As filed with the Securities and Exchange Commission on July 3, 1996.
Registration No. 333-1510
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
AMENDMENT NO. 1
TO
FORM S-3
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
THE NATIONAL REGISTRY INC.
(Exact name of registrant as specified in its charter)
----------------------
<TABLE>
<CAPTION>
<S> <C> <C>
Delaware 2505 118th Avenue North 95-4346070
(State or other jurisdiction St. Petersburg, Florida 33716 (I.R.S. Employer
of incorporation or (813) 573-3353 Identification Number)
organization)
</TABLE>
(Name and address, including
zip code and telephone number,
including area code of Registrant's
principal executive offices)
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David I. Jacoby, Esq.
The National Registry Inc.
11831 30th Court North
St. Petersburg, Florida 33716
(813) 573-3353
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
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Approximate date of commencement of proposed sale to the public: From time to
time after this Registration Statement becomes effective as determined by market
conditions.
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. [ ]
<PAGE>
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
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Proposed maximum Proposed maximum
Title of shares Amount to be offering price aggregate Amount of
to be registered Registered per share (1) offering price 1 registration fee
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, par 3,811,478 $1.766 $6,731,070 $2,322
value $.01 per share shares(2)
- ------------------------------------------------------------------------------------------------------------
</TABLE>
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, as amended, or until the Registration Statement
shall become effective on such date as the Commission, acting pursuant to said
Section 8(a), may determine.
- --------
(1) Estimated solely for purposes of calculating the registration fee based
upon the average of the bid and asked prices on the Nasdaq SmallCap Market
on June 28, 1996 and calculated in accordance with Rule 457(c)
promulgated under the Securities Act of 1933, as amended.
(2) A presently indeterminable number of shares of Common Stock are registered
hereunder which may be issued upon conversion of shares of Series B
Preferred Stock, in the event the variable conversion price (currently
indeterminable) component of the conversion formula is the basis for
determining the conversion price, and the warrants held by certain selling
stockholders, in the event certain anti-dilution provisions become
operative. No additional registration fee is included for these shares.
<PAGE>
SUBJECT TO COMPLETION, DATED JULY 3, 1996
PROSPECTUS
3,811,478 Shares
THE NATIONAL REGISTRY INC.
Common Stock
This Prospectus relates to an aggregate of 3,811,478 shares of common
stock, par value $.01 per share (the "Common Stock"), of The National Registry
Inc., a Delaware corporation (the "Company"), of which 1,994,145 shares (the
"Conversion Shares") are issuable by the Company upon the conversion of certain
shares of the Company's Series B Preferred Stock (the "Series B Preferred
Stock"), par value $.01 per share, and 1,817,333 shares (the "Selling
Stockholder Shares, and, collectively with the Conversion Shares, the "Shares")
which may be sold by the other selling stockholders named herein (the "Other
Selling Shareholders" and, collectively with the holders of Conversion Shares,
the "Selling Stockholders"). The Conversion Shares are being offered for sale by
the Company to the holders of the Series B Preferred Stock, and the Selling
Stockholder Shares are being offered by the Other Selling Stockholders. The
conversion price of the Series B Preferred Stock is the lower of $2.53 and 85%
of the average closing bid price for the five trading days prior to the
applicable conversion date. See "Description of Capital Stock--Series B
Preferred Stock" below. The Selling Stockholder Shares may be offered by the
applicable Other Selling Stockholders for their own account at any time and from
time to time in the over-the-counter market, in block trades or otherwise at
prices to be negotiated at the time of sale. Of the Selling Stockholder Shares
being offered hereby, an aggregate of 359,925 shares of Common Stock, subject to
adjustment if certain anti-dilution provisions become operative (the "Warrant
Shares"), are issuable upon the exercise of warrants held by certain Other
Selling Stockholders (the "Warrants"). See "Selling Stockholders."
Although the Company will receive proceeds in the event the Warrants are
exercised, the Company will not receive any proceeds from the issuance or sale
of the Shares offered hereby. There is no assurance that any of the Warrants
will be exercised or that any of the Shares will be sold.
The Common Stock is listed on the Nasdaq SmallCap Market under the symbol
"NRID." On June 28, 1996, the last reported sale price for the Common Stock on
the Nasdaq SmallCap Market was $1.81 per share.
THE SHARES OF COMMON STOCK OFFERED HEREBY ARE HIGHLY SPECULATIVE AND
INVOLVE A HIGH DEGREE OF RISK. SEE "RISK FACTORS" ON PAGE 5.
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 Selling Stockholders, acting as principal for their own account,
directly or through agents, dealers or underwriters to be designated from time
to time, may sell the Shares from time to time on terms to be determined at the
time of sale. To the extent required, the number of Shares to be sold, the
respective purchase price and public offering price, the name of any agent,
dealer or underwriter and any applicable commissions or discounts with respect
to a particular offer will be set forth in an accompanying Prospectus
Supplement. See "Plan of Distribution." Each Selling Stockholder reserves the
sole right to accept or reject, in whole or in part, any proposed purchases of
the Shares.
The date of this Prospectus is July , 1996.
<PAGE>
No dealer, salesman or other person has been authorized to give any
information or to make any representations not contained or incorporated by
reference in this Prospectus and, if given or made, such other information or
representation must not be relied upon as having been authorized by the Company,
any Selling Stockholder or any other person. Neither the delivery of this
Prospectus nor any sale made hereunder shall, under any circumstances, create
any implication that there has been no change in the affairs of the Company
since the date hereof. This Prospectus does not constitute an offer to sell or a
solicitation of an offer to buy the securities offered hereby to any person or
by anyone in any jurisdiction in which such offer, solicitation or sale would be
unlawful prior to registration or qualification under the securities laws of any
such jurisdiction.
2
<PAGE>
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and, in accordance
therewith, files reports, proxy and information statements and other information
with the Securities and Exchange Commission (the "Commission"). Such reports,
proxy and information statements and other information filed by the Company with
the Commission can be inspected and copied at the public reference facilities
maintained by the Commission at Room 1024, 450 Fifth Street, N.W., Washington,
D.C. 20549 and at the Commission's regional offices located at Citicorp Center,
500 West Madison Street, Suite 1400, Chicago, Illinois 60661 and 7 World Trade
Center, Suite 1300, New York, New York 10048. Copies of such material can also
be obtained from the Public Reference Section of the Commission at 450 Fifth
Street, N.W., Washington, D.C. 20549, at prescribed rates. The Company's Common
Stock is listed on the Nasdaq SmallCap Market. Such material can also be
inspected at the offices of the National Association of Securities Dealers,
Inc., 1735 K Street, N.W., Washington, D.C. 20006.
The Company has filed with the Commission a Registration Statement on Form
S-3 under the Securities Act of 1933, as amended (the "Securities Act") (which
together with any amendments thereto is referred to as the "Registration
Statement"), with respect to the Shares offered hereby. This Prospectus does not
contain all the information set forth in the Registration Statement, certain
portions of which have been omitted pursuant to the rules and regulations of the
Commission. For further information with respect to the Company and the Shares,
reference is hereby made to the Registration Statement (including documents
incorporated by reference therein) and the exhibits and schedules thereto.
Statements made in this Prospectus as to the contents of any contract, agreement
or other document referred to herein are not necessarily complete. With respect
to each such contract, agreement or other document filed as an exhibit to the
Registration Statement (including documents incorporated by reference therein),
reference is made to such exhibit for a more complete description thereof, and
each such statement shall be deemed qualified in its entirety by such reference.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The Company incorporates by reference the following documents heretofore
filed with the Commission pursuant to the Exchange Act (File No. 0-20270):
1. Annual Report of the Company on Form 10-K/A for the year ended
December 31, 1995;
2. Proxy Statement for the Company's 1995 annual meeting of stockholders;
3. Quarterly Report of the Company on Form 10-Q for the quarter ended
March 31, 1996;
4. Current Report on Form 8-K, dated February 1, 1996; and
5. The description of the Common Stock contained in Item 1 of the
Company's Form 8-A for Registration of Certain Classes of Securities
filed with the Commission pursuant to Section 12(g) of the Exchange
Act on October 19, 1992.
All documents filed by the Company pursuant to Sections 13(a), 13(c), 14 or
15(d) of the Exchange Act subsequent to the date of this Prospectus and prior to
the termination of the offering of the Shares shall be deemed to be incorporated
by reference in this Prospectus and to be a part hereof from the date of filing
of such documents. Any statement contained in a document incorporated or deemed
to be incorporated by reference herein shall be deemed to be modified or
superseded for purposes of this Prospectus to the extent that a statement
contained herein, in any accompanying Prospectus Supplement or in any other
subsequently filed document which also is or is deemed to be incorporated by
reference herein modifies or supersedes such statement. Any such statement so
modified or superseded shall not be deemed, except as so modified or superseded,
to constitute a part of this Prospectus.
3
<PAGE>
Copies of all documents incorporated by reference herein (other than
exhibits to such documents unless such exhibits are specifically incorporated by
reference herein) will be provided without charge to each person, including any
beneficial owner, who receives a copy of this Prospectus on the request of such
person made to: The National Registry Inc., c/o Investor Relations, 11831 30th
Court North, St. Petersburg, Florida 33716; telephone number (813) 573-3353.
4
<PAGE>
THE COMPANY
General
The Company is a development stage company engaged in the development and
marketing of electronic identification systems and services utilizing biometric
identification technology. Biometric identification technology analyzes and
measures certain biological characteristics of an individual, such as a
fingerprint or voiceprint, to create a unique digital code which can be
electronically stored and retrieved to positively identify that individual. The
Company believes that biometric identification technology provides a more
reliable means of identification and, therefore, potentially greater security
than non-biometric methods which currently rely upon cards, keys, passwords, or
personal information to identify an individual. These non-biometric identifiers
can be lost, stolen, duplicated, transferred, or discovered by unauthorized
persons.
The Company was organized by J. Anthony Forstmann, the Company's Chairman
of the Board, on October 23, 1991. The Company was the surviving corporation
following the completion of a merger on February 20, 1992 with Topsearch, Inc.,
a publicly traded company. The principal executive offices of the Company are
located at 2501 118th Avenue North, St. Petersburg, Florida 33716, and its
telephone number is (813) 573-3353.
Certain Developments
On January 29, 1996, the Company completed a new equity financing pursuant
to which certain investors purchased from the Company 800 shares of Series B
Preferred Stock (the "1996 Private Placement") for a gross purchase price of $8
million, before commissions and expenses. After commissions and expenses, the
Company received estimated net proceeds of approximately $7.2 million. Such
financing was effected in reliance upon an exemption from the registration
requirements of the Securities Act.
Through June 28, 1996, the Company has installed welfare fraud control
systems in 14 counties in the State of New Jersey, the County of Nassau, New
York and the County of Suffolk, New York. On March 11, 1996, the Company
announced that it had entered into a $75,000, six month contract with LAU
Technologies to act as subcontractor to LAU Technologies in connection with the
installation of welfare fraud control systems incorporating the Company's finger
image identification technology at three sites in Massachusetts. On January 4,
1996, the Company announced that it had entered into a $1.5 million, three-year
contract with NBS Imaging Systems ("NBS") to act as a subcontractor to NBS in
connection with the installation of a welfare fraud control system in the State
of Connecticut incorporating the Company's finger image identification
technology. The Company expects to receive approximately $1.3 million of revenue
from the contract with NBS during 1996 and an aggregate of approximately
$200,000 through the remainder of the term of the contract.
On October 28, 1994, the Company filed two patent applications in
connection with the ergonomic design and optical system to be used in the fully
integrated computerized hardware the Company is presently developing to, among
other things, collect, process, match and transmit digital finger image (the
"Microreader"). Both patent applications are currently pending although there is
no assurance that any patents will be issued. On December 14, 1995, the Company
announced that it had entered into a developmental joint venture agreement with
Key Tronic Corporation, a manufacturer of computer keyboards, pursuant to which
the Company licensed certain technology relating to the Microreader to Key
Tronic for the development, manufacture and marketing of computer keyboards and
other computer attached desktop peripheral devices incorporating such
technology. There is no assurance that any products or services will be
developed by such joint venture or, if developed, that any such products will be
commercially successful.
5
<PAGE>
RISK FACTORS
An investment in the securities offered hereby involves a high degree of
risk. Prospective investors should carefully consider the following risk factors
before making an investment in the Shares:
Limited Operating History; Development Stage Company
From its commencement of business in October 1991, the Company has been
principally engaged in organizational, development and marketing activities.
Through March 31, 1996, the Company has reported an accumulated net loss of
approximately $26,471,000 and has had only limited revenues. The Company has
incurred additional losses from March 31, 1996 to date. There can be no
assurance that the Company will be able to achieve significant revenues or any
net income in the future. Further, there can be no assurance that any bid for a
contract made by the Company will be accepted or any proposed contract in
discussion will be completed. Accordingly, the Shares offered hereby involve a
high degree of risk, and purchasers should be prepared to lose their entire
investment.
Need for Additional Funds
As of May 31, 1996, the Company's working capital was approximately $5.25
million and its cash balance was approximately $4.29 million, a significant
portion of which was attributed to the consummation of the offering of Series B
Preferred Stock. See "The Company -- Certain Developments." For the three months
ended May 31, 1996, the Company has expended net cash at an average rate of
approximately $477,000 per month (which amount will increase depending upon
operational decisions made by management in its sole discretion), excluding
approximately $900,000 spent during such period on hardware purchased
specifically to be sold as part of the state of Connecticut transaction (see
"The Company - Certain Development"). The Company expects, depending upon its
actual expenditures and revenues, to require additional funds in 1997 to
continue, among other things, the development, testing and marketing of its
finger image identification systems and services and to maintain its operations.
There is a significant likelihood that such additional funds will not be
available on terms acceptable to the Company, if at all. The failure to obtain
such additional funds may cause the Company to cease or curtail operations and
result in the complete loss of any market value of the Common Stock. It is
likely that any such additional financing, if consummated, will substantially
increase the number of shares of common stock outstanding on a fully-diluted
basis.
Technological and Market Uncertainty
The development of the Company's products and services may be impeded by
problems relating to the development, production, distribution or marketing of
its products and services, which problems may be beyond the financial and
technical abilities of the Company to solve. Technology employed in finger image
identification is subject to rapid change, and more advanced or alternate
technology employed by competitors, currently or in the future, and not
available to the Company could give such competitors a significant advantage
over the Company. In addition, concerns about unauthorized (including
government) access to private information may impede market acceptance of finger
image identification systems. Further, there can be no assurance that products
and services developed by competitors of the Company will not significantly
limit the potential market for the Company's products and services or render the
Company's products and services obsolete. Finally, there can also be no
assurance that laws, rules or regulations will not be adopted in such a manner
as will materially adversely affect the Company.
Competition
The Company is attempting to enter a highly competitive business which is
dominated by more traditional identification techniques (such as cards, keys,
passwords and personal information). A number of companies also have automated
finger image identification technology and have sold systems incorporating such
technology in the United States for use in law enforcement including Digital
Biometrics Inc., Fingermatrix Inc., Identix Inc., NEC Technologies, Inc., North
American Morpho Systems, Inc. and Printrak International Inc. In addition, the
Company is aware of several other companies which produce or are developing
other biometric technologies which may compete with the Licensed Technology (as
defined below). Such technologies include identification by eye retina blood
vessel patterns, hand geometry and signature analysis. The Company's products
and services compete with companies which may have substantially greater
resources than the Company and are better equipped than the Company. There is no
assurance that the Company will be able to compete successfully against other
parties or technologies.
6
<PAGE>
Dependence Upon Software Licensor
The Company has acquired certain rights to certain finger image
identification software (the "Licensed Technology") under a license agreement,
dated as of April 1, 1992, as amended by an amendment dated March 10, 1994 (as
amended, the "License Agreement") with the Software Licensor, which agreement
may generally be terminated by Cogent Systems, Inc. (the "Software Licensor") in
the event the Company fails to pay license fees (including minimum specified
payments) or commits any other material breach of any covenant of the License
Agreement. Under the terms of the License Agreement, the Software Licensor
granted the Company a worldwide exclusive license, commencing April 1, 1992 and
expiring October 1, 1999, to all commercial applications of the Software
Licensor's finger image identification technology and worldwide non-exclusive
rights to the Software Licensor's finger image identification technology for
governmental applications, other than those relating to law enforcement, with
respect to which no rights were granted to the Company. On March 10, 1994, the
Company entered into an amendment to the License Agreement pursuant to which the
term of the License Agreement will be extended until October 1, 2009, provided
that the Company makes a $10 million cash payment to the Software Licensor on or
prior to October 1, 1999 (the "Extension Payment"), in addition to paying
ongoing licensing fees. Although the Company was not in default under such
agreement as of the date hereof, there can be no assurance that such defaults
will not occur in the future or that the Company will make the Extension Payment
with the occurrence of such default or the failure to make the Extension Payment
resulting in the Company's loss of its rights in and to the Licensed Technology.
Regardless of whether the Extension Payment is made, pursuant to the
License Agreement, certain exclusive rights with respect to commercial markets
which the Company has failed to enter as of April 1, 1997 may become
non-exclusive at any time after April 1, 1997 upon five days' written notice by
the Software Licensor to the Company. To date, the Company has not entered into
any commercial markets.
Any loss of the Licensed Technology would substantially impair (if not
entirely preclude) the Company's ability to continue to conduct its business
unless the Company was able to make arrangements to obtain alternative
technology from another source, as to which there can be no assurance.
Dependence on Patents and Other Proprietary Rights
The Company has no rights, other than pursuant to the License Agreement, to
use any patents or other intellectual property of the Software Licensor or any
other third party. The competitive nature of the Company's industry makes any
patents and patent applications to which the Software Licensor has rights
potentially significant to the Company. However, there is no assurance that any
patents will be issued to the Software Licensor, or that any issued patents, or
any patents applied for, will prove enforceable, or that the Company will derive
any competitive advantage from such patents or applications. Because the
Company's rights to governmental applications of the Licensed Technology are not
exclusive, the Company may also experience competition in this area from other
products and services incorporating the Licensed Technology.
On October 28, 1994, the Company filed two patent applications in
connection with the ergonomic design and optical system to be used in the
Microreader. Both patent applications are currently pending. In the event the
Company is unable to obtain such patents, as to which there can be no assurance,
it could lose certain competitive advantages, if any, it may have in connection
with the Microreader.
The Company also relies on unpatented know-how, trade secrets and
continuing research and development. As a result, the Company may not have any
protection from other parties who independently develop the same know-how or
trade secrets. Proprietary protection of the Company's products and services may
be important to its business, and the Company's failure or inability to maintain
such protection could have a material adverse effect on the Company's business,
financial condition, results of operations and prospects. Moreover, while the
Company does not believe that the production and sale of the Company's proposed
products or services would infringe on rights of third parties, if the Company's
proposed activities were to infringe on such rights, failure to obtain all
needed licenses from such third parties would have a material adverse effect on
the Company's ability either to complete the development of certain products or
to arrange for the production, marketing and sale of such products and services.
Failure to obtain any such licenses could adversely impact the Company's results
of operations.
7
<PAGE>
Control of the Company
As of June 28, 1996, J. Anthony Forstmann and RMS Limited Partnership, a
Nevada limited partnership controlled by Roy M. Speer ("RMS"), beneficially own
approximately 37.7% and 17.4% of the Common Stock, respectively (assuming all of
the Series B Preferred Stock is converted into shares of Common Stock at the
fixed conversion price of $2.53). Mr. Forstmann and RMS are parties to a certain
stockholders' voting agreement pursuant to which they agreed to vote certain
shares for directors nominated by the other, and not to vote in favor of certain
specified actions unless mutually agreed to by Mr. Forstmann and RMS.
Accordingly, such persons, acting together, are in a position immediately to
exercise significant control over the general affairs of the Company, to control
the vote on any matters presented to stockholders and direct the business and
policies of the Company.
Liquidation or Bankruptcy
In the event of the insolvency, liquidation, bankruptcy, reorganization,
dissolution or other winding up of the Company, creditors of the Company and the
holders of the Series A Preferred Stock and the Series B Preferred Stock will be
entitled to payment in full (or, as to the Preferred Stock, an amount equal to
the liquidation preference thereof) before holders of Common Stock will be
entitled to receive any payments.
Nasdaq SmallCap Market Eligibility and Maintenance Requirements; Possible
Delisting of Securities from the Nasdaq SmallCap Market
The Board of Governors of the National Association of Securities Dealers,
Inc. ("NASD") has established certain standards for the continued listing of a
security on the Nasdaq SmallCap Market. The maintenance standards require, among
other things, that an issuer have total assets of at least $2 million and
capital and surplus of at least $1 million and that the minimum bid price for
the listed securities be $1.00 per share. A deficiency in either the market
value of the public float or the bid price maintenance standard will be deemed
to exist if the issuer fails the individual stated requirement for ten
consecutive business days. If an issuer falls below the bid price maintenance
standard, it may remain listed on the Nasdaq SmallCap Market if the market value
of the public float is at least $1 million and the issuer has at least $2
million in capital and surplus. As of May 31, 1996, the Company had total assets
of approximately $6.72 million and capital of approximately $6.29 million. In
the event the Company fails to satisfy the Nasdaq SmallCap Market maintenance
requirements described above, the Common Stock could be delisted from the Nasdaq
SmallCap Market and quotations would no longer be available on Nasdaq. If the
Common Stock were excluded from the Nasdaq SmallCap Market, it would adversely
affect the prices of such securities and the ability of holders to sell them.
Shares Eligible for Future Sale
Sales of shares of Common Stock in the public market (or the perception
that such sales would occur), including the Shares offered hereby, could
adversely affect the market price of the Common Stock and could impair the
Company's future ability to raise capital. In part as a result of sales (or the
perception of the possibility of sales) of Common Stock pursuant to this
Prospectus and the Registration Statement of which this Prospectus is a part,
the market price for the Company's Common Stock is likely to be volatile. There
can be no assurance that this volatility will not have an adverse effect on the
market price of the Company's Common Stock. See "Shares Eligible for Future
Sale" below.
Holders of substantially all of the Company's 26,033,268 outstanding
shares of Common Stock and substantially all of the approximately 10,660,154
shares of Common Stock issuable as of June 28, 1996 upon the exercise of
outstanding options or warrants or conversion of outstanding convertible
securities (other than those included in the Shares) may sell such shares
publicly or have the right to require registration of such shares, to permit
such public sales. In addition, the 3,811,478 Shares offered hereby, plus such
indeterminable additional number of shares of Common Stock issuable upon
conversion of the Series B Preferred Stock based upon the conversion formula,
may also be sold in the public market. See "Description of Capital Stock -
Series B Preferred Stock."
Furthermore, as of June 28, 1996, there have been granted and are
unexercised under the Company's 1992 Stock Incentive Plan (the "Plan") options
to purchase an aggregate of approximately 1,515,500 shares of Common Stock. The
Company has registered under the Securities Act all of the shares of Common
8
<PAGE>
Stock that may be issued upon exercise of the foregoing stock options as well as
options that may be granted under the Plan in the future, and such shares of
Common Stock either issuable upon exercise of currently outstanding options or
issuable upon exercise of options that may be granted under the Plan will be
eligible for sale by the holders thereof to the general public without further
registration or compliance with the requirements of Rule 144 (except that
affiliates of the Company must comply with the volume limitations of Rule 144).
In addition, the Company has granted as of June 28, 1996, outside of the Plan,
options to purchase an aggregate of approximately 308,500 shares of Common Stock
to certain employees and intends to register for re-sale the shares of Common
Stock that may be issued upon exercise of such stock options.
If any of the above-mentioned shares of Common Stock were sold, whether
pursuant to a registration statement or through a transaction undertaken in
compliance with Rule 144, the public market, if any, of the Common Stock could
be adversely affected.
Limited Liquidity of the Common Stock
There is a limited public market for the shares of Common Stock. The Common
Stock has been listed on the Nasdaq SmallCap Market since April 27, 1993. From
April 27, 1993 through May 31, 1996, the average daily trading volume of the
Common Stock on the Nasdaq SmallCap Market was approximately 100,313 shares. No
assurance can be given that there will continue to be a public trading market
for the Common Stock or that such market will be active or will be sustained at
any specific level. The public trading market for the Common Stock has been
limited, and the market price for the Common Stock may not necessarily reflect
the value of the Company.
Market Price Volatility
There has been a history of significant volatility in the market prices of
securities of development stage and technology companies. Various factors and
events, such as announcements by the Company or its competitors concerning new
product developments, governmental or other contracts, and developments or
disputes relating to patents or proprietary rights, may contribute to volatility
and may have a significant impact on the Company's business, financial
condition, results of operation and prospects and on the market price of the
Common Stock. In addition, there can be no assurance that the market price of
the Common Stock bears or will bear any relationship to the value of the
Company.
USE OF PROCEEDS
The Company will not receive any proceeds from any sales of Common Stock
under this Prospectus by the Selling Stockholders. If the Warrants are exercised
in full, the Company would receive gross proceeds of $991,224, which would be
added to working capital which the Company currently expects will be used for
the development, testing and marketing of the Company's systems and services.
There is no assurance that the Warrants will be exercised or, if exercised,
exercised in full.
SELLING STOCKHOLDERS
Of the 3,811,478 shares of Common Stock offered by this Prospectus, (i) up
to 2,899,053 of Conversion Shares are being offered by the holders of Series B
Preferred Stock, which shares have been issued or are issuable upon conversion
of shares of Series B Preferred Stock, (ii) up to 284,585 shares are being
offered by the holders of a warrant (the "Swartz Warrant") granted to Swartz
Investments, LLC ("Swartz Investments"), which acted as placement agent in
connection with the 1996 Private Placement, which shares are issuable upon
exercise of the Swartz Warrant, (iii) up to 75,340 shares are being offered by
Sands Brothers & Co., Ltd. ("Sands Brothers"), which shares are issuable upon
the exercise of a warrant (the "Sands Brothers Warrant" and together with the
Swartz Warrant, the "Warrants") granted to Sands Brothers, which acted as
placement agent in connection with a 1994 private placement, and (iv) 557,500
shares are being offered by certain Other Selling Stockholders set forth in the
table below.
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<PAGE>
Pursuant to the terms of the Swartz Warrant, Swartz Investments, or its
designees may purchase up to 284,585 shares of Common Stock at a purchase price
of $2.53 per share. The Swartz Warrant is exercisable at any time on or prior to
January 29, 2001. In addition, the Company has granted certain registration
rights with respect to the shares of Common Stock issuable upon exercise of the
Swartz Warrant (the "Swartz Warrant Shares"). In addition, pursuant to the terms
of the Sands Brothers Warrant, Sands Brothers may purchase up to 75,340 shares
of Common Stock at a purchase price of $3.60 per share. The Sands Brothers
Warrant is exercisable at any time on or prior to August 5, 1997. In addition,
the Company has granted certain registration rights with respect to the shares
of Common Stock issuable upon exercise of the Sands Brothers Warrant (the "Sands
Brothers Warrant Shares" and, together with the Swartz Warrant Shares, the
"Warrant Shares"). The Warrant Shares are being registered pursuant to such
registration rights.
10
<PAGE>
The following table sets forth the names of the Selling Stockholders, the
shares of Common Stock owned beneficially by each of them, as of June 30, 1996,
the number of shares of Common Stock that may be offered by each of them
pursuant to this Prospectus and the number of Shares to be owned by each of them
after the completion of the offering, assuming all of the Shares being offered
hereby are sold:
<TABLE>
<CAPTION>
Number of Shares
Number of Shares Number of Shares Beneficially Owned
Name Beneficially Owned that May be Sold After the Offering
- ---- ------------------ ---------------- ------------------
<S> <C> <C>
James Agate 142,500 142,500 0
Emil Del Prete 165,000 165,000 0
Linda Gardlin 100,000 100,000 0
William E. Ladin 150,000 150,000 0
Cornerstone Capital Inc. 104,955(1) 104,955 0
Grace Church & Co. 547,575(2) 547,575 0
Charles G. Kucey 94,649(2) 94,649 0
Nelson Partners Ltd. 601,742(1) 601,742 0
Olympus Securities Ltd. 349,850(1) 349,850 0
Otato Limited Partnership 171,679(2) 171,679 0
Parsenn Partners Limited 322,579(2) 322,579 0
Reg S. Investments Fund Ltd. 341,174(3) 341,174 0
Wood Gundy London Limited 349,850(1) 349,850 0
Eric Stephan Swartz 118,018(4) 118,018 0
Michael C. Kendrick 118,018(4) 118,018 0
P. Bradford Hathorn 12,500(4) 12,500 0
Lance T. Burn 12,500(4) 12,500 0
Robert L. Hopkins 1,500(4) 1,500 0
Dwight B. Bronnum 1,500(4) 1,500 0
Charles Kirsen 11,225(4) 11,225 0
Enigma Investments Limited 6,324(4) 6,324 0
David K. Peteler 3,000(4) 3,000 0
Sands Brothers & Co., Ltd. 75,340 75,340 0
</TABLE>
From January 1993 to September 1994, Mr. Del Prete was a vice president of
the Company. From July 1992 to March 1995, Ms. Gardlin was a secretary of the
Company.
- --------
(1) Represents shares of Common Stock issuable upon conversion of shares of
Series B Preferred Stock based upon an assumed conversion date of June 28,
1996.
(2) Includes shares issued upon conversion of shares of Series B Preferred
Stock and shares issuable upon conversion of shares of Series B Preferred
Stock based upon an assumed conversion date of June 28, 1996.
(3) Repersents shares of Common Stock issued upon conversion of shares of
Series B Preferred Stock.
(4) Represents shares of Common Stock issuable upon exercise of the Swartz
Warrants.
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<PAGE>
DESCRIPTION OF CAPITAL STOCK
The following description of the Common Stock of the Company is subject to
the Delaware General Corporation Law and to provisions contained in the
Company's Certificate of Incorporation, as amended (the "Certificate of
Incorporation"), and Bylaws, as amended (the "Bylaws"), copies of which have
been filed as exhibits to the documents incorporated herein by reference and to
which reference is made for a detailed description of the provisions thereof
summarized below.
As of June 25, 1996, the authorized capital stock of the Company consisted
of 1,000,000 shares of Preferred Stock, $.01 par value per share, 100,510 shares
of which are issued and outstanding, and 50,000,000 shares of Common Stock, $.01
par value per share, of which 26,033,268 shares are issued and outstanding.
Other than the Home Shopping Network, Inc., ("Home Shopping Network"), RMS,
Francis R. Santangelo (the holder of options to purchase up to 1,000,000 shares
of Common Stock) and the holders of the Series B Preferred Stock (who have a
right of first refusal in connection with certain debt and equity offerings),
holders of capital stock of the Company have no preemptive or other subscription
rights. See "--Series A Preferred Stock" and "--Series B Preferred Stock." Of
the authorized but unissued shares of Common Stock, (i) an aggregate of
1,824,000 shares are reserved for issuance upon the exercise of options granted
or to be granted under the Plan and the additional options granted to certain
employees outside of the Plan, (ii) 6,336,154 shares are reserved for issuance
upon conversion of the Series A Preferred Stock, $.01 par value (the "Series A
Preferred Stock" and, collectively with the Series B Preferred Stock, the
"Preferred Stock") into Common Stock, (iii) 5,826,485 shares are reserved for
issuance upon the conversion of outstanding shares of Series B Preferred Stock,
(iv) 359,925 shares are reserved for issuance upon the exercise of the Warrants,
(v) 1,500,000 shares are reserved for issuance upon the exercise of an option to
purchase Common Stock previously granted to RMS (the "RMS Option") and (vi)
1,000,000 shares are reserved for issuance upon the exercise of an option to
purchase Common Stock previously granted to Mr. Santangelo (the "Santangelo
Option").
Common Stock
Each holder of issued and outstanding shares of Common Stock will be
entitled to one vote per share on all matters submitted to a vote of the
Company's stockholders. Holders of shares of Common Stock do not have cumulative
voting rights. Therefore, the holders of more than 50% of the shares of Common
Stock will have the ability to elect all of the Company's directors.
Subject to prior rights of any Preferred Stock then outstanding, holders of
Common Stock are entitled to share ratably in dividends payable in cash,
property or shares of capital stock of the Company, when, as and if declared by
the Board of Directors. The Common Stock will rank, with respect to payment of
dividends, behind any accrued dividends on any outstanding Preferred Stock. It
is highly unlikely that any cash dividends will be paid on the Common Stock in
the foreseeable future.
Upon any voluntary or involuntary liquidation, dissolution or winding up of
the Company, any assets legally available for distribution on the Common Stock
(i.e., amounts remaining after prior payment in full of all debts and
liabilities of the Company and after prior payment in full of the liquidation
preference of the Preferred Stock) will be paid ratably to holders of Common
Stock.
All outstanding shares of Common Stock (including the Shares offered
hereby) are, and any shares of Common Stock to be issued upon conversion of the
shares of Series A Preferred Stock or Series B Preferred Stock will be, fully
paid and non-assessable.
Preferred Stock
The Company is authorized to issue up to 1,000,000 shares of Preferred
Stock. The Board of Directors is authorized to fix the voting rights,
liquidation preferences, dividend rights, conversion rights, rights and terms of
redemption (including sinking fund provisions) and certain other rights and
preferences of the Preferred Stock.
The Board of Directors of the Company may, without stockholder approval,
issue shares of Preferred Stock with voting and conversion rights that could
adversely affect the voting power of the holders of Common Stock and may have
the effect of delaying, deferring or preventing a change in control of the
Company.
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<PAGE>
Series A Preferred Stock
The Company has issued 100,000 shares of Series A Preferred Stock, which
are in the aggregate convertible into a total of 6,336,154 shares of Common
Stock. Subject to customary anti-dilution provisions, each share of the Series A
Preferred Stock may be converted upon the election of the holder thereof into
6,336,154 shares of Common Stock, although all shares of Series A Preferred
Stock shall automatically be converted upon the date on which the Company's
cumulative gross revenues since April 28, 1992 exceeds $15 million. As of the
date of this Prospectus, all 100,000 outstanding shares of Series A Preferred
Stock are owned by Home Shopping Network. Except as otherwise provided by law or
the Certificate of Incorporation, the holder of Series A Preferred Stock shall
not be entitled to vote on any matters submitted to the stockholders of the
Company.
Pursuant to the terms of an irrevocable proxy (the "Proxy") executed by
Home Shopping Network in connection with its purchase of the Series A Preferred
Stock, J. Anthony Forstmann, Chairman of the Company, will have the right to
vote all shares of Series A Preferred Stock (if and to the extent such shares of
Series A Preferred Stock are entitled to vote), Common Stock (including the
6,336,154 shares of Common Stock which would be owned by Home Shopping Network
following conversion of all of its 100,000 shares of Series A Preferred Stock)
and any other voting securities of the Company held beneficially or of record by
Home Shopping Network. The Proxy shall terminate generally on the first to occur
of the following: (i) April 28, 2002, (ii) the insolvency, bankruptcy or
dissolution of the Company and (iii) the date that Mr. Forstmann and members of
his family in the aggregate cease to control more than 20% of the total voting
power of the capital stock entitled to vote in an election of directors of the
Company.
The holders of Series A Preferred Stock will not at any time be entitled to
any dividends. The shares of Series A Preferred Stock are not redeemable at any
time.
Upon any liquidation, dissolution or winding up of the Company, whether
voluntary or involuntary, the holder of the shares of Series A Preferred Stock
shall be entitled, before any distribution or payment is made upon any other
series of Preferred Stock or Common Stock, to be paid an amount equal to $100
per share, and the holder of Series A Preferred Stock shall not be entitled to
any further payment. If upon such liquidation, dissolution or winding up of the
Company, the assets to be distributed to the holder of Series A Preferred Stock
shall be insufficient to permit payment to such holder of the preferential
amount to which it is entitled, then the entire assets of the Company to be so
distributed shall be distributed to the holder of Series A Preferred Stock. Upon
any such liquidation, dissolution or winding up of the Company, after the holder
of Series A Preferred Stock shall have been paid in full the amounts to which it
shall be entitled, the remaining net assets of the Company may be distributed to
the holders of other series of Preferred Stock and to the holders of Common
Stock.
In connection with its sale of the Series A Preferred Stock, the Company
granted to Home Shopping Network a stock purchase right entitling it to purchase
a pro rata share of any Common Stock, or securities convertible into Common
Stock, sold and issued by the Company pursuant to a public offering or private
placement, enabling Home Shopping Network to maintain the percentage ownership
of Common Stock that it held immediately prior to such transaction. The purchase
price per share to be paid by Home Shopping Network for such shares shall be
equal to the purchase price of any shares sold in such public offering or
private placement. Such stock purchase right expires on April 28, 1997.
Series B Preferred Stock
The Series B Preferred Stock may be converted into Common Stock at the
election of the holder thereof, (i) with respect to the first third of such
holder's shares of Series B Preferred Stock, on the later of, (a) 45 days after
January 29, 1996 (the "Last Closing"), or (b) the effective date of the
Registration Statement, (ii) with respect to the second third of such holder's
shares of Series B Preferred Stock, on the later of (a) 75 days after the Last
Closing or (b) the effective date of the Registration Statement and (iii) with
respect to the last third of such holder's shares of Series B Preferred Stock,
105 days after the Last Closing; provided, however, that with respect to the
first two thirds of such holder's shares of Series B Preferred Stock, such
shares may be converted beginning 90 days after the Last Closing Date. The
shares of Series B Preferred Stock, unless converted earlier, will automatically
be converted into Common Stock on January 19, 1999. The shares of Series B
Preferred Stock will be convertible into Common Stock at a conversion price (a
"Conversion Price") which is the lower of:
13
<PAGE>
(i) $2.53 (the "Fixed Conversion Price"); or
(ii) 85% of the average closing bid price for the five trading days
prior to the applicable conversion date.
Each share of Series B Preferred Stock will accrue additional shares of
Common Stock at a rate of 8% per annum, payable in cash or in Common Stock upon
conversion. The holders of Class B Preferred Stock will not at any time be
entitled to any dividends.
Except as otherwise provided by law and with respect to any waiver or
amendment of any terms of the Certificate of Designation with respect to the
Series B Preferred Stock (the "Certificate of Designation"), the holders of
Series B Preferred Stock shall not be entitled to vote on any matters submitted
to the stockholders of the Company. A holder of Series B Preferred Stock not
consenting to a proposed waiver or amendment of such Certificate of Designation
may have the right to convert its Series B Preferred Stock without the
application of the 45-, 75- and 105- day limitations.
Upon any liquidation, dissolution or winding up of the Company, whether
voluntary or involuntary, the holders of the shares of Series B Preferred Stock
shall be entitled, along with the holders of any other class or series of
capital stock of the Company (the "Capital Stock") on a parity with the Series B
Preferred Stock (the "Parity Capital Stock"), after any distribution or payment
is made to holders of Series A Preferred Stock and any other Capital Stock on a
parity with Series A Preferred Stock (the "Senior Capital Stock"), before any
distribution or payment is made to any Common Stock and the holders of any
hereafter created Capital Stock which is specifically ranked by its terms to be
junior to the Series B Preferred Stock (the "Junior Capital Stock"), to be paid
an amount equal to $10,000 per share, and the holders of Series B Preferred
Stock shall not be entitled to any further payment. If upon liquidation,
dissolution or winding up of the Company, whether voluntary or involuntary, the
assets to be distributed to the holders of Series B Preferred Stock and other
Parity Capital Stock, after distribution to the holders of Series A Preferred
Stock and other Senior Capital Stock, shall be insufficient to permit payment to
such holders of Series B Preferred Stock and the holders of the Parity Capital
Stock of the preferential amount to which they are entitled, then the entire
remaining assets of the Company so distributed shall be distributed to the
holders of Series B Preferred Stock and the holders of the Parity Capital Stock
on a pro-rata basis. Upon any such liquidation, dissolution or winding up of the
Company, after the holders of Series B Preferred Stock and other Parity Capital
Stock shall have been paid in full the amounts to which they shall be entitled,
the remaining net assets of the Company may be distributed to the holders of the
Junior Capital Stock.
If the price of the Common Stock is less than the Fixed Conversion Price at
the time of receipt of a Notice of Conversion by the Company and the transfer
agent for the Series B Preferred Stock, the Company will have the right, at its
sole discretion, to redeem in whole or in part any or all shares of the Series B
Preferred Stock submitted for conversion, immediately prior to and in lieu of
conversion. The redemption will be at a per share price equal to the sum of (a)
the Stated Value multiplied by (b) closing bid price of the Common Stock on the
Nasdaq SmallCap Market on the conversion date and then dividing such total by
the Conversion Price applicable if the Series B Preferred Stock had been
converted into Common Stock on the date of such redemption. If the Company
elects to redeem some, but not all, of the Series B Preferred Stock submitted
for conversion on the applicable date, the Company shall redeem a pro-rata
amount from each holder properly submitting Series B Preferred Stock for
conversion.
Commencing six months after the Last Closing, the Company will also have
the right, at its sole discretion, to redeem any or all Series B Preferred Stock
at any time upon 30 days' written notice. The Company may redeem the Series B
Preferred Stock only in increments of at least $1.5 million "Stated Value" on
the first of such redemptions at the following prices and times:
Date of Delivery of Notice of
Redemption Price Redemption after the Last Closing
- ---------------- ---------------------------------
125% of Stated Value 6 months and 1 day to 12 months
120% of Stated Value 12 months and 1 day to 18 months
115% of Stated Value 18 months and 1 day to 24 months
110% of Stated Value 24 months and 1 day to 30 months
105% of Stated Value 30 months and 1 day to 36 months
14
<PAGE>
"Stated Value" of the Series B Preferred Stock means the initial principal
amount of the Series B Preferred Stock plus accrued and unpaid accretion. If the
Company elects to redeem some, but not all, of the Series B Preferred Stock, the
Company shall redeem a pro-rata amount from each holder.
The Company has agreed with Home Shopping Network that the Company will not
redeem any shares of Series B Preferred Stock unless either (1) Home Shopping
Network consents to such redemption or (ii) the Board of Directors of the
Company, in its good faith exercise of its business judgment, determines that
such redemption is in the best interests of the Company and would not materially
impair the value of the liquidation preference rights of the holders of Series A
Preferred Stock.
For the period commencing on January 29, 1996 and ending on August 6, 1996,
the holders of Series B Preferred Stock have a right to purchase any debt or
equity securities the Company proposes to issue for cash in a public or private
capital raising transaction on the same terms as contemplated for such proposed
issuance. Each such holder shall have the right to so acquire its pro rata share
of such proposed issuance determined based upon the aggregate purchase price for
the 800 shares of Series B Preferred Stock sold as part of the 1996 Private
Placement.
The Delaware Business Combination Act
Section 203 (the "Delaware Business Combination Act") of the Delaware
General Corporation Law (the "DGCL") imposes a three-year moratorium on business
combinations between a Delaware corporation whose stock generally is publicly
traded or held of record by more than 2,000 stockholders and an "interested
stockholder" (in general, a stockholder beneficially owning 15% or more of a
corporation's outstanding voting stock) or an affiliate or associate thereof
unless (a) prior to an interested stockholder becoming such, the board of
directors of the corporation approved either the business combination or the
transaction resulting in the interested stockholder becoming such; (b) upon
consummation of the transaction resulting in an interested stockholder becoming
such, the interested stockholder owns at least 85% of the voting stock of the
corporation outstanding at the time the transaction commenced (excluding from
the calculation of outstanding shares, shares beneficially owned by directors
who are also officers and certain employee stock plans); or (c) on or after an
interested stockholder becomes such, the business combination is approved by (i)
the board of directors and (ii) holders of at least 66-2/3% of the outstanding
shares (other than those shares beneficially owned by the interested
stockholder) at a meeting of stockholders. The term "business combination" is
defined generally to include mergers or consolidations of the corporation or its
majority-owned subsidiary, sales, leases or other transfers or dispositions of
the assets or stock of the corporation or its majority-owned subsidiary and
transactions which increase an "interested stockholder's" percentage ownership
of stock of the corporation or its majority owned subsidiary.
The Delaware Business Combination Act applies to certain corporations
incorporated in the State of Delaware unless the corporation expressly elects
not to be governed by such legislation and sets forth such election in (a) the
corporation's original certificate of incorporation; (b) an amendment to the
corporation's bylaws as adopted by the corporation's board of directors within
90 days of the effective date of such legislation; or (c) an amendment to the
corporation's certificate of incorporation or bylaws is approved by (in addition
to any other vote required by law) the affirmative vote of a majority of the
shares entitled to vote (however, such amendment would not be effective until 12
months after the date of its adoption and would not apply to any business
combination between the corporation and any person who became an interested
stockholder on or prior to the adoption of such amendment). The Company has not
made such an election and is subject to the Delaware Business Combination Act.
Director Liability Provisions
As permitted by the DGCL, the Certificate of Incorporation contains a
provision which eliminates under certain circumstances the personal liability of
Directors (only in their capacities as Directors of the Company) to the Company
or its stockholders for monetary damages for a breach of fiduciary duty as a
Director. The provision in the Certificate does not change a Director's duty of
care, but it does authorize the Company to eliminate monetary liability for
certain violations of that duty, including violations based on grossly negligent
business decisions which may include decisions relating to attempts to change
control of the Company. The provision does not affect the availability of
equitable remedies for a breach of duty of care, such as an action to enjoin or
rescind a transaction involving a breach of fiduciary duty; however, in certain
circumstances equitable remedies may not be available as a practical matter. The
15
<PAGE>
provision in the Certificate in no way affects a Director's liability under the
federal securities laws. In addition, the Company's Bylaws indemnify its past
and current Directors and officers for, and provides advancements in respect of
all expense, liability and loss reasonably incurred in connection with any
threatened, pending or completed action, suit or proceeding, either civil,
criminal, administrative or investigative, by reason of the fact that he or she
is or was a Director or officer of the Company.
General
It is possible that the Company's ability to issue Preferred Stock and the
provisions of the Delaware Business Combination Act may discourage other persons
from making a tender offer for or acquisitions of substantial amounts of the
Company's Common Stock. This could have the incidental effect of inhibiting
changes in management and may also prevent temporary fluctuations in the market
price of the Company's Common Stock which often result from actual or rumored
takeover attempts. In addition, the limited liability provisions in the
Certificate of Incorporation with respect to Directors and the indemnification
provisions in the Bylaws with respect to Directors and officers may discourage
stockholders from bringing a lawsuit against Directors for breach of their
fiduciary duty and may also have the effect of reducing the likelihood of
derivative litigation against Directors and officers, even though such an
action, if successful, might otherwise have benefited the Company and its
stockholders. Furthermore, a stockholder's investment in the Company may be
adversely affected to the extent that costs of settlement and damage awards
against the Company's Directors and officers are paid by the Company pursuant to
the indemnification provisions contained in the Company's Bylaws described
above.
TRANSFER AGENT
The Transfer Agent and Registrar for the Common Stock is U.S. Stock
Transfer Corporation, 1745 Gardena Avenue, Glendale, California 91201.
SHARES ELIGIBLE FOR FUTURE SALE
Sales of substantial amounts of Common Stock in the public market
(including in this Offering) could adversely affect the marked price of the
Common Stock. In addition to the approximately 14,823,086 shares which are
freely tradeable as of June 28, 1996, the Company may issue 2,354,070 shares
of Common Stock pursuant to this Prospectus and certain Other Selling
Stockholders are entitled to dispose of 1,457,408 shares of Common Stock
pursuant to this Prospectus plus such indeterminable additional number of shares
of Common Stock issuable upon conversion of the Series B Preferred Stock based
upon the conversion formula. See "Description of Capital Stock Series B
Preferred Stock." All such shares will become freely tradeable upon their
issuance or sale pursuant to this Prospectus.
All of the remaining approximately 10,652,682 outstanding shares of Common
Stock may be sold in the future in compliance with Rule 144 or upon any
registration thereof under the Securities Act. Pursuant to Rule 144, a person
holding restricted shares of Common Stock for a period of two years may sell
every three months in "brokers transactions" and/or "market maker" transactions
(each as defined in Rule 144) an amount equal to the greater of (i) one percent
(1%) of the Company's issued and outstanding Common Stock or (ii) the average
weekly reported trading volume of the Common Stock during the four calendar
weeks prior to such sale. Rule 144 also permits, under certain circumstances,
the sale of shares of Common Stock without any quantity limitation by a person
who is not an affiliate of the Company at the time of such sale and during the
three months preceding such sale and who has satisfied a three-year holding
period.
Pursuant to that certain Stock Purchase Agreement, dated as of April 28,
1992, by and between Home Shopping Network and the Company, Home Shopping
Network has the right to three demand registrations and unlimited piggyback
registrations with respect to the 6,336,154 shares of Common Stock issuable upon
conversion of its 100,000 shares of Series A Preferred Stock.
In addition, pursuant to that certain Stock Purchase Agreement, dated as of
March 14, 1995, by and among RMS, Mr. Santangelo and the Company (the "RMS Stock
Purchase Agreement"), after the earlier to occur of 150 days following the first
16
<PAGE>
public offering of capital stock of the Company following the execution of the
RMS Stock Purchase Agreement on March 14, 1995 or September 30, 1996, RMS and
Mr. Santangelo have, subject to the terms and conditions provided therein, the
right to three demand registrations and unlimited piggyback registrations in
connection with the 4,000,000 shares of Common Stock purchased by RMS pursuant
to the RMS Stock Purchase Agreement, the 1,500,000 shares of Common Stock
issuable upon the exercise of the RMS Option and the 1,000,000 shares of Common
Stock issuable upon the exercise of the Santangelo option.
Further, pursuant to those certain Registration Rights Agreements, dated as
of January 29, 1996, by and between the Company and the subscribers for the
Series B Preferred Stock, the holders of the Series B Preferred stock have the
right to have the Common Shares registered under the Securities Act. This
Registration Statement would satisfy such right. In addition, such holders would
have the right, upon the request of at least 40% of the Conversion Shares, to
one demand registration and unlimited piggyback registration.
As of June 28, 1996, there have been granted under the Company's 1992 Stock
Incentive Plan options to purchase an aggregate of 1,515,500 shares of Common
Stock at prices ranging from $.01 to $4.00 per share. To date, options
exercisable for 360,834 shares of Common Stock have vested. To the extent that
the market price of Common Stock at the time of exercise exceeds the exercise
price, the exercise of these options would have a dilutive effect. Further,
holders of the foregoing options are likely to exercise them at a time when the
Company could receive funds from the sale of its securities at a higher price.
The Company has registered under the Securities Act all of the shares of Common
Stock that may be issued upon exercise of the foregoing stock options as well as
options that may be granted under the foregoing plan in the future. In addition,
the Company has granted as of June 28, 1996, outside of the Plan, options to
purchase an aggregate of approximately 308,500 shares of Common Stock to certain
employees and intends to register for re-sale the shares of Common Stock that
may be issued upon the conversion of such stock options. Accordingly, shares of
Common Stock either issuable upon exercise of currently outstanding options or
issuable upon exercise of options that may be granted under the Company's
existing stock option plan, when issued, will be eligible for sale by the
holders thereof without further registration or compliance with the requirements
of Rule 144 under the Securities Act (except that affiliates of the Company must
comply with the volume limitations of Rule 144).
CERTAIN TAX CONSIDERATIONS
The following discussion is a summary of certain U.S. federal income tax
consequences which may apply under current law, to holders of the Series B
Preferred Stock converting into Convertible Shares. Changes to existing law,
which could have retroactive effect, may alter the consequences described below.
The discussion does not cover all aspects of U.S. federal taxation that may be
relevant to, or the actual tax effect that any of the matters described herein
will have on particular purchasers, and does not address state local or foreign
income or other tax laws.
Conversion of Series B Preferred Stock into Common Stock generally will not
result in the recognition of gain (or loss), except to the extent that any
portion of the amount of Common Stock received constitutes the payment of an
accrued dividend. Any such portion would be subject to withholding tax at the
rate of 30% of the gross amount of the dividend, subject to reduction pursuant
to the terms of an income tax treaty in effect between the United States and the
county of residence of the holder of the Series B Preferred Stock. In addition,
if operation of the conversion price adjustment provisions of the Series B
Preferred Stock were deemed to result in an increase in the proportionate
interest of holders of such stock in the Company, this could be treated as a
deemed distribution to such holders which could be taxable and subject to
withholding tax (in the same fashion as any amount treated as payment of an
accrued dividend as described above) upon conversion of the Series B Preferred
Stock into Common Stock.
Holders of Series B Preferred Stock should consult with their own tax
advisors as to the specific tax consequences to such holders upon conversion of
the Series B Preferred Stock, including the application and affect of state,
local and foreign income and other tax laws.
PLAN OF DISTRIBUTION
The Conversion Shares are being offered directly by the Company to the
holders of Series B Preferred Stock, without an underwriter, and will be issued
upon conversion of such Series B Preferred Stock according to their terms.
17
<PAGE>
The Company will not receive any proceeds from any sales of Common Stock under
this Prospectus by the Selling Stockholders. If the Warrants are exercised in
full, the Company would receive gross proceeds of $991,224, which would be added
to working capital. There is no assurance that the Warrants will be exercised.
The Selling Stockholder Shares may be sold from time to time to purchasers
directly by the Selling Stockholders. Alternatively, the Selling Stockholders
may from time to time offer the Selling Stockholder Shares through underwriters,
dealers or agents, which may receive compensation in the form of underwriting
discounts, concessions or commissions from the Selling Stockholders and/or the
purchasers of the Selling Stockholder Shares for whom they may act as agents.
The Selling Stockholders and any underwriters, dealers or agents that
participate in the distribution of the Selling Stockholder Shares may be deemed
to be "underwriters" under the Securities Act, and any profit on the sale of the
Selling Stockholder Shares by them and any discounts, commissions or concessions
received by any such underwriters, dealers or agents might be deemed to be
underwriting discounts and commissions under the Securities Act.
At the time a particular offer of the Selling Stockholder Shares is made,
to the extent required, a Prospectus Supplement will be distributed which will
set forth the number of the Selling Stockholder Shares being offered, the names
of the Selling Stockholders, and the terms of the offering, including the name
or names of any underwriters, dealers or agents, the purchase price paid by any
underwriter for the Selling Stockholder Shares purchased from the Selling
Stockholders, any discounts, commissions or other items constituting
compensation received from the Selling Stockholders and any discounts,
commissions or concessions allowed or reallowed or paid to dealers, and the
proposed selling price to the public.
The Selling Stockholder Shares may be sold from time to time in one or more
transactions at a fixed offering price, which may be changed, at varying prices
determined at the time of sale or at negotiated prices. Such prices will be
determined by the Selling Stockholders or by agreement between the Selling
Stockholders and any underwriters.
There is no assurance that the Selling Stockholders will sell any or all of
the Selling Stockholder Shares offered hereby.
In order to comply with the applicable securities laws of certain states,
if any, the Shares will be offered or sold through registered or licensed
brokers or dealers in those states. In addition, in certain states the Shares
may not be offered or sold unless they have been registered or qualified for
sale in such states or an exemption from such registration or qualification
requirement is available and is complied with.
Under applicable rules and regulations under the Exchange Act, any person
engaged in a distribution of securities may not simultaneously engage in market
making activities with respect to such securities for a period of two business
days prior to the commencement of such distribution. In addition and without
limiting the foregoing, the Selling Stockholders will be subject to applicable
provisions of the Exchange Act and the rules and regulations thereunder,
including, without limitation, Rules 10b-2, 10b-5, 10b-6 and 10b-7, in
connection with transactions in the Selling Stockholder Shares during the
effectiveness of the Registration Statement of which this Prospectus is a part.
All of the foregoing may affect the marketability of the Shares.
The Company will pay all of the expenses, including, but not limited to,
fees and expenses of compliance with state securities or blue sky laws, incident
to the registration of the Shares, other than underwriting discounts and selling
commissions, and fees or expenses, if any, of counsel or other advisors retained
by the Selling Stockholders.
EXPERTS
The consolidated financial statements of the Company contained in the
Company's Annual Report on Form 10-K/A for the year ended December 31, 1995,
have been audited by Ernst & Young LLP, independent auditors, as set forth in
their report thereon included therein and incorporated herein by reference. Such
consolidated financial statements are incorporated herein by reference in
reliance upon such report given upon the authority of such firm as experts in
accounting and auditing.
18
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PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution.
Securities and Exchange Commission registration fee.......... $ 2,322
NASD Listing Fee $2,900*
Accounting fees and expenses................................. $30,000*
Legal fees and expense....................................... $55,000*
Miscellaneous................................................ $9,778
Total...............................................$100,000*
- -------
*Estimated.
None of the expenses of issuance and distribution of the Shares is to be
borne by the Selling Stockholders.
Item 15. Indemnification of Directors and Officers.
Subsection (a) of Section 145 of the General Corporation Law of the State
of Delaware (the "DGCL") empowers a corporation to indemnify any person who was
or is a party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the corporation), by
reason of the fact that he is or was a director, officer, employee or agent of
the corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise (an "agent"), against expenses (including
attorneys' fees), judgments, fines and amounts paid in settlement actually and
reasonably incurred by him in connection with such action, suit or proceeding if
he acted in good faith and in a manner he reasonably believed to be in or not
opposed to the best interests of the corporation, and, with respect to any
criminal action or proceeding, had no reasonable cause to believe his conduct
was unlawful.
Subsection (b) of Section 145 of the DGCL empowers a corporation to
indemnify any person who was or is a party or is threatened to be made a party
to any threatened, pending or completed action, or suit by or in the right of
the corporation to procure a judgment in its favor by reason of the fact that
such person acted as an Agent, against expenses (including attorneys' fees)
actually and reasonably incurred by him in connection with the defense or
settlement of such action or suit if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
corporation, except that no indemnification shall be made in respect of any
claim, issue or matter as to which such person shall have been adjudged to be
liable to the corporation unless and only to the extent that the Court of
Chancery or the court in which such action or suit was brought shall determine
upon application that, despite the adjudication of liability but in view of all
the circumstances of the case, such person is fairly and reasonably entitled to
indemnity for such expenses which the Court of Chancery or such other court
shall deem proper.
Section 145 of the DGCL further provides, among other things, that to the
extent a director, officer, employee or agent of a corporation has been
successful on the merits or otherwise in the defense of any action, suit or
proceeding referred to in subsections (a) and (b) of Section 145 of the DGCL in
the defense of any claim, issue or matter therein, he shall be indemnified
against expenses (including attorneys' fees) actually and reasonably incurred by
him in connection therewith; that indemnification provided for by Section 145 of
the DGCL shall not be deemed exclusive of any other rights to which the
indemnified party may be entitled; that indemnification provided for by Section
145 of the DGCL shall, unless otherwise provided when authorized or ratified,
continue as to a person who has ceased to be a director, officer, employee or
agent and shall inure to the benefit of such person's heirs, executors and
administrators; and empowers the corporation to purchase and maintain insurance
on behalf of an Agent of the corporation against any liability asserted against
him and incurred by him in any such capacity, or arising out of his status as
such whether or not the corporation would have the power to indemnify him
against such liabilities under Section 145 of the DGCL. Article Ninth of the
Registrant's Certificate of Incorporation and Article VI of the Registrant's
II-1
<PAGE>
Bylaws entitles officers and directors of the Registrant to indemnification to
the full extent permitted by Section 145 of the DGCL, as the same may be amended
or supplemented from time to time, and Article VI of the Registrant's Bylaws
allows the Registrant to purchase insurance for the benefit of the officers and
directors of the Registrant.
Section 102(b)(7) of the DGCL provides that a certificate of incorporation
may contain a provision eliminating or limiting the personal liability of a
director to the corporation or its stockholders for monetary damages for breach
of fiduciary duty as a director, provided that such provision shall not
eliminate or limit the liability of a director (i) for any breach of the
director's duty of loyalty to the corporation or its stockholders, (ii) for acts
or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) under Section 174 of the DGCL (including certain
unlawful dividends or stock repurchases) or (iv) for any transaction from which
the director derived an improper personal benefit.
Article Tenth of the Registrant's Certificate of Incorporation provides
that no director of the Registrant shall have any personal liability to the
Registrant or its stockholders for monetary damages for any breach of fiduciary
duty as a director, provided that such provision does not limit or eliminate the
liability of any director (i) for breach of such director's duty of loyalty to
the Registrant or its stockholders, (ii) for acts or omissions not in good faith
or which involve intentional misconduct or a knowing violation of law, (iii)
under Section 174 of the DGCL (involving certain unlawful dividends or stock
repurchases) or (iv) for any transaction from which such director derived an
improper personal benefit. Amendment to such article does not affect the
liability of any director for any act or omission occurring prior to the
effective time of such amendment.
The Registrant provides insurance from commercial carriers against certain
liabilities incurred by its directors and officers.
Item 16. Exhibits.
Exhibit
No. Description
- ------- -----------
4.1 Certificate of the Voting Powers, Designations, Preferences,
Rights Qualifications, Limitations and Restrictions of the Series
A Preferred Stock of the Company (incorporated by reference to
Exhibit 4.1 to the Company's Quarterly Report on Form 10-Q for
the period ended March 31, 1992).
4.2 Certificate of Designation, Number, Powers, Preferences and
Relative, Participating, Optional, and Other Special Rights and
the Qualifications, Limitations, Restrictions, and Other
Distinguishing Characteristics of Series B Preferred Stock
(incorporated by reference to Exhibit 3 to the Company's Current
Report on Form 8-K, dated February 1, 1996).
23 Consent of Ernst & Young LLP.
Item 17. Undertakings.
The undersigned Registrant hereby undertakes:
(1) to file, during any period in which offers or sales are being made, a
post-effective amendment to this Registration Statement:
(a) to include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(b) to reflect in the prospectus any facts or events arising after
the effective date of the Registration Statement (or the most
recent post-effective amendment thereof) which, individually or
in the aggregate, represent a fundamental change in the
information set forth in the Registration Statement.
Notwithstanding the foregoing, any increase or decrease in volume
of securities offered (if the total dollar value of the
securities offered would not exceed that which was registered)
II-2
<PAGE>
and any deviation from the low or high and 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
20 percent change in the maximum aggregate offering price set
forth in the "Calculation of Registration Fee" table in the
effective registration statement;
(c) to include any material information with respect to the plan of
distribution not previously disclosed in the Registration
Statement or any material change to such information in the
Registration Statement;
(2) that, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities
offered herein, and the offering of such securities at that time shall
be deemed to be the initial bona fide offering thereof; and
(3) to remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the
termination of the offering.
The undersigned Registrant hereby undertakes that, for purposes of
determining liability under the Securities Act of 1933, each filing of the
Registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 that is incorporated by reference in its
Registration Statement shall be deemed to be a new registration statement
relating to the securities offered herein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions or otherwise, the Registrant has
been informed that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act of
1933 and is therefore unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted against the Registrant by such director, officer or
controlling person in connection with the securities being registered, the
Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public policy as
expressed in the Securities Act of 1933 and will be governed by the final
adjudication of such issue.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this amendment to the
Registration Statement to be signed on its behalf by the undersigned, hereunto
duly authorized, in the City of St. Petersburg, State of Florida, on July 3,
1996.
THE NATIONAL REGISTRY INC.
By: /s/ John L. Gustafson
-----------------------------------
John L. Gustafson
President and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this amendment
to the Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
DATE: July 3, 1996 /s/ John L. Gustafson
-----------------------------------
John L. Gustafson
President, Chief Executive
Officer and Director
DATE: July 3, 1996 /s/ Steven T. Price
-----------------------------------
Steven T. Price
Treasurer and Controller
DATE: July 3, 1996 /s/ J. Anthony Forstmann
-----------------------------------
J. Anthony Forstmann
Director
-----------------------------------
Kevin J. McKeon
Director
DATE: July 3, 1996 /s/ W. Lee Shevel
-----------------------------------
W. Lee Shevel
Director
II-4
<PAGE>
EXHIBIT INDEX
Exhibit No. Description Sequential
- ----------- ----------- Page Number
-----------
4.1 Certificate of the Voting Powers, Designations,
Preferences, Rights Qualifications, Limitations
and Restrictions of the Series A Preferred Stock
of the Company (incorporated by reference to
Exhibit 4.1 to the Company's Quarterly Report on
Form 10-Q for the period ended March 31, 1992).
4.2 Certificate of Designation, Number, Powers,
Preferences and Relative, Participating, Optional,
and Other Special Rights and the Qualifications,
Limitations, Restrictions, and Other
Distinguishing Characteristics of Series B
Preferred Stock (incorporated by reference to
Exhibit 3 to the Company's Current Report on Form
8-K, dated February 1, 1996).
23 Consent of Ernst & Young LLP.
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We consent to the reference to our firm under the caption "Experts" in Amendment
No. 1 to the Registration Statement (Form S-3) and related Prospectus of The
National Registry Inc. for the registration of 2,860,508 shares of its common
stock and to the incorporation by reference therein of our report dated March
25, 1996 with respect to the consolidated financial statements of The National
Registry Inc. included in its Annual Report (Form 10-K/A) fo the year ended
December 31, 1995 filed with the Securities and Exchange Commission.
Tampa, Florida
July 2, 1996
