As filed with the Securities and Exchange Commission - March 29, 1999
Registration No. 333-68865
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------
AMENDMENT NO. 3
TO
FORM S-2
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)
------------
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)
------------
Copies of all communications, including all communications
sent to the agent for service, should be sent to:
MICHAEL D. SCHWAMM, 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 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, check the following box: [x]
If the registrant elects to deliver its latest annual report to security
holders, or a complete and legal facsimile thereof, pursuant to Item 11(a)(1) of
this Form, check the following box. [ ]
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 this Form is a post-effective amendment filed pursuant to Rule 462(d) 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: [ ]
<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 THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SECTION 8(A), MAY
DETERMINE.
<PAGE>
The information in this prospectus is subject to completion and may be changed.
The selling shareholders may not sell these securities until the registration
statement filed with the Securities and Exchange Commission (of which this
prospectus is a part) is effective. This prospectus is not an offer to sell
these securities, and is not soliciting an offer to buy these securities, in any
state where such offer or sale is not permitted
PROSPECTUS SUBJECT TO COMPLETION, MARCH 26, 1999
1,500,000 SHARES OF COMMON STOCK C-PHONE CORPORATION
offered by Sovereign Partners, L.P. 6714 Netherlands Drive
Wilmington, North Carolina 28405
(910) 395-6100
This prospectus relates to the resale of a maximum of 1,500,000 shares
of our common stock, which we may sell to Sovereign Partners, L.P. pursuant to
the terms of an equity credit agreement.
Sovereign Partners is an "underwriter" within the meaning of the
Securities Act in connection with the resale of the shares it receives pursuant
to the agreement. Accordingly, the 15% discount on the purchase of the common
stock to be received by Sovereign Partners will be an underwriting discount
under the Securities Act.
Our common stock is traded on the Nasdaq National Market under the
symbol "CFON." On March 26, 1999, the last reported sales price of our common
stock was $2 11/16.
A PURCHASE OF SHARES INVOLVES A HIGH DEGREE OF RISK. YOU SHOULD
PURCHASE SHARES ONLY IF YOU CAN AFFORD A COMPLETE LOSS OF YOUR INVESTMENT. SEE
"RISK FACTORS" BEGINNING ON PAGE 4.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
____________, 1999
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
<S> <C>
Summary of the Terms of Sale to Sovereign Partners ....................................... 4
Risk Factors
We May Not Receive All Of The Proceeds That We Anticipate From Our
Agreement with Sovereign Partners ............................................... 5
Shareholders May Experience Significant Dilution From Our Sale Of Shares
To Sovereign Partners ........................................................... 5
Our Prior Transaction With Sovereign Partners Resulted In Significant Dilution
To Shareholders ................................................................. 5
The Resale By Sovereign Partners Of Our Shares May Lower the Market Price
Of Our Common Stock ............................................................. 6
We May Not Be Able To Obtain Payment From Sovereign Partners ........................ 6
Our Business May Not Become Profitable .............................................. 6
We Will Require Significant Additional Capital To Become Profitable, Which
Capital May Not Be Readily Available ............................................ 6
We May Not Be Able To Successfully Sell Our Current Products ........................ 7
We Currently Do Not Have All Of The Capabilities .................................... 7
Necessary To Sell And Market Our Products ....................................... 7
Our Results Of Operations May Suffer If We Lost Any Of Our Key Employees ........... 7
Our Results Of Operations May Suffer If We
Lost Any Of Our Larger Customers ................................................ 7
Our Results Of Operations May Suffer If Foreign Trade is Restricted ................. 7
Our Results Of Operations Could Suffer If We Lost Any
Of Our Sole Source Suppliers .................................................... 7
Our Results Of Operations Could Suffer If We Lose
Any Of Our Contract Manufacturers ............................................... 7
Use Of Contract Manufacturers May Require Increased Inventory ..................... 8
We Face Substantial Competition In The Video Conferencing
Market And May Not Be Able to Successfully Compete .............................. 8
Our Products May Be Rendered Obsolete By Rapid Introduction
of Competitive Products And Technological Changes .............................. 8
Our Products May Infringe Third Party Intellectual Property Rights .................. 8
We Do Not Have The Financial Resources To Enforce
And Defend All Of Our Intellectual Property Rights .............................. 8
New And Redesigned Products Require
Compliance With Government Regulations,
Which We May Not Be Able To Afford .............................................. 9
We May Be Unable To Continue To Use The C-Phone Name ................................ 9
Resale Of Our Shares Held By Our Directors
And Officers May Lower The Market Price Of Our Shares ........................... 9
Our Stock Price Has Been Highly Volatile ............................................ 9
Potential Loss Of Our Nasdaq National Market Listing
Could Adversely Affect The Price of Our Shares ..................................10
Our Operations May Not Be Year 2000 Compliant .......................................10
We Do Not Expect To Pay Dividends ...................................................10
Special Note Regarding Forward-looking Statements ...................................10
Where You Can Find More Information ......................................................11
C-Phone Corporation
Description of our Business .........................................................12
Recent Financing Arrangement with Sovereign Partners ................................13
Use of Proceeds ..........................................................................14
</TABLE>
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<TABLE>
<CAPTION>
<S> <C>
Selling Shareholder ......................................................................14
Plan of Distribution
Manner of Sales; Broker-Dealer Compensation. ........................................15
Filing of a Post-Effective Amendment In Some Instances. .............................15
Persons Deemed to be Underwriters ...................................................16
Regulation M ........................................................................16
Description of Our Capital Stock .........................................................17
Legal Matters ............................................................................17
Experts ..................................................................................17
</TABLE>
YOU SHOULD ONLY RELY ON THE INFORMATION INCORPORATED BY REFERENCE OR PROVIDED IN
THIS PROSPECTUS OR ANY SUPPLEMENT. YOU SHOULD NOT ASSUME THAT THE INFORMATION IN
THIS PROSPECTUS OR ANY SUPPLEMENT IS ACCURATE AS OF ANY DATE OTHER THAN THE DATE
ON THE COVER OF SUCH DOCUMENT. WE HAVE NOT AUTHORIZED ANYONE ELSE TO PROVIDE YOU
WITH DIFFERENT INFORMATION. WE ARE NOT MAKING AN OFFER OF SHARES OF COMMON STOCK
IN ANY STATE WHERE THE OFFER IS NOT PERMITTED
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SUMMARY OF THE TERMS OF SALE TO SOVEREIGN PARTNERS
The following summarizes some of the more important terms of our
arrangement with Sovereign Partners. More detailed information concerning our
agreement with Sovereign Partners is contained under "C-Phone Corporation -
Recent Financing Arrangement with Sovereign Partners."
Securities to be sold: C-Phone common stock
Maximum purchase price: $5,000,000
Period of sale: 18 months after the date of this
prospectus
Maximum amount of each draw: $1,000,000
Minimum amount of each draw: $ 500,000
Draw dates: Dates selected by C-Phone, but no more
frequently then once very 30 days.
Sale price per share to
Sovereign Partners: 85% of average market price
Payment and delivery of shares: Ten days following a draw date
Conditions to draws: o Average market price of our common
stock has been at least $1
o Our common stock must continue to be
traded on The Nasdaq Stock Market
o No more than a total of 1,500,000
shares may be issued to Sovereign
Partners by C-Phone under the
agreement and this prospectus
o Sovereign Partners' ownership of our
common stock after each draw cannot
exceed 9.9% of our outstanding
shares
o The registration statement which
includes this prospectus must be
effective
Limits on short sales: Sovereign Partners may engage in short
sales only after we have notified it of
an upcoming draw, and only with respect
to the number of shares covered by the
draw
Ability to immediately resell shares: Sovereign Partners is able to
immediately resell to the public any
shares it acquires from us
Finder's fee: For arranging the sale to Sovereign
Partners:
o We issued Cardinal Capital
Management, Inc. a warrant to
purchase up to 100,000 shares at $8
per share, expiring September 18,
2000
o We will pay Cardinal Capital 6% of
the cash received from each draw,
$30,000 of which was paid in advance
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RISK FACTORS
INVESTING IN C-PHONE COMMON STOCK IS VERY RISKY. AS A RESULT, YOU
SHOULD BE ABLE TO SUSTAIN A COMPLETE LOSS OF YOUR INVESTMENT. IN ADDITION TO THE
OTHER INFORMATION IN THIS PROSPECTUS, YOU SHOULD CAREFULLY CONSIDER THE
FOLLOWING FACTORS BEFORE PURCHASING ANY OF OUR COMMON STOCK.
WE MAY NOT RECEIVE ALL OF THE PROCEEDS THAT WE ANTICIPATE FROM OUR AGREEMENT
WITH SOVEREIGN PARTNERS
Our agreement requires Sovereign Partners to purchase up to $5,000,000
of our shares, as we elect from time to time. We are registering only 1,500,000
shares under this prospectus to sell to Sovereign Partners. Since the price at
which we will sell our shares to Sovereign Partners is at a 15% discount to the
average market price of our common stock, if the average market price is less
than approximately $3.92 per share at the time of sale, we will receive gross
proceeds of less than $5,000,000. For additional information concerning our
agreement with Sovereign Partners, see "C-Phone Corporation - Recent Financing
Agreement with Sovereign Partners."
SHAREHOLDERS MAY EXPERIENCE SIGNIFICANT DILUTION FROM OUR SALE OF SHARES TO
SOVEREIGN PARTNERS
As the market price for our common stock decreases, the number of
shares which may be sold to Sovereign Partners will increase. If we were to
require Sovereign Partners to purchase our shares at a time when our stock price
is depressed, our existing shareholders' interest in our company will be
significantly reduced. This prospectus covers only 1,500,000 shares for sale to
Sovereign Partners. If we determine to sell Sovereign Partners more than a total
of 1,500,000 shares, we would need to file an additional registration statement.
If we determine to sell Sovereign Partners more than a total of 1,543,765
shares, we would require approval of our shareholders, which may not be
obtainable. The following table sets forth the number of shares that we would
issue if we required Sovereign Partners to purchase the maximum amount of
$5,000,000 permitted under the agreement, based on a range of stock prices. The
table also shows the percentage that these shares would constitute, immediately
after issuance, of the total number of shares which we currently have
outstanding. The information in the table is based on 7,978,605 shares of common
stock outstanding on March 22, 1999. The per share average market price of $2.69
was the average market price on March 22, 1999.
Per Share Average Per Share Price Paid Number of Percentage of
Market Price by Sovereign Partners Shares Issuable Outstanding
------------ --------------------- --------------- -----------
$5.00 $4.25 1,176,471 12.9%
$4.00 $3.40 1,470,588 15.6%
$3.92 $3.33 1,500,000 15.8%
$3.00 $2.55 1,960,784 19.7%
$2.69 $2.28 2,188,538 21.5%
$2.00 $1.70 2,941,176 26.9%
$1.00 $0.85 5,822,353 42.4%
OUR PRIOR TRANSACTION WITH SOVEREIGN PARTNERS RESULTED IN SIGNIFICANT DILUTION
TO SHAREHOLDERS
In December 1997, we completed a private placement of convertible
preferred stock and warrants with Sovereign Partners and several other
investors. The terms of the preferred stock allowed the
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investors to purchase our common stock at a 15% discount to the market price of
our common stock at the time of conversion. All the preferred shares were
converted into 1,987,622 shares of our common stock, or 37.2% of the common
stock outstanding on the date we issued the preferred stock. We cannot assure
you that our current agreement with Sovereign Partners also will not
significantly reduce our existing shareholders' interest in our company.
