Registration No. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-3
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
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C-PHONE CORPORATION
(Exact name of registrant as specified in its charter)
NEW YORK 06-1170506
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
6714 NETHERLANDS DRIVE
WILMINGTON, NORTH CAROLINA 28405
(910) 395-6100
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
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DANIEL P. FLOHR
PRESIDENT AND CHIEF EXECUTIVE OFFICER
C-PHONE CORPORATION
6714 NETHERLANDS DRIVE
WILMINGTON, NORTH CAROLINA 28405
(910) 395-6100
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
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Copies of all communications, including all communications sent to the agent
for service, should be sent to:
ARTHUR A. KATZ, ESQ.
WARSHAW BURSTEIN COHEN
SCHLESINGER & KUH, LLP
555 FIFTH AVENUE
NEW YORK, NEW YORK 10017
(212) 984-7700
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: From time to
time after the effective date of this Registration Statement.
If the only securities being registered on this Form are being offered pursuant
to dividend or interest reinvestment plans, please check the following box: [ ]
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box: [x]
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, please check the following box and list
the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box: [ ]
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CALCULATION OF REGISTRATION FEE
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Title of Each Class of Amount of Shares to be Proposed Maximum Offering
Securities to be Registered Registered Price Per Share
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Common Stock, $.01 par
value per share(1) 200,000 Shares $9.00(5)
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Common Stock, $.01 par
value per share(2) 833,667 Shares $9.00(5)
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Common Stock, $.01 par
value per share(3) 2,501,001 Shares $9.00(5)
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Common Stock, $.01 par
value per share(4) 150,000 Shares $9.00(5)
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TOTAL..............................................................................
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CALCULATION OF REGISTRATION FEE
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<S> <C> <C> <C>
Title of Each Class of Proposed Maximum Aggregate Amount of
Securities to be Registered Offering Price Registration Fee
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Common Stock, $.01 par
value per share(1) $1,800,000(5) $545
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Common Stock, $.01 par
value per share(2) $7,503,003(5) $2,274
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Common Stock, $.01 par
value per share(3) $22,509,009(5) $6,821
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Common Stock, $.01 par
value per share(4) $1,305,000(5) $409
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TOTAL.................................................... $10,049
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(1) Consists of shares of Common Stock issuable upon exercise of warrants
issued to the representative of the underwriters of the Company's 1994
public offering (Registration No. 33-80280).
(2) Consists of shares of Common Stock issued to investors in the Company's
March 1997 private placement.
(3) Consists of additional shares of Common Stock issuable, under certain
circumstances and without any additional consideration, to investors in the
Company's March 1997 private placement.
(4) Consists of shares of Common Stock issuable upon exercise of warrants
issued to an affiliate of the placement agent of the Company's March 1997
private placement.
(5) Pursuant to Rule 457(c), the proposed maximum offering price per share and
proposed maximum aggregate offering price have been calculated on the basis
of the average of the high and low sale prices of the Common Stock as
reported on The Nasdaq National Market on April 10, 1997.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE
SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SECTION 8(A), MAY
DETERMINE.
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PROSPECTUS
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, APRIL 16, 1997
3,684,668 SHARES
C-PHONE CORPORATION
COMMON STOCK
This Prospectus relates to 3,684,668 shares (the "Shares") of Common
Stock, par value $0.01 per share (the "Common Stock"), of C-Phone Corporation
(the "Company"), consisting of (i) 200,000 shares of Common Stock reserved for
issuance upon the exercise of certain warrants (the "1994 Warrants") to purchase
Common Stock issued pursuant to the Representative's Warrant Agreement, dated as
of August 20, 1994, between the Company and Josephthal Lyon & Ross Incorporated
("Josephthal"), (ii) 833,667 shares of Common Stock issued in the Company's
March 1997 private placement (the "1997 Placement"), (iii) 2,501,001 additional
shares of Common Stock issuable, under certain circumstances and without any
additional consideration, upon exercise of contingent value rights, to the
investors in the 1997 Placement, and (iv) 150,000 shares of Common Stock
reserved for issuance upon the exercise of certain warrants (the "1997 Warrants"
and with the 1994 Warrants, collectively, the "Warrants") to purchase the Common
Stock issued in the 1997 Placement pursuant to the Placement Agent Warrant
Agreement, dated as of March 31, 1997, between the Company and Josephthal.
The Shares may be offered from time to time by the selling
shareholders listed herein under "Selling Shareholders" (collectively, the
"Selling Shareholders") after the date of this Prospectus. See "Selling
Shareholders". The Company will not receive any proceeds from the sale of the
Shares. Although the Company will receive certain proceeds upon exercise of the
Warrants, there can be no assurance that any of the Warrants will be exercised.
See "Use of Proceeds." The Company will pay all expenses in connection with the
registration and sale of the Shares, except that each Selling Shareholder will
pay any commissions, discounts or other fees payable to brokers and dealers in
connection with any such sale. The Company estimates that its expenses of this
offering will be approximately $35,000.
The Selling Shareholders have not advised the Company of any specific
plans for the distribution of the Shares other than as described herein, but it
is anticipated that the Shares will be sold from time to time primarily in
transactions (which may include block transactions) on The Nasdaq Stock Market
at the market price prevailing at the time of sale, although sales may also be
made in negotiated transactions or otherwise. There can be no assurances that
any of the Shares will be sold. See "Plan of Distribution."
The Selling Shareholders may be deemed to be "Underwriters" as defined
in the Securities Act of 1933 (the "Securities Act"). If any broker-dealers are
used to effect sales, any commissions paid to such broker-dealers and, if
broker-dealers purchase any of the Shares as principals, any profits received by
such broker-dealers on the resale of the Shares, may be deemed to be
underwriting discounts or commissions under the Securities Act. In addition, any
profits realized by the Selling Shareholders may be deemed to be underwriting
commissions.
The Common Stock currently is traded on The Nasdaq National Market
under the symbol "CFON." On April 10, 1997, the last sale price of the Common
Stock, as reported by The Nasdaq National Market, was $9.25 per share.
SEE "RISK FACTORS", WHICH BEGINS ON PAGE 4 OF
THIS PROSPECTUS, FOR CERTAIN INFORMATION THAT
SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS.
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 --------------, 1997
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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 periodic reports, proxy statements and other information with
the Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information filed with the Commission may be inspected and
copied at the Public Reference Section of the Commission at 450 Fifth Street,
N.W., Washington, D.C. 20549, at the regional offices of the Commission located
at 500 West Madison Street, Suite 1400, Chicago, Illinois 60661-2511 and at
Seven World Trade Center, Suite 1300, New York, New York 10048. Copies of such
material can be obtained from the Public Reference Section of the Commission at
prescribed rates by writing to the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549. In addition, copies of such reports, proxy statements,
and other information concerning the Company also may be inspected and copied at
the library of The Nasdaq National Market, 1735 K Street, N.W., Washington, D.C.
20006. The Commission maintains an internet web site at http://www.sec.gov which
contains certain reports, proxy and information statements and other information
regarding registrants (including the Company) that file electronically with the
Commission.
This Prospectus constitutes a part of a Registration Statement
(herein, together with all amendments and exhibits, referred to as the
"Registration Statement") filed by the Company with the Commission under the
Securities Act. This Prospectus does not contain all of the information set
forth in the Registration Statement, certain parts of which are omitted in
accordance with the rules and regulations of the Commission. For further
information with respect to the Company and the Common Stock, reference is
hereby made to the Registration Statement. Statements contained herein
concerning the provisions of any document are not necessarily complete and, in
each instance, reference is made to the copy of such document filed as an
exhibit to the Registration Statement or otherwise filed with the Commission.
Each such statement is qualified in its entirety by such reference.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents, which are on file with the Commission (File
No. 0-24424), are incorporated into this Prospectus by reference and are made a
part hereof:
(a) The Company's Annual Report on Form 10-KSB for its fiscal
year ended February 29, 1996;
(b) The Company's Quarterly Reports on Form 10-QSB for its
fiscal quarters ended May 31, 1996, August 31, 1996 and
November 30, 1996;
(c) The Company's Current Report on Form 8-K, dated April 1,
1997;
(d) The Company's Proxy Statement, dated June 24, 1996, with
respect to its 1996 annual meeting of shareholders; and
(e) The description of the Common Stock contained in Item 1 of
the Company's Registration Statement on Form 8-A, dated June
22, 1994.
