitors have aggressively targeted the broad range of
market segments in which the Company's products and services compete. The
Company's competition includes a large number of hardware manufacturers, service
providers and software developers and re-sellers, many of which have longer
operating histories, greater name recognition, larger installed customer bases
and databases and significantly greater financial, technical and marketing
resources than the Company. Such competitors may be able to undertake more
extensive marketing campaigns and make more attractive offers to potential
employees, distribution partners, advertisers and content providers. As a result
of their greater resources, they may also be better able than the Company to
modify and enhance their products to meet changing market demands. In addition,
due to the declining popularity of proprietary systems in favor of open systems
such as Microsoft Windows, there are an ever declining number of distributors,
dealers and developers of software and related products for use with the
Company's proprietary systems, which continues to have an adverse effect upon
the Company's competitive position. There can be no assurance that competition
from existing competitors will not substantially increase, that established or
new companies will not enter the market in direct competition with the Company
or that the Company will be able to compete successfully with such existing or
new competitors.
In addition, with respect to the Company's new software product,
AlphaCONNECT, the market for Internet services and products is intensely
competitive. Since there are no substantial barriers to entry for Internet
services and products, the Company expects competition in these markets to
persist, intensify and increase in the future. The Company believes that the
principal competitive factors in these markets are name recognition,
performance, ease of use and functionality. In the future, the Company may
encounter competition from on-line service providers, Web site operators,
providers of Web browser software (such as Netscape or Microsoft) and other
Internet services and products that incorporate data retrieval, collection and
conversion features into their offerings, as well as competition from computer
operating systems companies, such as Microsoft, which in the past has bundled
software with its operating systems at little or no additional cost to users.
Consequently, if commercially viable, AlphaCONNECT software will likely at some
point, be subject to price erosion due to free client software distributed by
on-line service providers, Internet access providers, operating system providers
and others.
The Company's future success will depend in significant part on its ability
to adapt to rapidly changing technologies, keep its products competitively
priced, maintain and enhance its market position, adapt its services and
products to evolving industry standards, and continually improve the
performance, features and reliability of its services and products in response
to both evolving demands of the marketplace and competitive service and product
offerings. There can be no assurance that the Company will have the resources to
respond to this rapidly evolving market.
DEVELOPING MARKET; VALIDATION OF THE INTERNET AS A VIABLE COMMERCIAL MARKET
The market for AlphaCONNECT and other similar Internet-based services and
products has only recently begun to develop, is rapidly evolving and is
characterized by an increasing number of market entrants who have introduced or
developed services and products for use on the Internet. As is typical in the
case of a new and rapidly evolving industry, demand and market acceptance for
recently introduced products and services are subject to a high level of
uncertainty. The industry is young and has few proven products. Moreover,
critical issues concerning the commercial use of the Internet (including
security, reliability, cost, ease of use and access, and quality of service)
remain unresolved and may impact the growth of Internet use. As a result, even
if AlphaCONNECT, in its present state, is technologically viable, the Company is
still dependent upon the continued development of the overall Internet market to
generate significant revenues from the sale of AlphaCONNECT.
Because the market for products such as AlphaCONNECT is new and evolving,
it is difficult to predict the future growth rate, if any, and size of this
market. Consequently, there can be no assurance that a market for AlphaCONNECT
will develop. Moreover, if the necessary infrastructure or complementary
services or
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<PAGE> 8
facilities on the Internet in general are not developed, if widespread
commercial use of the Internet does not develop or develops more slowly than
expected, or if the Internet does not develop sufficiently to support products
such as AlphaCONNECT, or if the Internet becomes saturated with competing
products, the Company's business, results of operations, financial condition and
prospects could be materially adversely affected.
MANAGEMENT OF POSSIBLE GROWTH
If the market for AlphaCONNECT develops, there may be significant strain on
the Company's managerial, operational and financial resources. The Company's
success will be dependent upon its ability to implement and improve its
operational, financial, sales and marketing systems and to expand, train and
manage its employee base. There can be no assurance that the Company will be
able to successfully implement these strategies on a timely basis. The success
of AlphaCONNECT will also depend on the Company's ability to expand its sales
and marketing organizations, implement and manage new distribution channels to
penetrate different and broader markets and expand its support organization
commensurate with increases, if any, in the installed customer base of
AlphaCONNECT. The Company's ability to grow and manage its growth may be
adversely impacted by the Company's limited financial resources. If the Company
is unable to manage growth effectively, the Company's business, operating
results, financial condition and prospects would be materially adversely
affected.
POSSIBLE NEED FOR ADDITIONAL CAPITAL
The Company believes that if all of the Warrants were to be exercised, the
net proceeds to the Company of this offering, together with its anticipated cash
flow from operations, will be sufficient to satisfy the Company's capital
requirements for at least the next 18 months based upon current operating plans.
The Company's future capital requirements depend on a variety of factors,
including, but not limited to, the success of the Company's transition strategy,
the levels of the Company's future hardware, software and service revenues, the
amount of product research, marketing, promotion and advertising undertaken by
the Company with respect to software, such as its recently announced
AlphaCONNECT, and its service business, the extent to which the Company's
service and software revenues offset declines in the Company's traditional
hardware product sales as well as the Company's ability to effectively manage
its assets, such as inventories, receivables and plant and equipment. There can
be no assurance that the net proceeds from this offering will be sufficient to
enable the Company to increase its revenues in an amount sufficient to attain
profitable operations. To the extent that funds generated by this offering,
together with existing resources and anticipated cash flow from operations, are
not sufficient to fund the Company's anticipated major activities, the Company
may need to revise certain planned activities or raise additional funds through
public or private equity or debt financings. No assurance can be given that such
financings will be available on terms acceptable to the Company, if at all, and,
if available, such financings may result in further dilution to the Company's
shareholders and/or in additional interest expense.
FINANCIAL COVENANT COMPLIANCE
The Company has in place a secured credit facility (the "Bank Loan") under
which the Company may borrow up to a maximum of $2,000,000 (subject to a
limitation equal to 50% of the Company's eligible accounts receivables, which at
February 25, 1996 resulted in maximum available borrowings of $1,290,000) at a
rate of 2.5% over the prime rate in effect from time to time, to fund the
Company's working capital requirements. The terms of the Bank Loan include
certain covenants requiring the Company to periodically satisfy tangible net
worth, net loss and other financial covenants. If the Company is unable to
satisfy such requirements and is deemed to be in default on the Bank Loan, the
Company would be forced to attempt to renegotiate the Bank Loan. In such event,
there is no assurance that the Company will be successful in renegotiating the
Bank Loan covenants or that any renegotiated terms would be favorable to the
Company, or, that in the event the Company is unsuccessful in renegotiating the
covenants, that it will be able to obtain replacement financing from a new
lender on terms favorable to the Company.
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VULNERABILITY OF COMPANY'S DISTRIBUTION NETWORK; EVOLVING DISTRIBUTION CHANNELS
A significant portion of the Company's revenues from the sale of hardware
products during the last fiscal year were derived from sales to distributors and
dealers. Distributors and dealers of hardware products, and especially the
Company's distributors and dealers, are facing extreme pricing pressures,
competition from other distribution channels and other adverse market
conditions. As a result, the number of distributors and dealers selling the
Company's hardware products has declined and those that remain are more
motivated to sell open systems, as opposed to the Company's proprietary hardware
products, due to broader market opportunities. Sales of the Company's hardware
products are dependent upon several large dealers and distributors, the loss of
any of which could have a material adverse effect on the Company's business and
results of operations, In addition, a significant decrease in sales to the
Company's existing distributors, or termination of existing relationships with
such existing distributors which are not offset by increases in sales to other
existing or new distributors, could have a material adverse effect upon the
Company's business, results of operations, financial condition and prospects.
The Company intends to distribute AlphaCONNECT through a number of
channels, including electronically through the Internet. The Company has
extremely limited experience in distributing software products such as
AlphaCONNECT, and will have to expand its sales and marketing departments and
personnel in order to successfully market this product. By necessity, these
additional expenses will be incurred prior to the realization of any revenues
that may be generated from such expenditures. Moreover, distributing
AlphaCONNECT through the Internet makes the Company's software susceptible to
unauthorized copying and use once AlphaCONNECT is commercially available.
Although the Company has encoded in the software certain safeguards against
unauthorized copying and use, no assurance can be given that these safeguards
will be effective. The Company intends to allow potential customers to
electronically download AlphaCONNECT for a free evaluation period. There can be
no assurance that, upon expiration of the evaluation period, the Company will be
able to collect payment from users of the AlphaCONNECT software. If, as a result
of changing legal interpretations of liability for unauthorized use of the
Company's software or otherwise, users were to become less sensitive to avoiding
copyright infringement, the Company's business, operating results, financial
condition and prospects could be materially adversely affected.
DEPENDENCE ON COMPONENT SUPPLIERS
The Company relies upon outside suppliers for the manufacture of the
component parts of its computer hardware products. A number of components and
subassemblies used by the Company are available only from a single or limited
number of outside suppliers. Some of these components and subassemblies may
periodically be in short supply and the Company has, on occasion, experienced
temporary delays or increased costs in obtaining these materials. There can be
no assurance that the Company's suppliers will be able to make timely delivery
of components and subassemblies in the future. An extended shortage of required
components and subassemblies could have an adverse effect on the Company's
business, results of operations and financial condition. The Company currently
has more than one available source of supply for most of its required components
and subassemblies. As to those for which it does not have more than one
qualified source of supply, the Company believes it could redesign its products
so as to replace such single source component with alternate components, if
necessary. The Company maintains a supply of such single source components which
it believes is sufficient to enable it to continue operations until any
replacement supplier could be qualified and any necessary redesign could be
completed, with the exception of a line of Motorola microprocessors, on which
the Company's designs are dependent. The inability of the Company to obtain the
components and subassemblies necessary to enable it to fill its then-existing
orders for any reason, including, but not limited to, shortages, product delays
or work stoppages experienced by the Company's suppliers, could have a material
adverse effect on the Company's business, results of operations and financial
condition.
The Company generally does not have fixed priced contracts with its
suppliers. Consequently, any increase in prices that the Company is unable to
pass through to its customers could have a material adverse effect on the
Company's results of operations and financial condition.
8
<PAGE> 10
FOREIGN OPERATIONS; FOREIGN CURRENCY EXPOSURE
During each of the 1996 and 1995 fiscal years, 30% of the Company's net
sales were derived from foreign dealers and users. A significant portion of
international receivables and payables are in currencies other than U.S.
Dollars, the value of which fluctuates in relation to U.S. currency. Currency
fluctuations can have a material adverse effect on the Company's foreign
revenue, profitability and cash flows in terms of U.S. Dollars. Foreign currency
exchange gains included in the determination of loss from operations before
taxes and extraordinary item were $76,000 and $93,000 for the 1996 and 1995
fiscal years, respectively. To minimize the extent to which the Company may be
affected by changes in the value of foreign currencies in relation to the U.S.
Dollar, from time to time the Company hedges some of its foreign currency
transactions by purchasing short-term forward foreign exchange contracts.
Nevertheless, there is no assurance that such foreign currency contracts will
hedge all or even a substantial portion of the Company's foreign currency
exposure with respect to its international sales. Moreover, the recent increases
in the value of the U.S. Dollar relative to the various foreign currencies in
which the Company transacts its international sales, could result in a reduction
in U.S. Dollar revenues to the Company derived from those international sales
denominated in foreign currencies. Further, international sales of the Company's
products and services denominated in U.S. Dollars could become relatively more
expensive to foreign customers and therefore could also lead to a reduction in
the Company's foreign revenues. The Company's operations outside the United
States are subject to all the other usual risks and limitations attendant upon
doing business in foreign countries, such as exchange control regulations, wage
and price controls, employment regulations, effects of foreign investment and
tax laws, barriers to trade, trade restrictions (including import quotas),
tariff regulations, difficulties in obtaining distribution and support, export
licensing requirements, political and economic instability (including
expropriation or confiscation of assets) and other potentially detrimental
domestic and foreign governmental policies affecting U.S. companies doing
business abroad. Any of such factors could have a material adverse effect on the
revenues from the Company's international sales and, consequently, the Company's
results of operations and financial condition.
PRODUCT LIABILITY
The nature of the Company's businesses expose it to risk from product
liability claims. The Company currently maintains product liability insurance
for its products worldwide, with limits of $11,000,000 per occurrence and
$12,000,000 in aggregate, per annum. However, such coverage is becoming
increasingly expensive and there can be no assurance that the Company's
insurance will be adequate to cover future product liability claims, or that the
Company will be successful in maintaining adequate product liability insurance
at commercially reasonable rates. Any losses that the Company may suffer from
future liability claims, including the successful assertion against the Company
of one or a series of large uninsured claims in excess of the Company's
coverage, may have a material adverse effect on the Company's business,
financial condition and results of operations. Even if the Company is successful
in the defense of product liability claims, the defense of product liability
claims generally requires substantial expenditures of funds and management time
which could have a material adverse effect on the Company's business, financial
condition and results of operations. In addition, any product liability
litigation may have a material adverse effect on the reputation and
marketability of the Company's products and related services.
LIMITED PERSONNEL; DEPENDENCE ON KEY EMPLOYEES; SEVERANCE OBLIGATIONS
The Company's success depends to a significant extent upon the continued
service of its key personnel, and on its ability to continue to attract, retain
and motivate highly qualified technical, marketing, sales, management and other
personnel. Due to the Company's limited financial resources, the Company's
ability to attract the technical, marketing, sales and management personnel
necessary to capitalize on its market opportunities has been negatively
impacted. As a result, the Company believes that it does not have sufficient
personnel at various management levels. The loss of the services of Douglas J.
Tullio, the Company's President and Chief Executive Officer or Michael J.
Lowell, the Company's Vice President and Chief Financial Officer, could have a
material adverse effect on the Company. The Company does not have key-man life
insurance on the lives of Messrs. Tullio or Lowell. The Company has entered into
employment agreements
9
<PAGE> 11
with a number of officers, including Messrs. Tullio and Lowell, which provide,
under certain circumstances, that the officers will be entitled to certain
severance payments.
POSSIBLE LOSS OF TAX BENEFITS
Under the Internal Revenue Code (the "Code"), the Company would be
permitted to eliminate or reduce its Federal tax liability based on the
Company's future income, if any, due to the fact that the Company sustained net
operating losses ("NOLs") in prior years. At February 25, 1996, the Company had
NOLs for financial and tax reporting purposes of approximately $17,500,000.
If, however, there is a change of more than 50% in the ownership of the
Company during any three year period (an "Ownership Change"), the Company's
ability to utilize its NOLs annually would be significantly limited and its
Federal tax liability based on income, if any, could be substantially increased.
The exercise of a substantial number of the Warrants could result in an
Ownership Change under the Code. Moreover, whether or not the Warrants are
ultimately exercised in a fashion that results in an Ownership Change, issuances
of Common Stock after the offering or other changes in the equity ownership of
the Company could cause an Ownership Change under the Code, resulting in
significant limitations on the Company's ability to utilize its remaining NOLs.
LIABILITY FOR INFORMATION RETRIEVED FROM THE INTERNET
Because materials may be downloaded utilizing AlphaCONNECT through the
on-line or Internet services operated by Internet access providers and be
subsequently distributed to others, there is a potential that claims may be made
against the Company for defamation, negligence, copyright or trademark
infringement or other theories based on the nature and content of such
materials. Although the Company carries general liability insurance, the
Company's insurance may not cover potential claims of this type, or may not be
adequate to indemnify the Company for all liability that may be imposed. Any
imposition of liability that is not covered by insurance or is in excess of
insurance coverage, as well as devotion of Company resources to respond to such
a claim, could have a material adverse effect on the Company's business, results
of operations, financial condition and prospects.
GOVERNMENT REGULATION AND LEGAL UNCERTAINTIES
The Company's operations are subject to a number of federal, state and
local laws relating to environmental, health, safety and labor matters
applicable to businesses generally. The Company believes its business is
operated in substantial compliance with all material applicable government
regulations. However, there can be no assurance that future regulations will not
require the Company to modify its products, business or operations to meet
environmental, health, safety or labor requirements, or that the Company will be
able, for financial or other reasons, to comply with such future requirements.
Failure to comply with future governmental regulations could subject the Company
to fines and injunctions, which could result in a material adverse effect on the
Company's business, results of operations and financial condition. Although the
Company is not aware of any claim involving violation of environmental, health,
safety or labor laws or regulations, there can be no assurance that such claim
may not arise in the future, which may have a material adverse effect on the
Company's business, results of operations and financial conditions.
With respect to AlphaCONNECT, there are currently few laws or regulations
directly applicable to access to or commerce on the Internet. However, due to
the increasing popularity and use of the Internet, it is possible that a number
of laws and regulations may be adopted with respect to the Internet, covering
issues such as user privacy, pricing, characteristics and quality of products
and services. The adoption of any additional laws or regulations may decrease
the growth of the Internet, which could in turn decrease any prospective demand
for AlphaCONNECT or otherwise have an adverse effect on the Company's business,
results of operations, financial condition and prospects.
10
<PAGE> 12
PROPRIETARY TECHNOLOGY; POTENTIAL LITIGATION
The Company regards its various hardware and software products and
technologies as proprietary and has generally attempted to protect them with
copyrights, trademarks, patents, trade secret laws, restrictions on disclosure
and transferring title and other methods. The Company believes that its various
hardware and software products and technologies do not infringe on any third
party's copyrights, trademarks, patents or trade secrets.
In addition to claiming standard copyright protection, the Company has
submitted a provisional patent application to the United States Patent and
Trademark Office with respect to certain aspects of its AlphaCONNECT technology.
There can be no assurance that any patent will be issued with respect to any
aspect of AlphaCONNECT. The provisional application will become abandoned one
year after filing unless the Company files a regular patent application
referencing the provisional application. The Company may decide not to file a
regular patent application or may decide to abandon prosecution prior to
issuance of a patent. In addition, there can be no assurance that the
provisional patent application will provide priority for a later filed regular
patent application. If any patent issues, there can be no assurance that any
claims allowed will be sufficiently broad to protect the Company's technology,
to deter competitors or to prevent third parties from developing equivalent
technology that does not infringe such claims, or that the patent will not
otherwise be circumvented. In addition, there can be no assurance that any
patents that may be issued will not be challenged, invalidated or held
unenforceable, or that any rights granted thereunder would provide proprietary
protection to the Company and its investment in AlphaCONNECT. Failure of any
patents to provide protection of the Company's technology may make it easier for
the Company's competitors to offer technology equivalent to or superior to the
Company's technology.
Despite precautions that the Company takes to prevent or inhibit
unauthorized use of its software products, it may be possible for a party to
copy or otherwise obtain and use the Company's AlphaCONNECT product or
technology or other of the Company's software products without authorization, or
to develop similar technology independently. In addition, effective copyright,
trademark and trade secret protection may be unavailable or limited in certain
foreign countries, and the global nature of the Internet makes it virtually
impossible to control the ultimate destination of the Company's software
products. Hence, policing unauthorized use of the Company's technology is
difficult.
In the event of a legal challenge to the Company's technology, the Company
would be required to defend its patents and trademarks and there can be no
assurance that the Company would prevail in such a proceeding. In addition, the
Company must identify and prosecute infringement by others to enforce the
Company's intellectual property rights and protect the Company's trade secrets,
or to determine the validity and scope of the proprietary rights of others.
Trademark and patent litigation entails substantial legal and other costs and,
therefore, there is no assurance that the Company has or will have the
financial, management, or other resources necessary to undertake or defend
against such litigation in order to enforce or protect the Company's rights and,
in any event, such litigation is likely to result in substantial costs and
diversion of resources and could have a material adverse effect on the Company's
business, results of operations, financial condition and prospects.
LIMITATION ON MARKET MAKING ACTIVITIES
Pursuant to certain rules of the Securities and Exchange Commission, any
soliciting agent of the exercise of the Warrants and any other participant in
the distribution will be prohibited from engaging in any market making
activities or solicited brokerage activities with regard to the Company's
securities for the period beginning on the later of nine business days prior to
the commencement of offer or sales of the securities or the time such person
becomes a participant in the distribution until the termination of such
participation in the distribution (the "Abstention Period"). As a result, any
soliciting agent or other participant in the distribution may be unable to
continue to provide a market for the Company's securities during certain periods
while the Warrants are exercisable. As a result, during the Abstention Period,
the price of the Company's Common Stock and Public Warrants could experience
greater volatility to the extent that the withdrawal of any soliciting agent and
other participants in the distribution as market makers could create a less
efficient or less
11
<PAGE> 13
fluid market for the Company's securities. Although the Company and its agents
would attempt to identify and encourage other broker-dealers to act as market
makers for the Company's securities during the Abstention Period, there can be
no assurance that they will be successful, or that the Company's securities will
not experience such greater volatility.
LIMITED PUBLIC MARKET; POSSIBLE VOLATILITY OF STOCK PRICE; NO DIVIDENDS
During the month of February 1996 the average daily trading volume was less
than 25,000 shares and was as low as 2,000 shares. However, during the first 19
trading days of April 1996, the average daily trading volume in the Company's
Common Stock increased substantially to 700,000, primarily on account of news
articles published with respect to the Company's AlphaCONNECT software product.
Nevertheless, there can be no assurance that the daily trading volume will
continue at its recent level or that an active trading market will be maintained
for the Company's securities and, therefore, holders of the Company's securities
may not be able readily to liquidate their investment in the event of an
emergency, or otherwise. There can be no assurance that the market price of the
Common Stock will not decline below the exercise price for the shares issued
upon exercise of the Warrants. Further, the securities of many computer
technology companies similar to the Company have experienced extreme price and
volume fluctuations which are, at times, often unrelated or disproportionate to
the operating performance of such companies. These fluctuations as well as
general economic conditions may adversely affect the market price of the
Company's Common Stock.
The Company has not paid any dividends upon its Common Stock since its
inception and does not anticipate paying any such dividends in the foreseeable
future. Earnings of the Company, if any, are expected to be used to finance the
development and expansion of the Company's business. Should the Company desire
to pay dividends, any such dividends would be subject to the prior written
consent of the Company's lender and to any preferential rights to receive
dividend payments contained in any securities subsequently issued by the
Company.
BROAD DISCRETION OVER USE OF PROCEEDS
The Company has allocated substantially all of the net proceeds of this
offering for working capital and general corporate purposes. As a result, the
Company will have broad discretion over the use of the net proceeds.
CURRENT PROSPECTUS AND BLUE SKY RESTRICTIONS
Holders of Warrants will have the right to exercise the Warrants only if a
current prospectus relating to the shares underlying the Warrants is then in
effect or an exemption from registration requirements is then available. In
addition, such holders may exercise their Warrants only if the shares of Common
Stock purchased upon the exercise of the Warrants are qualified for sale under
applicable state securities laws of the states in which the various holders of
the Warrants reside or are exempt from such qualification. The Company will be
prevented from issuing Common Stock in such states upon the exercise of the
Warrants unless an exemption from qualification is available or unless the
issuance of Common Stock upon exercise of the Warrants is qualified. The Company
may decide not to seek or may not be able to obtain qualification of the
issuance of such Common Stock in all states in which the ultimate purchasers of
the Warrants reside. Consequently, the Warrants may be deprived of any value if
a current prospectus covering the shares of Common Stock issuable upon exercise
thereof is not effective or if such shares are not qualified in the states in
which holders of the Warrants reside.
POSSIBLE NEGATIVE EFFECTS OF PREFERRED STOCK; AUTHORIZED COMMON STOCK
Although no such shares are issued, the Company is authorized to issue
5,000,000 shares of preferred stock ("Preferred Stock"), the designation, rights
and preferences of which (including voting, dividend conversion, redemption and
liquidation rights, and sinking fund provisions) may be fixed by the Company's
Board of Directors, from time to time, without further shareholder action.
Shares of Preferred Stock could be issued in the future with rights superior to
the rights of the Common Stock or with rights and preferences that
12
<PAGE> 14
could make the possible takeover or merger of the Company or sale of the
Company's assets to a third party or the removal of management of the Company
more difficult or could otherwise adversely impact the rights of holders of
Common Stock. In addition, the Company has a significant number of authorized
but unissued shares of Common Stock which can be issued in the future by the
Board of Directors. The potential for the issuance either of any of the
Preferred Stock with any of the foregoing provisions or any of the authorized
but unissued shares of Common Stock, together with certain provisions of
California law, may also have the effect of delaying or preventing changes in
control or management of the Company which could adversely affect the market
price of the Company's Common Stock.
CAPITALIZATION
The following table sets forth the capitalization of the Company (i) at
February 25, 1996 and (ii) as adjusted to reflect the exercise of all Warrants
outstanding on February 25, 1996 and the application of the estimated net
proceeds therefrom, after deducting estimated expenses aggregating approximately
$510,000.
<TABLE>
<CAPTION>
FEBRUARY 25, 1996
---------------------
AS
ACTUAL ADJUSTED
-------- --------
(DOLLARS IN
THOUSANDS)
<S> <C> <C>
Long-term debt, less current portion................................... $ 201 $ 201
Shareholders' equity:
Preferred Stock, no par value; 5,000,000 shares authorized; none
issued............................................................ -- --
Common Stock, no par value; 20,000,000 shares authorized; 6,595,453
shares outstanding, actual;(1) 11,037,522 shares outstanding, as
adjusted(1)....................................................... 21,242 31,603
Accumulated deficit.................................................. (14,694) (14,694)
Unamortized restricted stock plan expense............................ (18) (18)
Foreign currency translation adjustment.............................. (47) (47)
-------- --------
Total shareholders' equity............................................. 6,483 16,844
-------- --------
Total capitalization......................................... $ 6,684 $ 17,045
======== ========
</TABLE>
- ---------------
(1) Does not include shares of Common Stock reserved for issuance upon the
exercise of options granted under the Company's stock option plans and
outstanding shares held in escrow under the Company's Stock Incentive Award
Plan.
USE OF PROCEEDS
The aggregate proceeds to the Company upon exercise of the Warrants will be
between $0 and $10,870,838. The Company intends to apply substantially all of
the net proceeds for working capital and for general corporate purposes. In the
event that the Company receives proceeds from the exercise of at least
twenty-five percent of the Warrants, however, the Company intends to repay the
outstanding indebtedness under its bank line of credit, which bears interest at
2.5% over the prime rate in effect from time to time and which matures in July
1996. The indebtedness under the line was incurred for working capital purposes.
In addition, the Company may use all or a portion of the net proceeds in
connection with the acquisition of one or more businesses, products or
technologies complementary to the Company's current businesses. The Company,
however, does not presently have any letters of intent or other written
agreements for any such acquisitions. Pending such uses, the Company will invest
the net proceeds in insured interest-bearing accounts at commercial banks,
short-term insured certificates of deposit, money market funds invested
primarily in United States government or governmental agency securities or
investment-grade, short-term, interest-bearing securities.
PLAN OF DISTRIBUTION
On November 29, 1993, the Company closed the 1993 Public Offering of
3,095,892 units ("Units"), each Unit consisting of one share of Common Stock and
one redeemable Common Stock purchase warrant ("Public Warrant"). Each Public
Warrant entitles the holder to purchase one share of Common Stock for
13
<PAGE> 15
$2.50 (the "Public Warrant Exercise Price"). Barclay Investments, Inc.
("Barclay") and Princeton Securities Corporation (collectively, the
"Underwriters") acted as underwriters for the 1993 Public Offering. In
connection with the 1993 Public Offering, the Company issued Barclay a warrant
to purchase 170,274 Units at $1.95 per Unit (the "Original Barclay Investments
Warrant"), and Princeton Securities Corporation a warrant to purchase 139,315
Units at $1.95 per Unit (the "Princeton Securities Warrant") as part of their
compensation for acting as underwriters. The Original Barclay Investments
Warrant has subsequently been separated into five separate Warrants
(collectively, the "Barclay Warrants") as follows: (1) a warrant to purchase (a)
85,137 shares of Common Stock and (b) a warrant to purchase 85,137 additional
shares of Common Stock held by Barclay, and (2) four separate warrants to
purchase an aggregate of (a) 85,137 shares of Common Stock and (b) warrants to
purchase an additional aggregate of 85,137 shares of Common Stock held by four
individuals who are either current or former officers and/or employers of
Barclay. As of May 14, 1996, none of the Barclay Warrants nor the Princeton
Securities Warrant has been exercised in whole or in part.
The 4,442,069 Shares of Common Stock covered by this Prospectus are the
shares issuable upon exercise of the Public Warrants which were issued in the
1993 Public Offering, shares issuable upon exercise of warrants granted to
Silicon Valley Bank, Westergaard, Dominick and certain officers and/or employees
of Dominick and the shares issuable upon exercise of the Barclay Warrants and
the Princeton Securities Warrant and the Underlying Warrants.
The Company can redeem the Redeemable Warrants at any time during the
exercise period for $0.05 per warrant upon at least 30 days' written notice at
any time after May 1, 1994, provided that the closing bid price for the
Company's Common Stock has been an average of at least $3.375 for the twenty
(20) trading days immediately preceding the date of such written notice. The
Company has set June 17, 1996 as the redemption date for the Redeemable Warrants
(the "Redemption Date"). All Redeemable Warrants which are not exercised prior
to the Redemption Date will be redeemed for $0.05 each (the "Redemption
Payment"). The right to exercise the Redeemable Warrants expires at 5:00 p.m.,
Eastern Daylight Time, on June 17, 1996 (the "Exercise Expiration Date").
Thereafter, no further exercise of Redeemable Warrants may be made, and any
Redeemable Warrants not duly surrendered for exercise prior to such time on the
Exercise Expiration Date shall be redeemed and the rights of the holders thereof
shall terminate, other than the right to receive the Redemption Payment. The
Warrant Agent for the Warrants is Mellon Securities Trust Company, 120 Broadway,
13th Floor, New York, New York 10271.
The Company has retained Sutro & Co. Incorporated ("Sutro") as the
Company's exclusive financial advisor in connection with the redemption of the
Redeemable Warrants. In addition, the Company has granted Sutro an option,
exercisable in Sutro's sole discretion, to purchase from the Company the shares
of Common Stock that otherwise would have been delivered upon exercise of
Redeemable Warrants that are either (i) duly surrendered for redemption on or
prior to the Redemption Date or (ii) not duly surrendered for exercise on or
prior to the Exercise Expiration Date or for redemption on or prior to the
Redemption Date. If Sutro elects to purchase such shares of Common Stock, such
shares will be purchased for an aggregate purchase price equal to the aggregate
Redeemable Warrant Exercise Price for the shares of Common Stock issuable upon
exercise of those Redeemable Warrants. The Company has agreed to indemnify Sutro
against, and to provide contribution with respect to, certain liabilities,
including liabilities under the Securities Act.
The Company has also retained South Coast Communications Group ("South
Coast") (telephone: 800-452-1346 or 714-252-8440) as the information agent for
the Redeemable Warrants.
Barclay was entitled, pursuant to the Underwriting Agreement entered into
in connection with the 1993 Public Offering, to act as the Company's exclusive
agent for purposes of soliciting warrantholders to exercise the Public Warrants
during the exercise period therefor, and the Company was required to pay to
Barclay a commission of four percent (4%) on the exercise of the Public Warrants
solicited by Barclay, subject to certain conditions. Barclay has agreed to waive
its right to act as the Company's exclusive agent for purposes of soliciting
warrantholders in return for a fee of $200,000 to be paid from the proceeds of
the exercise of the Warrants.
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<PAGE> 16
The exercise price of the Public Warrants was determined in negotiations
between the Company and the Underwriters at the time of the 1993 Public
Offering. The principal factors considered in determining the exercise price
were the recent price history of the Common Stock and the general condition of
the securities markets at the time of the 1993 Public Offering. The exercise
price of the Underwriters Warrants is equal to 120% of the offering price of the
Units in the 1993 Public Offering. The exercise price of the Dominick Warrants
and the Westergaard Warrants was set at the same exercise price as the Public
Warrants, and the exercise price of the Silicon Valley Warrants was set at the
per share closing price of Common Stock on the date immediately preceding the
date on which such Warrants were granted.
LEGAL MATTERS
The validity of the Common Stock offered has been passed upon for the
Company by Allen, Matkins, Leck, Gamble & Mallory LLP, Los Angeles, California,
counsel for the Company in connection with the offering. Marvin E. Garrett and
Brian C. Leck, each of whom are partners in the law firm of Allen, Matkins,
Leck, Gamble & Mallory LLP, beneficially own 51,000 and 1,000 shares of the
Company's Common Stock, respectively.
EXPERTS
The consolidated financial statements and schedule of Alpha Microsystems
appearing in Alpha Microsystems' Annual Report (Form 10-K) for the year ended
February 25, 1996, have been audited by Ernst & Young LLP, independent auditors,
as set forth in their report thereon included therein and incorporated herein by
reference. Such consolidated financial statements and schedule are incorporated
herein by reference in reliance upon such report given upon the authority of
such firm as experts in accounting and auditing.
15
<PAGE> 17
- ------------------------------------------------------
- ------------------------------------------------------
NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED OR INCORPORATED BY REFERENCE 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 OF ANY SECURITIES OTHER THAN THOSE TO WHICH IT RELATES
OR AN OFFER TO ANY PERSON IN ANY JURISDICTION WHERE SUCH OFFER WOULD BE
UNLAWFUL. THE DELIVERY OF THIS PROSPECTUS AT ANY TIME DOES NOT IMPLY THAT THE
INFORMATION HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF.
-------------------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Available Information................. 2
Documents Incorporated by Reference... 2
The Company........................... 3
Risk Factors.......................... 4
Capitalization........................ 13
Use of Proceeds....................... 13
Plan of Distribution.................. 13
Legal Matters......................... 15
Experts............................... 15
</TABLE>
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
4,442,069 SHARES
ALPHA MICROSYSTEMS
COMMON STOCK
--------------------
PROSPECTUS
--------------------
MAY 14, 1996
- ------------------------------------------------------
- ------------------------------------------------------
<PAGE> 18
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth certain expenses in connection with the sale
and distribution of the securities being registered. All of the amounts shown
are estimates except the Securities and Exchange Commission registration fee.
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee.............. $ 3,749
Blue Sky filing fees and expenses................................ 6,000
Legal fees and expenses.......................................... 120,000
Accounting fees and expenses..................................... 40,000
Printing expenses................................................ 15,000
Information agent fees and expenses.............................. 25,000
--------
Total.................................................. $209,749
========
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Sections 204(a)(10), 204(a)(11) and 317 of the California Corporations Code
(the "Code") and the Articles of Incorporation and Bylaws of the Company contain
provisions concerning the Company's ability to indemnify its agents (including
directors and officers) from certain liabilities and expenses incurred as a
result of any proceeding arising by the reason of the fact that such a person is
or was an agent of the Company. The Company has adopted provisions in its
Articles of Incorporation which eliminate the personal liability of a director
for monetary damages to the fullest extent permissible under California law. The
Bylaws of the Company provide indemnification of its agents to the full extent
provided in Section 317 of the Code.
The Company has entered into indemnification agreements with its directors
and certain key officers which provide such individuals with contractual
indemnification rights similar in scope to the applicable sections of the
Company's Bylaws. Such indemnification agreements apply retroactively as well as
prospectively to any actions taken by the indemnified parties while serving as
officers or directors of the Company. Such indemnification agreements also
provide that the Company shall indemnify such persons to the fullest extent
permitted by law, notwithstanding that such indemnification is not specifically
authorized by the indemnification agreement, the Company's Articles of
Incorporation, the Company's Bylaws or by statute. In the event of any change
after the date of the subject indemnification agreement in any applicable law,
statute or rule which expands the right of a California corporation to indemnify
a member of its board of directors or an officer, such changes are automatically
deemed to be within the purview of the indemnitee's rights and the Company's
obligations under the indemnification agreement. In the event of any such
changes which narrow the right of a corporation to indemnify such individuals,
such changes, to the extent not otherwise required by such law, statute or rule
to be applied, shall have no effect on the indemnification agreement or the
parties' rights and obligations thereunder.
The Company entered into such indemnification agreements based upon its
belief that such agreements will help the Company attract and retain the
services of highly qualified individuals to serve as officers and directors by
offering protection to such persons in the event of a lawsuit. The form of such
indemnification agreements was approved by the shareholders of the Company at
the 1987 Annual Shareholders' Meeting.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933, as amended, may be permitted to directors, officers or persons
controlling the Company pursuant to the foregoing provisions, the Company has
been informed that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act of
1933 and is therefore unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person
II-1
<PAGE> 19
in connection with the securities being registered, the Registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act of 1933 and will be governed by the final adjudication of such
issue.
ITEM 16. EXHIBITS
<TABLE>
<CAPTION>
EXHIBITS DESCRIPTION
- -------- ----------------------------------------------------------------------------------
<C> <S>
4.1
Specimen Common Stock Certificate (incorporated herein by reference to Exhibit 4.4
to Amendment No. 1 to Registration Statement on Form S-2 (Registration No.
33-66424) of the Registrant filed on September 30, 1993)
4.2
Amended Articles of Incorporation of Registrant dated as of September 28, 1984
(incorporated herein by reference to Exhibit 4.0 to the Quarterly Report on Form
10-Q of Registrant for the Quarter Ended August 26, 1984)
4.3
Amended and Restated Bylaws, as amended, of Registrant (incorporated herein by
reference to Exhibit 3.2 to the Annual Report on Form 10-K of Registrant for the
Year Ended February 28, 1988)
4.4
Amendment to Article III, Section 2 of the Amended and Restated Bylaws of
Registrant dated August 18, 1989 (incorporated herein by reference to Exhibit 3.3
to the Quarterly Report on Form 10-Q of Registrant for the Quarter Ended August
27, 1989)
4.5
Amendment to Article II of the Amended and Restated Bylaws of Registrant dated
August 21, 1991 (incorporated herein by reference to Exhibit 3.7 to the Quarterly
Report on Form 10-Q of Registrant for the Quarter Ended August 25, 1991)
4.6
Amendment and Restatement to Article IV of the Articles of Incorporation of
Registrant dated June 24, 1992 (incorporated herein by reference to Exhibit 10.71
to the Quarterly Report on Form 10-Q of Registrant for the Quarter Ended May 31,
1992)
5.1
Opinion of Allen, Matkins, Leck, Gamble & Mallory LLP
23.1
Consent of Ernst & Young LLP
23.2
Consent of Allen, Matkins, Leck, Gamble & Mallory LLP (included in the opinion
filed as Exhibit 5.1)
24.1
Power of Attorney(1)
</TABLE>
- ---------------
(1) Previously filed.
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:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
registration statement;
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement;
provided, however, that paragraphs (1)(i) and (1)(ii) do not apply if the
information required to be included in a post-effective amendment by those
paragraphs is contained in periodic reports filed with or furnished to the
Commission by the Registrant pursuant to Section 13 or Section 15(d) of the
Securities Exchange Act of 1934 that are incorporated by reference in the
registration statement.
(2) That, for the purpose of determining any liability under the Securities
Act of 1933, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered
II-2
<PAGE> 20
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
offering.
The 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 the registration
statement shall be deemed to be a new registration statement relating to the
securities offered herein, 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
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the Registrant's Restated Articles of Incorporation and
Bylaws, and the California Corporations Code, or otherwise, the Registrant has
been advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question of whether such indemnification by it is against
public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
II-3
<PAGE> 21
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this Amendment No. 1 to
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Santa Ana, California on May 14, 1996.
ALPHA MICROSYSTEMS
By: /s/ DOUGLAS J. TULLIO
------------------------------------
Douglas J. Tullio, President, Chief
Executive Officer and Director
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE CAPACITY DATE
- ------------------------------------------ ----------------------------------- -------------
<S> <C> <C>
/s/ CLARKE E. REYNOLDS* Chairman of the Board May 14, 1996
- ------------------------------------------
Clarke E. Reynolds
/s/ DOUGLAS J. TULLIO President, Chief Executive Officer May 14, 1996
- ------------------------------------------ and Director (Principal Executive
Douglas J. Tullio Officer)
/s/ JOHN F. GLADE* Vice President, Engineering and May 14, 1996
- ------------------------------------------ Manufacturing, Director and
John F. Glade Secretary
/s/ MICHAEL J. LOWELL Vice President, Chief Financial May 14, 1996
- ------------------------------------------ Officer (Principal Financial and
Michael J. Lowell Accounting Officer)
/s/ ROCKELL N. HANKIN* Director May 14, 1996
- ------------------------------------------
Rockell N. Hankin
/s/ RICHARD E. MAHMARIAN* Director May 14, 1996
- ------------------------------------------
Richard E. Mahmarian
*By: /s/ MICHAEL J. LOWELL
- ------------------------------------------
Michael J. Lowell
Attorney-in-Fact
</TABLE>
II-4
<PAGE> 1
EXHIBIT 5.1
[ALLEN, MATKINS, LECK, GAMBLE & MALLORY LLP]
May 14, 1996
Alpha Microsystems
2722 South Fairview Street
Santa Ana, California 92704
Gentlemen:
At your request, we have examined the Registration Statement on Form S-3
filed by you (File No. 333-3167), and the form of Amendment No. 1 thereto to be
filed by you, with the Securities and Exchange Commission in connection with
the registration under the Securities Act of 1933, as amended, of 4,442,069
shares of Common Stock, no par value (the "Shares"), of Alpha Microsystems, a
California corporation (the "Company"), issuable upon exercise of certain
outstanding warrants to purchase shares of Common Stock as described therein.
The Registration Statement as amended by Amendment No. 1 is hereinafter
referred to as the "Registration Statement."
We are familiar with the proceedings taken by you, and with the
additional proceedings proposed to be taken by you, in connection with the
authorization and proposed issuance and sale of the Shares. Based upon the
foregoing, we are of the opinion that under California law, subject to the
additional proceedings being duly taken and completed by you as now
contemplated by us as your counsel prior to the issuance of the Shares, upon
the issuance and sale of the Shares in the manner contemplated by the
Registration Statement, the Shares will be legally issued, fully paid and
non-assessable securities of the Company.
We consent to your filing this opinion as an exhibit to the
Registration Statement and to the reference to our firm in the Prospectus
incorporated therein under the caption "Legal Matters."
<PAGE> 2
Alpha Microsystems
May 14, 1996
Page 2
Very truly yours,
/s/ ALLEN, MATKINS, LECK, GAMBLE & MALLORY LLP.
-----------------------------------------------
Allen, Matkins, Leck, Gamble & Mallory LLP.,
a Limited Liability Partnership including
Professional Corporations
JDG/rek
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" in the
Amendment No. 1 to Registration Statement (Form S-3), Registration No. 333-3167,
and related Prospectus of Alpha Microsystems for the registration of 4,442,069
shares of its common stock and to the incorporation by reference therein of our
report dated April 29, 1996, with respect to the consolidated financial
statements and schedule of Alpha Microsystems included in its Annual Report
(Form 10-K) for the year ended February 25, 1996, filed with the Securities and
Exchange Commission.
Ernst & Young LLP
Orange County, California
May 14, 1996
II-5