THE RESALE BY SOVEREIGN PARTNERS OF OUR SHARES MAY LOWER THE MARKET PRICE OF OUR
COMMON STOCK
The resale by Sovereign Partners of the common stock that it purchases
from us will increase the number of our publicly traded shares, which could
lower the market price of our common stock. Moreover, the shares that we sell to
Sovereign Partners will be available for immediate resale, and the mere prospect
of this transaction also could lower the market price for our common stock
WE MAY NOT BE ABLE TO OBTAIN PAYMENT FROM SOVEREIGN PARTNERS
As discussed below in the section "C-Phone Corporation - Recent
Financing Arrangement with Sovereign Partners," Sovereign Partners' obligation
to purchase our shares is dependent upon various conditions being satisfied. If
these conditions are not satisfied, we cannot require Sovereign Partners to
purchase our shares. Since the obligation of Sovereign Partners to complete its
purchase is not secured or guaranteed, if Sovereign Partners does not have
available funds at the time it is required to make a purchase or if Sovereign
Partners otherwise refuses to honor its obligation to us, we may not be able to
force it to do so.
OUR BUSINESS MAY NOT BECOME PROFITABLE
During our three fiscal years ended February 28, 1998 and the nine
months ended November 30, 1998, we incurred significant losses. We expect to
continue to incur significant losses due to our expenditures for product
development and the commercialization of our products. The following table
summarizes our total revenues and net losses since March 1, 1995.
<TABLE>
<CAPTION>
Year Ended February 2
-------------------------------------------- Nine Months Ended
1996 1997 1998 November 30, 1998
---------- ---------- ---------- -----------------
<S> <C> <C> <C> <C>
Total revenues $1,786,115 $2,042,878 $1,890,666 $1,346,776
Net loss $4,161,336 $3,008,224 $5,974,828 $2,975,756
</TABLE>
WE WILL REQUIRE SIGNIFICANT ADDITIONAL CAPITAL TO BECOME PROFITABLE, WHICH
CAPITAL MAY NOT BE READILY AVAILABLE
In order to become profitable, we will need to sell significant
quantities of our products. However, to sell significant quantities of our
products, we will need to substantially increase the amount we spend on
manufacturing, inventory and marketing and will have increased costs associated
with the carrying of anticipated increased accounts receivable. This will
require us to raise substantial additional capital. We are unable to assure you
that additional capital will be available when needed or, if available, that the
terms of any then available financing will be favorable or will be acceptable to
us.
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WE MAY NOT BE ABLE TO SUCCESSFULLY SELL OUR CURRENT PRODUCTS
To date, we have not sold a significant amount of our stand-alone video
conferencing products. In addition, we have no reliable data to assure us that
there will be adequate market acceptance of stand-alone video conferencing
products in general, or of our products in particular. As a result, we cannot
assure you that our video conferencing products will gain sufficient market
acceptance to generate significant revenues.
WE CURRENTLY DO NOT HAVE ALL OF THE CAPABILITIES NECESSARY TO SELL AND MARKET
OUR PRODUCTS
We do not currently possess all of the personnel and capabilities
necessary to fully implement our sales and marketing plans. We are devoting a
material portion of our available resources to expanding our sales and marketing
capability. If we are not successful, our financial condition and business will
be significantly and adversely effected.
OUR RESULTS OF OPERATIONS MAY SUFFER IF WE LOST ANY OF OUR KEY EMPLOYEES
As a small, technology driven company, we are heavily dependent upon
the efforts and talents of a limited number of people, including Daniel Flohr,
our Chief Executive Officer, Tina Jacobs, our Chief Operating Officer, Stuart
Ross, our Director of Engineering, and James Jarvis, our Vice President of Sales
and Marketing. If any of our key employees left us, we believe that it would be
difficult to replace them in a timely manner, if at all. If we were unable to
quickly replace key employees, our operations would be significantly and
adversely affected.
OUR RESULTS OF OPERATIONS MAY SUFFER IF WE LOST ANY OF OUR LARGER CUSTOMERS
Historically, we have relied on a small number of customers for a
significant amount of our business. Our ten largest customers accounted for over
60% of our total net revenues during the nine months ended November 30, 1998. A
loss of any of these larger customers or a substantial reduction in orders from
any of these customers would substantially reduce our short-term revenues and
could significantly affect our operations, unless we are able to obtain
offsetting orders from new customers, of which there can be no assurance.
OUR RESULTS OF OPERATIONS MAY SUFFER IF FOREIGN TRADE IS RESTRICTED
During the nine months ended November 30, 1998, almost 50% of our total
net revenues were from distributors outside of the United States. A reduction in
the volume of foreign trade, material restrictions on foreign trade or
fluctuations in foreign exchange rates could significantly reduce our foreign
distributors' orders. We generally do not have written agreements with any of
these distributors which require minimum levels of purchases. Therefore, our
foreign distributors could reduce or curtail their purchases at any time without
financial penalty. OUR RESULTS OF OPERATIONS COULD SUFFER IF WE LOST ANY OF OUR
SOLE SOURCE SUPPLIERS
We rely on sole sources of supply for some of our components and
specialized subassemblies, some of which are manufactured outside of the United
States and only to customer order or are inventoried by the manufacturer in
limited quantities. If our sources of supply were to become unavailable, other
sources of supply may not be available without significant delay or increased
cost, and the use of alternative available components could require us to
undertake costly re-engineering of portions of our products.
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OUR RESULTS OF OPERATIONS COULD SUFFER IF WE LOSE ANY OF OUR CONTRACT
MANUFACTURERS
We rely on contract manufacturers to manufacture or assemble some of
our components and subassemblies. If any of our contract manufacturers were to
become unavailable, we may not be able to arrange for substitute manufacturers
in a timely manner or at the same cost.
USE OF CONTRACT MANUFACTURERS MAY REQUIRE INCREASED INVENTORY
To be economical, we place our purchase orders with our contract
manufacturers based on our forecasted demand for our products. Until we can
accurately predict our product sales, we will need to commit for production
volumes that may exceed current order rates, which may increase our inventory
costs.
WE FACE SUBSTANTIAL COMPETITION IN THE VIDEO CONFERENCING MARKET AND MAY NOT BE
ABLE TO SUCCESSFULLY COMPETE
Many of our competitors are more established, benefit from greater
market recognition and have significantly greater financial, technological,
manufacturing and marketing resources than us. Existing competitors include 8x8,
Inc., PictureTel Corporation, Polycom, Inc., Tanberg, Inc. and VTEL Corporation.
