AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 21, 1996
REGISTRATION NO. 333-09935
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
AMENDMENT NO. 2
TO
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
MULTIMEDIA ACCESS CORPORATION
(NAME OF SMALL BUSINESS ISSUER IN ITS CHARTER)
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Delaware 3661 75-2528700
(State or Other Jurisdiction Primary Standard (IRS Employer
of Incorporation or Organization) Classification Code Number Identification Number)
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2665 VILLA CREEK DRIVE, SUITE 200, DALLAS, TEXAS 75234
972-488-7200
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(Address of principal executive offices and place of business and
telephone number)
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GLENN A. NOREM
CHIEF EXECUTIVE OFFICER
MULTIMEDIA ACCESS CORPORATION
2665 VILLA CREEK DRIVE, SUITE 200, DALLAS, TEXAS 75234
972-488-7200
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(NAME, ADDRESS AND TELEPHONE NUMBER OF AGENT FOR SERVICE)
Copies to:
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John S. Stoppelman, Esq. Jay Kaplowitz, Esq. Lawrence B. Fisher, Esq.
The Stoppelman Law Firm, P.C. Gersten, Savage, Kaplowitz, Curtin, L.L.P. Orrick, Herrington & Sutcliffe, L.L.P.
1749 Old Meadow Road, Suite 610 575 Lexington Avenue 666 Fifth Avenue
McLean, Virginia 22102-4310 New York, NY 10022-6102 New York, NY 10103
Telephone: (703) 827-7450 Telephone: (212) 752-9700 Telephone: (212) 506-5000
Telecopier: (703) 827-7455 Telecopier: (212) 752-9713 Telecopier: (212) 506-5151
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Approximate date of proposed sale to the public: As soon as practicable after
the Registration Statement becomes effective __________ 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 the delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [X]
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box: [X]
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CALCULATION OF REGISTRATION FEE
---------------------------------------------------------------------------------------------------------------
TITLE OF EACH CLASS PROPOSED MAXIMUM PROPOSED MAXIMUM
OF SECURITIES TO BE AMOUNT TO BE OFFERING PRICE AGGREGATE AMOUNT OF
REGISTERED REGISTERED PER SHARE(1) OFFERING PRICE REGISTRATION FEE
- ----------------------------------------------------------------------------------------------------------------
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Common Stock, $.0001 par value......... 2,547,244(2)(3) $6.00 $15,283,464 $5,270
Redeemable Common Stock Purchase
Warrants ("Public Warrants")........... 2,547,244(4)(5) $0.10 254,724 $ 88
Common Stock issuable upon exercise of
Public Warrants........................ 2,547,244 $8.40 21,396,850 $7,378
TOTAL REGISTRATION FEE...................................................... $12,736
Paid........................................................................ $12,704
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Due......................................................................... $ 32
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(1) Estimated solely for purposes of calculating the registration fee.
(2) Includes 270,000 Shares which the Representatives have the option to
purchase to cover over-allotments, if any.
(3) Includes 477,244 shares to be sold by Selling Securityholders.
(4) Includes 270,000 Public Warrants which the Representatives have the option
to purchase to cover over-allotments, if any.
(5) Includes 477,244 Public Warrants to be sold by Selling Securityholders.
----------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
================================================================================
<PAGE>
MULTIMEDIA ACCESS CORPORATION
----------
CROSS-REFERENCE SHEET SHOWING LOCATION IN PROSPECTUS
OF INFORMATION REQUIRED BY ITEMS OF FORM SB-2
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FORM SB-2 REGISTRATION STATEMENT ITEM AND HEADING LOCATION IN PROSPECTUS
- ----------------------------------------------------- -----------------------------------------------------
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1. Front of Registration Statement and Outside
Front Cover of Prospectus........................ Outside Front Cover Page of Prospectus
2. Inside Front and Outside Back Cover Pages of Inside Front and Outside Back Cover Pages of
Prospectus....................................... Prospectus
3. Summary Information and Risk Factors............. Prospectus Summary; Risk Factors
4. Use of Proceeds.................................. Use of Proceeds
5. Determination of Offering Price.................. Underwriting
6. Dilution......................................... Dilution
7. Selling Security Holders ........................ *
8. Plan of Distribution............................. Outside Front Cover Page of Prospectus; Underwriting
9. Legal Proceedings................................ Legal Proceedings
10. Directors, Executive Officers, Promoters and
Control Persons ................................. Management; Principal Stockholders; Certain
Transactions
11. Security Ownership of Certain Beneficial Owners
and Management................................... Management
12. Description of Securities ....................... Description of Securities; Underwriting
13. Interests of Named Experts and Counsel .......... Interest of Named Experts and Counsel
14. Disclosure of Commission Position on
Indemnification for Securities Act Liabilities... Management
15. Organization Within Last Five Years.............. Prospectus Summary
16. Description of Business ......................... Prospectus Summary; Risk Factors; Management's
Discussion and Analysis of Financial Condition and
Results of Operations; Business; Management; Certain
Transactions; Principal Securityholders; Consolidated
Financial Statements
17. Management's Discussion and Analysis or Plan of
Operations ...................................... Management's Discussion and Analysis of Financial
Condition and Results of Operations
18. Description of Property ......................... Business
19. Certain Relationships and Related Transactions .. Certain Transactions
20. Market for Common Equity and Related Stockholder
Matters.......................................... Front Cover Page; Description of Securities
21. Executive Compensation........................... Management
22. Financial Statements............................. Consolidated Financial Statements
23. Change in and Disagreements with Accountants on
Accounting and Financial Disclosure.............. Experts
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* See Explanatory Note
<PAGE>
EXPLANATORY NOTE
Two forms of Prospectus are included in this Registration Statement. The
first Prospectus will be used in connection with an underwritten offering of
securities by the Company (the "Company Prospectus"). The second Prospectus will
be used in connection with the sale of securities by certain selling
securityholders from time to time in open market transactions (the "Selling
Securityholders Prospectus"). The Company Prospectus and the Selling
Securityholders Prospectus are substantially identical, except for the 4
pages for the Selling Securityholders Prospectus included herein which are
labeled "Alternate Page for Selling Securityholders Prospectus." In addition,
what is referred to as "the offering" in the Company Prospectus will be changed
to "the Company Offering" throughout the Selling Securityholders Prospectus.
After this Registration Statement becomes effective, both Prospectuses will
be used in their entirety in connection with the offer and sale of the
respective securities referenced therein.
<PAGE>
SUBJECT TO COMPLETION, DATED NOVEMBER 21, 1996
PROSPECTUS
[LOGO] MULTIMEDIA ACCESS CORPORATION
1,800,000 SHARES OF COMMON STOCK
1,800,000 REDEEMABLE COMMON STOCK PURCHASE WARRANTS
MultiMedia Access Corporation (the "Company") hereby offers 1,800,000 shares
of Common Stock, $.0001 par value per share (the "Common Stock"), and 1,800,000
Redeemable Common Stock Purchase Warrants ("Public Warrants"). The shares of
Common Stock and the Public Warrants (together, the "Securities") must be
purchased on the basis of one Public Warrant for each share of Common Stock
purchased and will be separately transferable immediately upon issuance. Each
Public Warrant entitles the holder to purchase one (1) share of Common Stock at
$ per share (120% of the price offered to the public), subject to adjustment
under certain circumstances, at any time commencing six months from the date of
this Prospectus through and including five years from the date of this
Prospectus. The Public Warrants are redeemable by the Company, at any time
commencing eighteen (18) months from the date of this Prospectus, upon notice of
not less than thirty (30) days, at a price of $.10 per Public Warrant, provided
that the closing price or bid price of the Common Stock for any twenty (20)
trading days within a period of thirty (30) consecutive trading days ending on
the fifth (5th) day prior to the day on which the Company gives notice of
redemption has been at least 250% (currently $ , subject to adjustment) of the
then effective exercise price of the Public Warrants. It is currently
anticipated that the initial public offering price of the Common Stock will be
$5.00 to $6.00 and $.10 per Public Warrant. See "Description of Securities."
Prior to this offering, there has been no public market for the Common Stock
or Public Warrants and there can be no assurance that any such market will
develop. It is anticipated that the Common Stock and the Public Warrants will be
quoted on the NASDAQ Small-Cap Market ("NASDAQ") under the symbols "MMAC" and
"MMACW" respectively. For a discussion of the factors considered in determining
the offering prices of the Common Stock and Public Warrants, see "Underwriting."
Concurrently with this offering, the Company is registering 477,244 shares
of Common Stock (the "Selling Securityholder Shares"), 477,244 Public Warrants
and 477,244 shares underlying the Public Warrants to be sold by Selling
Securityholders in a debt retirement and debt for equity exchange which
securities are the subject of two year "lock-up" agreements. The Company will
not receive any of the proceeds of the sale of Common Stock by the Selling
Securityholders, but will receive the proceeds of the exercise of the Public
Warrants by the Selling Securityholders. See "Concurrent Registration of
Securities."
----------
THE SECURITIES OFFERED HEREBY
ARE SPECULATIVE AND INVOLVE A HIGH DEGREE OF RISK AND IMMEDIATE DILUTION
AND SHOULD NOT BE PURCHASED BY INVESTORS WHO CANNOT AFFORD THE LOSS OF
THEIR ENTIRE INVESTMENT. SEE "RISK FACTORS" AND "DILUTION."
----------
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.
----------
================================================================================
Underwriting
Price Discounts and Proceeds to
to Public Commissions(1) Company(2)
- --------------------------------------------------------------------------------
Per Share....................$ -- $ -- $ --
- --------------------------------------------------------------------------------
Per Warrant .................$ -- $ -- $ --
- --------------------------------------------------------------------------------
Total(3).....................$ -- $ -- $ --
================================================================================
(1) In addition, the Company has agreed to pay to the Representatives a 3%
nonaccountable expense allowance and to sell to the Representatives, for
nominal consideration, warrants to purchase up to 180,000 shares of Common
Stock and up to 180,000 Public Warrants. The Company has agreed to
indemnify the Representatives against certain liabilities, including
liabilities under the Securities Act. See "Underwriting."
(2) Before deducting expenses, estimated at $ , payable by the Company
including the Representatives' nonaccountable expense allowance. The
Selling Securityholders will not bear any of the expenses of this offering.
(3) The Company has granted the Representatives an option, exercisable within
45 days from the date of this Prospectus, to purchase up to 270,000
additional shares of Common Stock and/or 270,000 additional Public Warrants
on the same terms and conditions as set forth above, solely for the purpose
of covering over-allotments. If such option is exercised in full, the Price
to Public, Underwriting Discounts and Commissions and Proceeds to Company
will be $ , $ and $ , respectively. See "Underwriting."
----------
The Common Stock and Public Warrants are being offered, subject to prior
sale, when, as and if delivered and accepted by the several Underwriters and
subject to the approval of certain legal matters by counsel and to certain other
conditions. The Underwriters reserve the right to withdraw, cancel or modify the
offering and to reject any order in whole or in part. It is expected that
delivery of certificates representing the Common Stock and Public Warrants
contained therein, will be made against payment therefor at the offices of
National Securities Corporation on or about , 1996.
NATIONAL SECURITIES CORPORATION NETWORK 1 FINANCIAL SECURITIES, INC.
The date of this Prospectus is , 1996
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of securities in any
State in which such offer, solicitation or sale would be unlawful prior to
registration or qualification under the securities laws of any such State.
<PAGE>
[MARKETING DISPLAY]
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICES OF THE COMPANY'S
COMMON STOCK AND PUBLIC WARRANTS AT LEVELS ABOVE THOSE WHICH MIGHT OTHERWISE
PREVAIL IN THE OPEN MARKET. SUCH TRANSACTIONS MAY BE EFFECTED IN THE NASDAQ
SMALL CAP MARKET OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE
DISCONTINUED AT ANY TIME.
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SUMMARY
The following summary is qualified in its entirety by the other information
and consolidated financial statements appearing elsewhere in this Prospectus.
Each prospective investor is urged to read this Prospectus in its entirety.
Unless otherwise indicated all per share data and information in this Prospectus
relating to the number of shares of Common Stock outstanding assumes that the
Representatives' over-allotment option will not be exercised. For an explanation
of certain technical terms used in this Prospectus, see "Glossary."
THE COMPANY
MultiMedia Access Corporation (the "Company") develops and markets advanced
video communications products for the personal computer ("PC") and workstation
marketplaces. Applications include desktop videoconferencing ("DVC"), Internet
and Intranet video communications, video-based training, video surveillance,
distance learning and high quality workgroup video communications. While the
Company sells its core video compression-decompression ("Codec") and video
switching technologies to resellers and systems integrators, its primary
strategy is to develop and market video communications applications using its
technologies.
The Company, in September 1996, entered into a reseller agreement with Unisys
Corporation ("Unisys"), a nationwide systems integrator and reseller, to
purchase and resell the Company's Viewpoint VBX(Trademark). The Viewpoint
VBX(Trademark) is a PC-based video switch which provides workgroup video
communications over existing telephone or network wiring commonly found
throughout office buildings. Unlike commercially available competitive products,
the Viewpoint VBX(Trademark) connects over 100 users per switch and distributes
full-motion video at distances up to 3,500 feet via existing unshielded twisted
pair ("UTP") wiring.
The Company entered into a licensing agreement with Boca Research Inc.
("Boca"), a major modem and PC peripheral supplier, to manufacture and market
the Company's FamilyFone(Trademark) and its ISDN videoconferencing upgrades in
January 1996, and delivered its first video surveillance system to Alcatel
Network Systems Inc. ("Alcatel"), a major communications systems integration
company, in the first quarter of 1996. The Company believes it sells the only
currently available standards-based, multi-algorithm video and audio Codec
product for WindowsNT and is developing a multi-algorithm Codec for Sun
Microsystem ("Sun") workstations.
According to industry sources, the video communications industry is forecast
to be $3.6 billion by 1999 and the emerging desktop segment of that industry is
forecast to exceed $1.2 billion by 1999. The PC dominates the desktop computing
market with 1995 sales of over 57 million units worldwide and an estimated 100
million new PCs projected to be sold annually by 1999. Industry sources estimate
that over 30% of the new PCs sold in 1996 (principally multimedia capable PCs)
will be purchased by consumers for use in the home. The Company believes it has
developed products which position it to benefit from the growth of these markets
and which will have functions, performance and cost to successfully compete in
the rapidly-emerging desktop video communications industry.
PRODUCT FAMILY
The Company currently offers a variety of products with differing video
quality levels: NTSC TV quality with the Viewpoint VBX(Trademark) video switch,
business quality with the Osprey-1000(Trademark) using ISDN lines and consumer
quality video with FamilyFone(Trademark) using modems over ordinary telephone
lines. The resolution and framerate of the video varies with the bandwith of the
communications connection.
Corporate Intranet Video. The Company's Viewpoint-PRO(Trademark) product
enables users to engage in real-time, full-color, full-motion video over their
existing computer networks. The Viewpoint-PRO(Trademark) supports point-to-point
and up to five site multipoint videoconferences. Unlike many currently available
ISDN-based products, the Viewpoint PRO(Trademark) does not require expensive
multipoint control units, which can cost as much as $20,000, to complete a
multipoint videoconference. Viewpoint PRO(Trademark) also comes equipped with
ViewCast(Trademark), a one-to-many broadcasting capability that permits "live"
broadcasts or pre-recorded content to be multicast over an existing corporate
data
3
<PAGE>
network. Viewpoint PRO(Trademark), combined with optional third-party software,
offers videoconference participants the ability to share a whiteboard or a PC
application. Viewpoint PRO(Trademark) was the first commercial product offering
video multicast using both FTP Software Inc.'s and Microsoft Corporation's
TCP/IP-Multicast PC software.
Consumer Video. The Company believes its FamilyFone(Trademark) product
provides affordable, good quality video communications capabilities to consumers
and small businesses. This product, which operates on standard telephone lines
and 28.8 Kbps (kilobits per second) modems, was introduced by Boca as the
BocaPRO Video Phone Elite in August 1996 at a suggested retail price of $399.
The cost of the product does not include the price of cameras and speakers.
Video Codecs. The Company develops and markets standards-based video and
audio Codec products that enable multimedia applications for PCs and
workstations. The Company's Osprey Codecs capture, digitize, compress, transmit,
receive, decompress and display full-motion video. The Osprey 1000(Trademark) is
compatible with multiple video and audio compression formats for both PCs and
workstations that are equipped with the standard PCI-bus and supports the
Windows NT, Windows 3.1, Windows95, Solaris and UNIX operating systems. The
Company believes the Osprey 1000(Trademark) is the only currently available
standards-based, multi-algorithm video and audio Codec product for the Windows
NT operating system.
The Company is currently developing a version of the Osprey Codec for Sun
workstations equipped with the S-bus. The Company has also developed
SLIC-Video(Trademark), a video capture product that enables Sun workstation
users to view uncompressed, high-quality video and to capture full-motion video
frames. SLIC-Video(Trademark) is compatible with a wide variety of video
applications on existing Sun workstations.
Video Switching Hub and UTP Video Distribution. The Company's Viewpoint
VBX(Trademark) product provides high-quality workgroup video communications with
shared gateways to Wide Area Networks ("WANs") and existing video
teleconferencing room systems. The Viewpoint VBX(Trademark) operates on a
PC-based WindowsNT system and employs a switched architecture to distribute
uncompressed, full-motion video within a building or campus using existing UTP
wiring. The switching architecture can support hundreds of users and allows
point-to-point, multipoint and broadcast modes of operation. The Viewpoint
VBX(Trademark) is compatible with standard NTSC cameras, audio components,
speakerphones, PC video peripherals and other videoconferencing products
produced by third-party manufacturers.
Internet Video. The Company is currently developing and plans to market three
Internet video products and their software players to capitalize on the growing
popularity of the World Wide Web (the "Web"). Subscribers to the Web have sought
improved Internet access capabilities, which has resulted in increased usage of
28.8 Kbps modems, ISDN adapters and cable modems. Improvements in video and
audio compression technology, standards and Internet access have made possible
new forms of motion-video content for Internet publishers and their target
audiences. The Company's products are being designed to take advantage of these
technological developments and target the rapidly- emerging market for Internet
video publishing, Internet video broadcasts and Internet video call centers by
enhancing Internet web pages with audio and motion-video.
Video Surveillance. The Company believes that commercial and residential
video surveillance products represent another strong business opportunity. The
Company delivered its first video surveillance system to Alcatel in the first
quarter of 1996. This industrial surveillance system integrates standard alarm
and sensory devices and allows a central operator to monitor and inspect
hundreds of remote sites over the customer's existing frame relay computer
network. The Company intends to enter into relationships and collaborative
projects with communication system integrators, security system resellers,
distributors and suppliers to capitalize on this market.
The Company believes that the convergence of multimedia PCs, new
standards-based audio and video technologies and increased interest in the
Internet and corporate Intranets combined with PC price levels for such
capabilities will generate a rapid adoption of video communications products and
services. The Company's enabling technologies provide for economical solutions
for adapting existing and new PCs with video communication capabilities.
4
<PAGE>
The Company was incorporated in Delaware in February 1994 and acquired all of
the issued and outstanding capital stock of its affiliate, Viewpoint Systems,
Inc. ("Viewpoint") in May 1994. Unless otherwise indicated, references in this
Prospectus to the Company include its wholly-owned subsidiaries, Viewpoint,
Videoware, Inc. ("VideoWare"), and Osprey Technologies, Inc. ("Osprey"), all
Delaware corporations. The Company's principal executive offices are located at
2665 Villa Creek Drive, Suite 200, Dallas, Texas 75234, its telephone number is
(972) 488-7200, its fax number is (972) 488-7299 and its Internet address is
www.mmac.com.
5
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THE OFFERING
Securities Offered.................. 1,800,000 shares of Common Stock and
1,800,000 Public Warrants to purchase
one (1) share of Common Stock at $
(120% of price offered to the public).
The shares of Common Stock and the
Public Warrants must be purchased on
the basis of one Public Warrant for
each share of Common Stock purchased
and will be separately transferable
immediately upon issuance. See "Risk
Factors -- Warrants Redeemable at
Nominal Price" and "Description of
Securities."
Common Stock to be Outstanding after
the Offering(1)................... 7,331,558
Warrants to be Outstanding after the
Offering.......................... 5,000,649
Terms of the Public
Warrants.......................... Each Public Warrant is exercisable at
any time commencing six months from the
date of his Prospectus and entitles the
holder thereof to purchase one share of
Common St ock at a price of $ per share
(120% of the price offered to the
public), subject to adjustment in
certain circumstances, at any time
until five years after the date of this
Prospectus. The Public Warrants are
redeemable by the Company, at any time
comme ncing eighteen months after the
date of this Prospectus, at a price of
$.10 per Public Warrant, upon not less
than 30 days prior written notice to
the registered holders of the Public
Warrants, provided that the closing
price or bid price of the Common Stock
equals or exceeds 250% of the exercise
price (currently $ , subject to
adjustment) of the Public Warrants for
any 20 trading days within a period of
30 consecutive trading days ending on
the fifth day prior to the day on which
the Company gives notice of redemption.
See "Description of Securities --
Warrants."
Use of Proceeds...................... The Company intends to use the net
proceeds of this offering for repayment
of outstanding accounts payable and
indebtedness (including amounts due to
affiliates of the Company); marketing
and sales activities; research and
development; and the balance for
working capital and general corporate
purposes. See "Use of Proceeds."
Risk Factors ....................... The securities offered hereby are
speculative and involve a high degree
of risk and immediate substantial
dilution and should not be purchased by
investors who cannot afford the loss of
their entire investment. See "Risk
Factors" and "Dilution."
Proposed Nasdaq Symbol.............. Common Stock -- MMAC
Public Warrants -- MMACW
- ----------
(1) Includes 477,244 shares of Common Stock issued on the date of this
Prospectus upon the conversion of $2,330,300 principal amount of
Convertible Debt and approximately $342,294 of accrued interest at the
offering price of the Common Stock and Public Warrants (based on an assumed
offering price of $5.50 per share and $.10 per Public Warrant). Does not
include (i) 1,442,505 shares of Common Stock reserved for issuance upon
exercise of outstanding warrants to purchase common stock, (ii) 180,000
shares of Common Stock reserved for issuance upon exercise of the
Representative's Warrants, (iii) 180,000 shares of Common Stock reserved
for issuance upon exercise of Representative's Public Warrants issuable
upon exercise of Representative's Warrants, (iv) 957,975 shares of Common
Stock reserved for issuance upon exercise of options available for future
grant under the 1995 Option Plan, (v) 1,042,025 shares of Common Stock
reserved for issuance upon exercise of options granted under the 1995
Option Plan, (vi) 906,749 shares of Common Stock reserved for issuance upon
exercise of options granted under the 1994 Option Plan, (vii) 103,549
shares of Common Stock reserved for issuance upon exercise of options
granted under the 1993 Option Plan, (viii) 25,000 shares of Common Stock
reserved for issuance upon exercise of options granted under the 1995
Directors Stock Option Plan, (ix) 225,000 shares of Common Stock reserved
for issuance upon exercise of options available for future grant under the
1995 Directors Stock Option Plan, (x) 250,000 shares of Common Stock
reserved for issuance under the Employee Stock Purchase Plan, (xi)
1,280,900 shares of Common Stock reserved for issuance upon exercise of the
Convertible Debt Warrants, (xii) 1,800,000 shares of Common Stock reserved
for issuance upon exercise of the Public Warrants, and (xiii) 477,244
shares of Common Stock reserved for issuance upon exercise of Public
Warrants issued on the date of this Prospectus upon conversion of
$2,330,300 principal amount of Convertible Debt and approximately $342,294
of accrued interest at the offering price of Common Stock and Public
Warrants based on an assumed offering price of $5.50 per share and $.10 per
Public Warrant. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations," "Management -- Employee Stock Plans,"
"Description of Securities" and "Underwriting."
6
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL INFORMATION
The following summary financial data as of December 31, 1994, December 31,
1995 and September 30, 1996 and for each of the periods ended December 31, 1994
and 1995 and September 30, 1995 and 1996 is derived from the Company's
consolidated financial statements. The following data should be read in
conjunction with the consolidated financial statements of the Company, including
the notes thereto included elsewhere herein. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and "Consolidated
Financial Statements."
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
<TABLE>
<CAPTION>
CUMULATIVE
FROM INCEPTION
(NOV. 19, 1992)
NINE MONTHS ENDED SEPTEMBER TO SEPTEMBER
YEAR ENDED DECEMBER 31, 30, 30,
--------------------------- --------------------------- ----------------
1994 1995 1995 1996 1996
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<S> <C> <C> <C> <C> <C>
Net sales........................... $ 127,531 $ 285,354 $ 244,223 $ 900,446 $ 1,377,407
Cost of goods sold.................. 64,363 136,381 112,452 315,437 547,994
Gross profit........................ 63,168 148,973 131,771 585,009 829,413
Operating expenses ................. 2,740,692 4,720,559 3,072,323 3,322,530 11,451,185
Other expense (principally
interest)........................... (39,897) (843,292) (568,958) (343,561) (1,239,735)
Net loss(1)......................... (2,717,421) (5,414,878) (3,509,510) (3,081,082) (11,861,511)
Net loss per share.................. $ (0.53) $ (0.98) $ (0.64) $ (0.49)
Common and common equivalent shares
outstanding......................... 5,157,932 5,542,184 5,480,438 6,283,167
</TABLE>
CONSOLIDATED BALANCE SHEET DATA:
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30, 1996
---------------------------- ---------------------------------------------
1994 1995
------------- --------------
PRO FORMA
AS
ACTUAL PRO FORMA(2) ADJUSTED(2)(3)
-------------- -------------- ---------------
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Working capital (deficit) .... $ (209,143) $(3,891,602) $(4,680,592) $(4,680,592) $6,261,602
Total assets.................. 1,781,055 1,244,766 1,560,096 2,060,096 8,260,303
Total liabilities............. 3,180,807 4,497,330 6,103,043 6,603,043 1,861,056
Stockholders' equity
(deficit)..................... (1,399,752) (3,252,564) (4,542,947) (4,542,947) 6,399,247
</TABLE>
- ----------
(1) From Viewpoint's inception through its acquisition by the Company on May
11, 1994, Viewpoint elected to be treated as an S Corporation for federal
income tax purposes and, accordingly, its taxable income or loss was
included in the income tax returns of its shareholders. Viewpoint's status
as an S Corporation was terminated on May 11, 1994.
(2) Gives pro forma effect to transactions subsequent to September 30, 1996 but
prior to the date of this Prospectus consisting of issuance of Bridge Debt
of $500,000. See "Description of Securities" and "Certain Transactions."
(3) Gives effect, on an as adjusted basis, to the sale of the 1,800,000 shares
of Common Stock and 1,800,000 Public Warrants offered hereby and the
initial application of the estimated net proceeds therefrom. Also gives
effect to the conversion of $2,330,300 of Convertible Debt and accrued
interest of approximately $342,294 to Common Stock at the estimated initial
public offering price of $5.50 per share and $.10 per Public Warrant. See
"Use of Proceeds," "Certain Transactions" and "Description of Securities."
7
<PAGE>
RISK FACTORS
The securities offered hereby are speculative and involve a high degree of
risk. Each prospective investor should carefully consider the following risk
factors inherent in and affecting the business of the Company and this offering
before making an investment decision.
Development Stage Company; Limited Operating History; Going Concern
Qualification in Independent Auditor's Report. The Company is a development
stage company and has commenced limited marketing of its products. Accordingly,
the Company has a limited operating history upon which an evaluation of its
prospects can be made. Such prospects must be considered in light of the risks,
expense, delays, problems and difficulties frequently encountered in the
establishment of a new business in an industry characterized by intense
competition, as well as risks encountered in the shift from development to
commercialization of new products based on innovative technologies. The
Company's prospects are dependent upon the successful commercialization of its
products. There can be no assurance that the Company will be able to implement
its business plan or that unanticipated expenses, problems or difficulties,
technical or otherwise, will not result in material delays in its
implementation. The Company's independent auditors have included a going concern
qualification in their audit report on the Company's consolidated financial
statements stating that such financial statements have been prepared assuming
that the Company will continue as a going concern and that, among other things,
the Company's financial condition and losses from operations since inception
raise substantial doubt about the ability of the Company to continue as a going
concern. Statement of Financial Accounting Standards No. 107 ("SFAS 107")
requires an entity to disclose the fair value of financial instruments for which
it is practicable to estimate that value. Management of the Company has
determined that it is not practicable to estimate, in accordance with SFAS 107,
the fair values at December 31, 1995 of its long and short term debt. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," "Business" and Note 1 and Note 2 of "Notes to Consolidated
Financial Statements."
Limited Revenue; Significant Losses; Accumulated Deficit. Since inception,
the Company has generated limited revenue, including revenues of $127,531,
$285,354, and $900,446 and incurred significant losses, including losses of
$2,717,421, $5,414,878 and $3,081,082 for the years ended December 31, 1994 and
1995, and the nine months ended September 30, 1996, respectively, and has
continued to incur significant additional losses to date. At September 30, 1996,
cumulative losses since inception through September 30, 1996 were $11,861,511.
Inasmuch as the Company intends to increase its level of activities following
consummation of this offering and will be required to make significant
expenditures in connection with marketing and product development activities,
the Company anticipates that losses will continue for the foreseeable future and
until such time as the Company is able to build an effective marketing and sales
organization, develop a network of independent resellers and achieve market
acceptance of its products. In addition, the Company's future performance will
be subject to a number of business factors beyond the Company's control, such as
technological changes and developments by others and unfavorable general
economic conditions, including downturns in the economy or a decline in the DVC
or PC industries or in targeted commercial markets, which would result in a
reduction or deferral of capital expenditures by prospective customers. There
can be no assurance that the Company will be able to successfully implement its
marketing strategy, generate significant revenues or achieve profitable
operations. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and "Consolidated Financial Statements."
Significant Capital Requirements; Dependence on Offering Proceeds; Possible
Need for Additional Financing. The Company's capital requirements in connection
with the design, development and commercialization of its products have been and
will continue to be significant. To date, the Company has been substantially
dependent upon loans from its principal stockholders, as well as private
placements of its debt and equity securities, to finance its working capital
requirements. The Company is dependent on the proceeds of this offering to
commence full-scale marketing activities in connection with its products, to
complete the development of additional product and software applications, and to
fund the Company's working capital requirements. The Company anticipates, based
on currently proposed plans and assumptions relating to its operations, that the
proceeds of this offering will be sufficient to satisfy its contemplated cash
requirements for at least twelve months following the consummation of this
offering.
8
<PAGE>
In the event that the Company's plans change or prove to be inaccurate or if the
proceeds of this offering prove to be insufficient to fund operations, the
Company could be required to seek additional financing sooner than currently
anticipated or could be required to curtail its activities. The Company has no
current arrangements with respect to, or sources of, additional financing, and
there can be no assurance that existing stockholders will provide any portion of
the Company's future financing requirements. There can be no assurance that any
additional financing will be available to the Company on acceptable terms, or at
all. Additional equity financing may involve substantial dilution to the
interests of the Company's then existing stockholders. See "Use of Proceeds" and
"Certain Transactions."
Technological Factors; Uncertainty of Product Development and
Commercialization. The Company has only recently commenced limited
commercialization of its products for a limited number of users. Accordingly,
there can be no assurance that, upon widespread commercial use, if any, these
products will satisfactorily perform all of the functions for which they have
been designed or that they will operate satisfactorily. The Company intends to
use a portion of the proceeds of this offering in connection with product
refinement and enhancement and the development of additional products. Product
development, commercialization and continued system refinement and enhancement
efforts remain subject to all of the risks inherent in development of new
products based on innovative technologies, including unanticipated delays,
expenses and technical problems or difficulties, as well as the possible
insufficiency of funds to implement development efforts, which could result in
abandonment or substantial change in product commercialization. The Company's
success will be largely dependent upon its products meeting targeted cost and
performance objectives of large-scale production, the Company's ability to adapt
its products to satisfy industry standards and the timely introduction of its
products into the marketplace, among other things. There can be no assurance
that, upon wide-scale commercial introduction, the Company's products and
software applications will satisfy current price or performance objectives, that
unanticipated technical or other problems which would result in increased costs
or material delays in introduction and commercialization will not occur, or that
the Company's products will prove to be sufficiently reliable or durable under
actual operating conditions or otherwise be commercially viable. Software and
other technologies as complex as those incorporated into the Company's systems
may contain errors which become apparent subsequent to widespread commercial
use. Remedying such errors could delay the Company's plans and cause it to incur
additional costs, having a material adverse impact on the Company. See "Business
- -- Products" and "-- Marketing and Sales."
Concentration of Revenue; Dependence on Key Customers; Concentration of
Credit Risk. A substantial portion of the Company's sales are made to a small
number of customers, generally on an open account basis with no collateral
required. There can be no assurance that these customers will maintain their
volume of business with the Company. A loss of the Company's sales to these
customers could have a material adverse effect on the Company's results of
operations unless other customers were found to provide the Company with similar
revenues. The Company performs ongoing credit evaluation of its customers and
maintains reserves for potential credit losses. Although such losses in the
aggregate have not exceeded management's expectations, there can be no assurance
that potential credit losses will not exceed reserves in the future. In
addition, the Company invests its cash and cash equivalents with two financial
institutions, one a Texas commercial bank, and the other a major brokerage
house. Cash balances at the Texas commercial bank are insured by the Federal
Deposit Insurance Corporation up to $100,000 and the brokerage house maintains
accounts in several banks throughout the country and in government securities.
Should either the Texas commercial bank or the brokerage house cease business
operations, there can be no assurance that the Company will not suffer losses.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations."
Uncertainty of Market Acceptance. The DVC industry is characterized by
emerging and evolving markets and an increasing number of market entrants who
have introduced or are developing an array of new DVC systems. Each of these
entrants is seeking to establish its products as the preferred solution for
desktop video applications. As is typical in the case of emerging and evolving
markets, demand and market acceptance for newly introduced products and services
is subject to a high level of uncertainty. The Company has not yet commenced
significant marketing activities relating to product commercialization and
currently has limited marketing experience and limited financial, personnel and
other resources to undertake extensive marketing activities. The Company has not
conducted and does not
9
<PAGE>
intend to conduct formal market or concept feasibility studies for its proposed
products. The relatively high cost and less than television broadcast quality
video of DVC systems have, to date, limited the market acceptance of DVC
systems. Consequently, potential customers may elect to utilize other products
which they believe to be more efficient or have other advantages over the
Company's products, or may otherwise be reluctant to purchase the Company's
products. Achieving market acceptance for the Company's products will require
substantial marketing efforts and expenditure of significant funds to create
awareness and demand by potential consumers as to the perceived benefits and
distinctive characteristics of the Company's products. There can be no assurance
that the Company will have available funds or other resources necessary to
achieve such acceptance. See "Business -- Marketing and Sales."
Limited Marketing Capabilities and Experience; Dependence Upon Third-Party
Resellers. The Company has limited marketing experience and has conducted only
limited marketing activities. Although the Company expects to continue to market
directly to certain accounts, the Company intends to use a portion of the
proceeds of this offering to establish a network of resellers, consisting
primarily of value-added resellers ("VARs"), systems integrators and original
equipment manufacturers ("OEMs") with established distribution channels to
market the Company's products and to educate potential resellers to install and
service its systems. The Company's prospects will be significantly affected by
its ability to successfully develop relationships with VARs, systems integrators
and OEMs and upon the marketing efforts of such resellers. While the Company
believes that independent resellers with which it enters into such arrangements
will have an economic motivation to market the Company's products, the time and
resources devoted to these activities generally will be controlled by such
entities and not by the Company. The Company will also be dependent upon such
resellers to provide installation and support services. A decline in the
financial prospects of particular resellers or any of their customers, or
inadequate installation and support services by resellers, could have a material
adverse effect on the Company. In addition, such resellers will likely market
various product lines, including, in some cases, products directly competitive
with the Company's products. The Company has entered into agreements with a
limited number of resellers to distribute its products and has recently entered
into a licensing agreement with Boca to manufacture and market
FamilyFone(Trademark) and related upgrades. There can be no assurance that the
Company will be able, for financial or other reasons, to finalize any additional
third-party distribution or marketing arrangements or that such arrangements, if
finalized, will result in further commercialization of any of the Company's
products. See "Use of Proceeds," "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and "Business -- Marketing and
Sales."
Competition. The market for DVC systems is highly competitive and
characterized by the frequent introduction of new products based upon innovative
technologies. The Company competes with numerous well-established manufacturers
and suppliers of videoconferencing, networking, telecommunications and
multimedia equipment and products, certain of which dominate the existing
video-conferencing market for such products. In addition, the Company is aware
of others that are developing, and in some cases have introduced, new DVC
systems. Most of the Company's competitors possess substantially greater
financial, marketing, personnel and other resources than the Company, have
established reputations relating to product design, development, manufacture,
marketing and service of networking, telecommunications and video products and
have significant budgets to permit them to implement extensive advertising and
promotional campaigns to market new products in response to competitors. Among
the Company's direct competitors are Target Technologies, Inc., VIVO Software,
Inc., Zydacron, Inc., VCON, Ltd., Corel Corporation and Video LAN Technologies,
Inc. See "Business -- Competition."
Technological Obsolescence; Need to Conform to Industry Standards. The
markets for the Company's products are characterized by rapidly changing
technology and evolving industry standards, often resulting in product
obsolescence or short product lifecycles. Accordingly, the Company's ability to
compete will depend in large part on its ability to introduce its products in a
timely manner, to continually enhance and improve its system and software
products and to maintain development capabilities to anticipate or adapt to
technological changes and advances in the DVC and PC industries, including
ensuring continuing compatibility with evolving industry standards and
technological advances. There can be no assurance that the Company will be able
to compete successfully, that competitors will not develop technologies or
products that render the Company's products obsolete or less marketable, or
10
<PAGE>
that the Company will be able to keep pace with the technological demands of the
marketplace or successfully enhance and adapt its products to be compatible with
newly developed PC and networking products and technologies or software
products, or satisfy industry standards and the needs of its consumers and
potential consumers. Industry standards covering the Company's products are
being established by, among others, the International Telecommunications Union.
Such standards will provide for acceptable product performance levels and
interoperability and compatibility standards. If such standards, when adopted,
differ from the proposed standards, or are changed after adoption, customer
confidence in, and the market for, the applicable product could be adversely
affected. There can be no assurance that such standards will remain the same,
and if changed, that the Company will be able to comply with any changed
standards. If any product does not comply with the applicable standards the
Company may have to discontinue sales of such product until such time, if ever,
as it is able to modify or redesign its technology. In addition, the
establishment of standards adverse to the Company's system could provide
substantial competitive advantages to manufacturers of other videoconferencing
systems. In particular, the Company's compressed packet video Codec utilized in
the current version of the Viewpoint-PRO(Trademark) system does not meet the
newly proposed applicable standards and the Company will have to modify or
redesign the non-conforming portion of the product. The project to upgrade the
Viewpoint-PRO to the new industry standards will involve the development of a
new product based on a technology derivative of the Company's Osprey-1000 Codec.
The Company estimates that the project will take 8 man-months to complete at a
cost of approximately $70,000. The Company projects that the upgraded
Viewpoint-PRO will be available during 1997. The Research and Development
portion of the Use of Proceeds includes the cost of this project. See "Business
- -- Competition."
Dependence Upon Third-Party Manufacturers and Suppliers. The Company has, to
date, engaged small contract manufacturers to supply its products in limited
quantities pursuant to purchase orders. There can be no assurance that its
products can be manufactured reliably on a large-scale basis on commercially
reasonable terms, or at all. In addition, the Company has been and will continue
to be dependent on third parties for the supply and manufacture of all of its
component and electronic parts, including standard and custom-designed
components. The Company generally does not maintain supply agreements with such
third parties but instead purchases components and electronic parts pursuant to
purchase orders in the ordinary course of business. The Company is substantially
dependent on the ability of its third-party manufacturers and suppliers to,
among other things, meet the Company's design, performance and quality
specifications.
Failure by the Company's third-party manufacturers and suppliers to comply
with these and other requirements could have a material adverse effect on the
Company. There can be no assurance that the Company's third-party manufacturers
and suppliers will dedicate sufficient production capacity to meet the Company's
scheduled delivery requirements or that the Company's suppliers or manufacturers
will have sufficient production capacity to satisfy the Company's requirements
during any period of sustained demand. Moreover, the electronics industry from
time to time experiences short supplies of certain high demand components, which
may adversely affect the Company's ability to meet its production schedules.
Furthermore, although the Company owns the designs and dies for its custom
designed components and believes that alternative sources of supply are
available, the Company currently purchases all of its specially designed
components and certain high demand components from sole source suppliers.
Failure of manufacturers or suppliers to supply, or delays in supplying, the
Company with systems or components, or allocations in the supply of certain high
demand components could materially adversely affect the Company's operations and
ability to meet its own delivery schedules on a timely and competitive basis.
See "Business -- Production and Supply."
Broad Discretion in Application of Proceeds. Approximately $2,619,600
(31.7%) of the estimated net proceeds from this offering has been allocated to
working capital and general corporate purposes. Accordingly, the Company will
have broad discretion as to the application of such proceeds. "Management's
Discussion and Analysis of Financial Condition and Results of Operations --
Liquidity" and "Description of Securities."
Offering Benefits Directors and Selling Securityholders; Proceeds to Repay
Indebtedness. The Company will use a portion of the proceeds of this offering to
(i) repay $222,548 principal amount of Secured and Demand Notes, including
$200,000 payable to Glenn A. Norem, CEO of the Company, plus accrued
11
<PAGE>
interest of approximately $13,933 on the Secured and Demand Notes, (ii)
repayment of $347,250 principal amount of Convertible Debt plus accrued interest
of approximately $97,898 and, (iii) payment of accrued expenses and trade
accounts payable of approximately $420,000 (iv) repayment of $500,000 principal
amount of Convertible Debt II plus accrued interest of approximately $31,123 and
(v) repayment of $850,000 principal amount of Bridge Debt plus accrued interest
of approximately $6,641. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Liquidity" and "Description of
Securities."
Patents, Trademarks and Proprietary Information. The Company holds a United
States patent covering certain fundamental aspects of the compressed packet
video Codec incorporated into the Viewpoint-PRO(Trademark) system. The Company
may apply for additional patents relating to other aspects of its products and
has applied for trademark registration for the Viewpoint-PRO(Trademark),
ViewCast(Trademark), Osprey-1000(Trademark), SLIC-Video(Trademark),
FamilyFone(Trademark), and WorkFone(Trademark) names, among others. There can be
no assurance as to the breadth or degree of protection which existing or future
patents, if any, may afford the Company, that any patent applications will
result in issued patents, that the Company's patents or trademarks will be
upheld, if challenged, or that competitors will not develop similar or superior
methods or products outside the protection of any patent issued to the Company.
Although the Company believes that its patent and trademarks and the Company's
products do not and will not infringe patents or trademarks or violate the
proprietary rights of others, it is possible that the Company's existing patent
or trademark rights may not be valid or that infringement of existing or future
patents, trademarks or proprietary rights may occur. In the event the Company's
products infringe patents or proprietary rights of others, the Company may be
required to modify the design of its products, change the name of its products
or obtain a license for certain technology. There can be no assurance that the
Company will be able to do so in a timely manner, upon acceptable terms and
conditions, or at all. Failure to do any of the foregoing could have a material
adverse effect upon the Company. In addition, there can be no assurance that the
Company will have the financial or other resources necessary to enforce or
defend a patent infringement or proprietary rights violation action which may be
brought against it. Moreover, if the Company's products infringe patents,
trademarks or proprietary rights of others, the Company could, under certain
circumstances, become liable for damages, which also could have a material
adverse effect on the Company.
The Company also relies on confidentiality agreements with its directors,
employees, consultants and manufacturers and employs various methods to protect
the source codes, concepts, ideas, proprietary know-how and documentation of its
proprietary technology. However, such methods may not afford complete protection
and there can be no assurance that others will not independently develop similar
know-how or obtain access to the Company's know-how or software codes, concepts,
ideas and documentation. Furthermore, although the Company has and expects to
continue to have confidentiality agreements with its directors, employees,
consultants, manufacturers and appropriate vendors, there can be no assurance
that such arrangements will adequately protect the Company's trade secrets. See
"Business -- Patents, Trademarks and Proprietary Information."
Risks Relating to Proposed Expansion; Risks Relating to Foreign Operations.
The Company intends to use the proceeds of this offering to seek to expand its
current level of operations. Successful expansion of the Company's operations
will be dependent, among other things, on the Company's ability to achieve
significant market acceptance for its products, hire and retain skilled
management, marketing, technical and other personnel, establish an effective
sales organization and enter into satisfactory marketing arrangements, secure
adequate sources of supply on a timely basis and on commercially reasonable
terms, and successfully manage growth (including monitoring operations,
controlling costs and maintaining effective quality controls). Although the
Company, as of the date of the Prospectus, has no agreements, understandings or
commitments and is not engaged in any negotiations relating thereto, the Company
could also seek to expand its operations through acquisitions. In such an event,
investors in this offering would not have an opportunity to evaluate the
specific merits or risks of any potential acquisition. In addition, to the
extent the Company enters into foreign markets, the Company will be subject to
all of the risks inherent in foreign trade, including trade restrictions, export
duties and tariffs, fluctuations in foreign currencies and international
political, regulatory and economic developments affecting foreign trade. There
can be no assurance that the Company will be able to successfully expand
12
<PAGE>
its operations or that the Company will not remain largely dependent on
non-recurring system sales to a limited customer base, which sales will
constitute all or a significant portion of the Company's revenue. See "Use of
Proceeds" and "Business -- Government Regulation."
Possible Fluctuations in Operating Results. The Company's operating results
could vary from period to period as a result of the length of the Company's
sales cycle, as well as from purchasing patterns of potential customers, the
timing of introduction of new products, software applications and product
enhancements by the Company and its competitors, technological factors,
variations in sales by distribution channels, competitive pricing, and generally
nonrecurring system sales. The Company's sales order cycle, which generally
commences at a time a prospective user demonstrates an interest in purchasing
one of the Company's products and ends upon execution of a purchase order with
that customer, could range from one to eighteen months. The period from the
execution of a purchase order until delivery of system components to the
Company, assembly and shipment, at which time the Company recognizes revenue,
may range from approximately one to four months. Although the Company intends to
use a portion of the proceeds of this offering to purchase additional component
parts, which the Company believes may reduce the length of its production and
delivery cycle, there can be no assurance that such factors will not cause
significant fluctuations in operating results in the future. Additionally, the
Company anticipates that upon entering into agreements with resellers for
distribution of the Company's products, of which there can be no assurance, such
distributors may place initial stocking orders for systems, component parts and
software programs, which could also result in material fluctuations in the
Company's operating results. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and "Business -- Production and
Supply."
Limitations on Use of Net Operating Loss Carry Forwards. At December 31,
1995, the Company had substantial net operating loss carry forwards for federal
tax purposes available to offset future taxable income. Under Section 382 of the
Internal Revenue Code of 1986, as amended, utilization of prior net operating
loss carry forwards is limited after an ownership change, as defined in Section
382. There can be no assurance that the Company will not in the future be
subject to further significant limitations on the use of its net operating loss
carry forwards. In the event the Company achieves profitable operations, any
significant limitation on the utilization of net operating loss carry forwards
would have the effect of increasing the Company's tax liability and reducing net
income and available cash resources. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations -- Liquidity."
Government Regulation. The Company is subject to regulations relating to
electromagnetic radiation from its products, which impose compliance burdens on
the Company. In the event the Company redesigns or otherwise modifies its
products or completes the development of new products, it will be required to
comply with Federal Communications Commission regulations with respect to such
products prior to their commercialization. There can be no assurance that the
Company will be able to comply with such regulations. In addition, new
legislation and regulations, as well as revisions to existing laws and
regulations at the federal, state and local levels may be proposed in the future
affecting the video communications industries. Such proposals could affect the
Company's operations, result in material capital expenditures, affect the
marketability of its products and limit opportunities for the Company with
respect to modifications of its products or with respect to new or proposed
products or technologies. Expansion into foreign markets may also require the
Company to comply with additional regulatory requirements. The technology
contained in the Company's products may be subject to U.S. export controls.
There can be no assurance that such export controls, either in their current
form or as may be subsequently enacted, will not delay introduction of new
products or limit the Company's ability to distribute products outside of the
United States. Further, various countries may regulate the import of certain
technologies contained in the Company's products. Any such export or import
restrictions, new legislation or regulation or government enforcement of
existing regulations could have a material adverse effect on the Company's
business, operating results and/or financial condition. There can be no
assurance that the Company will be able to comply with additional applicable
laws and regulations without excessive cost or business interruption, if at all,
and failure to comply could have a material adverse effect on the Company. See
"Business -- Government Regulation."
Dependence on Key Personnel. The success of the Company will be largely
dependent on the personal efforts of Glenn A. Norem, its Chief Executive
Officer, and other key personnel. The Company entered into a five-year
employment agreement with Mr. Norem in February 1994. All other key per-
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<PAGE>
sonnel, including Philip M. Colquhoun, President of the Company, William S.
Leftwich, Chief Financial Officer of the Company, David T. Stoner, Vice
President of Operations of the Company, Neal S. Page, Vice President and General
Manager of Osprey, A. David Boomstein, Vice President of Business Development of
the Company and Daniel W. Dodson, Vice President of Marketing of the Comapny,
are "at-will" employees by terms of their employment agreements. The employment
of each such key employee may therefore be terminated by the officer or the
Company at any time, for any reason or no reason. The loss of the services of
Mr. Norem or certain other key employees could have a material adverse effect on
the Company's business and prospects. The Company plans to obtain "key-man" life
insurance on the life of Mr. Norem in the amount of $1,000,000. The success of
the Company is also dependent upon its ability to hire and retain qualified
operational, financial, technical, marketing, sales and other personnel. There
can be no assurance that the Company will be able to hire or retain such
necessary personnel. See "Business -- Employees" and "Management."
Control by Current Principal Stockholders; Potential Representative's
Influence on the Company Upon Exercise of Right to Designate Board Member. Upon
the consummation of this offering, the officers, directors and existing
stockholders of the Company will beneficially own approximately 75.4% of the
Company's outstanding Common Stock (72.8% if the Representatives' over-allotment
option is exercised in full). While these persons will not individually control
a majority of the shares of Common Stock of the Company, they may be able to
effectively control the decisions on matters including election of all of the
Company's directors, increasing the authorized capital stock, dissolution,
merger or sale of the assets of the Company and generally may be able to direct
the affairs of the Company. In addition, upon consummation of the offering, the
Representative has been granted, for a period of five years, the right to
designate a person to serve as a director of the Company. If the Representative
were to exercise such right, it could be deemed under certain circumstances to
be in a position to assert influence over the Company. See "Management,"
"Principal Stockholders" and "Certain Transactions."
Significant Outstanding Options and Warrants. As of September 30, 1996 there
were outstanding stock options to purchase an aggregate of approximately
2,080,590 shares of Common Stock at exercise prices ranging from $.04 to $4.00
per share and warrants to purchase an aggregate of approximately 1,442,505
shares of Common Stock at prices ranging from $1.00 to $3.00 per share. To the
extent that outstanding options and warrants are exercised, dilution to the
Company's stockholders will occur. Moreover, the terms upon which the Company
will be able to obtain additional equity capital may be adversely affected
because the holders of outstanding options and warrants can be expected to
exercise them at a time when the Company would, in all likelihood, be able to
obtain any needed capital on terms more favorable to the Company than the
exercise terms provided by such outstanding securities. See "Management --
Employee Stock Plans" and "Certain Transactions."
Immediate and Substantial Dilution. Assuming all 1,800,000 shares of Common
Stock offered hereby are sold at an assumed initial public offering price of
$5.50 per share and $0.10 per Public Warrant, this offering will involve an
immediate and substantial dilution of $4.69 (85.3%) per share between the pro
forma net tangible book value per share of Common Stock and the offering price.
The Company believes that the net proceeds of this offering together with
available cash will be sufficient to meet the Company's operating expenses and
capital requirements for at least the next twelve months. The Company
anticipates that additional funding will be required after the use of the net
proceeds of this offering. Such additional funding will likely result in further
dilution to the Company's stockholders. See "Dilution."
No Dividends. The Company has not paid any cash dividends on its Common
Stock and does not expect to declare or pay any cash dividends in the
foreseeable future. Certain of the Company's debt instruments include covenants
precluding the payment of cash dividends until after such debt instruments are
repaid. See "Dividends."
Authorization and Discretionary Issuance of Preferred Stock. The Company's
Certificate of Incorporation authorizes the issuance of "blank check" preferred
stock with such designations, rights and preferences as may be determined from
time to time by the Board of Directors. Accordingly, the Board
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<PAGE>
of Directors is empowered, without stockholder approval, to issue preferred
stock with dividend, liquidation, conversion, voting or other rights which could
adversely affect the voting power or other rights of the holders of the
Company's Common Stock. In the event of issuance, the preferred stock could be
utilized, under certain circumstances, as a method of discouraging, delaying or
preventing a change in control of the Company. Although the Company has no
present intention to issue any shares of its preferred stock, there can be no
assurance that the Company will not do so in the future. See "Description of
Securities -- Preferred Stock."
Limitation on Monetary Liability of Officers and Directors to Stockholders.
Section 145 of the General Corporation Law of the State of Delaware contains
provisions entitling directors and officers of the Company to indemnification
from judgments, fines, amounts paid in settlement and reasonable expenses,
including attorney's fees, as the result of an action or proceeding in which
they may be involved by reason of being or having been a director or officer of
the Company provided said officers or directors acted in good faith. Articles
Seven and Ten of the Company's Certificate of Incorporation contain provisions
indemnifying officers and directors of the Company to the fullest extent
permitted by Delaware law. These provisions provide, among other things, that a
director of the Company shall not be liable either to the Company or its
stockholders for monetary damages for breach of fiduciary duty as a director.
The Company has also entered into indemnification agreements with Messrs. Norem,
Leftwich, Colquhoun, Stoner, Dodson, Boomstein, Page, Jobe, and Culp which
provide for indemnification to the fullest extent allowable under the laws of
the State of Delaware. These provisions may limit the ability of the Company's
stockholders to collect on any monetary liability owed to them by an officer or
director of the Company.
Arbitrary Determination of Offering Price. The initial public offering price
of the Common Stock and the exercise price and terms of the Public Warrants have
been determined arbitrarily by negotiations between the Company and the
Representatives. Factors considered in such negotiations, in addition to
prevailing market conditions, included the history and prospects for the
industry in which the Company competes, an assessment of the Company's
management, the prospects of the Company, its capital structure and certain
other factors deemed relevant. Therefore, the public offering price of the
Common Stock and the exercise price and terms of the Public Warrants do not
necessarily bear any relationship to established valuation criteria and may not
be indicative of prices that may prevail at any time or from time to time in the
public market for the Common Stock. See "Underwriting."
Shares Eligible for Future Sale; Registration Rights. Upon the consummation
of this offering, the Company will have 7,331,558 shares of Common Stock
outstanding (7,601,558 shares if the Representatives' over-allotment option is
exercised in full)(assuming no exercise of outstanding options and warrants). Of
these shares, the 1,800,000 shares sold in this offering (2,070,000 shares if
the Representatives' over-allotment option is exercised in full) and the 477,244
shares of Common Stock registered concurrently with this Prospectus being
offered pursuant to the Selling Securityholder Prospectus included in the
Registration Statement of which this Prospectus forms a part will be freely
tradeable, subject to "lock-up" agreements (see "Shares Eligible for Future
Sale"), under the Securities Act, except for any shares purchased by an
"affiliate" of the Company (in general, a person who has a control relationship
with the Company), which shares will be subject to the resale limitations of
Rule 144 adopted under the Securities Act. The remaining 5,054,314 shares are
deemed to be "restricted securities," as that term is defined under Rule 144
promulgated under the Securities Act, in that such shares were issued and sold
by the Company in private transactions not involving a public offering and are
not currently part of an effective registration. Except for "lock-up"
agreements, such shares are eligible for sale under Rule 144, or will become so
eligible at various times through October 1996. In addition, the Company has
granted the Representatives demand and piggyback registration rights with
respect to the securities issuable upon exercise of the Representatives'
Warrants.
Under Rule 144, a stockholder who has beneficially owned Restricted Shares
for at least two (2) years (including persons who may be deemed to be
"affiliates" of the Company under Rule 144) may sell within any three (3) month
period a number of shares that does not exceed the greater of: a) one percent
(1%) of the then outstanding shares of a particular class of the Company's
Common Stock as reported on its 10-Q filing, or b) the average weekly volume on
NASDAQ during the four (4) calendar
15
<PAGE>
weeks preceding such sale and may only sell such shares through unsolicited
brokers' transactions. A stockholder who is not deemed to have been an
"affiliate" of the Company for at least ninety (90) days and who has
beneficially owned his shares for at least three (3) years would be entitled to
sell such shares under Rule 144 without regard to the volume limitations
described above.
There has been no public market for the securities of the Company. Sales of
substantial amounts of shares of the Company's Common Stock, pursuant to Rule
144 or otherwise, could adversely affect the market price of the Common Stock,
and consequently make it more difficult for the Company to sell equity
securities in the future at a time and price which the Company deems
appropriate. See "Shares Eligible for Future Sale," "Underwriting," and
"Concurrent Registration of Securities."
NASDAQ Maintenance Requirements; Possible Delisting of Securities from NASDAQ
System; Risks of Low-Priced Stocks. NASDAQ has proposed rule changes increasing
its quantitative listing standards which, if enacted, would make it more
difficult for the Company to maintain compliance with NASDAQ's listing
requirements. If the Company is unable to satisfy NASDAQ's maintenance criteria
in the future, its securities will be subject to being delisted, and trading, if
any, would thereafter be conducted in the over-the-counter market in the
so-called "pink sheets" or the "Electronic Bulletin Board" of the National
Association of Securities Dealers, Inc. ("NASD"). As a consequence of such
delisting, an investor could find it more difficult to dispose of, or to obtain
accurate quotations as to the price of, the Company's securities.
The Securities Enforcement and Penny Stock Reform Act of 1990 requires
additional disclosure relating to the market for penny stocks in connection with
trades in any stock defined as a penny stock. The SEC has adopted regulations
that generally define a penny stock to be any equity security that has a market
price of less than $5.00 per share, subject to certain exceptions. Such
exceptions include any equity security listed on NASDAQ and any equity security
issued by an issuer that has (i) net tangible assets of at least $2,000,000, if
such issuer has been in continuous operation for three years, (ii) net tangible
assets of at least $5,000,000, if such issuer has been in continuous operation
for less than three years, or (iii) average annual revenue of at least
$6,000,000 if such issuer has been in continuous operation for less than three
years. Unless an exception is available, the regulations require the delivery,
prior to any transaction involving a penny stock, of a disclosure schedule
explaining the penny stock market and the risks associated therewith.
In addition, if the Company's securities are not quoted on NASDAQ, or the
Company does not have $2,000,000 in net tangible assets, trading in the Common
Stock would be covered by Rule 15g-9 promulgated under the Securities Exchange
Act of 1934, as amended, (the "Exchange Act") for non-NASDAQ and non-exchange
listed securities. Under such rule, broker/dealers who recommend such securities
to persons other than established customers and accredited investors must make a
special written suitability determination for the purchaser and receive the
purchaser's written agreement to a transaction prior to sale. Securities also
are exempt from this rule if the market price is at least $5.00 per share.
The Company's Common Stock, as of the date of this Prospectus, is not
technically within the definitional scope of a penny stock, and is expected to
be exempt from the definition of penny stock by operation of law because it will
be listed on NASDAQ. However, in the event that the Common Stock were
subsequently to become characterized as a penny stock, the market liquidity for
the Company's securities could be severely affected. In such an event, the
regulations on penny stocks could effectively limit the ability of
broker/dealers to sell the Company's securities and thus the ability of
purchasers of the Company's securities to sell their securities in the secondary
market.
Warrants Redeemable at Nominal Price. The Public Warrants are redeemable by
the Company at any time commencing eighteen months from the date of this
Prospectus, for $.10 per Public Warrant upon thirty (30) days prior written
notice, provided that the average closing price or bid price of the Common Stock
for any twenty (20) trading days within the thirty (30) consecutive trading days
ending on the fifth day prior to notice of redemption equals or exceeds $ (250%
of the then effective exercise price of the Public Warrants. Redemption of the
Public Warrants by the Company could force the holders to exercise the Public
Warrants and pay the exercise price at a time when it may be disad-
16
<PAGE>
vantageous for the holders to do so, to sell the Public Warrants at the then
current market price when they might otherwise wish to hold the Public Warrants,
or to accept the redemption price, which is likely to be substantially less than
the market value of the Public Warrants at the time of redemption. In the event
of the exercise of a substantial number of Public Warrants within a reasonably
short period of time after the right to exercise commences, the resulting
increase in the amount of Common Stock of the Company in the trading market
could substantially affect the market price of the Common Stock. See
"Description of Securities -- Warrants."
Legal Restrictions on Sales of Shares Underlying the Warrants. The Public
Warrants are not exercisable unless, at the time of the exercise, the Company
has a current prospectus covering the shares of Common Stock issuable upon
exercise of the Public Warrants, and such shares have been registered, qualified
or deemed to be exempt under the securities laws of the state of residence of
the exercising holder of the Public Warrants. Although the Company has agreed to
keep a registration statement covering the shares of Common Stock issuable upon
the exercise of the Public Warrants effective for the term of the Public
Warrants, if it fails to do so for any reason, the Public Warrants may be
deprived of value.
The Common Stock and Public Warrants are separately transferable immediately
upon issuance. Purchasers may buy Public Warrants in the aftermarket in, or may
move to, jurisdictions in which the shares underlying the Public Warrants are
not so registered or qualified during the period that the Public Warrants are
exercisable. In this event, the Company would be unable to issue shares to those
persons desiring to exercise their Public Warrants, and holders of Public
Warrants would have no choice but to attempt to sell the Public Warrants in a
jurisdiction where such sale is permissible or allow them to expire unexercised.
See "Description of Securities."
17
<PAGE>
USE OF PROCEEDS
Assuming the sale of the securities offered hereby (based on an assumed
offering price of $5.50 per Share and $.10 per Public Warrant), the net proceeds
to the Company, after deducting estimated underwriting discounts and commissions
and expenses payable by the Company in connection with this offering, are
estimated to be approximately $8,269,600 ($9,585,040 if the Representatives'
over-allotment option is exercised in full). The Company expects to use such
proceeds as follows:
<TABLE>
<CAPTION>
APPROXIMATE
APPLICATION OF NET PROCEEDS DOLLAR AMOUNT % OF PROCEEDS
- ------------------------------------------------------------ --------------- ----------------
<S> <C> <C>
Repayment of outstanding accounts payable and
indebtedness(1)............................................. $2,490,000 30.1
Research and development(2) ................................ 1,960,000 23.7
Marketing and sales(3) ..................................... 1,200,000 14.5
Working capital and general corporate purposes(4) ......... 2,619,600 31.7
--------------- ----------------
Total ................................................... $8,269,600 100.0
=============== ================
</TABLE>
- ----------
(1) Represents (i) the repayment of $222,548 principal amount of Secured Notes
and Demand Notes plus accrued interest of approximately $13,933, including
$200,000 principal amount of Secured Notes and Demand Notes payable to
Glenn A. Norem, CEO of the Company; (ii) repayment of $347,250 principal
amount of Convertible Debt plus accrued interest of $97,898, (iii) payment
of accrued expenses and trade accounts payable of approximately $420,000,
(iv) repayment of $500,000 principal amount of Convertible Debt II plus
accrued interest of approximately $31,123 and (v) repayment of $850,000
principal amount of Bridge Debt plus accrued interest of approximately
$6,641. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations -- Liquidity" and "Description of Securities."
(2) Includes amounts associated with continued refinement and enhancement of
the Company's products and amounts associated with the development of
additional products.
(3) Represents anticipated costs associated with marketing and sales
activities, including approximately $250,000 for the cost of print media,
participation in trade shows and direct mailings and approximately $400,000
for the salaries of four additional marketing and sales personnel and three
additional customer support personnel.
(4) Includes amounts for the payment of salaries of executive officers
anticipated to be approximately $385,000 over the 12 months following
consummation of this offering. See "Management," "Certain Transactions" and
"Business -- Production and Supply."
In the event that the Company's plans change or its assumptions change or
prove to be inaccurate or if the proceeds of this offering prove insufficient to
fund operations (due to unanticipated expenses or difficulties or otherwise),
the Company may find it necessary or advisable to reallocate some of the
proceeds within the above-described categories or to use portions thereof for
other purposes or may be required to seek additional financing or curtail its
operations. Future events, including changes in economic or industry conditions
or the Company's planned operations, may require the Company to use proceeds
allocated to working capital for marketing and sales or reallocate proceeds
among the various intended uses if it is determined at a later date that an
increase in such expenditures or reallocation of proceeds is necessary or
desirable. Any such determination would be based on, among other things, whether
and to what extent revenue from systems sales is sufficient to offset operating
expenses and the capital requirements associated with maintaining an inventory
of system components. Alternatively, the Company may use less of the proceeds
for marketing and sales in the event that such initial efforts prove more
successful than anticipated or the Company generates sufficient cash flow from
operations to otherwise fund such efforts.
The Company may, if and when the opportunity arises, use a portion of the
proceeds of this offering allocated to working capital, together with the
issuance of debt or equity securities, to acquire rights to technology and/or
products or to acquire existing companies in businesses the Company believes are
compatible with its business. Any decision to make such an acquisition will be
based upon a variety of factors, including, among others, the purchase price and
other financial terms of the transaction, the business prospects and competitive
position of, and technology or products provided by, the acquisition candidate
and the extent to which any technology or business would enhance the Company's
prospects.
