As filed with the Securities and Exchange Commission on September 8, 1998.
Registration No. 333-58575
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)
----------
DELAWARE 2502 ROCKY POINT DRIVE, SUITE 100 95-4346070
(State or other jurisdiction TAMPA, FLORIDA 33607 (I.R.S. Employer
of incorporation or (813) 636-0099 Identification
organization) Number)
(Address, including zip code and telephone number,
including area code of Registrant's principal executive offices)
----------
Jeffrey P. Anthony
The National Registry Inc.
2502 Rocky Point Drive, Suite 100
Tampa, Florida 33607
(813) 636-0099
(Name, address, including zip code and telephone number,
including area code, of agent for service)
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>
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
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, $.01 116,667 $1.31 $153,125 $45
par value 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 July 2, 1998 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 the exercise of the
warrants held by the selling stockholder, in the event certain
anti-dilution provisions become operative. No additional registration
fee is included for these shares.
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<TABLE>
<CAPTION>
CROSS REFERENCE SHEET SHOWING LOCATION IN PROSPECTUS
OF INFORMATION REQUIRED BY ITEMS OF FORM S-3
FORM S-3 REGISTRATION STATEMENT ITEM & HEADING HEADING IN PROSPECTUS
<S> <C> <C>
1. Forepart of the Registration Statement and Outside Front Cover
Page of Prospectus.............................................. Facing Page; Cross Reference Sheet;
Outside Front Cover Page; Available
Information
2. Inside Front and Outside Back Cover Pages of Prospectus......... Inside Front and Outside Back Cover Pages
3. Summary Information, Risk Factors and Ratio of Earnings to Fixed
Charges......................................................... The Company; Risk Factors
4. Use of Proceeds................................................. Use of Proceeds
5. Determination of Offering Price................................. Not Applicable
6. Dilution........................................................ Not Applicable
7. Selling Security-Holders........................................ Selling Stockholder
8. Plan of Distribution............................................ Outside Front Cover Page; Plan of
Distribution
9. Description of Securities to be Registered...................... Description of Capital Stock
10. Interests of Named Experts and Counsel.......................... Not Applicable
11. Material Changes................................................ Not Applicable
12. Incorporation of Certain Information by Reference .............. Incorporation of Certain Documents by
Reference
13. Disclosure of Commission Position on Indemnification of
Securities Act Liabilities..................................... Not Applicable
</TABLE>
<PAGE>
SUBJECT TO COMPLETION
DATED SEPTEMBER 9, 1998
PROSPECTUS
116,667 SHARES
THE NATIONAL REGISTRY INC.
COMMON STOCK
This Prospectus relates to an aggregate of 116,667 shares of common stock,
$.01 par value per share (the "Common Stock"), of The National Registry Inc., a
Delaware corporation (the "Company"), of which 75,000 shares (the "Warrant
Shares") are issuable upon exercise of warrants (the "Warrants") originally
issued to the selling stockholder named herein (the "Selling Stockholder") and
41,667 shares (the "Selling Stockholder Shares," and, collectively with the
Warrant Shares, the "Shares") which may be sold by the Selling Stockholder. The
Shares may be offered by the Selling Stockholder for its 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. See "Selling
Stockholder."
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 (the "SmallCap
Market") under the symbol "NRID." On September 2, 1998, the last reported sale
price for the Common Stock on the SmallCap Market was approximately $1.00 per
share.
THE SHARES OF COMMON STOCK OFFERED HEREBY ARE HIGHLY SPECULATIVE AND
INVOLVE A HIGH DEGREE OF RISK. SEE "RISK FACTORS" ON PAGE 6.
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 Stockholder, acting as principal for its 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." The Selling Stockholder reserves the sole right to
accept or reject, in whole or in part, any proposed purchases of the Shares.
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The date of this Prospectus is September 9, 1998
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,
THE 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.
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF SUCH STATE.
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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 Common Stock is
listed on the 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, 1997;
2. Quarterly Report of the Company on Form 10-Q for the quarters ended
March 31, 1998 and June 30, 1998;
3. Proxy Statement of the Company dated April 10, 1998;
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4. Current Reports of the Company on Form 8-K filed with the Commission
on June 12, 1998 and May 29, 1998; 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.