Potential competitors include well-known established suppliers of consumer
electronic products, such as Lucent Technologies, Inc., Philips Electronics
N.V., and Sony Corp. These potential competitors sell television and/or
telephone products into which they may integrate video conferencing, thereby
eliminating the need to purchase a separate video conferencing product.
OUR PRODUCTS MAY BE RENDERED OBSOLETE BY RAPID INTRODUCTION OF COMPETITIVE
PRODUCTS AND TECHNOLOGICAL CHANGES
We expect that the technology underlying video conferencing will
continue to be undergo rapid change as new products are introduced and different
standards are developed. With our limited resources, we may not be able to
timely and adequately respond to new product developments and technological
advances by developing and introducing new products or features. As a result,
technological developments and new products introduced by competitors could
render our existing products and features noncompetitive or obsolete.
OUR PRODUCTS MAY INFRINGE THIRD PARTY INTELLECTUAL PROPERTY RIGHTS
The technology applicable to our 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 us. Since we do not have the resources to
maintain a staff whose primary function is to investigate the level of
protection afforded to third parties on devices and components which we use in
our products, it is possible that a third party could successfully claim that
our products infringe on their intellectual property rights. If this were to
occur, we may be subject to substantial damages, we may not be able to obtain
appropriate licenses at a cost we could afford and we may not have the ability
to timely redesign our products.
WE DO NOT HAVE THE FINANCIAL RESOURCES TO ENFORCE AND DEFEND ALL OF OUR
INTELLECTUAL PROPERTY RIGHTS
The actions we take to protect our intellectual property may not be
adequate to deter misappropriation of our proprietary information. We do not
have adequate financial resources to finance the high cost required to enforce,
through litigation, all of our intellectual property rights. In addition,
litigation could result in a substantial diversion of managerial time and
resources, which could be better and more fruitfully utilized on other
activities.
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NEW AND REDESIGNED PRODUCTS REQUIRE COMPLIANCE WITH GOVERNMENT REGULATIONS,
WHICH WE MAY NOT BE ABLE TO AFFORD
If we redesign or otherwise modify any of our products, or if current
government regulations are revised, we may be required to have our products
recertified by the FCC or otherwise brought into compliance to continue selling
our products. We cannot assure you as to when, if ever, that our redesigned or
modified products would continue to be in compliance with applicable
governmental regulations. In addition, we must comply with similar requirements
of various foreign government agencies to effect our foreign sales. While our
foreign distributors, as part of their distribution agreements, are responsible
for ensuring compliance with foreign government regulations, we cannot assure
you that they will do so. If our foreign distributors fail to ensure compliance
with these regulations, they may be unable to make sales in their respective
countries, as we do not have the necessary resources to ensure governmental
compliance outside of the Untied States.
WE MAY BE UNABLE TO CONTINUE TO USE THE C-PHONE NAME
A proceeding brought by the former owner of the C-Phone trademark to
cancel registration of our "C-Phone"(R) trademark is pending before the U. S.
Patent and Trademark Office's Trial and Appeal Board. If we are not successful
in these proceedings, we may need to change the identifying name on our
products. We also would need to consider whether we should change our corporate
name. In addition, we could be required to pay damages to the former owner of
the mark, if it could show that we had infringed its common law rights. Any
change in our use of the C-Phone name would result in a loss of good will and
identification which we have been promoting since 1993, and could have a
temporary adverse impact on our marketing plans.
RESALE OF OUR SHARES HELD BY OUR DIRECTORS AND OFFICERS MAY LOWER THE MARKET
PRICE OF OUR SHARES
As of March 22, 1999, we had a total of 7,978,605 shares of common
stock outstanding, 1,123,375 of which were held by our directors and executive
officers. These shares may only to resold in limited quantities and only within
the limitations imposed by Rule 144 under the Securities Act. The ability to
publicly resell these restricted shares may lower the market price of our common
stock.
OUR STOCK PRICE HAS BEEN HIGHLY VOLATILE
The market price for our common stock has been, and is likely to
continue to be, highly volatile. Factors which could significantly affect the
market price of our shares include:
o actual or anticipated fluctuations in our operating results,
o changes in alliances or relationships with our customers,
o new products or technical innovations by us or by our existing or
potential competitors,
o trading activity and strategies occurring in the marketplace with
respect to our common stock,
o general market conditions and other factors unrelated to us or outside
of our control.
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POTENTIAL LOSS OF OUR NASDAQ NATIONAL MARKET LISTING COULD ADVERSELY AFFECT THE
PRICE OF OUR SHARES
Our common stock is quoted on the Nasdaq National Market. If the bid
price of our common stock were to fall below of $1.00 per share, if we were to
have less than $4,000,000 in net tangible assets or if the value of our common
stock held by our shareholders (other than our officers and directors) were to
be less than $5,000,000, our common stock could be delisted from the Nasdaq
National Market.
In addition, The Nasdaq Stock Market has recently issued an
interpretive release regarding the issuance of securities that are convertible
into common shares at a price lower than the market price of the common shares
at the time of conversion. If Nasdaq considers that our agreement with Sovereign
Partners involves this type of security, and that we have failed to comply with
these rules, our common stock could be delisted from The Nasdaq Stock Market.
Nasdaq also could delist our common stock if it determines that our agreement
with Sovereign Partners raises public interest concerns.
If our common stock is delisted from Nasdaq, any trading of our shares
then would be conducted in the over-the-counter market. This would make it more
difficult for an investor to dispose of, or to obtain accurate quotations for,
our common stock. In addition, delisting would make it more difficult for us to
raise funds through the sale of our securities.
OUR OPERATIONS MAY NOT BE YEAR 2000 COMPLIANT
Computer systems may experience problems handling dates beyond the year
1999 because many computer programs use only two digits to identify a year in a
date field. We have not yet completed our internal Year 2000 compliance program,
nor have we received adequate assurances from all our critical third-party
suppliers of their Year 2000 readiness. Year 2000 problems which interrupt the
normal business operations of our customers also could significantly and
adversely impact us. We have not yet developed a contingency plan in the event
of unsuccessful implementation of our Year 2000 program or as a result of the
noncompliance by any of our key suppliers or customers. As a result, we are
uncertain that our internal operations will not be significantly affected by the
Year 2000 issue or that Year 2000 problems involving our suppliers or customers
will not significantly and adversely affect us.
WE DO NOT EXPECT TO PAY DIVIDENDS
We never have paid any dividends. For the foreseeable future, we expect
that our earnings, if any, will be retained to finance the expansion and
development of our business. Any payment of dividends is within the discretion
of our Board of Directors and will depend, among other factors, on our earnings
(if any), capital requirements, and operating and financial condition.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
We have made statements in this prospectus, and in the documents we
incorporate by reference, that are "forward-looking statements" within the
meaning of the Securities Act and the Securities Exchange Act. Sometimes these
statements contain words like "may," "believe," "expect," "continue," "intend,"
"anticipate" or other similar words. These statements could involve known and
unknown risks, uncertainties and other factors that might significantly alter
the actual results suggested by the statements. In other words, our performance
might be quite different from what the forward-looking statements imply. The
following factors, as well as those discussed above in this "Risk Factors"
section and in the documents which we incorporate by reference, could cause our
performance to differ from the implied results:
o inability to obtain capital for continued development and
commercialization of our products.
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o inability to generate market acceptance of our products.
o failure to obtain new customers or retain existing customers.
o inability to manage our growth.
o loss of our key employees.
o changes in general economic and business conditions.
o changes in industry trends.
We have no obligation to release publicly the result of any revisions
to any of our "forward-looking statements" to reflect events or circumstances
that occur after the date of this prospectus or to reflect the occurrence of
other unanticipated events.
WHERE YOU CAN FIND MORE INFORMATION
We publicly file annual, quarterly and current reports, proxy
statements and other documents with the SEC. You may read and copy any of these
document at the SEC's public reference rooms in Washington, D.C., New York City
and Chicago. Please call the SEC at 1-800-SEC-0330 for further information on
the public reference rooms. The SEC maintains a internet website at
http://www.sec.gov where our publicly filed documents may be obtained.
This prospectus is part of a registration statement filed with the SEC.
Our registration statement contains more information than this prospectus
regarding us and our common stock and includes supplemental exhibits and
schedules. You can obtain a copy of the registration statement from the SEC at
the address listed above or from its internet website.
The SEC allows us to "incorporate by reference" into this prospectus
the information we file with it. This means that we are deemed to be disclosing
information to you by referring you to those documents. This information is
important and should be reviewed. The information incorporated by reference is
considered to be part of this prospectus.
We incorporate by reference into this prospectus the following
documents:
o Annual Report on Form 10-KSB for our fiscal year ended February 28,
1998.
o Quarterly Reports on Form 10-QSB for our fiscal quarters ended May 31,
1998, August 31, 1998 and November 30, 1998.
o Current Report on Form 8-K, filed on September 24, 1998.
o Proxy Statement, dated June 9, 1998, with respect to our 1998 annual
meeting of shareholders.
o Description of our common stock, which is contained in Item 1 of our
Registration Statement on Form 8-A, dated June 22, 1994.
You may request a copy of these filings, at no cost, by writing to us
at the following address:
11
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C-Phone Corporation
6714 Netherlands Drive
Wilmington, North Carolina 28405
Attention: Paul Albritton, Chief Financial Officer,
You also may obtain this information by telephoning Mr. Albritton at
(910) 395-6100.
This prospectus is accompanied by a copy of our Annual Report on Form
10-KSB for our fiscal year ended February 28, 1998 and our Quarterly Report on
Form 10-QSB for our most recent fiscal quarter.
C-PHONE CORPORATION
DESCRIPTION OF OUR BUSINESS
We are engaged primarily in the engineering, manufacturing and
marketing of video conferencing systems. In 1993, we introduced C-Phone, our
first PC-based video conferencing system, which operates over digital networks.
In 1997, we introduced C-Phone Home(TM), a stand-alone set-top "video phone,"
which operates over analoG (or regular) telephone lines using a standard
television set. In early 1998, we introduced DS-324(TM), a stand-alone video
conferencing system, which operates over either analog or digital telephone
lines.
We presently market several stand-alone video conferencing products,
including:
o DS-324 for business and personal use.
o DS-324/Pro(TM) for business use and special applications.
o DS-324/AV(TM) for security and surveillance applications.
o DS-324/Multipoint System(TM) for distance learning and training
o C-Phone Home for individual home use.
We believe that our stand-alone products currently have greater market
potential than our PC-based products. Therefore, during the second quarter of
calendar 1998, we shifted our resources to our stand-alone products. We are
continuing to support our PC-based products and will provide equipment to our
existing customer base and to new customers in connection with their specialized
applications.
Our products are marketed through a variety of channels, depending upon
the product. Our stand-alone products are marketed to end-users and to
distributors, resellers and original equipment manufacturers, who integrate the
product with other equipment for resale to specific industries such as health
care and security services.
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<PAGE>
RECENT FINANCING ARRANGEMENT WITH SOVEREIGN PARTNERS
On September 18, 1998, we entered into the private equity credit
agreement with Sovereign Partners. Pursuant to the agreement, Sovereign Partners
has agreed to purchase our common stock during the 18-month period commencing on
the date of this prospectus. From time to time during the term of the agreement,
but no more frequently than once every 30 days, we can require Sovereign
Partners to purchase between $500,000 and $1,000,000 of our common stock until
all the purchases total $5,000,000 The purchase price for each share will equal
85% of the average closing bid price of our common stock during the five trading
days immediately preceding the day we notify Sovereign Partners of a purchase
obligation.
Sovereign Partners' obligation to purchase shares of our common stock
is subject to various conditions, the principal conditions being:
o The average closing bid price of our common stock has been at least
$1.00 per share for the 20 trading days preceding the date of our
notice of purchase to Sovereign Partners.
o Our common stock continues to be traded on The Nasdaq Stock Market.
o The total number of shares that we may sell to Sovereign Partners under
the agreement cannot exceed 1,543,765 shares, unless we have obtain
shareholder approval as required by the rules of The Nasdaq Stock
Market., Inc. We do not presently intend to sell Sovereign Partners
more than 1,500,000 shares. Accordingly, this prospectus only covers
that number of shares. If we decide in the future to sell additional
shares to Sovereign Partners, we must first file another registration
statement covering the additional shares and obtain approval from our
shareholders to sell any of the additional shares in excess of a total
of 1,543,765 shares.
o The number of shares we may sell to Sovereign Partners on any draw
date, when aggregated with all other shares then owned by Sovereign
Partners that it purchased under the agreement, cannot exceed 9.9% of
the total common stock we then have outstanding.
o This prospectus must continue to be available to permit Sovereign
Partners to publicly resell the shares that it acquires from us under
the agreement.
We may terminate the agreement without any further obligation to
Sovereign Partners at any time after we have sold it at least $1,000,000 of
common stock. If we terminate the agreement prior to that time, we must pay
Sovereign Partners a penalty of up to $150,000, depending upon the amount of the
shortfall. Sovereign Partners has agreed not to engage in any short sales of our
common stock, except that it may engage in short sales after it receives a
purchase notice from us, but only for the number of shares of common stock
covered by our purchase notice.
Under a related registration rights agreement, we have agreed to file
and maintain effectiveness of a registration statement for the resale by
Sovereign Partners of the shares it purchases under the agreement. If we fail to
obtain effectiveness of the registration statement by April 14, 1999, Sovereign
may require us to pay a penalty of $10,000. If, after the registration statement
becomes effective, we fail to maintain the effectiveness, Sovereign Partners may
require us to pay a penalty equal to 1% of the purchase price of the shares of
common stock then held by Sovereign Partners for each 30-day period that the
registration statement is not effective.
In connection with the agreement, we issued to Cardinal Capital, as
finder, a two-year warrant to purchase 100,000 shares of common stock at an
exercise price of $8.00 per share. If the closing sales price of our common
stock exceeds $10.00 for five consecutive trading days, we may give Cardinal
13
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Capital notice of our intention to redeem the warrant. In Cardinal Capital does
not exercise the warrant prior to the redemption date specified in our
redemption notice, we may redeem the warrant for $1,000. We also paid Cardinal
Capital a cash fee of $30,000 and have agreed to pay Cardinal Capital an
additional cash fee equal to 6% of the dollar amount of any sales of common
stock to Sovereign Partners under the agreement, with our initial $30,000
payment to be credited against that fee.
Sovereign Partners is an "underwriter" within the meaning of the
Securities Act in connection with its resale of shares of our common stock under
this prospectus.
USE OF PROCEEDS
We will not receive any proceeds from the resale of our common stock by
Sovereign Partners. However, we will receive proceeds from our sale of common
stock to Sovereign Partners under the agreement. We could receive proceeds of up
to $5,000,000 under the agreement with Sovereign Partners, before payment of any
fees, including the finder's fee to Cardinal Capital, and expenses we have
incurred or in the future may incur. We cannot assure you that we will, or will
be allowed to, require Sovereign Partners to purchase any of our common stock.
Any net proceeds we receive from the sales of our common stock to
Sovereign Partners will be used for general corporate purposes and working
capital, including for the marketing of our stand-alone video conferencing
products and for the funding of anticipated increases in inventories and
receivables related to these products.
SELLING SHAREHOLDER
The shares being offered by Sovereign Partners consist of shares of
common stock that it may purchase from us pursuant to the private equity credit
agreement. For additional information about the agreement, see "C-Phone
Corporation - Recent Financing Arrangement with Sovereign Partners." Steven
Hicks and Daniel Pickett are the principal members of Southridge Capital
Management LLC, the sole general partner of Sovereign Partners. In this
capacity, Southridge Capital and each of Messrs. Hicks and Pickett may be deemed
to own all the shares of common stock beneficially owned by Sovereign Partners.
Southridge Capital and Messrs. Hicks and Pickett each disclaim beneficial
ownership of these shares. Sovereign Partners purchased 2,000 shares of our
Series A Preferred Stock and 200,000 common stock purchase warrants in our
December 1997 private placement. Sovereign Partners has converted all the
preferred shares, exercised all the warrants and sold all of the shares of
common stock that it received upon the conversions and exercises. Sovereign
Partners does not beneficially own any of our common stock other than the shares
it may be required to purchase pursuant to the private equity credit agreement.
We have agreed to pay all the expenses we incur in connection with the
registration of the shares. Sovereign Partners will pay all broker commissions
and other selling expenses it incurs, as well as any legal and other expenses it
may incur in the registration or sale of its shares.
Except for these relationships, Sovereign Partners has not had a
material relationship with us or any of our affiliates within the past three
years.
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The following table sets forth information about the ownership of our
common stock by Sovereign Partners as of March 22, 1999.
<TABLE>
<CAPTION>
SHARES OF COMMON
SHARES OF COMMON STOCK STOCK TO BE
NAME OF SELLING SHAREHOLDER BENEFICIALLY OWNED SHARES OF COMMON BENEFICIALLY OWNED
PRIOR TO THE OFFERING STOCK BEING OFFERED(1) AFTER THE OFFERING(1)
- --------------------------- ---------------------- ------------------- ---------------------
<S> <C>
SOVEREIGN PARTNERS, L.P. 1,500,000 1,500,000 0
- -----------------------
</TABLE>
- ----------
(1) ASSUMES THE SALE OF ALL THE SHARES OF COMMON STOCK WHICH ARE BEING
OFFERED PURSUANT TO THIS PROSPECTUS.
PLAN OF DISTRIBUTION
MANNER OF SALES; BROKERDEALER COMPENSATION.
Sovereign Partners May Resell Any Shares of Common Stock That It
Acquires From Us Pursuant to the Private Equity Credit Agreement. It May Elect
to Sell Any of These Shares in Privately Negotiated Transactions or in the
Over-the-counter Market Through Brokers and Dealers. These Brokers and Dealers
May Act as Agent or as Principals and May Receive Compensation in the Form of
Discounts, Concessions or Commissions From Sovereign Partners or From the
Purchasers of Its Shares of Common Stock for Whom the Broker-dealers May Act as
Agent or to Whom the Broker-dealers May Sell as Principal, or Both. Sovereign
Partners Also May Sell the Shares in Reliance Upon Rule 144 Under the Securities
Act At Times as It is Eligible to Do So. We Have Been Advised by Sovereign
Partners That It has Not Made Any Arrangements for the Distribution of the
Shares. Broker-dealers Who Effect Sales for Sovereign Partners May Arrange for
Other Broker-dealers to Participate. Broker-dealers Engaged by Sovereign
Partners Will Receive Commissions or Discounts From It in Amounts to be
Negotiated Prior to the Sale.
FILING OF A POST-EFFECTIVE AMENDMENT IN SOME INSTANCES.
If the Selling Shareholder Notifies Us That It has Entered Into a
Material Arrangement (Other Than a Customary Brokerage Account Agreement) With a
Broker or Dealer for the Sale of Shares of Common Stock Under This Prospectus
Through a Block Trade, Purchase by a Broker or Dealer or Similar Transaction, We
Will File a Post-effective Amendment to the Registration Statement Under the
Securities Act. This Post-effective Amendment Will Disclose:
o the Name of Each Broker-dealer.
o the Number of Shares Involved.
o the Price At Which Those Shares Were Sold.
o the Commissions Paid or Discounts or Concessions Allowed to the
Broker-dealer(s).
o If Applicable, That the Broker-dealer(s) Did Not Conduct Any
Investigation to Verify the Information Contained or Incorporated by
Reference in This Prospectus, as Amended
o Any Other Facts Material to the Transaction.
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PERSONS DEEMED TO BE UNDERWRITERS
Sovereign Partners is an "Underwriter" Within the Meaning of the
Securities Act in Connection With the Sale of the Shares It May Receive Pursuant
to the Agreement. Accordingly, the 15% Discount On the Purchase of the Common
Stock to be Received by Sovereign Partners Will be an Underwriting Discount
Under the Securities Act. in Addition, Any Broker-dealers That Participate With
Sovereign Partners in the Sale of Those Shares Also Will be Deemed to be
"Underwriters" Within the Meaning of the Securities Act in Connection With These
Sales. Accordingly, Any Discounts, Concessions or Commissions Received by Any of
These Broker-dealers Acting On Sovereign Partners' Behalf and Any Profits
Received by Them On the Resale of the Shares of Common Stock Will be Deemed to
be Underwriting Discounts and Commissions Under the Securities Act.
REGULATION M
We Have Informed Sovereign Partners That Regulation M Promulgated Under
the Securities Exchange Act May be Applicable to It With Respect to Any Purchase
or Sale of Our Common Stock. in General, Rule 102 Under Regulation M Prohibits
Any Person Connected With a Distribution of Our Common Stock From Directly or
Indirectly Bidding For, or Purchasing for Any Account in Which It has a
Beneficial Interest, Any of Our Common Stock or Any Right to Purchase Our Common
Stock for a Period of One Business Day Before and After Completion of Its
Participation in the Distribution.
During Any Distribution Period, Regulation M Prohibits Sovereign
Partners and Any Other Persons Engaged in the Distribution From Engaging in Any
Stabilizing Bid or Purchasing Our Common Stock Except for the Purpose of
Preventing or Retarding a Decline in the Open Market Price of Our Common Stock.
No Person May Effect Any Stabilizing Transaction to Facilitate Any Offering At
the Market. Inasmuch as Sovereign Partners Will be Reoffering and Reselling Our
Common Stock At the Market, Regulation M Prohibits It From Effecting Any
Stabilizing Transaction in Contravention of Regulation M With Respect to Our
Common Stock.
Sovereign Partners May be Entitled, Under Agreements Entered Into With
Us, to Indemnification Against Liabilities Under the Securities Act, the
Securities Exchange Act and Otherwise.
DESCRIPTION OF OUR CAPITAL STOCK
We are Authorized to Issue Up to 20,000,000 Shares of Common Stock, Par
Value $.01 Per Share, and Up to 1,000,000 Shares of Preferred Stock, Par Value
$.01 Per Share.
COMMON STOCK. the Holders of the Our Common Stock Have One Vote Per
Share. These Holders are Entitled to Receive, Subject to the Preferential Rights
of the Holders of Any Shares of Any Series of the Preferred Stock Then
Outstanding, Out of the Assets Legally Available Therefor, Dividends At the Time
and in the Amounts as Our Board of Directors May Determine. Subject to the
Preferential Rights of the Holders of Any Shares of Any Series of Our Preferred
Stock, Upon Liquidation, Dissolution or Winding Up of Our Company, the Assets
Legally Available for Distribution to Our Shareholders Will be Distributed
Ratably Among Our Common Shareholders. as of March 22, 1999, We Had a Total of
7,978,605 Shares of Common Stock Outstanding.
PREFERRED STOCK. Our Board of Directors is Authorized to Issue Up to
1,000,000 Shares of Preferred Stock From Time to Time, in One or More Series,
Fixing in Each Case, the Rights and Preferences of the Series, Which May
Include:
o Dividend Rate and Whether Dividends Shall be Cumulative.
16
<PAGE>
o Voting Rights, If Any.
o Redemption Price, If Any.
o Amount Payable Upon Involuntary or Voluntary Liquidation.
o Terms and Conditions On Which Shares of Preferred Stock May be
Converted If the Shares of That Series are Convertible
Our Board Previously Designated 5,000 Preferred Shares as Series a
Preferred Stock, of Which 4,500 Shares Were Issued to the Investors in Our
December 1997 Private Placement. All of These Shares Were Converted Prior to
November 30, 1998. Accordingly, We Have No Preferred Shares Outstanding.
LEGAL MATTERS
The Law Firm of Warshaw Burstein Cohen Schlesinger & Kuh, Llp Will Give
Its Opinion On the Validity of Our Common Stock. as of the Date of This
Prospectus, Two Partners of This Law Firm Beneficially Own an Aggregate of
12,105 Shares of Common Stock.
EXPERTS
Our Financial Statements as of February 28, 1998 and 1997 and for the
Three Fiscal Years Ended February 28, 1998, Incorporated in This Prospectus
Constituting Part of the Registration Statement On Form S-2 by Reference to Our
Annual Report On Form 10-Ksb for the Fiscal Year Ended February 28, 1998, Have
Been So Incorporated in Reliance On the Report of Pricewaterhousecoopers Llp,
Independent Accountants, Given On the Authority of Said Firm as Experts in
Auditing and Accounting.
17
<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 ................................................ $ 1,404
Legal Fees and Expenses ............................................. 35,000
Accounting Fees and Expenses ........................................ 12,000
Miscellaneous Expenses .............................................. 1,596
----------
Total ......................................................... $ 50,000
==========
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
As permitted by Section 722 of the New York Business Corporation Law
(the "BCL"), Article SIXTH of C-Phone'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 C-Phone'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
II-1
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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 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 C-Phone 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 C-Phone, or is or was
serving at the request of C-Phone 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 C-Phone, 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 C-Phone 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 C-Phone'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
C-Phone'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.
C-Phone 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
4.1 - Private Equity Credit Agreement, dated as of September 18, 1998,
between C-Phone Corporation and Sovereign Partners, L.P.
(incorporated by reference to Exhibit 1 to the Current Report on
Form 8-K, filed by C-Phone Corporation on September 25, 1998).
4.2 - Registration Rights agreement, dated as of September 18, 1998,
between C-Phone Corporation
II-2
<PAGE>
and Sovereign Partners, L.P. (incorporated by reference to Exhibit
2 to the Current Report on Form 8-K, filed by C-Phone Corporation
on September 25, 1998).
4.3 - Common Stock Purchase Warrant, dated as of September 18, 1998, of
C-Phone Corporation issued to Cardinal Capital Management, Inc.
(incorporated by reference to Exhibit 3 to the Current Report on
Form 8-K, filed by C-Phone Corporation on September 25, 1998).
5 - Opinion of Warshaw Burstein Cohen Schlesinger & Kuh, LLP.
(previously filed)
23.1 - Consent of PricewaterhouseCoopers LLP.
23.2 - Consent of Warshaw Burstein Cohen Schlesinger & Kuh, LLP (included
in their opinion previously filed as Exhibit 5).
24 - Power of Attorney. (previously filed)
ITEM 17. UNDERTAKINGS.
C-Phone hereby undertakes that, for purposes of determining any
liability under the Securities Act of 1933, each filing of C-Phone'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.
C-Phone undertakes that it will:
(1) File, during any period in which it offers or sells
securities, a post-effective amendment to this registration statement
to:
(i) Include any prospectus required by section 10(a)(3) of
the Securities Act;
(ii) Reflect in the prospectus any facts or events which,
individually or together, represent a fundamental change in the
information in the registration statement.
Notwithstanding the foregoing, any increase or decrease in
volume of securities offered (if the total dollar value of securities
offered would not exceed that which was registered) and any deviation
from the low or high end of the estimated maximum offering range may be
reflected in the form of prospectus filed with the Commission pursuant
to Rule 424(b) if, in the aggregate, the changes in volume and price
represent no more than a 20% change in the maximum aggregate offering
price set forth in the "Calculation of Registration Fee" table in the
effective registration statement.
(iii) Include any additional or changed material information
on the plan of distribution.
provided, however, that C-Phone does not need to give the
statements in paragraph (a)(1)(i) and (a)(1)(ii) if the information
required in a post-effective amendment is incorporated by reference
from periodic reports filed by C-Phone under the Exchange Act.
(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.
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(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 C-Phone pursuant to the foregoing provisions, or otherwise, C-Phone
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.
If a claim for indemnification against such liabilities (other than the
payment by C-Phone of expenses incurred or paid by a director, officer or
controlling person of C-Phone 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, C-Phone 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 Act and will
be governed by the final adjudication of such issue.
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<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-2 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 March 26, 1999.
C-PHONE CORPORATION
By: /s/ PAUL H. ALBRITTON
------------------------------------------
Paul H. Albritton
Vice President and Chief Financial Officer
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:
March 26, 1999 *
-------------------------------------------
Daniel P. Flohr
President, Chief Executive Officer
and Director (Principal Executive Officer)
March 26, 1999 *
-------------------------------------------
Tina L. Jacobs
Director
March 26, 1999 *
-------------------------------------------
Seymour L. Gartenberg
Director
March 26, 1999 *
-------------------------------------------
E. Henry Mize
Director
March 26, 1999 *
-------------------------------------------
Donald S. McCoy
Director
March 26, 1999 *
-------------------------------------------
Stuart E. Ross
Director
March 26, 1999 /s/ PAUL H. ALBRITTON
-------------------------------------------
Paul H. Albritton
Vice President and Chief Financial
Officer (Principal Financial and
Accounting Officer)
*By: /s/ PAUL H. ALBRITTON
--------------------------------------
Paul H. Albritton
attorney-in-fact
II-5
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the prospectus
constituting part of this Amendment No. 3 to the Registration Statement on Form
S-2 of our report, dated May 8, 1998, except as to the information presented in
Note 14, for which the date is May 15, 1998, on the financial statements of
C-Phone Corporation as of February 28, 1998 and 1997 and for the three years
ended February 28, 1998, which appears on page F-1 of C-Phone Corporation's
Annual Report on Form 10-KSB for the year ended February 28, 1998. We also
consent to the reference to us under the heading "Experts" in such prospectus.
PricewaterhouseCoopers LLP
Raleigh, North Carolina
March 26, 1999