18
<PAGE>
Potential acquisition candidates may include companies with products or
technologies that are compatible with the Company's products, or that the
Company believes would provide the Company with additional distribution
channels. As of the date of this Prospectus, the Company has no agreements,
understandings or arrangements with respect to any such acquisition. There can
be no assurance that the Company will be able to successfully consummate any
acquisition or successfully integrate any acquired business into its operations.
Investors in this offering will not have an opportunity to evaluate the specific
merits or risks of any acquisition.
The Company believes that the net proceeds of this offering together with
available cash will be sufficient to meet the Company's operating expenses and
capital requirements for at least the next twelve months. The Company
anticipates that additional funding will be required after the use of the net
proceeds of the offering. No assurance can be given that such additional
financing will be available when needed on terms acceptable to the Company, if
at all. See "Risk Factors -- Significant Capital Requirements; Dependence on
Offering Proceeds; Possible Need for Additional Financing."
Proceeds not immediately required for the purposes set forth above will be
invested in short-term, investment-grade, interest-bearing securities.
DIVIDENDS
The Company has never paid cash dividends on its Common Stock. The Board of
Directors does not anticipate paying cash dividends in the foreseeable future as
it intends to retain future earnings to finance the growth of the business. The
payment of future cash dividends will depend on such factors as earnings levels,
anticipated capital requirements, the operating and financial condition of the
Company and other factors deemed relevant by the Board of Directors.
Certain of the Company's debt instruments include covenants precluding
payment of cash dividends until after such debt instruments are repaid.
19
<PAGE>
DILUTION
The difference between the offering price per share of Common Stock and the
pro forma as adjusted net tangible book value per share of Common Stock after
this offering constitutes the dilution to investors in this offering. Net
tangible book value per share on any given date is determined by dividing the
net tangible book value (total tangible assets less total liabilities) of the
Company on such date by the number of shares of Common Stock outstanding on such
date.
After giving effect to the pro forma adjustments (see Footnote (2) to
"Prospectus Summary -- Summary Consolidated Financial Information"), the pro
forma net tangible book value of the Company at September 30, 1996 was
$(5,005,062), or $(.99) per share of Common Stock. After giving effect to (i)
the sale of 1,800,000 shares of Common Stock and 1,800,000 Public Warrants
offered by the Company hereby (based on an assumed offering price of $5.50 per
share and $.10 per Public Warrant) (less underwriting discounts and commissions
and estimated expenses of this offering) and (ii) the issuance of 477,244 shares
of Common Stock issued on the date of this Prospectus upon the conversion of
$2,330,300 principal amount of Convertible Debt and approximately $342,294
accrued interest (based on an assumed offering price of $5.50 per share and $.10
per Public Warrant), the pro forma as adjusted net tangible book value of the
Company at September 30, 1996 would have been $5,937,132 or $.81 per share,
representing an immediate increase in pro forma as adjusted net tangible book
value of $1.80 per share to existing stockholders and an immediate dilution of
$4.69 per share (85.3%) to investors. The following table illustrates the
foregoing information with respect to dilution to new investors on a per share
basis:
Assumed public offering price(1)...................... $5.50
Pro Forma net tangible book value before offering... $(.99)
Increase attribute to new investors................. 1.80
--------
Pro Forma as adjusted net tangible book value after
offering.............................................. .81
--------
Dilution to new investors(2).......................... $4.69
========
- ----------
(1) Offering price before deduction of estimated expenses of the offering and
underwriting discounts and commissions and exclusive of the purchase price
of $.10 per Public Warrant.
(2) Assumes no exercise of the Representatives' over-allotment option. The pro
forma net tangible book value of Common Stock after the offering and the
Dilution to new investors, assuming the Representatives' overallotment
option is exercised in full, would be approximately $.95 and $4.55 per
share, respectively.
The following table sets forth a comparison of the number of shares of Common
Stock acquired from the Company by the Company's stockholders as of September
30, 1996 on a pro forma basis and by investors in this offering, the percentage
ownership of such shares, the total consideration paid, the percentage of total
consideration paid, and the average price per share:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
---------------------- ----------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
------------ --------- --------- -------- -------------
<S> <C> <C> <C> <C> <C>
Existing
stockholders......... 5,054,314 73.7 $ 7,662,518 43.6 $1.52
New investors ....... 1,800,000 26.3 9,900,000 56.4 $5.50
------------ --------- ------------- --------- ---------------
Total............ 6,854,314 100.0 $17,562,518 100.0
============ ========= ============= =========
</TABLE>
The above table assumes no exercise of the Representatives' over-allotment
option. If the Representatives' over-allotment option is exercised in full, the
new investors will have paid $11,385,000 for 2,070,000 shares of Common Stock,
representing approximately 59.8% of the total consideration, for 29.1% of the
total number of shares of Common Stock outstanding.
20
<PAGE>
The foregoing table also assumes no exercise of outstanding stock options or
warrants or conversion of convertible debt. As of the date of this Prospectus,
there were (i) outstanding stock options to purchase 51,100 shares of Common
Stock at $.04 per share, 70,000 shares of Common Stock at $.10 per share, 52,449
shares of Common Stock at $.20 per share, 222,633 shares of Common Stock at
$2.20 per share, 130,000 shares of Common Stock at $2.42 per share, 1,265,141
shares of Common Stock at $3.00 per share, 160,000 shares of Common Stock at
$3.30 per share and 126,000 shares of Common Stock at $4.00 per share, (ii)
957,975 shares of Common Stock reserved for issuance upon exercise of options
available for future grant under the 1995 Option Plan, (iii) 1,280,900
Convertible Debt Warrants, (iv) warrants to purchase 1,442,505 shares of common
stock and (v) 2,277,244 Public Warrants. To the extent that these options and
warrants are exercised, there will be further dilution to new investors. See
"Management -- Employee Stock Plans," "Description of Securities" and
"Underwriting."
21
<PAGE>
CAPITALIZATION
The following sets forth the capitalization of the Company as of September
30, 1996 (A) on an actual basis, (B) pro forma to reflect transactions occurring
after September 30, 1996 but before the date of this Prospectus consisting of
issuance of $500,000 aggregate principal amount of Bridge Debt and (C) pro forma
as adjusted to reflect the issuance and sale of shares of Common Stock and
Public Warrants offered hereby (based on an assumed offering price of $5.50 per
share and $.10 per Public Warrant) and the initial application of estimated net
proceeds therefrom.
<TABLE>
<CAPTION>
SEPTEMBER 30, 1996
--------------------------------------------
PRO FORMA
AS
ACTUAL PRO FORMA ADJUSTED(1)
-------------- -------------- --------------
<S> <C> <C> <C>
Short-term debt.......................................... $ 4,045,258 $ 4,645,258 $ 295,160
============== ============== ==============
Long-term debt........................................... $ 500,000 $ 500,000 $ 500,000
-------------- -------------- --------------
Stockholders' equity:
Preferred stock, $.0001 par value, 5,000,000 shares
authorized, none issued or outstanding............... -- -- --
Common Stock, $.0001 par value, 20,000,000 shares au-
thorized; 5,315,811 shares issued (actual), 5,315,811
shares issued (pro forma) and 7,593,055 shares
issued (pro forma as adjusted)....................... 532 532 760
Additional paid-in capital............................. 6,527,572 6,527,572 17,469,538
Accumulated deficit.................................... (11,059,145) (11,059,145) (11,059,145)
Treasury stock, 261,497 shares, at cost................ (11,906) (11,906) (11,906)
-------------- -------------- --------------
Total stockholders' equity (deficit)..................... (4,542,947) (4,542,947) 6,399,247
-------------- -------------- --------------
Total capitalization..................................... $ (4,042,947) $ (4,042,947) $ 6,899,247
============== ============== ==============
</TABLE>
- ----------
(1) Includes 477,244 shares of Common Stock and 477,244 Public Warrants issued
on the date of this Prospectus upon the conversion of $2,330,300 principal
amount of Convertible Debt and approximately $342,294 of accrued interest
(based on an assumed offering price of $5.50 per share and $.10 per Public
Warrant). Does not include (i) 1,442,505 shares of Common Stock reserved
for issuance upon exercise of outstanding warrants to purchase common
stock, (ii) 180,000 shares of Common Stock reserved for issuance upon
exercise of the Representatives' Warrants, (iii) 180,000 shares of Common
Stock reserved for issuance upon exercise of Representative's Public
Warrants issuable upon exercise of Representatives' Warrants, (iv) 957,975
shares of Common Stock reserved for issuance upon exercise of options
available for future grant under the 1995 Option Plan, (v) 1,042,025 shares
of Common Stock reserved for issuance upon exercise of options granted
under the 1995 Option Plan, (vi) 906,749 shares of Common Stock reserved
for issuance upon exercise of options granted under the 1994 Option Plan,
(vii) 103,549 shares of Common Stock reserved for issuance upon exercise of
options granted under the 1993 Option Plan, (viii) 25,000 shares of Common
Stock reserved for issuance upon exercise of options granted under the 1995
Directors Stock Option Plan, (ix) 225,000 shares of Common Stock reserved
for issuance upon exercise of options available for future grant under the
1995 Directors Stock Option Plan, (x) 250,000 shares of Common Stock
reserved for issuance under the Employee Stock Purchase Plan, (xi)
1,280,900 shares of Common Stock reserved for issuance upon exercise of the
Convertible Debt Warrants, and (xii) 1,800,000 shares of Common Stock
reserved for issuance upon exercise of the Public Warrants. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," "Management -- Employee Stock Plans," "Description of
Securities" and "Underwriting."
22
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data have been derived from the
Company's consolidated financial statements. The audited consolidated balance
sheets as of December 31, 1994 and 1995 and the related consolidated statements
of operations, stockholders' equity (deficit) and cash flows for each of the two
years in the period ended December 31, 1995 and the notes thereto appear
elsewhere in this Prospectus. The selected consolidated financial data set forth
below at September 30, 1996 and for the nine months ended September 30, 1995 and
1996 are derived from unaudited consolidated financial statements which appear
elsewhere in this Prospectus and in management's opinion include all adjustments
(consisting only of normal recurring adjustments) necessary for a fair
presentation of financial position and results of operations. The results of
operations for the nine months ended September 30, 1996 are not necessarily
indicative of results of operations to be expected for the full year. The
following data should be read in conjunction with such consolidated financial
statements and "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
<TABLE>
<CAPTION>
CUMULATIVE
FROM INCEPTION
(NOV. 19, 1992)
NINE MONTHS ENDED SEPTEMBER TO SEPTEMBER
YEAR ENDED DECEMBER 31, 30, 30,
----------------------------- ----------------------------- ----------------
1994 1995 1995 1996 1996
-------------- -------------- -------------- -------------- ----------------
<S> <C> <C> <C> <C> <C>
Net sales.......................... $ 127,531 $ 285,354 $ 244,223 $ 900,446 $ 1,377,407
Cost of goods sold................. 64,363 136,381 112,452 315,437 547,994
-------------- -------------- -------------- -------------- ----------------
Gross profit....................... 63,168 148,973 131,771 585,009 829,413
Operating expenses:
Selling, general and
administrative................... 1,795,485 2,297,497 1,737,201 1,712,494 6,320,012
Research and development.......... 864,847 1,983,310 1,149,333 1,457,001 4,427,001
Depreciation and amortization..... 80,360 439,752 185,789 153,035 704,122
-------------- -------------- -------------- -------------- ----------------
Total operating expenses......... 2,740,692 4,720,559 3,072,323 3,322,530 11,451,185
-------------- -------------- -------------- -------------- ----------------
Other expense (principally
interest)......................... (39,897) (843,292) (568,958) (343,561) (1,239,739)
-------------- -------------- -------------- -------------- ----------------
Net loss(1)........................ $(2,717,421) $(5,414,878) $(3,509,510) $(3,081,082) $(11,861,511)
============== ============== ============== ============== ================
Net loss per share................. $ (0.53) $ (0.98) $ (0.64) $ (0.49)
============== ============== ============== ==============
Common and common equivalent
shares outstanding................ 5,157,932 5,542,184 5,480,438 6,283,167
</TABLE>
CONSOLIDATED BALANCE SHEET DATA:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1994 1995 SEPTEMBER 30, 1996
---- ---- -------------------
<S> <C> <C> <C>
Working capital (deficit) .... $ (209,143) $(3,891,602) $(4,680,592)
Total assets.................. 1,781,055 1,244,766 1,560,096
Total liabilities............. 3,180,807 4,497,330 6,103,043
Stockholders' equity
(deficit)..................... (1,399,752) (3,252,564) (4,542,947)
</TABLE>
- ----------
(1) From Viewpoint's inception through its acquisition by the Company on May
11, 1994, Viewpoint elected to be treated as an S Corporation for federal
income tax purposes and, accordingly, its taxable income or loss was
included in the income tax returns of its shareholders. Viewpoint's status
as an S Corporation was terminated on May 11, 1994.
23
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
MultiMedia Access Corporation, a development stage company, develops and
markets advanced video communications products. The Company delivers
high-performance, low-cost products that integrate video capabilities into
existing desktop computers, applications and networks. The Company delivers
standards-based video solutions to the PC and workstation marketplace. See "Risk
Factors -- Possible Fluctuations in Operating Results."
RESULTS OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1996 COMPARED TO NINE MONTHS ENDED SEPTEMBER
30, 1995
Net Sales. Net sales for the nine months ended September 30, 1996 increased
to $900,446 from $244,223 reported for the same period last year. This increase
is the result of an increase in system and product sales for the period,
particularly the Osprey-1000(Trademark) and the Viewpoint VBX(Trademark),
neither of which were available during the first half of 1995 and approximately
$80,000 of consulting and custom programming revenues during the third quarter
of 1996. A substantial portion of the Company's sales are made to a small number
of customers, generally on an open account basis with no collateral required.
The Company performs ongoing credit evaluations of its customers and maintains
reserves of potential credit losses. Such losses in the aggregate have not
exceeded management's expectations.
Cost of Goods Sold. Cost of goods sold increased $202,985 to $315,437 for the
nine months ended September 30, 1996, an increase that primarily is the result
of increased product and system sales. The Company realized an overall gross
margin percentage for the first nine months of 1996 of 65.0% which represents a
substantial increase from the 54.0% experienced during the first nine months of
1995. This increase can be attributed to consulting and custom programming
revenues in 1996 that were substantially greater than the same period in 1995
and which have little or no associated cost of goods sold.
Selling, General and Administrative Expense. Selling, general and
administrative ("SG&A") expense of $1,712,494 for the nine months ended
September 30, 1996 was essentially unchanged from the same period in 1995.
Research and Development Expense. Research and Development expenses increased
$307,668 to $1,457,001 for the nine months ended September 30, 1996 over the
same period in 1995, primarily due to an increase in salary expense, third party
consulting services, facility costs of the Company's North Carolina development
office and an increase in salary expense of its Viewpoint subsidiary. In
general, the increase reflects the expanded development effort required to
expand the Company's product lines. See "Business -- Research and Development."
Other Income (Expense) During the first nine months of 1996, other expense
decreased approximately $225,397 to $343,561 compared to the same period in
1995. This decrease is primarily the result of decreased interest expense,
reflecting an overall decrease in average borrowings at a slightly lower blended
interest rate. See "Certain Transactions."
YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER 31, 1994
Net Sales. Net sales increased $157,823 in 1995 over the prior year to
$285,354 for the year ended December 31, 1995. This increase is primarily
attributed to increased unit sales of the Company's Viewpoint VBX(Trademark) and
Osprey-1000(Trademark) products.
Cost of Goods Sold. Cost of goods sold increased $72,018 to $136,381 for the
year ended December 31, 1995, an increase that primarily reflects the increase
in sales. Over the same periods, the Company's gross profit margin percentage
increased from 49.5% for 1994 to 52.2% for 1995. This increase is the result of
sales of higher margined product and a slight increase in the sales of
consulting and custom programming services.
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Selling, General and Administrative Expense. Selling, general and
administrative expense increased $502,012 to $2,297,497 for the year ended
December 31, 1995. This 28.0% increase over the prior year can be attributed to
increases in employees and consultants, higher occupancy costs and increased
business development, sales and marketing related expenses corresponding to the
introduction of the Viewpoint-PRO(Trademark), Viewpoint VBX(Trademark) and
Osprey-1000(Trademark) product lines in 1995.
Research and Development Expense. The Company's research and development
expense increased $1,118,463 to $1,983,310 in 1995 primarily due to the
establishment of the Company's North Carolina development office. Expenses
related to this office included salaries for newly hired engineers and support
staff and the cost of the office facility and equipment. During 1995, this
development office was engaged in the development of the SLIC-Video(Trademark)
and Osprey-1000(Trademark) products which were introduced in mid-1995 and
late-1995, respectively.
Other Income (Expense). For the year ended December 31, 1995, other expense
increased to $843,292 for the year compared to $39,897 for the year ended
December 31, 1994. This increase was primarily the result of an approximate
$766,402 increase in interest expense for 1995 over 1994, as a result of
additional borrowings pursuant to the Convertible Debt and borrowings pursuant
to the Secured Notes and Demand Notes. See "Certain Transactions."
LIQUIDITY
At September 30, 1996, the Company had a working capital deficit of
$(4,680,592). To date, the Company has been dependent upon loans from its
principal stockholders, as well as private placements of its debt and equity
securities, to finance its working capital requirements.
Net cash used in operating activities for the nine months ended September 30,
1996 was $2,863,323. Increases in inventory were a result of an increase in
production levels to meet anticipated sales.
Cash used in investing activities for the nine months ended September 30,
1996 consisted of $122,080 of capital expenditures. As of the date of this
Prospectus, the Company does not have any material commitments for capital
expenditures.
Cash provided by financing activities for the nine months ended September 30,
1996 was primarily a result of the receipt of the proceeds of the Secured Notes
II in January through February 1996, receipt of the proceeds of the Bridge Debt
in September 1996 and the private placement of Common Stock during the second
quarter of 1996. At September 30, 1996, the Company had cash of $21,523.
The Company currently has no plans or agreements to seek loan financing. The
Company may choose to seek additional financing to provide additional working
capital at some time in the future. Such financing may include loans or lines of
credit and could include factoring agreements. However, the Company believes
that the proceeds of the initial public offering will be sufficient to meet its
capital requirements for at least the next twelve months.
The Company's independent auditors have included an explanatory paragraph in
their audit report on the Company's consolidated financial statements stating
that certain factors raise substantial doubt about the Company's ability to
continue as a going concern. This offering is an integral part of the Company's
plan to continue as a going concern. In the event that the Company's plans
change or its assumptions change or prove to be inaccurate or if the proceeds of
this offering prove to be insufficient to fund operations (due to unanticipated
expenses or difficulties or otherwise), the Company may be required to seek
additional financing sooner than currently anticipated. The Company has no
current arrangements with respect to, or sources of, additional financing. There
can be no assurance that existing stockholders will provide any portion of the
Company's future financing requirements. There can be no assurance that any
additional financing will be available to the Company on acceptable terms, or at
all. Additional equity financing may involve substantial dilution to the
Company's then existing stockholders.
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From Viewpoint's inception in November 1992 through December 31, 1993, the
operations of the Company were principally limited to conducting research and
development, limited production operations and marketing of prototype products.
From Viewpoint's inception through its acquisition by the Company on May 11,
1994, Viewpoint elected to be treated as an S Corporation for federal income tax
purposes and, accordingly, its taxable income or loss was included in the income
tax returns of its shareholders. Viewpoint's status as an S Corporation was
terminated on May 11, 1994.
At December 31, 1995, the Company had net operating loss carry forwards for
federal tax purposes of $7,730,000 available to offset future taxable income.
Under Section 382 of the Internal Revenue Code of 1986, as amended, utilization
of prior net operating loss carry forwards is limited after an ownership change,
as defined in Section 382, to an annual amount equal to the value of the loss
corporation's outstanding stock immediately before the date of the ownership
change multiplied by the federal long-term tax-exempt rate. Beginning with 1994,
approximately $790,000 of the carry forward is limited to utilization at a rate
of approximately $300,000 per year. The Company may in the future be subject to
further significant limitations on the use of its net operating loss carry
forwards. In the event the Company achieves profitable operations, any
significant limitation on the utilization of net operating loss carry forwards
would have the effect of increasing the Company's tax liability and reducing net
income and available cash resources. Moreover, Viewpoint terminated its status
as an S Corporation in May 1994, and net operating losses incurred by Viewpoint
prior to such termination will not be available to offset future taxable income
of the Company. See Note 8 of Notes to Consolidated Financial Statements.
CAPITAL RESOURCES
In January 1993, Viewpoint issued to five individuals an aggregate of
$200,000 principal amount of 5% convertible promissory notes ("Notes") due in
January 1994. In connection with the issuance of these notes, Viewpoint issued
warrants to purchase an aggregate of 51,100 shares of Common Stock at an
exercise price of approximately $.02 per share. In June 1993, Viewpoint issued
to one individual an additional $25,000 principal amount 5% convertible
promissory note due June 1994 and warrants to purchase 6,388 shares of Common
Stock at an exercise price of approximately $.50 per share.
In January 1994, holders of $100,000 principal amount of the Notes agreed to
exchange such notes (plus accrued interest of approximately $4,891) for $104,891
aggregate principal amount of 5% convertible promissory notes due January 1995
and warrants to purchase an aggregate of 25,550 shares of Common Stock at an
exercise price of approximately $.50 per share. In April 1994, Viewpoint repaid
the remaining $100,000 principal amount of the 5% convertible promissory notes
issued in January 1993, together with accrued interest thereon.
During 1993, Glenn A. Norem, Chief Executive Officer of the Company, loaned
Viewpoint an aggregate of $90,700 at an annual interest rate of 8%. These loans
were repaid by the Company in November 1994. In connection with these loans,
Viewpoint issued warrants to Mr. Norem to purchase an aggregate of 11,587 shares
of Common Stock at an exercise price of approximately $0.20 per share. Mr. