<PAGE>
As filed with the Securities and Exchange Commission on June 3, 1996
Registration No. 333-3792
===============================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
AMENDMENT NO.1 TO
FORM S-3
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
------------------
CHATCOM, INC.
(Exact name of registrant as specified in charter)
California 95-3746596
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
9600 Topanga Canyon Boulevard
Chatsworth, California 91311
(818) 709-1778
(Address, including zip code, and telephone number, including area code,
of Registrant's principal executive offices)
James B. Mariner, President and
Chief Executive Officer
ChatCom, Inc.
9600 Topanga Canyon Boulevard
Chatsworth, California 91311
(818) 709-1778
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
With copy to:
Sanford J. Hillsberg, Esq.
Troy & Gould Professional Corporation
1801 Century Park East, Suite 1600
Los Angeles, California 90067
(310) 553-4441
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO PUBLIC:
As soon as practicable after this Registration Statement becomes effective.
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, as amended (the "Securities Act"), 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, please check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. [_]
If the delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. [_]
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
=======================================================================================================
Proposed Maximum Proposed Maximum Amount of
Title of Each Class of Amount to be Offering Price Aggregate Registration
Security to be Registered Registered Per Share Offering Price Fee
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock 2,000,000 $2.02 $4,040,000(1) $1,394(2)
Common Stock 2,000,000 $2.25 $4,500,000(3) $1,552
=======================================================================================================
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee in
accordance with Rule 457(c), and based on the last sale price on April 15,
1996 as reported on NASDAQ.
(2) Previously paid.
(3) Estimated solely for the purpose of calculating the registration fee in
accordance with Rule 457(c), and based on the last sale price on May 28,
1996 as reported on NASDAQ.
<PAGE>
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 THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
===============================================================================
<PAGE>
- -------------------------------------------------------------------------------
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.
- --------------------------------------------------------------------------------
Subject to Completion, Dated June 3, 1996
PROSPECTUS
CHATCOM, INC.
4,000,000 Shares of Common Stock
This Prospectus relates to the offer by certain securityholders
(collectively, the "Selling Securityholders") for sale from time to time of up
to 4,000,000 shares (the "Shares") of Common Stock, no par value (the "Common
Stock"), of ChatCom, Inc., a California corporation (the "Company").
The Shares represent shares of Common Stock issuable upon the conversion or
redemption of 75 shares of outstanding 6% Series B Convertible Preferred Stock,
$20,000 stated value per share, of the Company (the "Series B Preferred Stock"),
75 shares of outstanding 6% Series C Convertible Preferred Stock, $20,000 stated
value per share, of the Company (the "Series C Preferred Stock"), together with
any accrued but unpaid dividends on the Series B Preferred Stock and the Series
C Preferred Stock (collectively the "Preferred Stock") that the Company may pay
in Shares in lieu of cash upon conversion or redemption of the Preferred Stock
(the "Conversion Dividends"). The actual number of Shares into which the
Preferred Stock and the Conversion Dividends are convertible is variable, with
the conversion value of the Shares being equal to the lesser of (a) the Market
Price (as hereinafter defined) of the Common Stock on the respective dates of
issuance of the Preferred Stock, or (b) 75% of the Market Price of the Common
Stock on the respective dates of conversion or redemption of the Preferred
Stock. The Market Price of the Common Stock is equal to the average closing bid
price of the Common Stock for the five trading day period immediately preceding
the applicable date of issuance, conversion or redemption. Assuming the Market
Price of the Common Stock at the times of issuance of all of the shares of
Preferred Stock is less than 75% of the Market Price of the Common Stock at the
time of conversion or redemption of all the shares of Preferred Stock, the total
number of Shares issuable to the holders of the Preferred Stock (excluding any
Shares that may be issued to pay Conversion Dividends) and that may be offered
by the Selling Securityholders pursuant to this Prospectus would be 1,485,634
Shares.
The Selling Securityholders may sell, directly or through brokers, all or a
portion of the Shares issuable upon conversion or redemption of the Preferred
Stock in negotiated transactions or in one or more transactions in The Nasdaq
Stock Market or otherwise at prices and terms prevailing at the time of sale.
The Company has agreed to indemnify the Selling Securityholders against certain
liabilities, including liabilities under the Securities Act of 1933, as amended
(the "Securities Act"). The Company will not receive any proceeds from the sale
of any of the securities offered hereby. See "Use of Proceeds."
The Common Stock is traded on The Nasdaq Stock Market, listed under
SmallCap issues and quoted under the symbol "CHAT." As of May 28, 1996, the last
sale price for the Common Stock as quoted by The Nasdaq Stock Market, Inc. was
$2.25 per share.
SEE "RISK FACTORS" ON PAGE 4 FOR A DISCUSSION OF
MATERIAL RISK FACTORS ASSOCIATED WITH A PURCHASE OF THE
SHARES OFFERED HEREBY.
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.
---------------------
The date of this Prospectus is , 1996.
-------------
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AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934 (the "Exchange Act") and in accordance therewith files
reports, proxy or other information statements with the Securities and Exchange
Commission (the "Commission"). Such reports, proxy statements and other
information may be inspected and copied at the public reference facilities
maintained by the Commission at Judiciary Plaza, 450 Fifth Street, N.W.,
Washington D.C. 20549, as well as at the following regional offices: Seven World
Trade Center, New York, New York 10048, and Northwestern Atrium Center, 500 W.
Madison Street, Chicago, Illinois 60661. Copies of such material can be obtained
from the Public Reference Section of the Commission at Judiciary Plaza, 450
Fifth Street, N.W. Washington, D.C. 20549, at prescribed rates. The Common Stock
is traded on The Nasdaq Stock Market, and the Company's reports, proxy or
information statements, and other information filed with The Nasdaq Stock Market
may be inspected at the offices of The Nasdaq Stock Market, Inc. at 1735 K
Street, N.W., Washington, D.C. 20006.
Additional information regarding the Company and the Shares offered hereby
is contained in the Registration Statement on Form S-3 of which this Prospectus
is a part, and the exhibits and amendments thereto (the "Registration
Statement"), filed with the Commission under the Securities Act. For further
information pertaining to the Company and the Shares, reference is made to the
Registration Statement and the exhibits thereto, which may be inspected without
charge at, and copies thereof may be obtained at prescribed rates from, the
Commission's public reference facilities at Judiciary Plaza, 450 Fifth Street,
N.W., Washington, D.C. 20549. Statements contained herein concerning the
provisions of any document are not necessarily complete and in each instance
reference is made to the copy of the document filed as an exhibit or schedule to
the Registration Statement. Each such statement is qualified in its entirety by
reference to the copy of the applicable documents filed with the Commission.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed by the Company with the Commission under the
Exchange Act are incorporated in this Prospectus by reference: (a) the Company's
Annual Report on Form 10-KSB for the year ended March 31, 1995, filed on June
29, 1995, as amended by Form 10-KSB/A filed on September 14, 1995, Form
10-KSB/A-2 filed on November 17, 1995, and Form 10-KSB/A-3 filed on February 2,
1996, (b) the Company's quarterly report on Form 10-QSB for the fiscal quarter
ended June 30, 1995, filed on August 10, 1995, as amended by Form 10-QSB/A filed
on November 17, 1995, (c) the Company's quarterly report on Form 10-QSB for the
fiscal quarter ended September 30, 1995, filed on November 15, 1995, as amended
by Form 10-QSB/A filed on February 2, 1996, (d) the Company's quarterly report
on Form 10-QSB for the fiscal quarter ended December 31, 1995, filed on February
13, 1996, (e) the Company's current report on Form 8-K dated November 21, 1995,
filed on December 7, 1995, (f) the Company's amended quarterly report on Form
10-QSB/A for the fiscal quarter ended September 30, 1994, filed on November 17,
1995, (g) the Company's amended quarterly report on Form 10-QSB/A for the fiscal
quarter ended December 31, 1994, filed on November 17, 1995, (h) the Company's
proxy statement furnished in connection with its Annual Meeting of Shareholders
on February 8, 1996, filed on January 2, 1996, (i) the Company's current report
on Form 8-K dated January 12, 1996, filed on January 26, 1996, (j) the Company's
current report on Form 8-K dated February 5, 1996, filed on February 7, 1996,
(k) the Company's current report on Form 8-K dated February 8, 1996, filed on
February 20, 1996, (l) the Company's current report on Form 8-K dated March 6,
1996, filed on March 12, 1996, (m) the Company's current report on Form 8-K
dated May 2, 1996, filed on May 28, 1996, and (n) the description of the
Company's Common Stock contained in the Company's Registration Statement on Form
10 filed on January 22, 1993 with the Commission under the Exchange Act
including any amendment or report subsequently filed by the Company for the
purpose of updating that description.
All documents filed by the Company pursuant to Sections 13(a), 13(c), 14 or
15(d) of the Exchange Act subsequent to the date of this Prospectus and prior to
the termination of the offering of the Shares offered hereby shall be deemed to
be incorporated by reference into this Prospectus and to be a part of this
Prospectus from the date of filing such documents. Any statement contained in a
document 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
2
<PAGE>
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.
The Company will provide without charge, to each person to whom this
Prospectus is delivered, on the written or oral request of any such person, a
copy of any or all of the documents incorporated by reference (other than
exhibits to such documents that are not specifically incorporated by reference
in such documents). Requests for such copies should be directed to Edith DeJan,
Investor Relations, ChatCom, Inc., 9600 Topanga Canyon Boulevard, Chatsworth,
California 91311 (telephone: (818) 709-1778).
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and the financial statements and notes thereto incorporated herein
by reference. The purchase of the Common Stock offered hereby involves certain
material risks. Prospective purchasers should carefully consider the factors
discussed under "Risk Factors."
The Offering
Common Stock offered hereby . . . . . . . . . . . . . 4,000,000 shares (1)
Common Stock outstanding after the offering. . . . . 11,566,629 shares (2)
(1) Represents Shares of Common Stock issuable upon the conversion or
redemption of 75 shares of the outstanding Series B Preferred Stock, 75
shares of the outstanding Series C Prederred Stock and Conversion
Dividends. The actual number of Shares into which the Preferred Stock and
the Conversion Dividends are convertible is variable, with the conversion
value of the Shares being equal to the lesser of (a) the Market Price (as
hereinafter defined) of the Common Stock on the respective dates of
issuance of the Preferred Stock, or (b) 75% of the Market Price of the
Common Stock on the respective dates of conversion or redemption of the
Preferred Stock. The Market Price of the Common Stock is equal to the
average closing bid price of the Common Stock for the five trading day
period immediately preceding the applicable date of issuance, conversion or
redemption. Assuming the Market Price of the Common Stock at the times of
issuance of all of the shares of Preferred Stock is less than 75% of the
Market Price of the Common Stock at the times of conversion or redemption
of all the shares of Preferred Stock, the total number of Shares issuable
to the holders of the Preferred Stock (excluding any Shares that may be
issued to pay Conversion Dividends) and that may be offered by the Selling
Securityholders pursuant to this Prospectus would be 1,485,634 Shares.
(2) Excludes (i) 1,955,350 shares reserved for issuance upon exercise of
options granted pursuant to employment agreements, consulting agreements,
loan guarantee agreements, the 1985 Stock Option Plan and the 1994 Stock
Option Plan, (ii) 2,760,000 shares reserved for issuance upon the exercise
of warrants, and (iii) 1,029,650 shares reserved for future grants of stock
options pursuant to the 1994 Stock Option Plan.
3
<PAGE>
THE COMPANY
ChatCom, Inc. (formerly Astro Sciences Corporation), a California
corporation (the "Company"), originally was formed as a subsidiary of Transworld
Services, Inc. in 1982, which subsequently became Raycomm Transworld Industries,
Inc. as the result of a merger. In June 1987, the Company's stock was
distributed as a dividend to the parent company's shareholders and the Company
became a publicly owned corporation.
The Company is a manufacturer of communications products for the Local Area
Network ("LAN") and Wide Area Network ("WAN") industries. Historically the
Company has focused on the remote access communications niche market within the
networking industry. Recently, however, the Company has developed products that
may also be used in the larger network server market.
The Company markets its products through a network of Value Added Resellers
("VARs"). The VARs are typically systems integrators that interface directly
with the end-user to determine their remote communications needs and to design
the configuration of products necessary to meet those needs.
The Company's efforts are directed at providing integrated solutions for
remote network communications. The Company manufactures several products for
"remote takeover" solutions (also known as "remote control" solutions) and
obtains remote node solutions through an agreement with another company. The
Company's remote takeover products, which are its primary product line, are
marketed under the name ChatterBox(TM). These products are integrated hardware
and software solutions that allow many remotely located users to simultaneously
access a Local Area Network's resources. Each remote user is provided with the
same data and computational abilities as if they were physically at the network
site. Under the remote takeover scenario, the remote user actually takes over a
processing unit residing in the ChatterBox(TM) at the network site.
The Company also produces gateways, which are software intensive products
that enable a multitude of simultaneous users (up to 128) to initiate outbound
communications to other networks and systems over a sharable set of telephone
lines or data lines.
The Company's principal executive offices and manufacturing facility are
located at 9600 Topanga Canyon Boulevard, Chatsworth, California, 91311. The
Company's telephone number is (818) 709-1778.
RISK FACTORS
THE SHARES OF COMMON STOCK OFFERED HEREBY ARE SPECULATIVE AND INVOLVE A
HIGH DEGREE OF RISK, INCLUDING, BUT NOT NECESSARILY LIMITED TO, THE RISK FACTORS
DESCRIBED BELOW. EACH PROSPECTIVE INVESTOR SHOULD CAREFULLY CONSIDER THE
FOLLOWING RISK FACTORS INHERENT IN AND AFFECTING THE BUSINESS OF THE COMPANY AND
THIS OFFERING BEFORE MAKING AN INVESTMENT DECISION.
ABILITY TO CONTINUE AS A GOING CONCERN
- --------------------------------------
The Company has previously relied to a significant extent on its asset-
based line of credit for liquidity. The financing agreement for this credit
facility contained certain financial covenants that required the maintenance by
the Company of specified earnings levels and certain financial ratios. As of
September 30, 1995, the Company failed to comply with the covenant concerning
the maintenance of earnings due to the recording of a net loss for the quarter
ended September 30, 1995 (see Risk Factors - Prior Operating Losses;
Fluctuations in Operating Results). Due to the Company's failure to comply with
that covenant, the Company was in default under the financing agreement and the
lender had the right to refuse further advances on the line of credit, demand
immediate payment of any amounts outstanding under the line of credit and
foreclose on the assets that secure the line of credit, which constitute
substantially all of the assets of the Company. In December, 1995, the lender
waived compliance with the
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maintenance of earnings covenant for the quarter ended September 30, 1995, upon
the Company's securing of the agreement with additional collateral in the form
of a $500,000 irrevocable letter of credit. The Company reported a net loss for
the quarter ended December 31, 1995, which again caused the Company to be out of
compliance with the maintenance of earnings covenant. In March 1996, the lender
agreed to waive compliance with that covenant in connection with the Company
agreeing to repay all amounts previously advanced under the financing agreement
by April 25, 1996. As a result of the Company's default under its line of credit
agreement described above, the Company's net losses in recent periods and the
Company's negative cash flow from operating activities in recent periods, the
Company's independent auditors have included in their report on the Company's
March 31, 1995 financial statements an explanatory paragraph regarding the
ability of the Company to continue as a going concern. The Company sold 75
shares of the Series B Preferred Stock in March 1996 and 75 shares of the Series
C Preferred Stock in May 1996, which generated total net offering proceeds for
the Company after offering expenses of approximately $2,630,000. The Company
used approximately $970,000 of those proceeds to repay all amounts owing under
the line of credit, which was terminated in May 1996.
LIQUIDITY
- ---------
The Company previously relied upon a line of credit financing arrangement
for working capital to support its operations. The amount of borrowing that was
available under the Company's line of credit agreement was dependent upon the
Company's accounts receivable balances, the nature of the accounts receivable
balances, and the amounts outstanding under the line of credit. The Company's
maximum borrowing capacity under the line of credit was $3,500,000. Accordingly,
the Company was able to finance revenue growth as the available borrowings
generally increased with the increase of accounts receivable balances that
accompany such growth. However, the Company repaid all amounts owing under the
line of credit in May 1996. The Company has not replaced this line of credit
with another line of credit financing facility and has no immediate plans to do
so. The Company intends to meet its short-term working capital needs with the
remaining proceeds from a private placement of equity securities that it
completed May, 1996. The Company has incurred operating losses in each of its
last three fiscal quarters. Should the Company continue to experience operating
losses in the future which results in a significant utilization of liquid
resources, the Company's liquidity and its ability to sustain operations at
current levels could be materially, adversely affected. Should the Company
experience significant growth in revenues that requires the utilization of
significant liquid resources for the financing of increased accounts receivable
and inventory balances, the Company may seek a new line of credit financing
agreement to assist in meeting such cash requirements. There can be no assurance
that the Company will be able to secure such an agreement when desired, and
failure to obtain such an agreement would be likely to have a materially adverse
effect upon the Company's liquidity.
The Company may seek additional public or private financing to meet its
longer term capital needs if market conditions are favorable. If additional
funds are raised through the issuance of equity securities, it is likely that
the Company will be required to sell such securities at a substantial discount
to the current market price for the Company's Common Stock, the percentage
ownership of the then current shareholders of the Company will be reduced, and
such equity securities may have rights, preferences or privileges senior to
those of the holders of the Company's Common Stock. No assurance can be given
that additional financing will be available or that, if available, it will be
available on terms favorable to the Company or its shareholders. Any increase in
the outstanding number of shares of Common Stock or options and warrants may
have an adverse effect on the market price of the Common Stock and may hinder
efforts to arrange future financing. If adequate funds are not available to
satisfy capital requirements, the Company may be required to curtail its
operations significantly or to obtain funds through arrangements with strategic
partners or others that may require the Company to relinquish material rights to
certain of its technologies or potential markets.
5
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PRIOR OPERATING LOSSES; FLUCTUATIONS IN OPERATING RESULTS
- ---------------------------------------------------------
The Company has reported net losses of $1,927,696 and $291,622 for the
fiscal years ended March 31, 1995 and 1994, respectively, due to increases in
operating expenses that exceeded the growth rate of revenues and gross profit
and due to a non-cash compensation expense of $948,600 recorded in the fiscal
year ended March 31, 1995 relating to the extension of the exercise terms of
certain non-qualified stock options. Additionally, the Company experienced a
loss of $618,911 in the nine months ended December 31, 1995, and anticipates
reporting an operating loss of approximately $1,250,000 to $1,500,000 for the
three months ended March 31, 1996. There can be no assurance that the Company's
operations will be profitable in the future.
The Company's reported results of operations are subject to considerable
fluctuations due to changes in demand for the Company's products and other
factors, and there can be no assurance that the Company will be profitable in
any particular period. Demand for the Company's products in each of the markets
it serves can vary significantly from quarter to quarter due to revisions in
budgets or schedules for customer projects requiring the Company's products,
changes in demand for systems that incorporate the Company's products, general
business and economic factors and other factors beyond the control of the
Company.
DEPENDENCE ON NEW PRODUCT DEVELOPMENT
- -------------------------------------
The markets served by the Company are characterized by rapid technological
advances, downward price pressure in the marketplace as technologies mature,
changes in customer requirements, frequent new product introductions and
enhancements and price erosion. The Company's business requires substantial
ongoing research and development efforts and expenditures, and its future
success will depend on its ability to enhance its current products, reduce
product costs and develop and introduce new products that both keep pace with
technological developments in response to evolving customer requirements and
that also achieve market acceptance.
The remote access product market in particular is characterized by the
continuing advancement of technology, including technologies relating to the
increased efficiency of remote data transmission and the speed and efficiency of
microprocessors. The Company's strategy is to update its products to accommodate
new technologies; however, there can be no assurance that the new technologies
will not render the Company's products obsolete. Management believes the Company
must continue to respond quickly to the needs of its customers for broad product
functionality and to advances in hardware, emerging technologies such as ISDN
(Integrated Services Digital Network), Frame Relay and ATM (Asynchronous
Transfer Mode), operating system software and application software. There can be
no assurance that the Company will be able to respond effectively to
technological changes or product announcements by its competitors. If the
Company is unable, for technological or other reasons, to develop and introduce
products and applications in a timely manner in response to changing market
conditions or customer requirements, the Company's operating results and
financial condition could be materially, adversely affected.
Additionally, the marketability of the Company's products is influenced to
a significant degree by the management capabilities and efficiency of
proprietary software that is an integral component of the remote access
solutions that are offered by the Company. The Company's strategy is to
continually update its proprietary remote access management software to increase
its capabilities and efficiency as well as to maintain its compatibility with
application and operating software and network protocols that proliferate in the
marketplace. There can be no assurance that the Company's competitors will not
introduce proprietary management software that could render the Company's
products obsolete or that the Company will be able to revise its management
software so that it is compatible with applications software, operating software
and network protocols that may be introduced in the future. If the Company is
unable to develop or revise its management software in response to changes in
its operating environment or
6
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customer requirements, the Company's operating results and financial condition
could be materially, adversely affected.
NEED TO MANAGE PRODUCT TRANSITIONS
- ----------------------------------
The introduction of new and enhanced products requires the Company to
manage the transition from older products in order to minimize disruption in
customer ordering patterns, avoid excessive levels of older product inventories
and ensure that adequate supplies of new products can be delivered to meet
customer demand. There can be no assurance that the Company will successfully
manage the transition to selling new products as such products are developed and
introduced, and the failure to do so could have a materially adverse effect on
the Company's operating results and financial condition.
HIGHLY COMPETITIVE ENVIRONMENT
- ------------------------------
The market for remote access products is highly competitive. The Company
competes with traditional vendors of terminal servers, personal computers,
modems, remote control software, terminal emulation software and application
specific remote access solutions. The Company also competes with suppliers of
routers, hubs and other data communication products. In the future, the Company
expects competition from companies offering remote access solutions based on
emerging technologies such as switched digital telephone services. In addition,
the Company may encounter increased competition from operating systems ("OS")
and network operating system ("NOS") vendors to the extent such vendors include
full remote access capabilities in their products. The Company may also
encounter future competition from telephony service providers (such as AT&T or
the regional Bell operating companies) that may offer remote access services
through their telephone networks.
The basic method of remote access for a business using the Company's
products involves a remote user establishing a connection directly to a remote
access server on their company's network. This method of remote access could
migrate to one in which the remote user establishes a connection to a public
network, such as the Internet, to which the company network is also connected.
The development of remote access service offerings from public networks could
have a materially adverse effect on the Company's business.
In July 1995, the Company changed its pricing strategy for commodity-type
subassemblies (e.g. disk drives, fax servers, and random access memory)
purchased by the Company and incorporated into its products. Sales prices and
published list prices on these items were lowered by the Company in order to
discourage resellers and end-users from purchasing such products elsewhere and
installing them on systems provided by the Company. The installation of
components purchased from other vendors into systems sold by the Company had
caused compatibility problems in certain cases, potentially impacting the
Company's reputation for marketing reliable products. This change in pricing
strategy has resulted in lower margins on such subassemblies, which has been
partially offset by increases in sales volumes of these products.
Increased competition could result in price reductions and loss of market
share, which would adversely affect the Company's results of operations. Many
of the Company's current and potential competitors have greater financial,
marketing, technical and other resources than the Company. There can be no
assurance that the Company will be able to compete successfully with its
existing competitors or any new competitors.
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RELIANCE ON REMOTE ACCESS MARKET; EARLY STAGE OF MARKET
- -------------------------------------------------------
The Company currently devotes a majority of its product development,
manufacturing, marketing and sales resources to servicing the remote access
market. Although the Company believes that its concentrated focus provides it
with certain competitive advantages in the remote access market, this focus may
also leave the Company more vulnerable to a decline in the remote access market
than companies with more diverse product offerings. In addition, the Company's
future financial performance will depend in large part on continued growth of
the remote access market, which in turn will depend in part on the number of
organizations utilizing remote access products and the number of applications
developed for use with those products. There can be no assurance that these
markets will continue to grow or that the Company will be able to respond
effectively to the evolving requirements of these markets. Any significant
decline in, or significant decrease in the growth rate of, the remote access
market could have a materially adverse effect on the Company's results of
operations and financial condition. Additionally, many of the Company's
customers do not yet have a standard remote access solution, and there can be no
assurance that the Company's products will be the standard adopted by its
customers.
POTENTIAL ADVERSE IMPACT OF PRODUCT RETURNS AND PRICE REDUCTIONS
- ----------------------------------------------------------------
The Company provides one of its resellers with product return rights for
stock balancing and price protection rights and any distributors that the
Company may utilize in the future will likely be afforded similar rights. Stock
balancing rights permit the reseller to return products to the Company for
credit, within specified limits and subject to purchasing an equal amount of
other Company products. Price protection rights require that the Company grant
retroactive price adjustments for inventories of the Company's products held by
that reseller if the Company lowers its price for such products. There can be
no assurance that the Company will not experience significant returns or price
protection adjustments in the future that could have a materially adverse effect
on the Company's operating results and financial condition.
PRODUCT DEFECTS
- ---------------
New products, when first released by the Company, may contain undetected
design faults and software errors, or "bugs" that, despite testing by the
Company, are discovered only after a product has been installed and used by
customers. There can be no assurance that faults or errors in the Company's
existing products or in new products introduced by the Company will not be
discovered in the future, causing delays in product introductions and shipments
or requiring design modifications that could adversely affect the Company's
competitive position and results of operations. In addition, there can be no
assurance that new products or product enhancements developed by the Company
will achieve market acceptance or, if successful, will not adversely impact the
sales of the Company's existing products. On several occasions, the Company has
discovered minor design defects in its products that have caused delays in the
introduction of products. To date, however, the Company has not experienced any
significant problems in this regard and has not recalled products as a result of
a product defect.
DEPENDENCE ON KEY PERSONNEL
- ---------------------------
The Company's future success depends in large part on the continued service
of its key marketing, sales and management personnel. The Company is dependent
upon its ability to identify, hire, train, retain and motivate high quality
personnel, especially highly skilled engineers involved in the ongoing hardware
and software development required to refine the existing products to introduce
enhancements for future applications and to develop new products. The Company
is particularly dependent on the skills and contributions of certain of its
management personnel, although the Company does not have any long-term
employment agreements with any of these individuals. Competition for personnel
in the Company's industry, as well as in the computer hardware and software
industry, is characterized by a high level of employee mobility and aggressive
recruiting of skilled personnel. There can be no assurance that the Company's
current employees will continue to work for the Company or that
8
<PAGE>
the Company will be able to obtain the services of additional personnel
necessary for the Company's growth.
DEPENDENCE ON TIMELY RECEIPT OF ACCEPTABLE COMPONENTS
- -----------------------------------------------------
The Company depends on the timely receipt of non-defective components to
meet its manufacturing schedule. The Company's operating results or financial
condition could be adversely affected by the receipt of a significant number of
defective components or a delay in component delivery, an increase in component
prices or the inability of the Company to obtain lower component prices in
response to competitive pressures on the pricing of the Company's products.
RELIANCE ON CERTAIN SUPPLIERS
- -----------------------------
The Company purchases from various independent suppliers numerous parts,
supplies and other components, which the Company assembles into products.
Although there are at least dual suppliers for many of such parts, supplies and
components, the Company currently relies on single sources of supply for certain
parts and components, and the Company is vulnerable to product changes by and
variances in product quality from these suppliers. Although management believes
that such changes and quality fluctuations could be accommodated by the Company,
they may necessitate changes in the Company's product design or manufacturing
methods, and the Company could experience temporary delays or interruptions in
supply while such changes are incorporated or a new source of supply is
procured. Any future disruptions in supply of suitable parts and components
from the Company's principal suppliers could have a materially adverse effect on
the Company's operating results and financial condition.
The Company purchases certain components (the Cirrus VGA integrated
circuit, Intel processors, Opti integrated circuits, and Omega power supply
modules), which contain technology that is proprietary to its manufacturer and
is therefore unavailable from other manufacturers. The Company has no written
supply agreements covering any of these components. Although the Company
purchases the components manufactured by Cirrus, Intel, and Opti from only a
single distributor each, and these components are available through numerous
distributors, the Company could experience additional development costs and
production delays while developing alternate solutions should any of these
manufacturers cease to produce the components.
The Omega power supply module is purchased directly from Omega Power
Systems, Inc. ("Omega") and this module is an integral portion of one of the
power supply options offered by the Company. Should Omega cease its production
of this component or cease sales of the component to the Company, a total
redesign of the particular power supply in which the component is utilized would
be required. While the Company's processor units may be sold with other power
supply systems, the sales of the affected model, and possibly a portion the
Company's sales of other products, would be lost or delayed during the redesign
and production start-up period.
The Company licenses remote access related software from Symantec
Corporation ("Symantec") and Triton Technologies, Inc. ("Triton"). Although the
software licensed from these suppliers contain proprietary features, other
companies offer similar software that is compatible with the Company's products.
Accordingly, the Company believes that termination of the Company's ability to
license software directly from Symantec or Triton would not have a material
adverse effect upon the Company's operations.
The Company purchases its remote node server from LAN Access, Inc. (a
subsidiary of Digi International) pursuant to an Original Equipment Manufacturer
("OEM") agreement. The remote node server has not represented a significant
portion of the Company's revenues and the Company believes that it could obtain
an OEM agreement for a similar product from another manufacturer, if necessary.
9
<PAGE>
MANAGEMENT OF INVENTORY; RISK OF INVENTORY OBSOLESCENCE
- -------------------------------------------------------
The marketplace dictates that many of the Company's products be shipped
very quickly after an order is received. Since purchased component and
manufacturing lead times are typically much longer than the short order
fulfillment times allowed by the marketplace, the Company is required to
maintain adequate inventories of both components and finished goods, and must
accurately forecast demand for finished products. Historically, the Company has
been unable to accurately forecast specific future demand, requiring it to
maintain relatively large inventory levels, which has had an adverse effect on
its financial condition. The relatively high levels of inventories have also
contributed to the Company experiencing costs relating to obsolescence of
inventories, which has had an adverse effect on the Company's results of
operations and financial condition.
Engineering refinements to the Company's new hardware and software products
are relatively common. These changes can result in the disruption of the
manufacturing operation and delays in delivery dates. These changes also can
cause the finished goods inventory to enjoy a relatively short shelf life or may
require the Company to incur additional costs to rework the finished goods or
work-in-process inventories that were produced prior to the engineering change.
These and other circumstances, including inaccurate forecasts of customer
demand, poor availability of purchased components, supplier quality problems,
allocation limitations of key components by their manufacturer, carrier strikes
or damage to products during manufacture could result in a buildup of excess
components of finished goods on the one hand or an inability to deliver product
on a timely basis on the other hand, either of which could have a materially
adverse effect on the Company's operating results and financial condition.
The Company has incurred inventory writedowns in the past. While the
Company maintains valuation allowances for excess and obsolete inventories,
which it believes to be adequate, significant changes in the technology
prevailing in the industry could require the Company to record additional
valuation reserves. During the fiscal year ended March 31, 1995, and the nine
month period ended December 31, 1995, the Company recorded additions to its
valuation allowance for obsolete and excess inventories in the amounts of
$324,418, and $97,000, respectively, which adversely affected gross profit and
net income in the periods in which additional valuation allowances were
recorded. The Company believes that its allowance for obsolete and excess
inventories that are currently recorded are sufficient to properly state
inventories at their net realizable value. The Company does not expect that it
will be required to provide material additions to the allowance in excess of its
ordinary accrual rate for the fourth quarter of the fiscal year ended March 31,
1996 and during the fiscal year ending March 31, 1997. Material additions to
such allowance might be required in the future if market conditions affecting
the Company's product sales mix change significantly. Should future writedowns
become necessary, such writedowns could have a materially adverse effect on the
Company's operating results and financial condition.
DEPENDENCE ON PROPRIETARY TECHNOLOGY
- ------------------------------------
The Company's future success and competitive position is dependent partly
upon its proprietary technology, and the Company relies in part on trademark and
copyright law and, to a lesser extent, patent law to protect its intellectual
property. There can be no assurance that any patent owned by the Company will
not be invalidated, circumvented or challenged, that the rights granted
thereunder will provide competitive advantages to the Company or that any of the
Company's pending or future patent applications will be issued within the scope
of the claims sought by the Company, if at all. Furthermore, there can be no
assurance that others will not develop technologies that are similar or superior
to the Company's technology, duplicate the Company's technology or design around
the patents owned by the Company. In addition, effective copyright and trade
secret protection may be unavailable or limited in certain foreign countries.
Recently, the Company has been issued two patents for its "Phone Busy Circuit"
and "Hardware Remote Reset Circuit." Although products marketed by third parties
may infringe on these patents, the Company may not proceed to enjoin the
marketing of those products by others in light of
10
<PAGE>
technological changes that are on-going and the substantial expense that the
Company may be required to incur to enforce these patents with no certainty of
success.
POTENTIAL EROSION OF PROFIT MARGINS
- -----------------------------------
As a result of competitive pressures and technological changes, the sales
price of the Company's current products may decrease over time. As markets
develop for the Company's products, the Company expects that the average selling
price will decrease, which will adversely affect gross profit margins to the
extent that such decreases are not offset by new higher-margin products or
product cost reductions. In addition, certain of the Company's competitors have
significantly greater resources than the Company, and the market for the
Company's products is relatively new and undeveloped. There can be no assurance
that a competitor will not enter the remote access communications market and
devote substantial resources to the introduction of competing products at lower
prices, which could require the Company to reduce the price of its products.
Such a price reduction could have an adverse effect on the Company's profit
margins, and accordingly, on its operating results and financial condition.
DIVIDENDS ON COMMON STOCK UNLIKELY
- ----------------------------------
The Company has never declared or paid dividends on its Common Stock and
does not currently intend to pay dividends in the foreseeable future so that it
may reinvest its earnings, if any, in the development of its business. The
payment of dividends on its Common Stock in the future will be at the discretion
of its Board of Directors.
POSSIBLE DILUTIVE EFFECT OF OUTSTANDING OPTIONS, WARRANTS AND PREFERRED STOCK
- -----------------------------------------------------------------------------
As of May 25, 1996, there were 4,715,350 shares of Common Stock reserved
for issuance upon exercise of stock options and warrants that have been granted
or issued. 1,411,350 of the outstanding options and all of the 2,760,000
warrants are currently exercisable at exercise prices ranging from $0.60 to
$5.00 per share. An additional 1,029,650 shares of Common Stock are reserved for
issuance upon the exercise of options available for future grant under the
Company's 1994 Stock Option Plan, and 4,000,000 shares of Common Stock are
reserved for issuance upon the conversion or redemption of 150 shares of
Preferred Stock outstanding and the Conversion Dividends related thereto.
Because the Company anticipates that the trading price of Common Stock at the
time of exercise of any such options or warrants will exceed the exercise price,
such exercise will have a dilutive effect on the Company's shareholders. As the
number of Shares issuable upon the conversion or redemption of the Preferred
Stock and Conversion Dividends may increase based on the Market Price of the
Common Stock on the date of conversion or redemption, such conversions or
redemptions may have a dilutive effect on the Company's shareholders.
MARKET PRICE
- ------------
The trading price of the Company's Common Stock has from time to time
fluctuated widely and in the future may be subject to similar fluctuations in
response to quarter-to-quarter variations in the Company's operating results,
announcements of innovations or new products by the Company or its competitors,
general conditions in the computer or computer networks industries and other
events or factors. In addition, in recent years broad stock market indices, in
general, and the securities of technology companies, in particular, have
experienced substantial price fluctuations. Such broad market fluctuations may
adversely affect the future trading price of the Common Stock.
The registration of the resale of the Shares pursuant to this Prospectus
will significantly increase the number of potential registered and free trading
shares of the Common Stock of the Company. Sales, or even the possibility of
sales, of a substantial number of shares of Common Stock after this offering, or
as a part of this offering, could adversely affect the market price of the
Company's Common Stock and could impair the Company's ability to raise capital
through the sale of equity securities. Upon completion
11
<PAGE>
of this offering and assuming that the Preferred Stock and Conversion Dividends
are convertible into the entire 4,000,000 Shares offered hereby, the Company
will have outstanding 11,566,629 shares of Common Stock, assuming the conversion
of all shares of Preferred Stock (16,281,979 shares of Common Stock if all other
outstanding options and warrants are also exercised). Of these shares, the
4,000,000 Shares offered hereby will be freely tradeable without restriction or
further registration under the Securities Act, 5,365,000 (including 3,230,000
shares underlying outstanding options and warrants) are freely tradeable
pursuant to a Registration Statement on Form S-3, which was declared effective
on February 5, 1996 and 7,000 shares will be freely tradable without restriction
when, in the near future, they will be registered pursuant to a Form S-8
Registration Statement. The Company anticipates filing a Registration Statement
on Form S-8 in the near future that will also register 1,436,850 shares of
Common Stock underlying outstanding stock options, and 1,044,150 shares of
Common Stock underlying stock options that have not yet been granted but have
been authorized for grant under the 1994 Stock Option Plan. Subsequent to the
effective date of the Registration Statement on Form S-8, such shares will be
freely tradeable without restriction upon the exercise of the options covering
such shares. Of the outstanding shares of Common Stock described above, and
subsequent to this offering, approximately 4,181,000 are "restricted securities"
as that term is defined in Rule 144, all of which are eligible for immediate
sale pursuant to Rule 144 subject to the timing, volume and manner of sale
restrictions of Rule 144.
The warrants to purchase Common Stock that were issued in conjunction with
the Company's 1994 private placement of Common Stock and the Company's 1995
private placement of Common Stock provide the Company the ability to force the
exercise of the warrants if the Common Stock underlying the warrants has been
registered and if the market price of the Common Stock equals or exceeds a
specified level for a period of approximately two weeks. Should these conditions
be satisfied and should the Company elect to exercise its right to force the
warrants to be exercised, there is a possibility that the warrant holders may
sell some or all of the Common Stock that they purchased during the private
placements in order to obtain the funds necessary to exercise the warrants. The
Company cannot predict what effect, if any, such actions would have on the
market price of the Company's Common Stock.
LOSS ON LIQUIDATION AND DISSOLUTION
- -----------------------------------
In the event of a dissolution and termination of the Company, distribution
of the proceeds realized from liquidation will be made according to the relative
priority on liquidation of the Company's creditors. The Company's line of credit
is secured by the Company's accounts receivable and inventory and, therefore,
the lender has a claim to the Company's assets on liquidation, which is prior to
that of the shareholders. Additionally, holders of Preferred Stock have a
liquidation preference over holders of Common Stock, whereby any proceeds from
liquidation or dissolution remaining after repayment of creditors would be used
to repay holders of Preferred Stock their entire initial investment plus any
unpaid dividends prior to distributing excess proceeds, if any, among holders of
Common Stock. Accordingly, the ability of a shareholder to recover all or a
portion of his investment under such circumstances will depend on the net amount
of funds available after senior creditors and holders of Preferred Stock are
satisfied.
RECENT DEVELOPMENTS
On March 5, 1996, James B. Mariner accepted the position of President and
Chief Executive Officer of the Company and began serving in that capacity on
March 11, 1996. As a portion of Mr. Mariner's compensation, he was granted
options to purchase 360,000 shares of Common Stock exercisable at the market
price of the Common Stock on March 5, 1996. The options become exercisable in
accordance with a variable vesting schedule, the timing of which is contingent
upon future performance of the Company.
In conjunction with the appointment of Mr. Mariner as President and Chief
Executive Officer, A. Charles Lubash, the Company's Vice Chairman, and George L.
Lazik, the Company's Executive Vice
12
<PAGE>
President, changed their status from full-time executive officers to
consultants, and in conjunction therewith the Company recorded a reserve of
approximately $300,000 relating to the remaining terms on their executive
officer employment agreements.
In February 1996, the Company and its distributor discontinued their
relationship due to changes in the businesses of both companies and changes in
the industries which they serve. In conjunction with the termination of the
relationship, the Company agreed to accept the return of approximately $120,000
of merchandise which was previously sold to the distributor.
On February 9, 1996, the Company's name was changed to ChatCom, Inc. from
Astro Sciences Corporation, and the Common Stock, which previously traded under
the symbol "AOSC," began trading on the Nasdaq Stock Market - SmallCap issues
under the symbol "CHAT" on February 23, 1996.
The Company sold 75 shares of the Series B Preferred Stock in March 1996
and 75 shares of Series C Preferred Stock in May 1996, which generated total net
offering proceeds for the Company after offering expenses of approximately
$2,630,000. The Company used approximately $970,000 of those proceeds to repay
all amounts owing under the line of credit, which was terminated in May 1996.
USE OF PROCEEDS
The Company will not receive any proceeds from this offering of the Shares.
The Company will bear all expenses of this offering, estimated to be
approximately $60,000.
SELLING SECURITYHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of the Company's Common Stock as of May 21, 1996, with respect to the
Selling Securityholders and as adjusted to reflect the sale of Shares offered
pursuant to this Prospectus by the Selling Securityholders. All of the
outstanding shares of Common Stock are, and the Shares offered through this
Prospectus, which are issuable upon the conversion or redemption of the
Preferred Stock will be when issued, validly issued, fully paid and non-
assessable.
<TABLE>
<CAPTION>
Shares Beneficially Owned Shares Beneficially
Prior to Offering (1) Owned After Offering (2)
------------------------------------------------------- ---------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Preferred Stock
Shares of Convertible into Total Number
Common Shares Offered Ownership of Shares
Name Stock Hereby (3) and Rights Percent Offered Number Percent
- ---- ----- ---------------- ---------- ------- --------- ----------- ----------
Tail Wind Fund, Ltd. 0 333,333 333,333 4.2% 333,333 0 0%
Julie Nordlicht 0 666,667 666,667 8.1% 666,667 0 0%
A. Ziskind 0 666,667 666,667 8.1% 666,667 0 0%
Cassolette, Limited 0 333,333 333,333 4.2% 333,333 0 0%
Legong Investments N.V. 0 1,666,667 1,666,667 18.1% 1,666,667 0 0%
David Freund 0 333,333 333,333 4.2% 333,333 0 0%
TOTAL 4,000,000 4,000,000 34.7% 4,000,000 0 0%
</TABLE>
(1) Shares of Common Stock that a person has the right to acquire within 60
days after the date of this Prospectus are deemed to be outstanding in
calculating the percentage ownership of the person, but are not deemed to
be outstanding as to any other person.
(2) The table assumes that the Selling Securityholders will dispose of all
Shares issuable to them upon the conversion or redemption of the Preferred
Stock that are being registered for sale by this Prospectus.
13
<PAGE>
(3) The number of Shares issuable to the Selling Securityholders upon
conversion or redemption of the Preferred Stock (including any Conversion
Dividends) is variable and depends in part upon the Market Price of the
Common Stock on the applicable date of conversion or redemption. The table
reflects the issuance pro-rata to the Selling Securityholders of the
maximum number of Shares covered by this Prospectus, although one or more
of the Selling Securityholders may be entitled to receive fewer Shares than
indicated in the table (based upon the Market Price of the Common Stock at
the time of conversion or redemption of the Preferred Stock) or to receive
shares of Common Stock in excess of the Shares shown in the table and
covered by the Prospectus in the event the Market Price of the Common Stock
at the time of conversion or redemption of the Preferred Stock held by such
Selling Securityholder is substantially below the price of the Common Stock
on the date of this Prospectus.
PLAN OF DISTRIBUTION
An aggregate of up to 4,000,000 shares of Common Stock may be offered and
sold pursuant to this Prospectus by the Selling Securityholders. The Company has
agreed to register such shares under the Securities Act and to pay all expenses
in connection therewith (other than brokerage commissions and fees and expenses
of counsel for the Selling Securityholders). Such shares have been included in
the Registration Statement of which this Prospectus forms a part. The Shares
offered by the Selling Securityholders may be sold by one or more of the
following methods, including without limitation: (a) a block trade in which a
broker or dealer so engaged will attempt to sell the shares as agent but may
position and resell a portion of the block as principal to facilitate the
transaction; (b) purchases by a broker or dealer as principal and resale by such
broker for its account pursuant to this Prospectus; (c) ordinary brokerage
transactions and transactions in which the broker solicits purchasers; and (d)
face-to-face transactions between sellers and purchasers without a broker-
dealer. In effecting sales, brokers or dealers engaged by the Selling
Securityholders may arrange for other brokers or dealers to participate. Brokers
or dealers may receive commissions or discounts from Selling Securityholders in
amounts to be negotiated in connection with the offering of the Shares. Such
brokers or dealers and any other participating brokers or dealers may be deemed
to be "underwriters" within the meaning of the Securities Act and any profit on
the resale of the Shares by the Selling Securityholders or by such brokers or
dealers might be deemed to be underwriting discounts and commissions under the
Securities Act. The Company will not pay any commissions or similar remuneration
with respect to these securities.
The Company has agreed to indemnify the Selling Securityholders and such
Selling Securityholders have agreed to indemnify the Company against certain
liabilities, including liabilities under the Securities Act.
From time to time this Prospectus will be supplemented and amended as
required by the Securities Act. During any time when a supplement or amendment
is so required, the Selling Securityholders are to cease sales until the
Prospectus has been supplemented or amended. Pursuant to the registration rights
granted to the Selling Securityholders, the Company has agreed to update and
maintain the effectiveness of this Prospectus until at least May 3, 1999.
The Company has informed the Selling Securityholders that the anti-
manipulation provisions of Rules 10b-6 and 10b-7 under the Exchange Act may
apply to their sales of the Shares and has furnished each of the Selling
Securityholders with a copy of these rules, as well as a copy of certain
interpretations thereof by the Commission. The Company also has advised the
Selling Securityholders of the requirement for delivery of this Prospectus in
connection with any sale of the Common Stock.
LEGAL MATTERS
The validity of the Shares of Common Stock offered hereby will be passed
upon for the Company by Troy & Gould Professional Corporation, Los Angeles,
California.
14
<PAGE>
EXPERTS
The financial statements incorporated in this Prospectus by reference from
the Company's Annual Report on Form 10-KSB/A-3 for the year ended March 31, 1995
have been audited by Deloitte & Touche, LLP, independent auditors, as stated in
their report which is incorporated herein by reference (which report expresses
an unqualified opinion and includes explanatory paragraphs relating to
uncertainty concerning the Company's ability to continue as a going concern and
a restatement of the financial statements for the year ended March 31, 1995),
and have been so incorporated in reliance upon the report of such firm given
upon their authority as experts in accounting and auditing.
15
<PAGE>
No person has been authorized in connection with the offering made hereby
to give any information or to make any representation not contained in this
Prospectus and, if given or made, such information or representation must not be
relied upon as having been authorized by the Company or any Selling Shareholder.
This Prospectus does not constitute an offer to sell or a solicitation of any
offer to buy any of the securities offered hereby to any person or by anyone in
any jurisdiction in which it is unlawful to make such offer or solicitation.
Neither the delivery of this Prospectus nor any sale made hereunder shall, under
any circumstances, create any implication that the information contained herein
is correct as of any date subsequent to the date hereof.
-------------------------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
Available Information................ 2
Incorporation of Certain Documents
by Reference....................... 2
Prospectus Summary................... 3
Risk Factors......................... 4
Recent Developments.................. 12
Use of Proceeds...................... 13
Selling Securityholders.............. 13
Plan of Distribution................. 14
Legal Matters........................ 14
Experts.............................. 15
</TABLE>
=============================================
CHATCOM, INC.
4,000,000 SHARES OF COMMON
STOCK
----------
PROSPECTUS
----------
, 1996
------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The Company estimates that expenses in connection with the distribution
described in this Registration Statement will be as follows. All amounts shown
are payable by the Company and such amounts, with the exception of the
Securities and Exchange Commission registration fees, are estimates.
<TABLE>
<CAPTION>
Category of Expenses Amount of Expenses
- -------------------- ------------------
<S> <C>
SEC Registration Fees $ 3,104
Nasdaq Listing Fees $ 7,500
Legal Fees and Expenses $25,000
Blue Sky Fees and Expenses $10,000
Accounting Fees and Expenses $10,000
Printing and Engraving Expenses $ 2,500
Miscellaneous $ 1,896
-------
Total $60,000
=======
</TABLE>
ITEM 16. EXHIBITS
The following exhibits, which are furnished with this Registration
Statement or incorporated by reference, are filed as part of this Registration
Statement:
<TABLE>
<S> <C>
4(a) Form of Common Stock Certificate, is incorporated by
reference to Exhibit 4 (a) to the Company's Registration
Statement on Form S-3, filed with the Commission on November
21, 1995.
(b) Form of Series B Preferred Stock Certificate.*
(c) Certificate of Determination and Decrease for Series B
Preferred Stock.*
(d) Form of Series C Preferred Stock Certificate.
(e) Certificate of Determination for Series C Preferred Stock.
5(a) Opinion of Troy & Gould Professional Corporation
23(a) Consent of Deloitte & Touche, LLP (contained in Part II)
(b) Consent of Troy & Gould Professional Corporation (contained
in Exhibit 5(a)).
24(a) Power of Attorney (contained in Part II).*
</TABLE>
- -------------------
* Previously filed
<PAGE>
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
this Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in Chatsworth, California on May 31, 1996.
CHATCOM, INC.
By: /s/ James B. Mariner
-------------------------------------
James B. Mariner, President and Chief
Executive Officer
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 Title Date
<S> <C> <C>
/s/ James B. Mariner President, Chief Executive May 31, 1996
- ----------------------------- Officer
James B. Mariner (Principal Executive Officer)
/s/ Richard F. Gordon, Jr.
- ----------------------------- Chairman of the Board May 31, 1996
Richard F. Gordon, Jr.
/s/ A. Charles Lubash
- ----------------------------- Vice Chairman of the Board May 31, 1996
A. Charles Lubash
/s/ George L. Lazik
- ----------------------------- Director May 31, 1996
George L. Lazik
/s/ Gerald R. Sayer
- ----------------------------- Director May 31, 1996
Gerald R. Sayer
*
- ----------------------------- Director May 31, 1996
James D. Edwards
/s/ Sanford C. Sigoloff
- ----------------------------- Director May 31, 1996
Sanford C. Sigoloff
/s/ Philip B. Smith
- ----------------------------- Director May 31, 1996
Philip B. Smith
/s/ John R. Grady
- ----------------------------- Chief Financial Officer May 31, 1996
John R. Grady (Principal Financial
Officer and Principal
Accounting Officer)
* By: /s/ James B. Mariner May 31, 1996
------------------------
James B. Mariner
Attorney-in-Fact
</TABLE>
<PAGE>
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in this Amendment No. 1 to
Registration Statement no. 33-3792 of ChatCom, Inc. (formerly Astro Sciences
Corporation) on Form S-3 of our report dated May 26, 1995, except for Note 13
and Note 14, as to which the date is November 2, 1995 (which expresses an
unqualified opinion and includes explanatory paragraphs relating to uncertainty
concerning the Company's ability to continue as a going concern and a
restatement of the financial statements for the year ended March 31, 1995),
appearing in the Annual Report on Form 10-KSB/A-3 of Astro Sciences Corporation
for the year ended March 31, 1995 and to the reference to us under the heading
"Experts" in the Prospectus, which is a part of this Registration Statement.
DELOITTE & TOUCHE, L.L.P.
Los Angeles, California
May 31, 1996
<PAGE>
EXHIBIT INDEX
The following exhibits, which are furnished with this Registration
Statement or incorporated by reference, are filed as part of this Registration
Statement:
<TABLE>
<CAPTION>
Sequentially
Exhibit Numbered
Number Exhibit Description Page
------- --------------------------------------------------- ------------
<S> <C> <C>
4(a) Form of Common Stock Certificate, is incorporated by
reference to Exhibit 4 (a) to the Company's
Registration Statement on Form S-3, filed with the
Commission on November 21, 1995.
(b) Form of Series B Preferred Stock Certificate*
(c) Certificate of Determination and Decrease for Series B
Preferred Stock.*
(d) Form of Series C Preferred Stock Certificate
(e) Certificate of Determination for Series C
Preferred Stock
5(a) Opinion of Troy & Gould Professional Corporation
23(a) Consent of Deloitte & Touche, LLP (contained in
Part II)
(b) Consent of Troy & Gould Professional Corporation
(contained in Exhibit 5(a)).
24(a) Power of Attorney (contained in Part II)*
</TABLE>
* Previously filed.
<PAGE>
EXHIBIT 4(d)
CERTIFICATE
NO.
FOR SHARES
--------
ISSUED TO
----------------------------
----------------------------
----------------------------
DATED 19
------------ --
FROM WHOM TRANSFERRED
----------------------------
DATED 19
---------------- --
NO. ORIGINAL NO. ORIGINAL NO. OF SHARES
CERTIFICATE SHARES TRANSFERRED
------------------------------------------------------
RECEIVED CERTIFICATE NO.
------------------
FOR SHARES
-----------------
THIS DAY OF 19
------ ------- --
----------------------------
----------------------------
- --------------------------------------------------------------------------------
Incorporated under the Laws of California March 22, 1982
NUMBER SHARES
SERIES C PREFERRED
REDEEMABLE CONVERTIBLE
NON-VOTING
- --------------------------------------------------------------------------------
CHATCOM, INC.
Preferred Stock 1,000,000 Shares Common Stock 25,000,000 Shares
Series C Preferred Stock 1,000 Shares
Redeemable - Convertible - Non-Voting
- --------------------------------------------------------------------------------
This certifies that ___________________________________ is the record holder of
_____________________ Series C Preferred Shares of the Capital Stock of
CHATCOM, INC. transferable only on the books of the Corporation by the holder
hereof in person or by Attorney upon surrender of this Certificate properly
endorsed or assigned.
A statement of the rights, preferences, privileges and restrictions granted to
or imposed upon the respective classes or series of shares of stock of the
Corporation authorized to be issued and upon the holders thereof may be obtained
by any stockholder, upon request and without charge, at the principal office of
the Corporation. All Series C Preferred Shares are convertible beginning 90 days
after the date of issuance.
IN WITNESS WHEREOF, the said Corporation has caused this Certificate to be
signed by its duly authorized officers and its Corporate Seal to be hereunto
affixed this ______ day of _________ A.D. 19__.
_____________________________ _____________________________
Secretary President
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED. THE SECURITIES HAVE BEEN ACQUIRED FOR
INVESTMENT AND MAY NOT BE SOLD, TRANSFERRED OR ASSIGNED IN THE ABSENCE OF AN
EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT OF
1933, AS AMENDED, OR AN OPINION OF COUNSEL THAT REGISTRATION IS NOT REQUIRED
UNDER SAID ACT.
<PAGE>
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED. THE SECURITIES HAVE BEEN ACQUIRED FOR
INVESTMENT AND MAY NOT BE SOLD, TRANSFERRED OR ASSIGNED IN THE ABSENCE OF AN
EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT OF
1933, AS AMENDED, OR AN OPINION OF COUNSEL THAT REGISTRATION IS NOT REQUIRED
UNDER SAID ACT.
CERTIFICATE FOR _______ SHARES OF CAPITAL STOCK ISSUED TO
__________________________ DATED _______________________
For Value Received, hereby sell, assign and transfer unto
----- ---------
Shares
- ------------------------------------------------------------------------
of the Capital Stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint
-------------------------------------------
Attorney to transfer the said Stock on the books of the within named Corporation
with full power of substitution in the premises.
Dated 19
---------------- ----
In presence of
- ------------------------ -------------------------
<PAGE>
EXHIBIT 4(e)
CERTIFICATE OF DETERMINATION
OF
CHATCOM, INC.
A CALIFORNIA CORPORATION
The undersigned, James B. Mariner and James R. Spievak, hereby certify
that:
a. They are the duly elected and acting President and Secretary,
respectively, of ChatCom, Inc., a California corporation (the "Company").
b. The number of shares of Series C Convertible Redeemable
Preferred Stock of the Company is 1,000, none of which have been issued.
c. Pursuant to authority given by the Company's Articles of
Incorporation, as amended, the Board of Directors of the Company has duly
adopted the following recitals and resolutions:
WHEREAS, the Articles of Incorporation, as amended, of the Company
provide for a class of shares known as Preferred Stock, issuable from time to
time in one or more series; and
WHEREAS, the Board of Directors of the Company is authorized to
determine or alter the rights, preferences, privileges and restrictions granted
to or imposed upon any wholly unissued series of Preferred Stock, to fix the
number of shares constituting any such series and to determine the designation
thereof, or any of them; and
WHEREAS, the Company has 1,000 authorized shares of Series B Preferred
Stock, of which 75 shares are outstanding, and no other shares of any series of
Preferred Stock authorized or outstanding;
NOW, THEREFORE, BE IT RESOLVED, that the Board of Directors hereby
fixes and determines the designation of, the number of shares constituting, and
the rights, preferences, privileges and restrictions relating to, a series of
Preferred Stock as follows:
1. Designation of Series; Rank of Series. The designation of such
-------------------------------------
series of Preferred Stock is Series C Convertible Preferred Stock ("Series C
Preferred Stock"). The number of shares constituting such series is 1,000, with
a stated value of $20,000 per share. Shares of Series C Preferred Stock
converted, redeemed or purchased by the Company shall be canceled and shall
revert to authorized but unissued shares of Preferred Stock undesignated as to
series. Shares of the Series C Preferred Stock shall rank pari passu and share
in dividends and other distributions on a pro rata
<PAGE>
basis with the Series B Preferred Stock and shares of other series of preferred
stock issued by the Company, with substantially equivalent rights, preferences,
privileges and limitations as those of this Series.
2. Dividends. Each holder of the outstanding Series C Preferred
---------
Stock shall be entitled to receive, upon conversion or redemption of such
holder's shares of Series C Preferred Stock, in cash or shares of the Common
Stock, at the Company's option, cumulative dividends at the annual rate of 6.0%
of the stated value of the Series C Preferred Stock per share of Series C
Preferred Stock, when, as and if declared by the Board of Directors of the
Company, out of funds legally available therefor. Such dividends shall be
cumulative so that if such dividends shall not have been declared and set apart
for all shares of Series C Preferred Stock at the time outstanding, the
deficiency shall be declared and set apart for such shares before the Company
makes any Distribution (as hereinafter defined) to the holders of Common Stock
or Preferred Stock of any other series junior to the Series C Preferred Stock.
Accrued but unpaid dividends shall not bear interest. "Distribution" in this
paragraph 2 means the transfer of cash or property without consideration,
whether by way of dividend or otherwise (except a dividend in shares of the
Company) or the purchase or redemption of shares of the Company for cash or
property (except for an exchange of shares of the Company or shares acquired by
the Company from employees pursuant to the terms of any employee incentive plan,
agreement or arrangement) including any such transfer, purchase or redemption by
a subsidiary of the Company. The time of any distribution by way of dividend
shall be the date of declaration thereof and the time of any distribution by
purchase or redemption of shares shall be the day cash or property is
transferred by the Company, whether or not pursuant to a contract of an earlier
date; provided that where a negotiable debt security is issued in exchange for
shares the time of the distribution is the date when the Company acquires the
shares in such exchange. The Board of Directors may fix a record date for the
determination of holders of Series C Preferred Stock entitled to receive payment
of a dividend declared thereon, which record date shall be no more than sixty
(60) days prior to the date fixed for the payment thereof. Upon notice of
conversion or redemption, if not previously declared, the Board of Directors
shall declare, out of funds legally available therefor, dividends on the Series
C Preferred Stock in shares of Common Stock, or at the Company's option if
permitted by law, in cash, at the annual rate of 6.0% of the stated value of the
Series C Preferred Stock from the date of issuance to the date of conversion or
redemption of such shares of Series C Preferred Stock. If upon redemption or
conversion of shares of Series C Preferred Stock the Company elects to pay
accrued dividends on such shares in shares of Common Stock, the number of shares
of Common Stock shall be determined by dividing the amount of
2.
<PAGE>
such accrued dividends as of the redemption date or the Conversion Date (as
defined below) by the lesser of the First Market Price (as defined below) or the
Conversion Price (as defined below) on the applicable redemption date or
Conversion Date.
3. Voting Rights. The holders of Series C Preferred Stock shall not
-------------
be entitled to vote upon any matters presented to the stockholders, except as
provided by law and except that without the approval of holders of a majority of
the outstanding shares of Series C Preferred Stock, the Company shall not (a)
authorize, create or issue any shares of any class or series ranking senior to
the Series C Preferred Stock as to liquidation rights, (b) amend, alter or
repeal, by any means, the Articles of Incorporation if the powers, preferences,
or special rights of the Series C Preferred Stock would be adversely affected,
or (c) become subject to any restriction on the Series C Preferred Stock, other
than restrictions arising under the General Corporation Law of the State of
California or existing under the Articles of Incorporation as in effect on March
13, 1996; provided, however, that the creation of additional series of Preferred
Stock with substantially equivalent rights, preferences, privileges and
limitations as those of this Series C shall not be a violation of this Section
3.
4. Liquidation, Dissolution or Winding Up. In the event of a
--------------------------------------
voluntary or involuntary liquidation, dissolution or winding up of the Company,
the holders of Series C Preferred Stock shall be entitled to receive out of the
assets of the Company, whether such assets are capital or surplus of any nature,
an amount per share of Series C Preferred Stock equal to the stated value of
such share of Series C Preferred Stock and a further amount equal to any
dividends accrued and unpaid thereon, as provided in paragraph 2 hereof, to the
date that payment is made available to the holders of Series C Preferred Stock,
whether earned or declared or not, and no more, before any payment shall be made
or any assets distributed to the holders of shares of stock of the Company
junior in rank to the Series C Preferred Stock.
If upon such liquidation, dissolution or winding up, the assets thus
distributed among the holders of the Series C Preferred Stock and other series
of preferred stock that upon liquidation, dissolution or winding up share pari
passu with the Series C Preferred Stock shall be insufficient to permit the
payment to all such holders of the full preferential amounts aforesaid, then the
entire assets of the Company to be distributed shall be distributed ratably
among the holders of Series C Preferred Stock and such other series of Preferred
Stock.
3.
<PAGE>
In the event of any voluntary or involuntary liquidation, dissolution
or winding up of the Company, subject to the provisions of the Company's
Articles of Incorporation and to all of the preferential rights, on distribution
or otherwise, of the holders of Series C Preferred Stock and other series of
preferred stock that rank pari passu with the Series C Preferred Stock, the
holders of Common Stock shall be entitled to receive, ratably, all remaining
assets of the Company.
A consolidation or merger of the Company with or into any other
corporation or corporations, or a sale of all or substantially all of the assets
of the Company, shall not be deemed to be a liquidation, dissolution or winding
up within the meaning of this paragraph 4.
5. Conversion Rights. The holder of shares of Series C Preferred
-----------------
Stock shall have the right commencing (a) 60 days after the date of completion
of the offering by the Company of such shares, as agreed to by the Company and
the issuees of such shares, (the "Determination Date"), to convert one-half of
such shares, and (b) 90 days after the Determination Date to convert the other
one-half of such shares into duly authorized, validly issued, fully paid and
nonassessable shares of Common Stock at the lesser of the First Market Price or
the Conversion Price on the applicable Conversion Date and upon the terms set
forth herein.
The Company shall have the right to redeem the Series C Preferred
Stock, in whole or in part, as provided in paragraph 13.
6. Conversion Price. Each share of Series C Preferred Stock shall be
----------------
converted into a number of shares of Common Stock determined by dividing $20,000
and accrued dividends at the rate of 6% per annum by an amount equal to the
lesser of (a) the Market Price, as defined in this paragraph, on the
Determination Date (the "First Market Price"), or (b) 75% of the Market Price on
the applicable redemption date or Conversion Date (the "Conversion Price"). For
purposes of determining the First Market Price and the Conversion Price, the
"Market Price" shall be (i) if the Common Stock is listed or admitted to trade
on a national securities exchange, on the NASDAQ National Market ("NNM"), or on
the NASDAQ SmallCap Market ("SmallCap"), the average of the last closing bid
prices of the Common Stock for the five (5) trading days immediately preceding
the Determination Date (in the case of the First Market Price) or the applicable
redemption date or Conversion Date (in the case of the Conversion Price), on the
composite tape of the principal national securities exchange on which the Common
Stock is so listed or admitted to trade or on the NNM or SmallCap markets, as
the case may be; or (ii) if the Common Stock is not listed or admitted to trade
on an exchange or a system that publishes daily closing prices, the average
closing bid prices as reported by such other inter-
4.
<PAGE>
dealer quotation system as may list the Common Stock. The First Market Price
and the Conversion Price shall be subject to further adjustment as set forth in
paragraph 8.
7. Conversion Procedure. The holder of any shares of the Series C
--------------------
Preferred Stock may exercise its rights to convert such shares into shares of
Common Stock by surrendering the share certificates for the Series C Preferred
Stock to be converted to the Company, at its principal office or at such other
office or agency maintained by the Company for that purpose, with the conversion
certificate (provided by the Company to the holder of such shares) executed by
the holder thereof, or a specified portion of such shares (as provided in the
conversion certificate, but for not less than $50,000 aggregate liquidation
preference of Series C Preferred Stock), and accompanied, if required by the
Company, by proper assignment in blank. The date of execution of such
certificate and delivery by facsimile to the Company at (818) 822-1424 (or such
other facsimile number as shall be given to the holder by the Company) shall be
defined as the "Conversion Date," provided share certificates are delivered
within three (3) business days to the Company or its transfer agent.
If the holder of such certificate wishes the certificate or
certificates for the shares of Common Stock to be issued in another name, the
holder shall specify the name or names in which such shares of Common Stock are
to be issued. In case such Conversion Certificate shall specify a name or names
other than that of such holder, such notice shall be accompanied by payment of
all transfer taxes payable upon the issuance of shares of Common Stock in such
name or names. As promptly as practicable, and in any event within five
business day after the surrender of such certificates and the receipt of such
notice relating thereto and, if applicable, payment of all transfer taxes, the
Company shall deliver or cause to be delivered (i) certificates representing the
number of validly issued, fully paid and nonassessable shares of Common Stock to
which the holder of the Series C Preferred Stock so converted shall be entitled
and (ii) if less than the full number of shares of the Series C Preferred Stock
evidenced by the surrendered certificate or certificates are being converted, a
new certificate or certificates, of like tenor, for the number of shares
evidenced by such surrendered certificate or certificates less the number of
shares converted. Such conversions shall be deemed to have been made at the
close of business on the date of giving of such notice and of such surrender of
the certificate or certificates representing the shares of the Series C
Preferred Stock to be converted so that the rights of the holder thereof shall
cease except for the right to receive Common Stock in accordance herewith, and
the converting holder shall be treated for all purposes as having become the
record holder of such Common Stock at such time.
5.
<PAGE>
Shares of the Series C Preferred Stock may be converted at any time
up to but not after the close of business on the fifth business day of the ten
day redemption notice period for such shares pursuant to paragraph 13.
8. Conversion Price Adjustments. The First Market Price and the
----------------------------
Conversion Price shall be subject to adjustment from time to time upon the
occurrence of certain events as follows:
(a) Reclassifications or Combinations. If the Company shall
---------------------------------
combine or reclassify the outstanding Common Stock into a smaller number of
shares, the First Market Price in effect at the time of the record date of such
combination or reclassification shall be proportionately adjusted by multiplying
such price by a fraction, the numerator of which is the number of shares being
surrendered to the Company and the denominator of which is the number of shares
being issued by the Company in such combination or reclassification (i.e. in the
case of a 2-for-5 reverse stock split the First Market Price would be multiplied
by five and divided by two). If such combination or reclassification shall occur
during the five-trading-day period used to calculate the Conversion Price, a
similar adjustment shall be made to the closing prices for the trading days
during such period prior to such combination or reclassification.
(b) Rounding of Calculations; Minimum Adjustment. All calculations
--------------------------------------------
under this paragraph 8 shall be made to the nearest cent. No adjustment in the
First Market Price shall be made if the amount of such adjustment would be less
than $0.01, but any such amount shall be carried forward and an adjustment with
respect thereto shall be made at the time of and together with any subsequent
adjustment which, together with such amount and any other amount or amounts so
carried forward, shall aggregate $0.01 or more.
(c) Adjustments for Consolidation, Merger, etc. In the event of a
------------------------------------------
merger, consolidation, or sale of substantially all of the assets or other
business combination, all the Series C Preferred Stock, at the option of the
holder of such shares, shall be converted into the number of shares of Common
Stock into which the Series C Preferred Stock is convertible at the time of such
transaction. In the event of a business combination or similar transaction,
each Preferred Share shall be converted into the number of shares into which it
is convertible on the date the transaction is consummated.
9. Voluntary Adjustment. The Company may make, but shall not be
--------------------
obligated to make, such decreases in the First Market Price and the Conversion
Price so as to increase the number of shares of Common Stock into which the
Series C Preferred Stock may be converted, in addition to those required by
paragraph 8, as it considers to be advisable in
6.
<PAGE>
order to avoid federal income tax treatment as a dividend of stock or stock
rights.
10. Reservation of Shares of Common Stock for Conversion. The
----------------------------------------------------
Company shall at all times reserve and keep available out of its authorized and
unissued shares of Common Stock such number of shares of Common Stock as shall
from time to time be sufficient to effect the conversion of all shares of Series
C Preferred Stock that are then outstanding. The Company shall use its
reasonable best efforts to take the action necessary to increase the number of
reserved shares from time to time if needed, and to increase the number of
authorized shares of Common Stock if such an increase should become necessary to
effect conversion of all shares of Series C Preferred Stock that are then
outstanding.
11. Notice of Adjustment of Conversion Price. Whenever the First
----------------------------------------
Market Price or Conversion Price is adjusted as herein provided, the Company
shall forthwith file with any transfer agent or agents, if any, for the Series C
Preferred Stock, and at the principal office of the Company, a statement signed
by the President or a Vice-President and by the Chief Financial Officer or the
Secretary of the Company setting forth the adjusted First Market Price. The
statement so filed shall be open to inspection by any holder of record of shares
of Series C Preferred Stock. The Company shall also, at the time of filing any
such statement, mail notice to the same effect to the holders of shares of
Series C Preferred Stock at their addresses appearing on the books of the
Company or supplied by such holder to the Company for the purpose of notice.
12. Fractional Shares in Conversion. The Company shall not be
-------------------------------
required to issue fractions of shares of Common Stock on the conversion of
Series C Preferred Stock. If any fraction of a share of Common Stock would be
issuable upon the conversion of a share, except for the provisions hereof, the
Company shall purchase such fraction for an amount in cash equal to the Market
Price at the Conversion Date multiplied by such fraction. If more than one
certificate for shares of Series C Preferred Stock shall be presented for
conversion at any one time by the same registered holder, the number of shares
of Common Stock that shall be issuable upon conversion thereof shall be computed
on the basis of the aggregate number of shares of Common Stock issuable upon
conversion of the shares so presented. All calculations under this paragraph 12
shall be made to the nearest one-hundredth of a share.
13. (a) Mandatory Redemption. If the resale of the shares of Common
--------------------
Stock issuable upon conversion of the Series C Preferred Stock are not
registered with the Securities and Exchange Commission on Form S-3, or on
another appropriate form for such registration as requested by the holder of
such shares (the "Registration Statement"), within three years of the
Determination Date, the Company, at the option of such
7.
<PAGE>
holder, and subject to applicable California law, shall redeem such holder's
shares of Series C Preferred Stock for a total amount equal to 120% of the
stated value of such shares, and shall also pay to such holder accrued dividends
on such shares, whether or not declared, to the redemption date.
(b) Voluntary Redemption. Shares of the Series C Preferred
--------------------
Stock may be redeemed, at the option of the Company by resolution of its Board
of Directors, in whole or in part, upon ten days written notice, at any time
after the later of 125 days from the Determination Date or 50 days after the
effective date of the Registration Statement, for a total amount equal to 133%
of the stated value of such shares, and shall also pay to such holder accrued
dividends on such shares, whether or not declared, to the redemption date. In
case of the redemption of a part only of the outstanding shares of Series C
Preferred Stock, the shares to be redeemed shall be selected pro rata. During
the first five business days of such ten-day period, the holder of shares of the
Series C Preferred Stock shall have the right to convert such shares as provided
above.
At least ten days' previous notice by mail, postage prepaid, shall be
given to the holders of record of the shares of Series C Preferred Stock to be
redeemed, such notice to be addressed to each such stockholder at the address of
such holder appearing on the books of the Company or given by such holder to the
Company for the purpose of notice, or if no such address appears or is so given,
at the place where the principal office of the Company is located. Such notice
shall state the date fixed for redemption and the redemption price and shall
call upon such holder to surrender to the Company on said date at the place
designated in the notice such holder's certificate or certificates representing
the shares to be redeemed. On or after the date fixed for redemption and stated
in such notice, each holder of shares of Series C Preferred Stock called for
redemption shall surrender the certificate evidencing such shares to the Company
at the place designated in such notice and shall thereupon be entitled to
receive payment of the redemption price, together with accrued dividends to the
date fixed for redemption. If less than all the shares represented by any such
surrendered certificate are redeemed, a new certificate shall be issued
representing the unredeemed shares. If such notice of redemption shall have
been duly given, and if on the date fixed for redemption funds necessary for the
redemption shall be available therefor, then, notwithstanding that the
certificate evidencing any shares of Series C Preferred Stock so called for
redemption shall not have been surrendered, the dividends with respect to the
shares so called for redemption shall forthwith after such date cease to accrue
and all other rights pertaining to such shares shall terminate, except only the
right of the holders to receive the redemption price, together with accrued and
unpaid dividends to the date fixed for redemption, without interest, upon
surrender of their certificates therefor.
8.
<PAGE>
If, after notice of redemption has been given, the Company deposits,
on or prior to any date fixed for redemption of shares of Series C Preferred
Stock, with any bank or trust company in the State of California that has a
combined capital and surplus of not less than $100 million, as a trust fund, a
sum sufficient to redeem, on the date fixed for redemption thereof, the shares
called for redemption, with irrevocable instructions and authority to the bank
or trust company to give the notice of redemption thereof (or to complete the
giving of such notice if theretofore commenced) and to pay, on or after the date
fixed for redemption or prior thereto, the redemption price of the shares to
their respective holders upon the surrender of their share certificates, then
from and after the date of the deposit (although prior to the date fixed for
redemption), the shares shall no longer be outstanding, and the holders thereof
shall cease to be stockholders with respect to such shares, and shall have no
rights with respect thereto except the right to receive from the bank or trust
company payment of the redemption price of the shares without interest, upon the
surrender of their certificates therefor, and the right to convert said shares
as provided herein at any time up to but not after the close of business on the
fifth business day of the ten day redemption notice period for such shares, and
except that dividends on such shares shall continue to accrue to the date fixed
for redemption. The deposit shall constitute full payment of the shares to the
holders thereof. Any moneys so deposited on account of the redemption price of
Series C Preferred Stock converted subsequent to the making of such deposit
shall be repaid to the Company forthwith upon the conversion of such shares of
Series C Preferred Stock. Any interest accrued on any funds so deposited shall
be the property of, and paid to, the Company. If the holders of Series C
Preferred Stock so called for redemption shall not, at the end of two years from
the date fixed for redemption thereof, have claimed any funds so deposited, such
bank or trust company shall thereupon pay over to the Company such unclaimed
funds, and such bank or trust company shall thereafter be relieved of all
responsibility in respect thereof to such holders and such holders shall look
only to the Company for payment of the redemption price.
14. Severability of Provisions. If any right, preference or
--------------------------
limitation of the Series C Preferred Stock set forth in this resolution (as such
resolution may be amended from time to time) is invalid, unlawful or incapable
of being enforced by reason of any rule of law or public policy, all other
rights, preferences and limitations set forth in this resolution (as so amended)
which can be given effect without the invalid, unlawful or unenforceable right,
preference or limitation shall, nevertheless, remain in full force and effect,
and no right, preference or limitation herein set forth shall be deemed
dependent upon any other such right, preference or limitation unless so
expressed herein.
9.
<PAGE>
RESOLVED FURTHER, that the President and Secretary of the Company be,
and hereby are, authorized and directed to prepare, execute, verify, and file in
the Office of the California Secretary of State, a Certificate of Determination
in accordance with this resolution and as required by law.
The undersigned further declares under penalty of perjury under the
laws of the State of California that the matters set forth in this certificate
are true and correct of their own knowledge.
Dated: April 2, 1996 /s/ James B. Mariner
-------------------------------------
James B. Mariner, President
/s/ James R. Spievak
-------------------------------------
James R. Spievak, Secretary
10.
<PAGE>
EXHIBIT 5(a)
TROY & GOULD
Professional Corporation
1801 Century Park East, 16th Floor
Los Angeles, California 90067-2367
May 31, 1996
AST5-1
ChatCom, Inc.
9600 Topanga Canyon Boulevard
Chatsworth, California 91311
Re: Registration Statement on Form S-3
----------------------------------
Ladies and Gentlemen:
At your request, we have examined the Registration Statement on Form S-3
(Registration No. 333-3792), as amended by Amendment No. 1 (the "Registration
Statement"), of ChatCom, Inc. (the "Company"), exhibits filed in connection
therewith, and the form of prospectus related thereto, which you have filed with
the Securities and Exchange Commission (the "SEC") in connection with the
registration under the Securities Act of 1933, as amended (the "Securities
Act"), of up to 4,000,000 shares (the "Shares") of the Company's common stock
(the "Common Stock") that are issuable upon conversion or redemption of 75
shares of outstanding 6% Series B Convertible Preferred Stock, $20,000 stated
value per share, and 75 shares of outstanding 6% Series C Convertible Preferred
Stock, $20,000 stated value per share (collectively, the "Preferred Stock"),
together with accrued and unpaid dividends on the Preferred Stock that the
Company may pay in Shares in lieu of cash upon conversion or redemption of the
Preferred Stock.
For purposes of this opinion, we have examined such matters of law and
originals, or copies certified or otherwise identified to our satisfaction, of
such documents, corporate records and other instruments as we have deemed
necessary. In our examination, we have assumed the genuineness of all
signatures, the authenticity of all documents submitted to us as originals, the
conformity to originals of all documents submitted to us as certified,
photostatic or conformed copies, and the authenticity of originals of all such
latter documents. We have also assumed the due execution and delivery of all
documents where due execution and delivery are prerequisites to the
effectiveness thereof. We have relied upon certificates of public officials and
certificates of officers of the Company
<PAGE>
ChatCom, Inc.
May 31, 1996
Page 2
for the accuracy of material factual matters contained therein which were not
independently established.
Based on the foregoing, it is our opinion that, subject to effectiveness
with the SEC of the Registration Statement as finally declared effective (with
the form of prospectus related thereto filed pursuant to Rule 424(b) under the
Securities Act being hereinafter referred to as the "Prospectus") and to
registration or qualification of the offering of the Shares under the securities
laws of the states in which such Shares may be sold, the Shares have been duly
and validly authorized and, upon the issuance thereof upon conversion or
redemption in accordance with the terms of the Preferred Stock, will constitute
legally issued, fully paid and non-assessable shares of the Common Stock of the
Company.
We consent to the use of our name under the caption "Legal Matters" in the
Prospectus and the Registration Statement, and to the filing of this opinion as
an exhibit to the Registration Statement. By giving you this opinion and
consent, we do not admit that we are experts with respect to any part of the
Registration Statement or Prospectus within the meaning of the term "expert" as
used in Section 11 of the Securities Act of 1933, as amended, or the rules and
regulations promulgated thereunder, nor do we admit that we are in the category
of persons whose consent is required under Section 7 of said act.
Very truly yours,
/s/ Troy & Gould
TROY & GOULD
Professional Corporation