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, Suite 100, Tampa, Florida 33607; 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, SmallCap Market eligibility and
maintenance requirements, the possible delisting of the Common Stock from the
SmallCap Market, technological and market uncertainty, competition, the
Company's dependence upon software licensors, the Company's dependence on
patents, trademarks and other proprietary rights, year 2000 exposure, control of
the Company, the possibility of liquidation or bankruptcy of the Company, shares
of the Company's capital stock eligible for future public 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
enterprise-level multi-biometric software solutions that can be used to secure
access to computer-based information systems. 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 other identification and authentication ("I&A") methods that
can be easily lost, stolen, duplicated, transferred or discovered by
unauthorized persons.
The Company was organized on October 23, 1991 and 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, Suite 100, Tampa, Florida
33607, and its telephone number is (813) 636-0099. Further information is
available through the Company's World Wide Web Sites: http://www.nrid.com and
http://www.saflink.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, SUBSTANTIAL ACCUMULATED NET LOSSES
From its commencement of business in October 1991 through the end of 1997,
the Company was principally engaged in organizational, development and marketing
activities. The Company has an accumulated net loss of approximately $43,066,000
since inception through June 30,1998. Although the Company generated
approximately $609,000 of net income attributable to common stockholders on
revenues of approximately $3,947,000 for the six months ended June 30, 1998,
there is no assurance that the Company will be able to achieve significant
revenues or any net income in the future. Accordingly, the Shares offered hereby
are highly speculative and involve a high degree of risk. Purchasers should be
prepared to lose their entire investment.
NEED FOR ADDITIONAL FUNDS
The Company believes that its existing working capital, together with
anticipated cash flows from sales from current contracts, continuation of the
Company's operating expense reduction plan and the reduction of capital
expenditures will be insufficient to meet its expected working capital needs
through the remainder of 1998. Accordingly, the Company is reviewing the options
available to it to obtain additional financing. There is a significant
likelihood that such additional financing will not be available on terms
acceptable to the Company. It is possible that any such additional infusion of
capital would be in the form of the sale and issuance of additional shares of
Common Stock or securities that are convertible into Common Stock, which would
substantially increase the number of shares of Common Stock outstanding on a
diluted basis. The failure to obtain such additional funds would cause the
Company to cease or curtail operations. Even if such additional funding is
obtained, there is no assurance that the Company will be able to generate
significant sales of its products or services, or, if the Company is able to
consummate significant sales, that any such sales would be profitable.
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Accordingly, the Company is reviewing the options available to it to obtain
additional financing. There is a significant likelihood that such additional
financing will not be available on terms acceptable to the Company. It is
possible that any such additional infusion of capital would be in the form of
the sale and issuance of additional shares of Common Stock or securities that
are convertible into Common Stock, which would substantially increase the number
of shares of Common Stock outstanding on a diluted basis. The failure to obtain
such additional funds would cause the Company to cease or curtail operations.
Even if such additional funding is obtained, there is no assurance that the
Company will be able to generate significant sales of its products or services,
or, if the Company is able to consummate significant sales, that any such sales
would be profitable.
NASDAQ SMALLCAP MARKET ELIGIBILITY AND MAINTENANCE REQUIREMENTS; POSSIBLE
DELISTING OF SECURITIES FROM THE NASDAQ SMALLCAP MARKET
On May 29, 1998, the Company received notice from Nasdaq that the Common
Stock would be delisted from the SmallCap Market for non-compliance with the
minimum bid price requirement as set forth in Marketplace Rule 4310(c)(4) ("Rule
4310(c)(4)") effective the close of business on June 8, 1998, unless the Company
requested a temporary exception to the new requirements by sending a hearing
request to Nasdaq prior to the close of business on June 5, 1998. On June 2,
1998, the Company sent a letter to Nasdaq requesting a hearing which, pursuant
to the above-referenced May 29, 1998 Nasdaq letter, stayed the delisting of the
Common Stock. By letter dated June 17, 1998 Nasdaq notified the Company of the
procedure required to be complied with to proceed with such a hearing. On June
18, 1998, a letter was sent to Nasdaq on behalf of the Company confirming that
the Company was in compliance with Rule 4310(c)(4) as of such date. By letter
dated June 22, 1998, Nasdaq confirmed that the Company was in compliance with
Rule 4310(c)(4). There is no assurance that the Common Stock will continue to be
in compliance with Rule 4310(c)(4) at any time or that the Common Stock will not
be delisted from the SmallCap Market. If the Common Stock was delisted and
excluded from trading on the SmallCap Market, it would adversely affect the
prices of such securities and the ability of holders to sell them.