All documents subsequently filed by the Company with the Commission
after the date of this Prospectus pursuant to Sections 13(a), 13(c), 14, and
15(d) of the Exchange Act, and prior to the filing of a post-effective amendment
to the Registration Statement which indicates that all securities offered hereby
have been sold or which de-registers all securities then remaining unsold, shall
be deemed to be incorporated by reference into the Registration Statement and to
be part hereof from the date of filing such documents; provided, however, that
the documents enumerated above or subsequently filed by the Company pursuant to
Sections 13(a), 13(c), 14 and 15(d) of the Exchange Act in each year during
which the offering made by the Registration Statement is in effect and prior to
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the filing with the Commission of the Company's Annual Report on Form 10-KSB
covering such year, shall not be deemed to be incorporated by reference in the
Registration Statement or be a part hereof from and after the filing of such
Annual Report on Form 10-KSB.
Any statement contained in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of the Registration Statement to the extent that a statement
contained herein, or in any other subsequently filed document that also is or is
deemed to be incorporated by reference herein, modifies or supersedes such
statement. Any statement contained in this Prospectus shall be deemed to be
modified or superseded to the extent that a statement contained in a
subsequently filed document, which is or is deemed to be incorporated by
reference herein modifies or supersedes such statement. Any statement so
modified or superseded shall not be deemed, except as so modified or superseded
to constitute a part of the Registration Statement.
The Company will provide without charge to each person who receives
this Prospectus, upon written or oral request of such person, a copy of any of
the information that is incorporated by reference herein (not including exhibits
to the information that is incorporated by reference unless the exhibits
themselves are specifically incorporated by reference). Such information is
available upon request from the Company, 6714 Netherlands Drive, Wilmington,
North Carolina 28405, attention: Paul Albritton, Chief Financial Officer,
telephone (910) 395-6100.
THE COMPANY
The Company has been primarily engaged in the engineering,
manufacturing and marketing of C-Phone (a line of PC-based video conferencing
systems) as well as contractual software development related to its PC-based
video conferencing systems. In addition, the Company has recently developed and
commenced the commercialization of C-Phone Home(TM), a TV based or "set-top"
video phone, which allows video telephone calls to be made over regular analog
telephone lines using a standard television set.
The Company was incorporated in New York in 1986 under the name
"Target Tuning, Inc.", as a manufacturer of promotional radios. In 1990, the
Company developed data/fax modems under the name "TWINCOM" and changed its name
to Target Technologies, Inc. In early 1993, because of continued price
pressures, shrinking margins and for competitive reasons, the Company shifted
its primary focus from modems to the development of C-Phone; and during the
fiscal year ended February 28, 1995, the Company phased out its modem product
line as it was no longer profitable. In August 1994, the Company completed its
initial public offering (the "1994 Public Offering") of 2,000,000 shares of
Common Stock.
Since 1993, the Company has invested significant resources in product
development, engineering and marketing activities for C-Phone and related
products. As a result of these activities and the low volume of sales during the
initial commercialization of C-Phone, the Company incurred significant losses
during the two fiscal years ended February 29, 1996 and the nine months ended
November 30, 1996, and expects that it incurred significant losses during its
fiscal year ended February 28, 1997. The Company anticipates that it will
continue to make significant expenditures for product development and marketing
in the foreseeable future.
In August 1996, in order to more closely identify the Company with its
C-Phone product line and to attempt to eliminate confusion among investors, the
Company changed its name to "C-Phone Corporation." The Company's principal
executive offices are located at 6714 Netherlands Drive, Wilmington, North
Carolina 28405 and its telephone number is (910) 395-6100.
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RISK FACTORS
IN ADDITION TO THE OTHER INFORMATION IN THIS PROSPECTUS, THE FOLLOWING
FACTORS SHOULD BE CONSIDERED CAREFULLY BY POTENTIAL PURCHASERS IN EVALUATING THE
COMPANY AND ITS BUSINESS BEFORE PURCHASING ANY SHARES OF COMMON STOCK OFFERED
HEREBY. THIS PROSPECTUS CONTAINS, IN ADDITION TO HISTORICAL INFORMATION, CERTAIN
FORWARD-LOOKING STATEMENTS THAT INVOLVE SIGNIFICANT RISKS AND UNCERTAINTIES. AS
A RESULT, THE COMPANY'S ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE
EXPRESSED IN OR IMPLIED BY THE FORWARD LOOKING STATEMENTS CONTAINED HEREIN.
FACTORS THAT COULD CAUSE OR CONTRIBUTE TO SUCH DIFFERENCES INCLUDE, BUT ARE NOT
LIMITED TO, THOSE DISCUSSED BELOW, AS WELL AS THOSE DISCUSSED ELSEWHERE IN THIS
PROSPECTUS OR INCORPORATED HEREIN BY REFERENCE. THE COMPANY UNDERTAKES NO
OBLIGATION TO RELEASE PUBLICLY THE RESULT OF ANY REVISIONS TO THESE FORWARD
LOOKING STATEMENTS THAT MAY BE MADE TO REFLECT EVENTS OR CIRCUMSTANCES AFTER THE
DATE OF THIS PROSPECTUS OR TO REFLECT THE OCCURRENCE OF OTHER UNANTICIPATED
EVENTS.
RISKS RELATING TO NEEDS FOR ADDITIONAL FINANCIAL RESOURCES
GENERAL. The Company, although in existence since 1986, has been, and
continues to be, engaged in the development, marketing and manufacturing of
products which require substantial financial resources. The Company currently
does not have adequate financial resources to carry out all of its anticipated
development, marketing and manufacturing plans. If the Company is unable to
obtain on acceptable terms the financial resources it requires, when and as
needed, the Company would be materially adversely affected.
FINANCING NEEDS IN 1997. During the week ended March 31, 1997, the
Company completed a private placement of its securities (the "1997 Placement")
in which it received proceeds (after deduction of placement agent fees) of
$4,551,820. The Company believes that its current working capital, together with
anticipated funds from operations, will be sufficient to meet the Company's
projected operating needs and capital expenditures, including the initial
commercialization of C-Phone Home, through the end of the Company's fiscal year
ending February 28, 1998 ("Fiscal 1998"). However, if C-Phone Home gains market
acceptance, of which there can be no assurance, the Company's pricing strategy
(as discussed below under "Possible Inability to Recoup Investment"), and the
very substantial investment which would then be required by the Company for
manufacturing, inventory build-up and marketing expenditures, may require the
Company to obtain additional working capital by the third fiscal quarter of
Fiscal 1998. The Company has commenced the planning process to raise such funds.
The Company anticipates that such funds should be available through a private
placement of its securities; and if and when still further funds are needed,
that such funds may be available through a possible public offering. However,
there can be no assurance that any additional funds needed by the Company will
be available when needed or, if available, that the terms of such fundings will
be favorable or acceptable to the Company.
LONGER-TERM FINANCING REQUIREMENTS. Assuming acceptance of C-Phone
Home by the marketplace, of which there can be no assurance, the Company
anticipates that it may take in excess of two years (if ever) to obtain positive
cash flow from the Company's anticipated operations, during which time the
Company may be required to obtain still more financing. See "Risks Relating to
C-Phone Home" below. If the Company is unable to timely obtain any of its
required funds, its C-Phone Home marketing strategy may not be attainable and
its business could be materially adversely affected. Unless adequate income from
sales of C-Phone Home is attained, the timing or receipt of which cannot be
predicted, the Company may require additional cash resources to finance
receivables and for development of alternative products. There can be no
assurance that additional funds needed by the Company will be available when
needed or, if available, that the terms of such fundings will be favorable or
acceptable to the Company.
RISKS RELATING TO C-PHONE HOME
UNPROVEN MARKET ACCEPTANCE. The Company believes that a commercial
consumer market for C-Phone Home exists, although the Company has no reliable
data to assure that there will be significant market acceptance of TV-based
video phones, and there can be no assurance that C-Phone Home will gain
sufficient market acceptance to generate significant commercial sales. Previous
efforts to sell video phones by larger better known companies
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than the Company have been unsuccessful due, among other things, to the size and
quality of the video transmission, the inability to synchronize the receipt of
the voice transmission with the picture transmission, lack of reliability,
difficulty of use and price. Currently, C-Phone Home is capable of delivering
video data at rates of only up to 12 frames a second under ideal circumstances,
as compared to 30 frames a second provided by television broadcasting.
Furthermore, if there is a poor or "noisy" telephone connection at the same time
that rapid movement is occurring, the frame rate will decrease temporarily to as
slow as two frames a second. As a result, there can be no certainty that the
Company will be able to achieve a satisfactory level of consumer acceptance of
C-Phone Home within a reasonable period of time, if at all.
POSSIBLE INABILITY TO RECOUP INVESTMENT. The Company's pricing
strategy for C-Phone Home is to offer two different purchase options - one of
which will enable the Company to immediately recapture its full costs and a per
unit profit, and the other of which will enable the Company to capture
approximately half of the product's cost, and to make up the difference through
a monthly subscription fee and the resale of long-distance telephone usage in
connection therewith. See "Dependence on Third Party Telecommunications
Services" below. The Company anticipates that substantially all of its initial
sales of C-Phone Home will be made under the latter purchase option. Until such
time, if at all, as the Company attains sufficient manufacturing volume to
reduce the manufactured cost of C-Phone Home, the Company's initially required
minimum term monthly subscription fee will not be sufficient for the Company to
recoup the remainder of its manufactured cost of C-Phone Home. Unless the
purchasers of C- Phone Home renew their initial subscriptions for service or
purchase a material amount of telephone usage from the Company, of which there
can be no assurance, the Company will be unable to recoup its manufacturing
costs or its related expenditures for development and marketing of C-Phone Home.
DEPENDENCE ON THIRD PARTY TELECOMMUNICATIONS SERVICES. The Company's
business plan contemplates offering purchasers of C-Phone Home the ability to
utilize third-party inter-exchange telecommunications services to be supplied by
the Company. The Company's ability to provide such inter-exchange
telecommunications services is dependent upon the Company maintaining a suitable
resale agreement with one or more long distance telecommunications service
companies. While the Company has entered into a resale agreement with a long
distance telecommunications service company, there can be no assurance that such
agreement will continue in the future.
OBTAINING REGULATORY APPROVALS TO RESELL TELECOMMUNICATIONS SERVICES.
The Company intends to offer purchasers of C-Phone Home the ability to obtain a
package option from independent retailers that will permit the purchase of
C-Phone Home at a discount in conjunction with entering into a one-year or
multi-year service agreement with the Company for the provision of
inter-exchange telecommunications services to be utilized for making calls
through C-Phone Home. As a condition to reselling intra-state, interstate and
international telecommunications services, the Company will be required to
obtain certain approvals from the Federal Communications Commission (the "FCC")
and from certain State regulatory authorities, and to comply with various
applicable regulatory provisions imposed by such authorities, noncompliance with
which could subject the Company to possible forfeitures, damages and other
sanctions. See "Compliance with FCC Regulations" below. Various applicable
regulatory provisions include, among other things, approval as a non-dominant
long distance carrier, requirements for the filing and following of tariffs and
that equipment and service offerings be separate and distinct and prohibitions
against unjust, unreasonable or discriminatory rates, against preferences and
against the making of direct or indirect rebates of amounts paid for tariffed
services. Although the Company believes that its proposed offering of
inter-exchange telecommunications services complies with applicable regulatory
requirements, there can be no assurance that the Company will obtain and retain
all required regulatory approvals, that all of such approvals will be obtained
timely or that a regulatory authority may not impose conditions which the
Company may not be able to fulfill. Furthermore, there can be no assurance that
compliance with the requirements imposed by any regulatory authority would not
require modifications to the Company's proposed business plan or that regulatory
requirements will not change in such a way as will materially adversely affect
the Company's business operations. Due to the timing of obtaining certain State
approvals, the Company will be unable to initially offer inter-exchange
telecommunications services for making intra-state video phone calls within
certain states until it has applied for and received appropriate regulatory
approvals from such States.
LIMITED MARKETING EXPERIENCE. The Company has limited sales, marketing
and distribution experience. The introduction of C-Phone Home requires certain
sales, marketing and distribution capabilities, some of which the Company does
not currently possess, and there can be no assurance that the Company will be
able to establish a sales
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and marketing capability which would be successful in gaining market acceptance
for C-Phone Home. The Company is devoting a material portion of its available
resources for the commercialization of C-Phone Home, and failure of the Company
to establish the necessary sales, marketing and distribution network for C-Phone
Home will have a material adverse effect on the Company's financial condition.
RISKS OF USING ANTICIPATED CHANNELS OF DISTRIBUTION. The Company's
marketing strategy for C-Phone Home contemplates the initial sale of product to
large consumer electronic retail chains. The Company has had no prior experience
in marketing and selling its products to large consumer electronic retail
chains, some of whom have special problems, such as inadequate working capital,
which may affect their ability to timely pay for their purchases from the
Company and may require the Company to grant credit terms which are more
favorable than those which the Company presently grants to its resellers. Such
retail chains typically require that their vendors pay advertising expense prior
to consumer resale and prior to payment to the vendor. Furthermore, and
irrespective of the contracted payment terms negotiated with the retail chain,
such chains generally do not pay for their merchandise unless and until such
merchandise "sells through" to the consumer.
POSSIBLE INABILITY TO SUCCESSFULLY COMPETE. Video phones have received
only limited market acceptance. As a result of recent technological advances and
the adoption of the H.324 standard for video telephony over regular analog
telephone lines, consumer video phones are being developed by a number of
companies, some of which are more established, benefit from greater market
recognition and have significantly greater financial, technological,
manufacturing, and marketing resources than the Company. The Company expects
that C-Phone Home will face intense competition from many well-known established
suppliers of consumer electronic products, which may include Lucent
Technologies, Matsushita Electric Industrial Co., Ltd., Philips Electronics N.V.
and Sony Corp. Many of these potential competitors sell television and telephone
products into which they may integrate video phone systems, thereby eliminating
the need to purchase a separate video phone system. 8x8, Inc., a manufacturer of
integrated video compression semiconductors and associated software, from whom
the Company previously had purchased integrated circuits for the Company's video
conferencing products and C-Phone Home, recently demonstrated a prototype of the
first product in an announced planned family of video phones which, after
obtaining regulatory approval for sale to the public, is intended to directly
compete with C-Phone Home. As a result, and even though the Company believes
that it is the first company to bring to market a consumer-acceptable TV based
video phone, there can be no assurance that the Company will be able to compete
successfully in the video phone industry.
DEPENDENCE ON EXISTING MANAGEMENT AND TECHNICAL PERSONNEL; NEED FOR
ADDITIONAL PERSONNEL TO COMMERCIALIZE C-PHONE HOME. The continued development of
the Company's business and operations is dependent upon the efforts and talents
of three of its executive officers, Daniel Flohr, Tina Jacobs and Stuart Ross,
and the services of certain key technical personnel. The loss of the services of
any of these persons, as well as the inability of the Company to attract and
then retain additional qualified personnel in connection with the
commercialization of C-Phone Home, could have a material adverse effect on the
Company.
RISKS RELATING TO THE COMPANY'S VIDEO CONFERENCING PRODUCTS
LIMITED MARKET ACCEPTANCE. The Company developed its initial C-Phone
video conferencing product in 1994, and has developed a number of enhancements
since such time. However, the market for PC-based video conferencing has not
matured as rapidly as expected. In order to expedite the commercial introduction
of its video conferencing products, the Company's initial sales and marketing
strategy was to attempt to form alliances with strategic partners, primarily
nationally recognized system integrators, resellers, telecommunication service
companies and original equipment manufacturers, to assist the Company in
identifying, developing and exploiting specific high-volume market applications
which would incorporate the Company's video conferencing products into larger
information management and communication systems. Although the Company has
entered into several such alliances, this strategy has not been successful to
date, and there can be no assurance that significant commercial sales will
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result from the Company's relationship with its strategic partners, that any
specific applications will be identified or that any strategic alliance
ultimately will be successful. As a result, during 1996, the Company changed its
sales and marketing strategy and has focused on sales to regional resellers and
selected large potential customers with needs for customized video conferencing
capabilities. The Company's video conferencing revenues since the 1994 Public
Offering have aggregated only approximately $3,675,000 through November 30,
1996.
DEPENDENCE ON FEW RESELLERS AND CUSTOMERS. A significant portion of
the Company's recent revenues, all of which have related to the Company's video
conferencing products, have been dependent on sales to a limited number of
customers. During Fiscal 1996, net revenues from the Company's European
distributor, TRW, Inc. and a United States reseller constituted 15%, 10.5% and
10.3%, respectively, of the Company's net revenues. During the nine months ended
November 30, 1996, net revenues from Mirage Resorts, Inc. and the Company's
European distributor constituted 18.3% and 11%, respectively, of the Company's
net revenues. The Company does not have written agreements with any of its
customers which obligate such customers to purchase any minimum quantities of
products and, therefore, such customers could reduce or curtail their purchases
at any time. A substantial reduction in orders from the Company's customers or
the inability to attract orders from new customers would have a material adverse
effect on the Company's current business.
DEPENDENCE ON FOREIGN SALES. During Fiscal 1996 and the nine months
ended November 30, 1996, the Company's revenues from non - U.S. sales of video
conferencing products aggregated 16.2% and 15%, respectively, of net revenues,
which revenues were derived from sales to a European distributor and resellers
in Canada, Europe and southeastern Asia. As a result, a reduction in the volume
of non-U.S. trade or any material restrictions on such trade could have a
material adverse impact on the Company's revenues from video conferencing
products. The Company sells to its European distributor and Canadian reseller on
credit terms and usually makes its other foreign sales on a prepaid basis due to
the difficulty in collecting foreign accounts receivable; and any change in such
policy which may be occasioned by the potential of larger orders from foreign
customers could expose the Company to increased credit risks which have not been
reserved against in the Company's financial statements. Foreign sales are
denominated in U.S. dollars and the Company does not incur any foreign currency
risks. However, fluctuations in currency exchange rates could cause the
Company's video conferencing products to become relatively more expensive to
foreign customers, which could result in a reduction in foreign sales or
profitability of any such sales.
INTENSE COMPETITION FOR DEVELOPING MARKET. Video conferencing products
have received only limited market acceptance and penetration. Some of the
companies which now compete with the Company, or which are expected to offer
products that may compete with the Company's products, are more established,
benefit from greater market recognition and have significantly greater
financial, technological, manufacturing, and marketing resources than the
Company. The Company's competitors for its video conferencing products include
video conferencing companies and major telecommunications and electronic
companies such as British Telecom, BT Visual Images L.L.C., Compression Labs,
Inc., Corel Corp., Creative Labs Inc., Intel Corp., PictureTel Corporation and
VTEL Corporation. In addition, numerous other companies have announced PC-based
video conferencing systems and this number is expected to increase rapidly.
Intel Corp., a major computer chip manufacturer, has recently commenced shipment
of chips with telephony applications with the intention of making video
conferencing a standard part of the PC computing environment. Several computer
manufacturers, such as Compaq Computer Corp, have announced plans to incorporate
features into their equipment to enable multipoint video conferencing. Several
telephone companies have entered into strategic alliances with one or more
manufacturers of video conferencing equipment to increase the usage of their
digital telephone lines, which in turn, if they are successful, will increase
their competitive image in the marketplace for video conferencing products.
Furthermore, as expected advances in data compression and higher speed LANs are
achieved, new video conferencing products utilizing these advances will compete
with the Company. As a result, there can be no assurance that the Company will
be able to compete successfully in the video conferencing industry.
RISKS RELATING TO THE COMPANY GENERALLY
CUSTOMER SERVICE AND SUPPORT. The Company's success will depend, in
part, upon its ability to provide its customers, either directly or through
others, technical support and customer service for its products. The Company
presently provides support services directly for its U.S. customers, but relies
on its foreign strategic partners to supply support services outside of the
United States. If the Company's business continues to grow, of which there can
be no certainty, there can be no assurance that the Company can continue to
directly provide such services to its U.S.
7
<PAGE>
customers, in which event it would be required to negotiate third-party support
services on acceptable terms, of which there can be no assurance. Failure to
provide such support services could have a material adverse effect on the
Company.
LIMITED MANUFACTURING EXPERIENCE. While the Company has been
manufacturing certain video conferencing components since 1994, sales volume to
date has kept production at relatively low and inefficient levels. In order to
be profitable, the Company must be able to manufacture its products at
acceptable costs and there can be no assurance that the Company will be able to
make the transition to higher production volume successfully or within
acceptable profit margins. As the Company only has limited experience in
manufacturing commercial quantities of its video conferencing products, there
can be no assurance that unforeseen technical or other difficulties will not
arise which could interfere with the development or manufacture of its products,
or prevent, or create delays in, marketing of its products. In addition, the
Company currently does not have the financial resources to manufacture
significant commercial quantities of C-Phone Home. See "Risks Relating to Needs
for Additional Financial Resources" above.
DEPENDENCE ON THIRD PARTY MANUFACTURERS AND SUPPLIERS. The Company
currently manufactures, on a batch basis, some of the smaller circuit board
sub-assemblies for its products with components supplied by third parties, and
performs final assembly, testing and packaging of its products. The Company
relies on a variety of small and large manufacturers that supply a wide variety
of off-the-shelf semiconductor integrated circuit chips and specialized
electronic components, several of which manufacturers are the sole source of
supply. The Company also relies on third party manufacturers and assemblers to
manufacture and/or assemble certain components and sub-assemblies that are built
to the Company's specifications and which require fabrication equipment the
Company does not presently possess. Further, the Company relies on third party
manufacturers for specialized sub-assemblies, including the charged coupled
device color camera presently used by the Company which, although not built to
Company specifications, are manufactured outside of the United States and are
inventoried by the manufacturers in limited quantities. While the Company
believes that all these components could be obtained elsewhere if needed or that
the Company's products could be redesigned to use alternative components, no
assurance can be given that other sources of supply would be available without
significant delay or increased cost, and the use of alternative available
components could require re-engineering by the Company of portions of its
products, and could impose significant cost and delay on the Company. In
addition, the Company's reliance on third parties to manufacture and
sub-assemble certain components involve significant risks, including reduced
control over delivery schedules, the inability to ship product under
"just-in-time" arrangements and quality assurance. Furthermore, certain of the
Company's manufacturers, sub-assemblers and suppliers, including suppliers of
components made outside the United States, may require the Company to make firm
scheduling and delivery commitments and deliver secure financing arrangements,
such as letters of credit. As a result, the Company may be required to devote
significant capital to its inventory, and will be dependent on timely supply of
purchased inventory. Failure to obtain an adequate supply of components on a
timely basis would have a material adverse effect on the Company.
RAPID TECHNOLOGICAL CHANGES. The technology underlying video phones
and video conferencing products is subject to rapid change, including potential
introduction of new products and technologies which may have a material adverse
impact on the Company's then existing products. The Company needs to maintain an
on-going research, development and engineering program and its success, if any,
will depend in part on its ability to respond quickly to technological advances
by developing and introducing new products or features. There can be no
assurance that the Company will be able to foresee and respond to such advances
in a timely manner, if at all. In addition, even though the open architecture of
the Company's products allow components to be replaced as new technology
develops, there can be no assurance that the development of technologies and
products by competitors will not render the Company's products non-competitive
or obsolete.
POSSIBLE ABILITY OF WARRANTHOLDERS TO EXERCISE REPURCHASE RIGHT. In
connection with the 1994 Public Offering, the Company issued the 1994 Warrants
to Josephthal pursuant to a Representative's Warrant Agreement. On or about
January 13, 1997, the Company received from the holders of a majority of the
1994 Warrants, most of whom are officers of Josephthal, a request to register
the shares of Common Stock issuable upon exercise of the 1994 Warrants. In
accordance with the terms of the Representative's Warrant Agreement, the
Company's failure to file the Registration
8
<PAGE>
Statement of which this Prospectus is a part within 45 days thereafter may give
the holders of a majority of the 1994 Warrants the right to require the Company
to repurchase the 1994 Warrants for an aggregate of up to $1,370,000 at any time
prior to the sale of a majority of such shares pursuant to this Prospectus. If
such holders successfully assert such right, the Company may not have the
financial ability to make such payment; and, in the event that such right is
successfully asserted at a time when the Company has the financial ability to
make such payment, such payment could materially adversely affect the Company's
financial condition and may deplete all of its necessary cash resources for the
continuation of its operations. The possible existence of this repurchase right,
and the possibility of its exercise, will increase the difficulty of the Company
raising its required additional working capital on terms acceptable to the
Company. See"Risks Relating to Needs for Additional Financial Resources" above.
MANAGEMENT OF GROWTH. The development and introduction of C-Phone Home
has placed a significant strain on the Company's limited personnel, management
and other resources. The Company's ability to manage any future growth
effectively will require it to continue to attract, train, motivate and manage
its employees successfully and to continue to improve its operational, financial
and management systems. The Company's failure to effectively manage its growth
could have a material adverse effect on the Company's business and operating
results.
LIMITED PROTECTION OF INTELLECTUAL PROPERTY RIGHTS. The Company has
four United States patents (one of which is a design patent) and has pending
five United States patent applications and one foreign patent application, all
of which relate to technology incorporated in its video conferencing products
and the design of various related components. Patents and patent applications
involve complex legal and factual issues. Moreover, the technology applicable to
the Company's products is developing rapidly. A number of companies have filed
applications for, or have been issued, patents relating to products or
technology that are similar to some of the products or technology being
developed or used by the Company. The scope and validity of these patents, the
extent to which the Company may be required to obtain licenses thereunder or
under other proprietary rights and the cost and availability of licenses, are
unknown. There can be no assurance that the Company's patent applications will
result in patents being issued or that, if issued, the patents will afford
protection against competitors developing similar or related technology. Due to
rapidly developing technology, the Company contemplates that alternative
technological solutions will be devised to accomplish the purposes of its
patents, but that such patents may offer short-term protection from third
parties. There can be no assurance that other parties have not applied for or
will not obtain patents under which the Company would need to be granted a
license or around which the Company would be forced to redesign its products.
The Company seeks to protect its intellectual property rights through a
combination of trade secret, nondisclosure and other contractual arrangements,
and patent, copyright and trademark laws. The Company generally enters into
confidentiality agreements with its employees, consultants, sales
representatives and certain potential customers and limits access to and
distribution of its proprietary information. However, there can be no assurance
that these actions will be adequate to deter misappropriation of the Company's
proprietary information, or that the Company will be able to detect unauthorized
use of its intellectual property rights, or that the Company can afford the high
cost required to enforce its intellectual property rights. Furthermore, there
can be no assurance that a claim that the Company's services and products
infringe on the intellectual property rights of others will not be asserted
successfully against the Company in the future.
COMPLIANCE WITH FCC REGULATIONS. The Company must comply with certain
requirements and specifications set forth in rules adopted by the FCC regulating
electromagnetic radiation and the connection of terminal equipment to the public
switched telephone network. See "Obtaining Regulatory Approvals to Resell
Telecommunications Services" above. These regulations, among other things,
require that the Company's products be in compliance with such regulations as a
prerequisite to marketing them. Although the Company's products are currently in
compliance with such regulations, if the Company redesigns or otherwise modifies
its products, or if current regulations or industry standards are revised, there
can be no assurance as to when, if ever, the Company's redesigned or modified
products will be in compliance with applicable governmental regulations and
evolving industry standards.
CONTROL BY EXISTING PRINCIPAL SHAREHOLDERS. The Company's two
principal executive officers, Daniel Flohr and Tina Jacobs, beneficially own, as
of April 10, 1997, an aggregate of 1,156,745 shares (approximately 22%) of the
currently outstanding Common Stock. As a result of such holdings, such persons
may have the ability to determine the election of all of the Company's
directors, direct the policies of the Company and control the outcome of
substantially all matters which may be put to a vote of the Company's
shareholders.
9
<PAGE>
POSSIBLE INABILITY TO CONTINUE TO USE C-PHONE NAME. In 1995, the
United States Patent and Trademark Office (the "PTO") registered the "C-Phone"
trademark to the Company. In 1996, in order to more closely identify the Company
with its products, all of which utilize the C-Phone name, and in an attempt to
eliminate confusion among investors, the Company changed its name to C-Phone
Corporation. In August 1996, the Company was advised by the PTO that a former
registered owner of the C-Phone trademark (which the PTO canceled in 1993 for
failure to submit a required affidavit), had filed a petition to cancel the
Company's registration, alleging that the PTO canceled the prior registration
"inadvertently". The former owner had used, and continues to use, the C-Phone
name for marine telephone products, and has certain "common law" rights to
continued use of the name. A proceeding with respect to the matter is pending
before the PTO's Trademark Trial and Appeal Board, who will determine whether
the conflicting use by the Company is so confusingly similar that a registration
should not have been granted to the Company. Discussions to resolve the matter
by a mutual co-existence agreement have commenced; however, there can be no
assurance that such discussions will result in a successful resolution. If the
matter is not resolved between the parties and the Company is not successful in
the current PTO proceedings, the Company may need to change the identifying name
on its products, may determine that it is appropriate to change its corporate
name and may be subject to damages if it could be shown that the Company had
infringed the former owner's common law rights. Any change in the use by the
Company of the C-Phone name would result in a loss of good will and
identification which the Company has been promoting since 1994, and could have a
temporary adverse impact on the Company's marketing plans.
POTENTIAL ADVERSE IMPACT ON MARKET PRICE OF COMMON STOCK RESULTING
FROM THE OFFERING. As of April 7, 1997, the Company had an aggregate of
5,189,060 shares of Common Stock issued and outstanding, of which 3,175,648
shares were held by non-affiliates and are freely tradeable in the public market
without restriction under the Securities Act. Of the remaining 2,013,412 shares
(i) 1,179,745 shares were held by affiliates of the Company and are considered
"restricted securities" subject to the resale limitations of Rule 144 under the
Securities Act, and (ii) 833,667 shares were held by investors in the 1997
Placement and will become freely tradeable at such time as the Registration
Statement of which this Prospectus is a part is declared effective. The
Registration Statement also covers the registration for public resale of up to
an additional 2,851,001 shares of Common Stock issuable upon the exercise of the
contingent value rights issued in the 1997 Placement and the exercise of the
Warrants. See "Selling Shareholders." The prospect of the ability to publicly
resell the shares of Common Stock not currently trading in the public market may
adversely affect prevailing market prices for the Comon Stock.
DIVIDEND POLICY. The Company has never paid any dividends and, for the
foreseeable future, the Company expects to retain earnings, if any, to finance
the expansion and development of its business. Any future payment of dividends
will be within the discretion of the Company's Board of Directors, which is
controlled by the Company's principal shareholders, and will depend, among other
factors, on the earnings, capital requirements and operating and financial
condition of the Company.
USE OF PROCEEDS
The Company will not receive any proceeds from the sale of the Shares
of Common Stock by the Selling Shareholders. See "Plan of Distribution."
In order to sell 350,000 of the shares of Common Stock (consisting of
shares issuable upon exercise of the Warrants) covered by this Prospectus, the
Selling Shareholders must exercise the Warrants to obtain such Shares. Upon
exercise of the Warrants, the Company will receive proceeds from the exercise of
the Warrants, which, if all Warrants are exercised, will aggregate $3,120,000.
The net proceeds from such exercise will be used by the Company for working
capital, including for the marketing of C-Phone Home and funding anticipated
increases in inventories and receivables related to C-Phone Home.
10
<PAGE>
SELLING SHAREHOLDERS
The Selling Shareholders are the investors in the 1997 Placement (the
"Investors") and the holders of the 1994 Warrants. The holders of the 1994
Warrants consist of employees, including controlling persons, of Josephthal, a
former director of Josephthal and the estate of a former officer, director and
principal shareholder of Josephthal. The Investors include Josephthal and most
of the holders of the 1994 Warrants. Josephthal was the representative of the
underwriters for the 1994 Public Offering and the placement agent for the 1997
Placement. Josephthal also is a market maker for the Common Stock.
Pursuant to the 1997 Placement, the Company issued to the Investors
833,667 shares of Common Stock (the "Original Shares") plus the right, under
certain circumstances and without any additional consideration, to receive
additional shares of Common Stock pursuant to the terms of "contingent value
rights" (the "Rights"). The Rights are automatically exercised at the time that,
and from time to time as, the Original Shares are first publicly sold through a
broker dealer during the one-year period commencing on the effective date of the
Registration Statement of which this Prospectus is a part. The Rights, to the
extent not exercised, expire one year after the effective date of the
Registration Statement. The terms of the Rights provide that, upon any such
initial sale of any Original Shares at a price of less than $8.00 per share, the
seller of the Original Shares will automatically receive, for each such Original
Share sold, without the payment of any additional consideration, such additional
number of shares (the "Rights Shares") of Common Stock as equals (i) $8.00
divided by the Adjusted Price, minus (ii) one; where the Adjusted Price will
equal the greater of (x) the average closing bid price per share of Common Stock
on The Nasdaq National Market for the ten trading days immediately preceding the
date of sale of the Original Shares, or (y) $2.00; provided, however that no
Rights Shares will be issued until the Company has obtained shareholder approval
for the issuance of the Rights Shares in accordance with the rules of The Nasdaq
National Market. The Original Shares and the Rights Shares are being registered
hereby pursuant to certain registration rights granted to the Investors; the
Company has agreed to maintain the effectiveness of the Registration Statement
for a period of one year.
In connection with the 1997 Placement, in addition to other
consideration paid to Josephthal, the Company issued to WBM LLC, an Investor in
the 1997 Placement and an affiliate of Josephthal, the 1997 Warrants to acquire
an aggregate of 150,000 shares of Common Stock at an exercise price of $9.60 per
share. The 1997 Warrants expire 90 days after the effective date of the
Registration Statement. The Company has agreed to include the shares of Common
Stock issuable upon exercise of the 1997 Warrants in the Registration Statement.
In connection with the 1994 Public Offering, the Company entered into
the Representative's Warrant Agreement with Josephthal providing for the
issuance to Josephthal of the 1994 Warrants to purchase 200,000 shares of Common
Stock and also providing certain registration rights with respect to the shares
issuable upon exercise of the 1994 Warrants. The 1994 Warrants were subsequently
transferred by Josephthal to certain of the Selling Shareholders. The shares of
Common Stock issuable upon exercise of the 1994 Warrants are included in the
Shares being offered hereby and are being registered pursuant to such
registration rights.
11
<PAGE>
The following table sets forth certain information relating to the
security ownership of the Selling Shareholders as of April 7, 1997 and as
adjusted to reflect the sale of the Common Stock in the offering covered by this
Prospectus. Except as set forth above, none of the Selling Shareholders has had
a material relationship with the Company or any of its predecessors or
affiliates within the past three years.
<TABLE>
<CAPTION>
SHARES OF COMMON SHARES OF COMMON
STOCK BENEFICIALLY STOCK BENEFICIALLY
OWNED PRIOR TO SHARES OF COMMON OWNED AFTER THE
NAME OF SELLING SHAREHOLDER THE OFFERING STOCK TO BE SOLD OFFERING14
- --------------------------- ------------ ---------------- ----------
<S> <C> <C> <C>
American High Growth Equities Retirement Trust 320,000(1) 320,000(9) 0
Matthew Balk 154,310(2)(3) 154,310(10) 0
Peter Davis 240,000(1) 240,000(9) 0
First Comet Corp. 60,000(1) 60,000(9) 0
Paul Fitzgerald 3,210(2)(3) 3,210(10) 0
Holistica International Ltd 60,000(1) 60,000(9) 0
Josephthal Lyon & Ross Incorporated 117,040(1) 117,040(9) 0
Felix Kaufman 110,000(4) 100,000(9) 10,000
Keyring Limited 28,000(1) 28,000(9) 0
Sherwood P. Larkin 7,555(2)(3) 7,555(10) 0
Michael Loew 24,907(3)(5) 24,720(10) 187
Made Oka Masagung 120,000(1) 120,000(9) 0
Natper Ltd. 20,000(1) 20,000(9) 0
Omotsu Holdings Ltd. 200,000(1) 200,000(9) 0
Paneco SA 200,000(1) 200,000(9) 0
Dan Purjes 992,605(6) 992,605(11) 0
Esther Purjes 200,000(1) 200,000(9) 0
Lawrence R. Rice 44,135(2)(3) 44,135(10) 0
Charles Roden 33,235(2)(3) 33,235(10) 0
Averell Satloff 1,793(7) 1,793(12) 0
Saleem Syed 666,668(1) 666,668(9) 0
Estate of Peter Sheib 22,467(7) 22,467(12) 0
Vermont Museum of Natural History, Inc. 40,000(1) 40,000(9) 0
WBM LLC 430,000(8) 430,000(13) 0
Scott Weisman 28,930(2)(3) 28,930(10) 0
</TABLE>
- ----------------
(1) Consists of (a) Original Shares, and (b) the maximum number of Rights
Shares issuable to such Selling Shareholder in connection with the sale of such
Original Shares.
12
<PAGE>
(2) Consists of (a) shares of Common Stock issuable upon exercise of the
1994 Warrants, and (b)(i) Original Shares, and (ii) the maximum number of Rights
Shares issuable to such Selling Shareholder in connection with the sale of such
Original Shares.
(3) Does not include any shares of Common Stock issued or issuable to WBM
LLC, a limited liability company in which such Selling Shareholder is a member.
See footnote (8) to this table. Such Selling Shareholder disclaims beneficial
ownership in any of such shares, since such Selling Shareholder has no voting
power or investment power with respect to such shares.
(4) Consists of (a)(i) 25,000 Original Shares, and (ii) 75,000 Rights
Shares (the maximum number of Rights Shares issuable to Mr. Kaufman in
connection with the sale of such Original Shares), and (b) 10,000 shares of
Common Stock purchased by Mr. Kaufman prior to the 1994 Public Offering.
(5) Consists of (a) 4,944 shares of Common Stock issuable upon exercise of
the 1994 Warrants, (b)(i) 4,944 Original Shares, and (ii) 14,832 Rights Shares
(the maximum number of Rights Shares issuable to Mr. Loew in connection with the
sale of such Original Shares), and (c) 187 shares of Common Stock previously
purchased by Mr.
Loew.
(6) Consists of (a) 116,521 shares of Common Stock issuable upon exercise
of the 1994 Warrants, (b) (i) 111,521 Original Shares, and (ii) 334,563 Rights
Shares (the maximum number of Rights Shares issuable to Mr. Purjes in connection
with the sale of such Original Shares), and (c) the shares issued and issuable
to WBM LLC (see footnote (8) to this table), with respect to which Mr. Purjes is
the managing member.
(7) Consists of shares of Common Stock issuable upon exercise of the 1994
Warrants.
(8) Consists of (a) 150,000 shares of Common Stock issuable upon exercise
of the 1997 Warrants, and (b)(i) 70,000 Original Shares, and (ii) 210,000 Rights
Shares (the maximum number of Rights Shares issuable to WBM LLC in connection
with the sale of such Original Shares). Dan Purjes is the managing member of WBM
LLC and the shares attributable to WBM LLC also are included in the security
ownership of Mr. Purjes (see footnote (6) to this table).
(9) Consists of (a) Original Shares, and (b) the maximum number of Rights
Shares issuable to such Selling Shareholder in connection with the sale of such
Original Shares, and assumes the sale of all Shares registered hereby.
(10) Consists of (a) shares of Common Stock issuable upon exercise of the
1994 Warrants, and (b)(i) Original Shares, and (ii) the maximum number of Rights
Shares issuable to such Selling Shareholder in connection with the sale of such
Original Shares, and assumes the sale of all Shares registered hereby.
(11) Consists of (a) 116,521 shares of Common Stock issuable upon exercise
of the 1994 Warrants, (b) (i) 111,521 Original Shares, and (ii) 334,563 Rights
Shares (the maximum number of Rights Shares issuable to Mr. Purjes in connection
with the sale of such Original Shares), and (c) the shares issued and issuable
to WBM LLC (see footnote (13) to this table), with respect to which Mr. Purjes
is the managing member, and assumes the sale of all Shares registered hereby.
(12) Consists of shares of Common Stock issuable upon exercise of the 1994
Warrants, and assumes the sale of all Shares registered hereby.
(13) Consists of (a) 150,000 shares of Common Stock issuable upon exercise
of the 1997 Warrants, and (b)(i) 70,000 Original Shares, and (ii) 210,000 Rights
Shares (the maximum number of Rights Shares issuable to WBM LLC in connection
with the sale of such Original Shares), and assumes the sale of all Shares
registered hereby.
(14) Assumes the sale of all Shares registered hereby.
PLAN OF DISTRIBUTION
The Company is registering the Shares on behalf of the Selling
Shareholders. The Company will not receive any proceeds from any sales of the
Shares, but will receive proceeds of approximately $3,120,000 from the exercise
of the Warrants, if all of the Warrants are exercised, which proceeds will be
used for general working capital purposes. See "Use of Proceeds." All costs,
expenses and fees in connection with the registration of the Shares offered
hereby will be borne by the Company. Commissions, discounts and other fees
payable to brokers or dealers, if any, attributable to the sale of Shares will
be borne by the Selling Shareholders.
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<PAGE>
The decision to exercise the Warrants is within the sole discretion of
the Selling Shareholders. There can be no assurance that any of the Warrants
will be exercised.
The decision to offer and sell the Shares, and the timing and amount
of any offers or sales that are made, is and will be within the sole discretion
of the Selling Shareholders. Sales of the Shares may be effected from time to
time in transactions (which may include block transactions) on The Nasdaq
National Market, in negotiated transactions, or a combination of such methods of
sale, at fixed prices which may be changed, at market prices prevailing at the
time of sale, or at negotiated prices. The Selling Shareholders have advised the
Company that they have not entered into any agreements, understandings or
arrangements with any underwriters or broker-dealers regarding the sale of any
of their Shares. The Selling Shareholders may effect such transactions by
selling their Shares directly to purchasers or to, or through, broker-dealers
which broker-dealers may act as agents or principals. Such broker-dealers may
receive compensation in the form of discounts, concessions or commissions from
the Selling Shareholders and/or the purchasers of Common Stock for whom such
broker-dealers may act as agents or to whom they sell as principals, or both
(which compensation as to a particular broker-dealer might be in excess of
customary commissions). The Selling Shareholders and any broker-dealers that act
in connection with the sale of the Common Stock might be deemed to be
"underwriters" within the meaning of Section 2(11) of the Securities Act and any
commission received by them and any profit on the resale of the shares of Common
Stock as principal might be deemed to be underwriting discounts and commissions
under the Securities Act. The Selling Shareholders may agree to indemnify any
agent, dealer or broker-dealer that participates in transactions involving sales
of the shares against certain liabilities, including liabilities arising under
the Securities Act. Liabilities under the federal securities laws cannot be
waived.
Because the Selling Shareholders may be deemed to be "underwriters"
within the meaning of Section 2(11) of the Securities Act, the Selling
Shareholders will be subject to prospectus delivery requirements under the
Securities Act.
The Selling Shareholders, any selling broker or dealer and any
"affiliated purchasers" may be subject to Regulation M under the Exchange Act
("Regulation M"). Regulation M, with certain exceptions, prohibits any such
person from bidding for or purchasing any security which is the subject of a
distribution until the participation of such person in that distribution is
completed. In addition, Regulation M prohibits any "stabilizing bid" or
"stabilizing purchase" for the purpose of pegging, fixing or stabilizing the
price of Common Stock in connection with this offering.
Accordingly, unless granted an exemption by the Commission from
Regulation M or unless otherwise permitted under Regulation M, the Selling
Shareholders will not be permitted to engage in any stabilization activity in
connection with the Company's securities, and will not be permitted to bid for
or purchase any securities of the Company or to attempt to induce any person to
purchase any of the Company's securities other than as permitted under the
Exchange Act. Selling Shareholders, who may be "affiliated purchasers" as
defined in Regulation M, have been advised that they must coordinate their sales
with each other for purposes of Regulation M. Josephthal has advised the Company
that it may seek to comply with Regulation M with respect to transactions in the
Company's Common Stock during the distribution of the Shares and will suspend
market making activities in the Company's Common Stock during any period in
which such activities would be prohibited under the Exchange Act.
The Selling Shareholders may be entitled under agreements entered into
with the Company to indemnification against liabilities under the Securities
Act, the Exchange Act or otherwise.
LEGAL MATTERS
Certain legal matters with respect to the validity of the Common Stock
offered hereby have been passed upon for the Company by Warshaw Burstein Cohen
Schlesinger & Kuh, LLP. As of the date of this Prospectus, certain partners of
such firm beneficially own an aggregate of 12,105 shares of Common Stock.
14
<PAGE>
EXPERTS
The balance sheets of the Company as of February 29, 1996 and February
28, 1995 and the related statements of operations, shareholders' equity and cash
flows for each of the three years in the period ended February 29, 1996,
incorporated by reference in this Prospectus on Form S-3, have been incorporated
herein in reliance on the report of Coopers & Lybrand L.L.P., independent
accountants, given on the authority of that firm as experts in accounting and
auditing.
15
<PAGE>
================================================================================
NO PERSON IS AUTHORIZED IN CONNECTION WITH ANY 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. THIS PROSPECTUS DOES NOT CONSTITUTE AN
OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY SECURITY OTHER THAN THE
COMMON STOCK OFFERED HEREBY, NOR DOES IT CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF AN OFFER TO BUY ANY OF THE SECURITIES OFFERED HEREBY TO ANY
PERSON IN ANY JURISDICTION IN WHICH IT IS UNLAWFUL TO MAKE SUCH AN 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
PAGE
----
Available Information 2
Incorporation of Certain
Documents by Reference 2
The Company 3
Risk Factors 4
Use of Proceeds 11
Selling Shareholders 11
Plan of Distribution 14
Legal Matters 15
Experts 15
================================================================================
================================================================================
3,684,668 Shares
C-PHONE CORPORATION
Common Stock
-------------------
PROSPECTUS
-------------------
____________, 1997
================================================================================
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following is an itemized statement of the estimated amounts of all
expenses payable by the Company in connection with the registration of the
Shares:
SEC registration fee ....................................................$10,049
Legal fees and expenses.................................................. 15,000
Accounting fees and expenses ............................................ 5,000
Miscellaneous expenses .................................................. 4,951
Total ........................................................ $35,000
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
As permitted by Section 722 of the New York Business Corporation Law
(the "BCL"), Article SIXTH of the Company's Restated Certificate of
Incorporation provides that "To the fullest extent now or hereafter provided for
or permitted by law, the Corporation shall indemnify the directors and officers
of the Corporation and, in connection therewith, advance expenses with respect
thereto. The rights to indemnification and advancement of expenses granted
hereby shall not limit or exclude, but shall be in addition to, any other rights
which may be granted by or pursuant to any by-law, resolution or agreement
permitted by law; shall be deemed to constitute a contractual obligation of the
Corporation to any director or officer of the Corporation who serves in such a
capacity at any time while such rights are in effect; shall continue to exist
after the repeal or modification hereof, to the extent permitted by law, with
respect to events occurring prior thereto; and shall continue as to a person who
has ceased to be a director or officer and shall inure to the benefit of the
estate, spouse, heirs, executors, administrators or assigns of such person."
In addition, Section 8.01 of the Company's By-Laws provides that "The
Corporation shall, to the fullest extent now or hereafter permitted by the New
York Business Corporation Law, indemnify any Director or officer who is or was
made, or threatened to be made, a party to an action, suit or proceeding
including, without limitation, an action by or in the right of the Corporation
to procure a judgment in its favor, whether civil or criminal, whether involving
any actual or alleged breach of duty, neglect or error, any accountability, or
any actual or alleged misstatement, misleading statement or other act or
omission and whether brought or threatened in any court or administrative or
legislative body or agency, including an action by or in the right of any other
corporation of any type or kind, domestic or foreign, or any partnership, joint
venture, trust, employee benefit plan or other enterprise, which any Director or
officer of the Corporation is serving or served in any capacity at the request
of the Corporation, by reason of the fact that he, his testator or intestate, is
or was a Director or officer of the Corporation, or is serving or served such
other corporation, partnership, joint venture, trust, employee benefit plan or
other enterprise in any capacity, against judgments, fines, amounts paid in
settlement, and costs, charges and expenses, including attorneys' fees, actually
and necessarily incurred in connection with the defense of such action, suit or
proceeding or any appeal therein; provided, however, that no indemnification
shall be provided to any such Director or officer if a judgment or other final
adjudication adverse to the Director or officer establishes that (i) his acts
were committed in bad faith or were the result of active and deliberate
dishonesty and, in either case, were material to the cause of action so
adjudicated, or (ii) he personally gained in fact a financial profit or other
advantage to which he was not legally entitled. Such right of indemnification
shall not be deemed exclusive of any other rights to which such Director or
officer may be entitled apart from the foregoing provisions. The foregoing
provisions of this Section 8.1 shall be deemed to be a contract between the
Corporation and each Director and officer who serves in such capacity at any
time while this Article 8 and the relevant provisions of the New York Business
Corporation Law
II-1
<PAGE>
and other applicable law, if any, are in effect, and any repeal or modification
thereof shall not affect any rights or obligations then existing with respect to
any state of facts then or theretofore existing or any action, suit or
proceeding theretofore or thereafter brought or threatened based in whole or in
part upon any such state of facts."
The BCL, among other things, permits the Company to indemnify any
person who was or is a party to any action by reason of the fact that such
person is or was or has agreed to become a director or officer of the Company,
or is or was serving at the request of the Company as a director or officer of
another corporation, partnership, joint venture, trust or other enterprise
against any liability incurred by him or her in connection with such action, if
such person acted in good faith and in a manner such person reasonably believed
to be in, or not opposed to, the best interests of the Company, and, with
respect to any criminal action or proceeding, had no reasonable cause to believe
that his or her conduct was unlawful. The termination of any action, suit or
proceeding by judgment, order, settlement, conviction, or upon a plea of nolo
contendere or its equivalent, does not, of itself, create a presumption that the
person did not act in good faith and in a manner which such person reasonably
believed to be in, or not opposed to, the best interest of the Company and, with
respect to any criminal action or proceeding, had reasonable cause to believe
that his or her conduct was unlawful.
As permitted by Section 402(b) of the BCL, Article SEVENTH of the
Company's Restated Certificate of Incorporation provides that "To the fullest
extent now or hereafter provided for or permitted by law, directors of the
Corporation shall not be liable to the Corporation or its shareholders for
damages for any breach of duty in their capacity as directors. Any repeal or
modification hereof shall not adversely affect any right or protection of a
director of the Corporation existing hereunder with respect to any act or
omission occurring prior to such repeal or modification." Section 402(b) of the
BCL permits a corporation to eliminate or limit the personal liability of its
directors to its shareholders and the corporation for damages for any breach of
duty in such capacity.
The BCL, among other things, provides that the foregoing provisions of
the Company's Restated Certificate of Incorporation and By-Laws do not limit the
liability of any director if a judgment or other final adjudication adverse to
him or her establishes that his or her acts were in bad faith or involved
intentional misconduct or a knowing violation of law or he or she gained in fact
a financial profit or other advantage to which he or she was not legally
entitled or that his or her acts violated the BCL.
The Company also has obtained directors and officers liability
insurance which covers the expenses incurred (subject to a deductible amount) in
defending against a claim for breach of duty of a director or officer to the
extent that such claim is also subject to a right of indemnification.
ITEM 16. EXHIBITS.
EXHIBIT NO. DESCRIPTION
- ----------- -----------
5 - Opinion of Warshaw Burstein Cohen Schlesinger & Kuh, LLP.
23.1 - Consent of Coopers & Lybrand L.L.P.
23.2 - Consent of Warshaw Burstein Cohen Schlesinger & Kuh, LLP
(included in their opinion filed as Exhibit 5).
24 - Power of Attorney (included on page II-4).
II-2
<PAGE>
ITEM 17. UNDERTAKINGS.
The Company hereby undertakes that, for purposes of determining any
liability under the Securities Act of 1933, each filing of the Company's annual
report pursuant to section 13(a) or section 15(d) of the Securities Exchange Act
of 1934 (and, where applicable, each filing of an employee benefit plan's annual
report pursuant to section 15(d) of the Securities Exchange Act of 1934) that is
incorporated by reference in the registration statement shall be deemed to be a
new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
The Company will:
(1) File, during any period in which it offers or sells
securities, a post-effective amendment to this registration statement
to include any additional or changed material information on the plan
of distribution.
(2) For determining liability under the Securities Act, treat
each post-effective amendment as a new registration statement of the
securities offered, and the offering of the securities at that time to
be the initial bona fide offering.
(3) File a post-effective amendment to remove from
registration any of the securities that remain unsold at the end of the
offering.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 (the "Act") may be permitted to directors, officers and
controlling persons of the Company pursuant to the foregoing provisions, or
otherwise, the Company has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities
(other than the payment by the Company of expenses incurred or paid by a
director, officer or controlling person of the Company in the successful defense
of any action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
Company will, unless in the opinion of its counsel the matter has been settled
by controlling precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public policy as
expressed in the Securities Act and will be governed by the final adjudication
of such issue.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe it meets all of
the requirements for filing on Form S-3 and has duly caused this Amendment to
the Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Wilmington, State of North Carolina,
on April 14, 1997.
C-PHONE CORPORATION
By: /s/ DANIEL P. FLOHR
-------------------------------
Daniel P. Flohr, President
(Chief Executive Officer)
Each person whose signature appears below constitutes and appoints
Daniel P. Flohr, Tina L. Jacobs and Paul H. Albritton, and each of them, his or
her true and lawful attorney-in-fact, with full power of substitution and
resubstitution, for him or her and in his or her name, place and stead, in any
and all capacities to sign any and all post-effective amendments to this
Registration Statement, and to file the same, with all exhibits thereto, and
other documents in connection therewith, with the Securities and Exchange
Commission under the Securities Act of 1933, hereby ratifying and confirming all
that said attorneys-in-fact or substitutes, may lawfully do or cause to be done
by virtue thereof.
Pursuant to the requirements of the Securities Act of 1933, this
Amendment to the Registration Statement has been signed below by the following
persons in the capacities and on the dates indicated.
Dated:
April 14, 1997 /s/ DANIEL P. FLOHR
-------------------------------
Daniel P. Flohr
President, Chief Executive Officer
and Director
(Principal Executive Officer)
April 14, 1997 /s/ TINA L. JACOBS
-------------------------------
Tina L. Jacobs
Director
April 14, 1997 /s/ SEYMOUR L. GARTENBERG
-------------------------------
Seymour L. Gartenberg
Director
April 14, 1997 /s/ E. HENRY MIZE
-------------------------------
E. Henry Mize
Director
April 14, 1997 /s/ DONALD S. McCOY
-------------------------------
Donald S. McCoy
Director
April 14, 1997 /s/ STUART E. ROSS
-------------------------------
Stuart E. Ross
Director
April 14, 1997 /s/ PAUL H. ALBRITTON
-------------------------------
Paul H. Albritton
Vice President and Chief Financial
Officer (Principal Financial and
Accounting Officer)
II-4
EXHIBIT 5
WARSHAW BURSTEIN COHEN
SCHLESINGER & KUH, LLP
555 Fifth Avenue
New York, New York 10017
Telephone: (212) 984-7700
Facsimile: (212) 972-9150
April 14, 1997
C-Phone Corporation
6714 Netherlands Drive
Wilmington, North Carolina 28405
Gentlemen and Ladies:
You have requested our opinion, as counsel for C-Phone Corporation, a
New York corporation (the "Company"), in connection with the Registration
Statement on Form S-3 (the "Registration Statement") under the Securities Act of
1933 (the "Act"), filed by the Company with the Securities and Exchange
Commission (the "Commission").
The Registration Statement relates to the offering by certain selling
shareholders of up to 3,684,668 shares of the Company's common stock, $.01 par
value per share (the "Common Stock"), consisting of (i) 200,000 shares (the
"1994 Warrant Shares") of Common Stock reserved for issuance upon the exercise
of certain warrants (the "1994 Warrants") to purchase Common Stock issued
pursuant to the Representative's Warrant Agreement (the "Representative's
Warrant Agreement"), dated as of August 20, 1994, between the Company and
Josephthal Lyon & Ross Incorporated ("Josephthal"), the representative of the
underwriters in the Company's August 1994 public offering, (ii) 833,667 shares
(the "Original Shares") of Common Stock issued in the Company's March 1997
private placement (the "1997 Placement") pursuant to Securities Purchase
Agreements, dated as of March 31, 1997, between the Company and the various
subscribers named therein (the "Purchase Agreements"), (iii) 2,501,001
additional shares (the "Rights Shares") of Common Stock issuable, under certain
circumstances and without any additional consideration, upon exercise of
contingent value rights (the "Rights"), to the holders of the Original Shares
upon the sale of the Original Shares, and (iv) 150,000 shares (the "1997 Warrant
Shares") of Common Stock reserved for issuance upon the exercise of certain
warrants (the "1997 Warrants") to purchase the Common Stock issued in the 1997
Placement pursuant to the Placement Agent Warrant Agreement (the "Placement
Agent Warrant Agreement"), dated as of March 31, 1997, between the Company and
Josephthal, as placement agent for the 1997 Placement.
In the preparation of our opinion, we have examined (1) the Restated
Certificate of Incorporation of the Company, as amended to date, (2) the By-Laws
of the Company, in effect on the date hereof, (3) minutes of meetings of the
Company's Board of Directors, as made available to us by executive officers of
the Company, (4) a certificate from an executive officer of the Company, (5) the
Registration Statement, (6) the Purchase Agreements, including the exhibits
incorporated by reference therein, (7) the Representative's Warrant Agreement
and (8) the Placement Agent Warrant Agreement. In our examinations, we have
assumed the genuineness of all signatures, the authenticity of all documents
submitted to us as originals, the conformity to the originals of all documents
submitted to us as certified, photostatic or conformed copies, and the
authenticity of the originals of all such latter documents.
E-1
<PAGE>
Based upon such examination, we are of the opinion that:
(1) the Original Shares have been validly issued and are fully
paid and non-assessable;
(2) the Rights Shares, when issued and delivered in accordance
with the terms of the Rights, will be validly issued, fully
paid and non-assessable;
(3) the 1994 Warrant Shares, when issued and delivered in
accordance with the terms of the Representative's Warrant
Agreement, will be validly issued, fully paid and
non-assessable; and
(4) the 1997 Warrant Shares, when issued and delivered in
accordance with the terms of the Placement Agent Warrant
Agreement, will be validly issued, fully paid and
non-assessable.
We hereby consent to the filing of our opinion as an exhibit to the
Registration Statement and to the reference to our firm under the caption "Legal
Matters" in the prospectus included in the Registration Statement. In so doing,
we do not admit that we are in the category of persons whose consent is required
under Section 7 of the Act or the rules and regulations of the Commission
promulgated thereunder.
Certain partners of our Firm beneficially own an aggregate of 12,105
shares of Common Stock.
Sincerely yours,
WARSHAW BURSTEIN COHEN
SCHLESINGER & KUH, LLP
AAK/MDS
E-2
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in this Registration Statement of
C-Phone Corporation on Form S-3 of our report dated April 17, 1996, on our
audits of the financial statements of C-Phone Corporation (formerly "Target
Technologies, Inc.") as of February 29, 1996 and February 28, 1995, and for the
three years in the period ended February 29, 1996, appearing in the C-Phone
Corporation Annual Report on Form 10-KSB for the fiscal year ended February 29,
1996. We also consent to the reference to our firm under the caption "Experts".
Coopers & Lybrand L.L.P.
Raleigh, North Carolina
April 14, 1997
E-3
