PROSPECTUS
7,997,154 SHARES
THE NATIONAL REGISTRY INC.
COMMON STOCK
This Prospectus relates to an aggregate of 7,997,154 shares of common
stock, $.01 par value per share (the "Common Stock"), of The National Registry
Inc., a Delaware corporation (the "Company"), of which 6,251,994 shares (the
"Conversion Shares") are issuable by the Company upon the conversion of certain
shares of the Company's Series C Preferred Stock, $.01 par value per share (the
"Series C Preferred Stock"), 400,000 shares are issuable upon exercise of
warrants originally issued to the holders of the Conversion Shares (the
"Conversion Warrant Shares") and 1,345,160 shares (the "Selling Stockholder
Shares," and, collectively with the Conversion Shares and the Conversion Warrant
Shares , the "Shares") which may be sold by the other selling stockholders named
herein (the "Other Selling Stockholders" 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 C Preferred Stock,
and the Selling Stockholder Shares and the Conversion Warrant Shares are being
offered by the Other Selling Stockholders. The conversion price of the Series C
Preferred Stock is the lower of $2.375 and 82.5% of the average closing bid
price for the five trading days prior to the applicable conversion date. See
"Description of Capital Stock -- Series C Preferred Stock" below. The Selling
Stockholder Shares may be offered by the applicable 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
899,925 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 May 20, 1997, the last reported sale price for the Common Stock on
the NASDAQ SmallCap Market was approximately $1.50 per share.
THE SHARES OF COMMON STOCK OFFERED HEREBY ARE HIGHLY SPECULATIVE AND
INVOLVE A HIGH DEGREE OF RISK. SEE "RISK FACTORS" ON PAGE 7.
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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 May 23, 1997.
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.
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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 Commission also maintains
a Web site, HTTP://WWW.SEC.GOV, that contains reports, proxy and information
statements and other information electronically filed by the Company.
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 for the year ended December
31, 1996;
2. Amendment to Annual Report of the Company on Form 10-K/A for
year ended December 31, 1996, as filed on April 30, 1997;
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3. Quarterly Report of the Company on Form 10-Q for the quarter ended
March 31, 1997; and
4. 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.
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, 2502 Rocky
Point Drive, Tampa, Florida 33716; telephone number (813) 636-0099.
FORWARD-LOOKING STATEMENTS
Except for the historical information contained herein, certain of the
matters discussed in this Prospectus are "forward-looking statements" as defined
in Section 27A of the Securities Act which involve certain risks and
uncertainties which could cause actual results to differ materially from those
discussed herein. Such risks and uncertainties include, but are not limited to,
the Company's limited operating history and substantial accumulated net losses,
the Company's need for additional funds, technological and market uncertainty,
competition, the Company's dependence upon a software licensor, the Company's
dependence on patents and other proprietary rights, control of the Company, the
possibility of liquidation or bankruptcy of the Company, NASDAQ SmallCap Market
eligibility and maintenance requirements, the possible delisting of the
Company's Common Stock from the NASDAQ SmallCap Markets, shares of the Company's
capital stock eligible for future public
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sale, the limited liquidity of the Common Stock and the market price volatility
of the Common Stock. See "Risk Factors" and the Company's periodic reports and
other documents filed with the Commission for further discussions of these and
other risks and uncertainties applicable to the Company and its business.
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THE COMPANY
GENERAL
The Company is engaged in the design, development and marketing of
electronic identification software and hardware products, 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 2502 Rocky Point Drive, Tampa, Florida 33716, and its telephone
number is (813) 636-0099. Further information is available through the Company's
World Wide Web Site: http://www.nrid.com.
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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
From its commencement of business in October 1991, the Company has been
principally engaged in organizational, development and marketing activities.
Through March 31, 1997, the Company has reported an accumulated net loss of
approximately $34,683,000 and has had only limited revenues. The Company has
incurred additional losses from March 31, 1997 to date and expects to continue
to incur losses for the foreseeable future. There is no assurance that the
Company will be able to achieve significant revenues or any net income in the
future. Further, there is no assurance that any bid for a contract made by the
Company will be accepted or any proposed contract or potential purchase order in
discussion will be completed. Accordingly, the Shares offered hereby are highly
speculative and involve a high degree of risk, and purchasers should be prepared
to lose their entire investment.
NEED FOR ADDITIONAL FUNDS
As of March 31, 1997, the Company's working capital was approximately
$4,959,000 and its cash balance was approximately $4,997,000. The Company's
working capital has continued to decline as a result of losses from operations
after March 31, 1997. Management believes that the adequacy of its cash
resources will be dependent on its ability to achieve additional sales and, to
the extent necessary, obtain additional capital to complete the development and
marketing of its finger imaging identification products and services. There can
be no assurance that the Company will be able to complete significant sales of
its products or services or obtain such aditional capital during 1997. The
Company continues to spend net cash at a rate of approximately $550,000 per
month (excluding capital expenditures of $225,000 and certain non-recurring
expenditures of $250,000 for the quarter) for the first three months of 1997.
Such amount will increase depending upon operational decision made by management
in its sole discretion. The Company believes that its existing working capital,
together with cash from anticipated gross margins from operations and other
funding sources, including the possible sale of capital stock, will be
sufficient to meet its expected working capital needs for at least the next
twelve months assuming revenues for 1997 are at least equal to the revenues
realized in 1996. However, absent a significant increase in sales, the Company
will require additional funds thereafter to continue, among other things,
development, testing and marketing of its finger imaging identifications
products 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. It is likely that any such additional infusion of
capital would be in the form of the sale and issuance of additional shares of
Common Stock, which may substantially increase the number of shares of Common
Stock outstanding on a fully-diluted basis. The failure to obtain such
additional funds may cause the Company to cease or curtail operations. Even if
such additional funding is obtained, there can be no assurance that the Company
will be able to complete the developing and testing of its products and services
or, if completed, that it will be able to consummate significant sales of its
products or services.
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. More advanced
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or alternate or less costly 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 is 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
is also 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, including Digital Biometrics Inc., Fingermatrix
Inc., Indentix 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, but are not limited to, identification by eye retina blood
vessel patterns, hand geometry and signature analysis. The Company's products
and services compete with various companies which 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.
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 Cogent Systems, Inc. (the "Software
Licensor"), which agreement may generally be terminated by 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
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default under such agreement as of the date hereof, there is no assurance
that such defaults will not occur in thefuture or that the Company will 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
nonexclusive at any time after April 1, 1997 upon five days' written notice by
the Software Licensor to the Company. To date, the Company believes it has
entered into the following commercial markets, among possible others:
MARKET SIC CODE GROUP
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Commercial Banks; Credit Unions 60
Health Services 80
Business Consulting 87
Computer & Data Processing Services 73
Computer & Office Equipment Manufacturing 35
Insurance Carrier 63
To the extent the Company fails to enter into any additional commercial
markets or in the event it is determined that the Company in fact did not enter
into any of the above commercial markets (including any segment thereof) within
the meaning of the License Agreement, the Company stands to lose its exclusivity
in those markets, which loss of exclusivity could materially and adversely
affect the Company's future prospects. There is no assurance the Company
will enter into any additional 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 is 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 application to which the
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Software Licensor has rights potentially important to the Company. However, the
Software Licenser has recently had certain patent applications rejected and
there is no assurance that anypatents 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 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 its
microreader optical scanner reader system, both of which include allowed claims.
On October 27, 1995, corresponding international patent applications were filed
for the October 1994 patent application. On August 18, 1996 and January 12,
1997, the Company's two patent applications were granted. While the Company
believes that having such patents should give the Company a competitive
advantage, there is no assurance that a competitive advantage will exist because
of such patents. In the event the Company is unable to enforce or protect such
patents, as to which there is no assurance, it could lose certain competitive
advantages, if any, it may have in connection with the scanner line.
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.
CONTROL OF THE COMPANY
As of May 20, 1997, J. Anthony Forstmann and RMS Limited Partnership, a
Nevada limited partnership controlled by Roy M. Speer ("RMS"), beneficially own
approximately 17.4% and 15.3% of the Common Stock, respectively. 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. Control of the Company may also
be impacted by certain possible events. See "Shares Eligible For Future Sale"
and "Shares Eligible For Future Sale."
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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 Series C Preferred Stock will be
entitled to payment in full 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. 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 total equity
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 total equity. As of March
31, 1997, the Company had total assets of approximately $7.35 million and total
equity of approximately $6.28 million. On November 6, 1996, the Board of
Directors of the NASDAQ Stock Market, Inc. approved various proposed changes to
the above maintenance criteria. NASDAQ has proposed to augment the maintenance
criteria for the NASDAQ SmallCap Market to require net tangible assets of $2
million or net income of $500,000 in two of the last three years or a market
capitalization of at least $35 million, as well as adoption of the corporate
governance standards applicable to NASDAQ National Market issuers. Such
corporate governance standards could require the Company obtain stockholder
approval of certain significant issuances of securities which approval
requirement might make it more difficult or impracticable to raise additional
capital on a basis (E.G., at an issuance price less than the greater of book
value or market price) satisfactory to certain financing sources. In March 1997,
such proposed amendments were filed with the Commission for their review. As of
May 20, 1997, the Commission was still considering such proposals and was
reviewing comments received from the public on such proposals. 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), 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
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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 34,770,740 outstanding shares
of Common Stock as of May 20, 1997 and substantially all of the approximately
17,524,073 shares of Common Stock issuable as of May 20, 1997 upon the exercise
of outstanding options or warrants or conversion of outstanding convertible
securities may sell such shares publicly or have the right to require
registration of such shares, to permit such public sales. By letter dated
February 10, 1997, Home Shopping Network, Inc. ("Home Shopping Network")
requested the registration of the shares of Common Stock issuable upon
conversion of the shares of Series A Preferred Stock, $.01 par value per share,
of the Company (6,363,154 shares of Common Stock), which, upon the registration
of such shares of Common Stock, may be sold in the public market. In addition,
the 7,997,154 Shares offered hereby, plus such indeterminable additional number
of shares of Common Stock issuable upon conversion of the Series C Preferred
Stock based upon the conversion formula, may also be sold in the public market.
See "Description of Capital Stock - Series C Preferred Stock."
Furthermore, as of May 20, 1997, there have been granted and are
outstanding and unexercised under the Company's 1992 Stock Incentive Plan (the
"Plan") options to purchase an aggregate of approximately 1,500,500 shares of
Common Stock. The Company has registered or will register 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 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 and are
outstanding as of May 20, 1997, outside of the Plan, options to purchase an
aggregate of approximately 100,333 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 April 30, 1997, the average daily trading volume of the
Common Stock on the NASDAQ SmallCap Market was approximately 154,850 shares.
There is no assurance 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
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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 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 is 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 approximately $154,850,
which would be added to working capital which the Company currently expects will
be used for the development, testing, marketing and sales of the Company's
products and services. There is no assurance that the Warrants will be exercised
or, if exercised, exercised in full.
SELLING STOCKHOLDERS
Of the 7,997,154 shares of Common Stock offered by this Prospectus, (i) up
to 6,251,994 of Conversion Shares are being offered by the holders of Series C
Preferred Stock, which shares are issuable upon conversion of shares of Series C
Preferred Stock issued in connection with the 1997 Private Placement; (ii) up to
400,000 shares are being offered by the holders of warrants (the "Purchasers
Warrants") granted to Clearwater Fund IV, LLC ("Clearwater Fund") and JNC
Opportunity Fund Ltd. ("JNC Fund"), which warrants were issued as part of the
1997 Private Placement, which shares are issuable upon exercise of the
Purchasers Warrants; (iii) up to 140,000 shares are being offered by the holders
of warrants (the "Finders Warrants") granted to Corporate Communications
Network, Inc. ("CCN"), Wharton Capital Partners, Ltd. ("Wharton Capital"), and
Perry J. Scheer ("Scheer"), as part of the consideration paid to Wharton Capital
and CCN which acted as finders in connection with the 1997 Private Placement,
which shares are issuable upon the exercise of the Finders Warrant; (iv) up to
284,585 shares are being offered by the holders of a warrant (the "Swartz
Warrant") originally granted to Swartz Investments, LLC ("Swartz Investments"),
which acted as placement agent in connection with a 1996 private placement,
which shares are issuable upon the exercise of the Swartz Warrant; (v) 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 Purchasers Warrants, the Finders
Warrants, and the Swartz Warrant, the "Warrants") granted to
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Sands Brothers, which acted as placement agent in connection with a 1994 private
placement; and (vi) 845,235 shares are being offered by certain Other Selling
Stockholders set forth in the table below. Additional shares of Common Stock may
be sold pursuant to this Prospectus in the event the conversion ratio applicable
to the Series C Preferred Stock increases or in the event certain anti-dilution
provisions of the Warrants become operative.
Pursuant to the terms of the Purchasers Warrants and the Finders Warrants,
Clearwater Fund, JNC Fund, CNN, Wharton Capital and Scheer, or their respective
designees, may purchase up to 285,714 shares, 114,286 shares, 70,000 shares,
50,000 shares, and 20,000 shares of Common Stock, respectively, at a purchase
price of $2.6125 per share, subject to certain adjustments from time to time.
The Purchasers Warrants and the Finders Warrant granted to CCN are exercisable
at any time on or prior to February 4, 2002. The Finders Warrants granted to
Wharton Capital and Scheer are exercisable at any time on or prior to February
4, 2000. In addition, the Company has granted certain registration rights with
respect to the shares of Common Stock issuable upon exercise of the Purchasers
Warrants (the "Purchasers Warrant Shares") and the Finders Warrants (the
"Finders Warrant Shares"). The Purchasers Warrant Shares and the Finders Warrant
Shares are being registered pursuant to such registration rights.
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 Purchasers Warrant Shares, the
Finders Warrant Shares, and the Swartz Warrant Shares, the "Warrant Shares").
The Warrant Shares are being registered pursuant to such registration rights.
The following table sets forth the names of the Selling Stockholders, the
shares of Common Stock owned beneficially by each of them, as of March 10, 1997,
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:
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<PAGE>
<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> <C>
Clearwater Fund IV, LLC 4,751,424(1) 4,751,424
JNC Opportunity Fund, Ltd. 1,900,570(1) 1,900,570
Corporate Communications 70,000(2) 70,000 0
Network
Wharton Capital Partners, Ltd. 50,000(2) 50,000 0
Perry J. Scheer 20,000(2) 20,000 0
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
Philip Beaudoin 150,000 150,000 0
Dennis Bernhart 55,094 55,094 0
Alexander Miller 55,094 55,094 0
Forbes West 27,547 27,547 0
Eric Stephan Swartz 118,018(3) 118,018 0
Kendrick Family 118,018(3) 118,018 0
Partnership, L.P.
P. Bradford Hathorn 12,500(3) 12,500 0
Lance T. Bury 12,500(3) 12,500 0
Robert L. Hopkins 1,500(3) 1,500 0
Dwight B. Bronnum 1,500(3) 1,500 0
Charles Krusen 11,225(3) 11,225 0
Enigma Investments Limited 6,324(3) 6,324 0
David K. Peteler 3,000(3) 3,000 0
Sands Brothers & Co., Ltd. 75,340 75,340 0
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. From approximately January 1993 to November 1996, Mr. Beaudoin provided
certain services to The National Registry (Canada), a wholly owned subsidiary of
the Company.
<FN>
- ----------
(1) Represents shares of Common Stock issuable upon conversion of shares of
Series C Preferred Stock based upon an assumed conversion price of $1.12
and shares of Common Stock issuable upon exercise of the Purchasers
Warrants.
(2) Represents shares of Common Stock issuable upon exercise of the Finders
Warrants.
(3) Represents shares of Common Stock issuable upon exercise of the Swartz
Warrant.
</FN>
</TABLE>
15
<PAGE>
DESCRIPTION OF CAPITAL STOCK
The following description of the capital 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 May 20, 1997, the authorized capital stock of the Company consisted
of 1,000,000 shares of Preferred Stock, $.01 par value per share, 450,000 shares
of which are issued and outstanding, and 75,000,000 shares of Common Stock, $.01
par value per share, of which 34,770,740 shares are issued and outstanding.
Other than the 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 C 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 C Preferred Stock."
Of the authorized but unissued shares of Common Stock, (i) an aggregate of
2,241,500 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 per share (the
"Series A Preferred Stock" and, collectively with the Series C Preferred Stock,
the "Preferred Stock") into Common Stock; (iii) 6,251,994 shares are reserved
for issuance upon the conversion of outstanding shares of Series C Preferred
Stock; (iv) 899,925 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"); and (vii) approximately 301,000 shares are reserved for
issuance upon the exercise of options to purchase Common Stock previously
granted to employees of the Company outside of the Plan.
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.
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<PAGE>
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 C 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.
SERIES A PREFERRED STOCK
The Company has issued 100,000 shares of the 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.
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
17
<PAGE>
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 C PREFERRED STOCK
The Series C Preferred Stock may be converted into Common Stock, at the
election of the holder thereof as follows: (i) 33% of the shares of Series C
Preferred Stock, at any time after 121 days after the original issue date (the
"Original Issue Date"); (ii) an additional 33% of the shares of Series C
Preferred Stock, at any time after the date which is 151 days after the Original
Issue Date; and (iii) the balance of the shares of Series C Preferred Stock, at
any time after the date which is 181 days after the Original Issue Date. All
shares of Series C Preferred Stock issued and outstanding on the third
anniversary of the Original Issue Date will automatically convert into shares of
Common Stock. The shares of Series C Preferred Stock will be convertible into
Common Stock at a conversion price per share (a "Conversion Price") which is the
lower of:
(i) $2.375; or
(ii) 82.5% of the average closing bid price for the five trading
days prior to the applicable conversion date.
The holders of Series C Preferred Stock are entitled to receive dividends
equal to 6% per annum, payable at the option of the Company in cash or, subject
to certain conditions, in shares of Common Stock, quarterly in arrears.
Except as otherwise provided herein and as otherwise provided by law, the
holders of Series C Preferred Stock shall have no voting rights. However, so
long as any shares of Series C Preferred Stock are outstanding, the Company
shall not, without the affirmative vote of the holders of a majority of the
shares of the Series C Preferred Stock then outstanding, (i) alter or change
adversely the powers, preferences or rights given to the Series C Preferred
Stock or (ii) authorize or create any class of stock ranking as to dividends or
distribution of assets upon a Liquidation (as defined below) senior to or prior
to the Series C Preferred Stock.
18
<PAGE>
Upon any liquidation, dissolution or winding up of the Company, whether
voluntary or involuntary (a "Liquidation"), the holders of the shares of Series
C Preferred Stock shall be entitled, to receive out of the assets of the
Company, whether such assets are capital or surplus, for each share of Series C
Preferred Stock an amount equal to the sum of $20 (the "Stated Value") and all
accrued but unpaid dividends per share, whether declared or not, before any
distribution or payment shall be made to the holders of any shares of Common
Stock and all other equity securities of the Company which are junior in rights
and liquidation preferences to the Series C Preferred Stock, and the holders of
Series C 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 C Preferred
Stock shall be insufficient to permit full payment to such holders of Series C
Preferred Stock, then the entire remaining assets of the Company so distributed
shall be distributed to the holders of Series C Preferred Stock on a pro rata
basis. A sale, conveyance or disposition of all or substantially all of the
assets of the Company or the effectuation by the Company of a transaction or
series of related transaction in which more than 50% of the voting power of the
Company is disposed of, or a consolidation or merger of the Company with or into
any other company or companies shall not be treated as a Liquidation, but
instead shall be subject to conversion.
The Company shall have the right, exercisable at any time upon 30 days
notice to the holders of the Series C Preferred Stock given at any time after
the Original Issue Date to redeem, all or any portion of the shares of Series C
Preferred Stock which have not previously been converted or redeemed. The
redemption will be at a per share price equal to the product of (x) the average
closing bid price for the five trading days prior to the date of the redemption
notice referenced above and (y) a fraction, of which the numerator is the Stated
Value plus any accrued but unpaid dividends per share, and of which the
denominator is the Conversion Price applicable if the Series C Preferred Stock
had been converted into Common Stock on the date of such redemption. Holders of
the Series C Preferred Stock may convert any shares of Series C Preferred Stock,
including shares subject to a redemption notice given, during the period from
the date of such redemption notice through the 30th day thereafter.
For the period commencing on February 6, 1997 and ending on August 5,
1997, the holders of Series C Preferred Stock have a right to purchase certain
equity or equity-equivalent securities the Company proposes to issue on the same
terms as contemplated for such proposed issuance, if such securities are offered
at a price which is, or the face thereof, or implied therein, less than the
market price or fair market value for such securities.
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 (i) prior to an interested stockholder becoming such, the board of
19
<PAGE>
directors of the corporation approved either the business combination or the
transaction resulting in the interested stockholder becoming such; (ii) 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 (iii) on or after an
interested stockholder becomes such, the business combination is approved by (a)
the Board of Directors and (b) 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 (i) the
corporation's original certificate of incorporation; (ii) 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 (iii) 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 of Incorporation 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 provision in the Certificate in no way affects a
Director's liability under the federal securities laws. In addition, the 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.
20
<PAGE>
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 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 market price of the
Common Stock. In addition to the approximately 24,670,586 shares which are
freely tradeable as of May 20, 1997, the Company may issue 6,251,994 shares of
Common Stock pursuant to this Prospectus and certain Other Selling Stockholders
are entitled to dispose of 1,745,160 shares of Common Stock pursuant to this
Prospectus plus such indeterminable additional number of shares of Common Stock
issuable upon conversion of the Series C Preferred Stock based upon the
conversion formula and upon exercise of the Warrants in the event certain
anti-dilution provisions become operative. See "Description of Capital Stock --
Series C Preferred Stock." All such shares will become freely tradeable upon
their issuance or sale pursuant to this Prospectus.
All of the remaining approximately 10,100,154 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 one year 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
21
<PAGE>
and during the three months preceding such sale and who has satisfied a
two-year holding period. The Commission issued final rules in Release 33-730
shortening the holding periods under Rule 144 for resales of limited amounts of
restricted securities from two years to one year and for unlimited resales by
non-affiliates from three years to two years. The revised holding periods are
applicable to all securities, whether acquired before or after the April 21,
1997 effective date of the amended rules.
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, subject to the terms and conditions provided therein, 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. On February 10, 1997, Home Shopping Network
exercised a demand registration right to register such shares of Common Stock
and waived its piggyback registration right with respect to this Registration
Statement.
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"), 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 the Registration Rights Agreement, dated as of
January 31, 1997, by and between the Company and the purchasers of the Series C
Preferred Stock, the holders of the Series C Preferred Stock have the right to
have the Conversion Shares registered under the Securities Act. This
Registration Statement would satisfy such right. In addition, such holders would
have the right, in certain circumstances, to unlimited piggyback registration.
As of May 20, 1997, there have been granted under the Company's 1992 Stock
Incentive Plan options to purchase an aggregate of approximatley 1,500,500
shares of Common Stock at prices ranging from $.01 to $4.00 per share. To date,
options exercisable for approximately 233,000 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 May 20, 1997, outside of the Plan, options to purchase an aggregate of
approximately 100,333 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
22
<PAGE>
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).
PLAN OF DISTRIBUTION
The Conversion Shares are being offered directly by the Company to the
holders of Series C Preferred Stock, without an underwriter, and will be issued
upon conversion of such Series C Preferred Stock according to their terms.
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 $2,401,974, which would be
added to working capital. There is no assurance that any of the Warrants will be
exercised.
The 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 Shares through underwriters, broker-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 Shares
for whom they may act as agents. The Selling Stockholders and any underwriters,
dealers or agents that participate in the distribution of the Shares may be
deemed to be "underwriters" under the Securities Act, and any profit on the sale
of the Shares by them and any discounts, commissions or concessions received by
any such underwriters, broker-dealers or agents might be deemed to be
underwriting discounts and commissions under the Securities Act.
At the time a particular offer of the Shares is made, to the extent
required, a Prospectus Supplement will be distributed which will set forth the
number of the Shares being offered, the names of the Selling Stockholders, and
the terms of the offering, including the name or names of any underwriters,
broker-dealers or agents, the purchase price paid by any underwriter for the
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
broker-dealers, and the proposed selling price to the public.
The 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 in or through privately negotiated
transactions, or in one or more transactions, including block transactions, on
the NASDAQ SmallCap Market or on any other market or stock exchange on which the
Shares may be listed in the future pursuant to and in accordance with the
applicable rules of such market or exchange or otherwise. Such prices will be
determined by the Selling Stockholders or by agreement between the Selling
Stockholders and any underwriters. From time to time the Selling Stockholders
may engage in short sales, including short sales against the box, puts and calls
and other transactions in securities of the Company or derivatives thereof, and
may sell and
23
<PAGE>
deliver the Shares in connection therewith. Further, except as set forth herein,
the Selling Stockholders are not restricted as to the number of Shares which may
be sold at any one time, and it is possible that a significant number of Shares
could be sold at the same time, which may have a depressive effect on the market
price of the Common Stock. The Selling Stockholders may also pledge Shares as
collateral for margin accounts, and such shares could be resold pursuant to the
terms of such accounts.
There is no assurance that the Selling Stockholders will sell any or all
of its 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-3 and 10b-5 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 with respect to required NASDAQ filings, and in 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.
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<PAGE>
EXPERTS
The financial statements of the Company appearing in The National
Registry's Annual Report (Form 10-K) for the year ended December 31, 1996 have
been audited by Ernst & Young LLP, independent auditors, as set forth in their
report thereon included therein and incorporated herein by reference. Such
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.
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