On May 29, 1998 the Company received notification from Nasdaq that the
Company was not in compliance with Marketplace Rule 4310(c)(2) ("Rule
4310(c)(2)") that requires the Company to maintain (i) net tangible assets of $2
million; (ii) market capitalization of $35 million; or (iii) net income of
$500,000 in the most recently completed fiscal year or in two of the three most
recently completed fiscal years. Nasdaq requested that the Company demonstrate
compliance with Rule 4310(c)(2) by June 22, 1998 in a publicly filed document
with the SEC. Pursuant to such letter, on June 12, 1998 the Company filed a Form
8-K attaching its balance sheet as of May 31, 1998 and its statement of
operations for the five months ended May 31, 1998. The Company estimates that it
is not in compliance with 4310(c)(2) as of August 31, 1998. Although the Company
is reviewing the options available to it to obtain additional equity to put it
into compliance with Rule 4310(c)(2), there is no assurance that the Company
will be
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able to make itself compliant with Rule 4310(c)(2), that the Company will be in
compliance with Rule 4310(c)(2) in the future or that the Common Stock will not
be delisted from the SmallCap Market. If the Common Stock was delisted and
excluded from trading on the SmallCap Market, it would adversely affect the
prices of such securities and the ability of holders thereof to sell them.
TECHNOLOGICAL AND MARKET UNCERTAINTY
The development and marketing 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 I&A 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 biometric I&A 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 compete in the highly competitive market for
network security which is dominated by more traditional I&A techniques (such as
cards, keys, passwords and personal information). A number of other companies
also have biometric I&A technology and have sold systems incorporating such
technology in the United States. The Company is aware of several other companies
which produce or are developing other biometric I&A technologies which may
compete with the Licensed Technology (as defined below) or may be integrated
into I&A products and services that are competitive with those offered by the
Company. 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 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 these parties or
technologies.
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DEPENDENCE UPON SOFTWARE LICENSORS
The Company has acquired certain rights to certain biometric I&A software
(the "Licensed Technology") under agreements with software algorithm suppliers
including Cogent Systems, Inc. ("Cogent") and Veridicom, Inc. ("Veridicom") that
may be terminated in the event the Company fails to pay license fees (including
minimum specified payments) or commits any other material breach of any covenant
of such agreements. Under the terms of the license agreement with Cogent (the
"Cogent Agreement"), the Company was granted a worldwide exclusive license,
commencing April 1, 1992 and expiring October 1, 1999, to all commercial
applications of Cogent's finger image identification technology and worldwide
non-exclusive rights to Cogent'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. The expiration of such
license agreement will be extended until October 1, 2009, provided that the
Company makes a $10 million cash payment to Cogent on or prior to October 1,
1999 (the "Extension Payment"). In addition, the Company is required to make
minimum quarterly royalty payments of $125,000 due January 1, April 1, July 1,
and October 1 of each year during the term of the Cogent Agreement. Although the
Company is not in default of such agreement as of the date hereof, there is no
assurance that such defaults will not occur in the future or that the Company
will make the minimum royalty payments or the Extension Payment.
Regardless of whether the Extension Payment is made, pursuant to the Cogent
Agreement, certain exclusive rights with respect to commercial markets the
Company had not entered as of April 1, 1997, became nonexclusive as of such
date. For commercial markets the Company had not entered as of April 1, 1997,
including any segment thereof, as required under the terms of the Cogent
Agreement, the Company stands to lose its exclusivity in those markets and upon
expiration of the Cogent Agreement (whether as a result of an event of default
or expiration of the license period, if the Company does not make the Extension
Payment on or prior to October 1, 1999 or minimum royalty payments as required),
the Company would lose all of its rights to use Cogent's technology which could
substantially impair the Company's ability to offer finger imaging based on one
to many matching on unlimited population sizes unless the Company was able to
make arrangements to obtain alternative technology from another source, as to
which there is no assurance.
Although the Company's products can be sold without biometric I&A
technology to which it has licenses, any loss of the Licensed Technology would
substantially impair (if not entirely preclude) the Company's ability to compete
with products including such technology.
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DEPENDENCE ON PATENTS, TRADEMARKS AND OTHER PROPRIETARY RIGHTS
The Company has no rights, other than pursuant to its license of rights, to
use any patents or other intellectual property to any biometric I&A software
algorithms and believes the competitive nature of its industry makes any patents
and patent applications of its licensors important to the Company. Cogent, for
example, has had certain patent applications rejected and there is no assurance
that any patents will be issued to Cogent, or any of the Company's other
licensors, or that any issued patents, or any patents applied for, will prove
enforceable, or that the Company will derive any competitive advantage
therefrom.
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 and
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 its proposed products
or services infringe on rights of third parties, if such is not the case,
failure to obtain needed licenses from such third parties could have a material
adverse effect on the Company's ability either to complete the development of
certain products or services or to arrange for their production and marketing.
Failure to obtain any such licenses could adversely impact the Company's results
of operations.
The Company has registered certain service marks and trademarks with the
United States Patent and Trademark office. However, the Company has not
registered certain of the various trademarks and trade names which it uses with
the United States Patent and Trademark Office nor in any foreign government
trademark offices. With respect to unregistered trademarks, the Company intends
to accompany the use of such trademarks with the Company's name to indicate the
origin of the products to which they are applied, to distinguish them from the
products of competitors and to build goodwill in such trademarks. Certain rights
are, however, protected under the provisions of the Lanham Act and under state
law in respect to unregistered or common law trademarks.
YEAR 2000 EXPOSURE
The Company is currently working to resolve the potential impact of the
year 2000 on the processing of date-sensitive information by the Company's
computerized information systems. The year 2000 problem is the result of
computer programs being written using two digits (rather than four) to define
the applicable year. Any of the Company's programs that have time-sensitive
software may recognize a date using "00" as the year 1900 rather than 2000,
which could result in miscalculation or system failures. Based on preliminary
information, costs of addressing potential problems are not currently expected
to have a material adverse impact on the Company's business condition, financial
or otherwise, results of operations, prospects and cash flows in future periods.
However, if the Company, its customers or vendors are unable to resolve such
processing issues in a timely manner, it could result in a material financial
risk. Accordingly, the Company plans to devote the necessary resources, if any,
to resolve all significant year 2000 issues in a timely manner.
CONTROL OF THE COMPANY
As of September 2, 1998, J. Anthony Forstmann and RMS Limited Partnership,
a Nevada limited partnership controlled by Roy M. Speer ("RMS"), beneficially
owned approximately 14.9% and 9.6% 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
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control the vote on any matters presented to stockholders and direct the
business and policies of the Company. In addition, Home Shopping Network, Inc.
owned 100,000 shares of the Company's Series A Preferred Stock, $.01 par value
per share ( the "Series A Preferred Stock") convertible into approximately
1,056,026 shares, or 13.2%, of the Common Stock and Clearwater Fund IV, L.L.C.
("Clearwater") owned approximately 230,000 shares of the Company's Series C
Preferred Stock, $.01 par value per share (the "Series C Preferred Stock"), that
was convertible into approximately 5,310,245 shares, or 43.3%, of the Common
Stock as of September 2, 1998. Clearwater may also own additional shares of
Common Stock issued upon conversion of Series C Preferred Stock and for accrued
dividends. Accordingly, such entities are in a position upon conversion of the
Series A and Series C Preferred Stock, respectively, 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 of the Company.
Control of the Company may also be impacted by certain possible events. See
"Risk Factors--Shares Eligible For Future Sale."
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.
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 Common Stock is likely to be
volatile. There is no assurance that this volatility will not have an
adverse effect on the market price of the Common Stock. See "Shares Eligible for
Future Sale" below.
Holders of substantially all of the Company's 6,954,441 outstanding shares
of Common Stock as of September 2, 1998 and substantially all of the
approximately 8,224,911 shares of Common Stock issuable as of September 2, 1998,
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. The
116,667 Shares offered hereby, 1,056,026 and 5,310,245 shares of Common Stock
issuable upon conversion of the shares of Series A Preferred Stock and Series C
Preferred Stock, respectively, plus such indeterminable additional number of
shares of Common Stock issuable upon conversion of the Series A Preferred Stock
and Series C Preferred Stock based upon the conversion formulas and the
application, if at all, of any anti-dilution provisions, thereof, may also be
sold in the public market.
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Furthermore, as of September 2, 1998, 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 1,253,500 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 to purchase an aggregate of an
additional 1,246,500 shares of Common Stock that may be granted under the Plan
in the future, and such shares of Common Stock either issuable upon exercise of
currently outstanding options (other than pursuant to the Plan, as defined
below) 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, there have been granted and are outstanding as of September
2, 1998, outside of the Plan, options to purchase an aggregate of approximately
345,834 shares of Common Stock to certain employees, directors and consultants
and which the Company 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, for 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 SmallCap Market since April 27, 1993. From April
27, 1993 through September 2, 1998, the average daily trading volume of the
Common Stock on the SmallCap Market was approximately 29,186 shares, on a post
reverse-stock split basis. 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 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, material contracts, developments or disputes relating to patents
or proprietary rights and market factors generally, may contribute to volatility
and may have a significant impact on the Company's business, financial
condition, results of operations 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.
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USE OF PROCEEDS
The Company will not receive any proceeds from any sales of Common Stock
under this Prospectus by the Selling Stockholder. If the Warrants are exercised
in full, the Company would receive gross proceeds of approximately $253,125,
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 STOCKHOLDER
Of the 116,667 shares of Common Stock offered by this Prospectus, (i) up to
75,000 shares of Common Stock, which shares are issuable upon exercise of the
Warrants, are being offered by International Interest Group, Inc. ("IIG") as the
holder of the Warrants which were issued as part of the Company's settlement on
May 15, 1998 of a lawsuit filed by IIG on February 13, 1997 (the "Settlement")
and (ii) 41,667 shares of Common Stock are being offered by IIG which shares
were issued as part of the Settlement. Additional shares of Common Stock may be
sold pursuant to this Prospectus in the event certain anti-dilution provisions
of the Warrants become operative.
Pursuant to the terms of the Warrants, IIG or its respective designee, may
purchase up to 75,000 shares of Common Stock at a purchase price of $3.38 per
share, subject to certain adjustments from time to time. The Warrants granted to
IIG are exercisable at any time and from time to time beginning on November 16,
1998 to and including May 14, 2002. In addition, the Company has granted certain
registration rights with respect to the Warrant Shares. The Warrant Shares are
being registered pursuant to such registration rights.
As of the date of this Prospectus, 41,667 shares of Common Stock were
beneficially owned, and may be offered pursuant to this Prospectus, by the
Selling Stockholder. In addition, Lloyd Fischel, who may be deemed the
beneficial owner of such shares of Common Stock because he is the sole
stockholder, officer and director of IIG, owns 116 shares of Common Stock.
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.
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As of the date of this Prospectus, the authorized capital stock of the
Company consisted of 1,000,000 shares of Preferred Stock, $.01 par value per
share, 330,000 shares of which are issued and outstanding, and 25,000,000 shares
of Common Stock, $.01 par value per share, of which 6,954,441 shares are issued
and outstanding. Other than RMS Limited Partnership and Francis R. Santangelo
(the holder of options to purchase up to 250,000 shares of Common Stock),
holders of capital stock of the Company have no preemptive or other subscription
rights. Of the authorized but unissued shares of Common Stock as of the date of
this Prospectus, (i) an aggregate of 2,595,834 shares of Common Stock are
reserved for issuance upon the exercise of options granted or which may be
granted under the Plan and additional options granted to certain employees
outside of the Plan; (ii) 1,056,026 shares of Common Stock are reserved for
issuance upon conversion of the Series A Preferred Stock (collectively with the
Series C Preferred Stock, the "Preferred Stock") into Common Stock; (iii)
5,310,245 shares of Common Stock are reserved for issuance upon the conversion
of outstanding shares of Series C Preferred Stock; (iv) 75,000 shares of Common
Stock are reserved for issuance upon the exercise of the Warrants; (v) 250,000
shares of Common Stock are reserved for issuance upon the exercise of an option
to purchase Common Stock previously granted to Mr. Santangelo; and (vi)
approximately 184,306 shares of Common Stock are reserved for issuance upon the
exercise of outstanding warrants previously issued.
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 C Preferred Stock will be, fully
paid and non-assessable.
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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 1,056,026 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 10.56026 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, Inc. 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 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.
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SERIES C PREFERRED STOCK
The Company has issued 350,000 shares of Series C Preferred Stock, of which
230,000 shares are outstanding as of the date of this Prospectus and are in the
aggregate convertible into a total of 5,310,245 shares of Common Stock as of
September 2, 1998. All shares of Series C Preferred Stock issued and outstanding
on the third anniversary of the original issue date (the "Original Issue Date")
will automatically convert into shares of Common Stock. As of September 2, 1998,
230,000 outstanding shares of Series C Preferred Stock are owned by Clearwater
Fund IV, LLC. 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.
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 transactions 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
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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.
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
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.
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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.
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
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 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.
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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 5,474,641 shares which were
freely tradeable as of August 26, 1998, the Selling Stockholder may sell 116,667
shares of Common Stock pursuant to this Prospectus plus such indeterminable
additional number of shares of Common Stock issuable upon exercise of the
Warrants in the event certain anti-dilution provisions become operative. All
such shares will become freely tradeable upon their issuance or sale pursuant to
this Prospectus.
All of the remaining approximately 1,479,800 outstanding shares of Common
Stock may be sold in the future in compliance with Rule 144 promulgated under
the Securities Act ("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 and during the three months preceding such sale
and who has satisfied a two-year holding period.
As of the September 2, 1998, the Company has registered on Form S-3
(Registration No. 333-23467) shares of Common Stock issuable upon conversion of
the Series C Preferred Stock and upon exercise of certain outstanding warrants.
As of the date of this Prospectus, the remaining 230,000 issued and outstanding
shares of Series C Preferred Stock are in the aggregate convertible into a total
of 5,310,245 shares of Common Stock. To the extent the market price of the
Common Stock at the time of conversion of the Series C Preferred Stock or of the
exercise of such outstanding warrants, as applicable, exceeds the conversion
price or the exercise price, respectively, the conversion of the Series C
Preferred Stock or the exercise of such outstanding warrants would have a
dilutive effect. Further, holders of the Series C Preferred Stock are likely to
convert such shares, if at all, and holders of the foregoing warrants are likely
to exercise such warrants, if at all, at a time when the Company could receive
funds from the sale of its securities at a higher price. Accordingly, shares of
Common Stock either issuable upon conversion of currently outstanding shares of
Series C Preferred Stock or issuable upon exercise of such currently outstanding
warrants will be eligible for sale by the holders thereof 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).
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As of September 2, 1998, there have been granted and are outstanding under
the Plan options to purchase an aggregate of approximately 1,253,500 shares of
Common Stock at prices ranging from $1.38 to $13.68 per share. To date, options
exercisable for approximately 268,001 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, if at all, 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 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
foregoing plan in the future. In addition, the Company has granted as of
September 2, 1998, outside of the Plan, options to purchase an aggregate of
approximately 345,834 shares of Common Stock to certain employees, directors and
consultants 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 (except that affiliates of the Company must comply with the volume
limitations of Rule 144).
PLAN OF DISTRIBUTION
The Company will not receive any proceeds from any sales of Common Stock
under this Prospectus by the Selling Stockholder. If the Warrants are exercised
in full, the Company would receive gross proceeds of $253,125, 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 Stockholder. Alternatively, the Selling Stockholder 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 Stockholder and/or the purchasers of the Shares for
whom they may act as agents. The Selling Stockholder 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.
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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 Shares being offered 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 Stockholder, any
discounts, commissions or other items constituting compensation received from
the Selling Stockholder 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 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 Stockholder or by agreement between the Selling Stockholder and any
underwriters. From time to time the Selling Stockholder 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 deliver the Shares in connection therewith. Further, except as set forth
herein, the Selling Stockholder is 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 Stockholder 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 Stockholder 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 directly or indirectly, bid for,
purchase, or attempt to induce any person to bid for or purchase such securities
for the applicable restricted period in connection with such distribution. In
addition and without limiting the foregoing, the Selling Stockholder 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 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.
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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
Stockholder.
EXPERTS
The financial statements of the Company appearing in The National
Registry's Annual Report (Form 10-K) for the year ended December 31, 1997 have
been audited by Ernst & Young LLP, independent auditors, as set forth in their
report thereon (which contains an explanatory paragraph describing conditions
that raise substantial doubt about the Company's ability to continue as a going
concern as described in Note 10 to the financial statements) 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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PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution.
Securities and Exchange Commission registration fee $ 45
NASD Listing Fee....................................... 1,667
Accounting fees and expenses........................... 19,000 *
Legal fees and expenses................................ 50,000 *
Miscellaneous.......................................... 10,788 *
---------
Total............................................. $ 81,500 *
=========
*Estimated.
None of the expenses of issuance and distribution of the Shares to the
Selling Stockholder is to be borne by the Selling Stockholder.
Item 15. Indemnification of Directors and Officers.
Subsection (a) 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, 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
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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
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
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<PAGE>
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
3 Certificate of Amendment to the Certificate of Incorporation of
The National Registry Inc.
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:
(i) to include any prospectus required by Section
10(a)(3) of the Securities Act;
(ii) 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) 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;
(a) 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;
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<PAGE>
(2) that, for the purpose of determining any liability under the
Securities Act, 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
Exchange Act 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 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 Commission such indemnification is
against public policy as expressed in the Securities Act 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 and will be
governed by the final adjudication of such issue.
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<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, hereunto duly
authorized, in the City of Tampa, State of Florida, on September 4, 1998.
THE NATIONAL REGISTRY INC.
By: /s/ JEFFREY P. ANTHONY
----------------------------
Name: Jeffrey P. Anthony
Title: President and Chief
Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
Date: September 4, 1998 /s/ JEFFREY P. ANTHONY
---------------------------
Jeffrey P. Anthony
Chairman, President,
Chief Executive Officer and
Director
Date: September 4, 1998 /s/ JAMES W. SHEPPERD
---------------------------
James W. Shepperd
Chief Financial Officer
Date: September 4, 1998 /s/ JAMES M PORTERFIELD III
---------------------------
James M. Porterfield III
Controller and Chief Accounting Officer
Date: September 4, 1998 /s/ J. ANTHONY FORSTMANN
---------------------------
J. Anthony Forstmann
Director
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<PAGE>
Date: September 4, 1998 /s/ FRANK M. DEVINE
---------------------------
Frank M. Devine
Director
Date: September 4, 1998 /s/ DON M. LYLE
---------------------------
Don M. Lyle
Director
Date: September 4, 1998 /s/ DONALD C. KLOSTERMAN
---------------------------
Donald C. Klosterman
Director
Date: September 4, 1998 /s/ ROBERT ROSENBLATT
---------------------------
Robert Rosenblatt
Director
Date:
---------------------------
Francis R. Santangelo
Director
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<PAGE>
EXHIBIT INDEX
SEQUENTIAL
EXHIBIT NO. DESCRIPTION PAGE NUMBER
- ----------- ----------- -----------
3 Certificate of Amendment to the Certificate of
Incorporation of The National Registry Inc.
23 Consent of Ernst & Young LLP.
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EXHIBIT 3
CERTIFICATE OF AMENDMENT
TO
THE CERTIFICATE OF INCORPORATION
OF
THE NATIONAL REGISTRY INC.
A Delaware Corporation
The undersigned certify that:
1. They are the President and Secretary, respectively, of The National
Registry Inc., a Delaware corporation.
2. ARTICLE FOUR of the Certificate of Incorporation is amended by deleting it
in its entirety and replacing it with the following:
"FOURTH: The total number of shares of all classes of stock which
the Corporation shall have authority to issue is 26,000,000
shares, consisting of (i) 1,000,000 shares of Preferred Stock
$.01 par value per share (the "Preferred Stock"), and (ii)
25,000,000 shares of Common Stock, $.01 par value per share (the
"Common Stock"). Upon amendment to this Article to read as herein
set forth, each six (6) shares of outstanding Common Stock is
converted into and reconstituted as one (1) share of Common
Stock."
3. The foregoing Amendment to the Certificate of Incorporation has been duly
approved by the Board of Directors.
4. The foregoing Amendment to the Certificate of Incorporation has been duly
approved by the required vote of stockholders in accordance with Section
242 of the Delaware General Corporation Law. The total number of
outstanding shares of the Corporation is 39,174,124. The number of shares
voting in favor of the Amendment equaled or exceeded the vote required. The
percentage vote required was more than 50%.
Dated as of May 26, 1998
/s/ JEFFREY P. ANTHONY
-----------------------
Jeffrey P. Anthony
President
/s/ DAVID E. BROGAN
-----------------------
David E. Brogan
Secretary
EXHIBIT 23
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We consent to the reference to our firm under the caption "Experts" in the
Registration Statement (Form S-3 No. 333-58575) and related Prospectus of The
National Registry Inc. for the registration of 116,667 shares of its common
stock and to the incorporation by reference therein of our report dated March
27, 1998, except for Note 10 as to which the date is April 3, 1998, with respect
to the financial statements of The National Registry Inc. included in its Annual
Report on Form 10-K, for the year ended December 31, 1997 filed with the
Securities and Exchange Commission.
/s/ ERNST & YOUNG LLP
-----------------------
Ernst & Young LLP
Tampa, Florida
July 6, 1998
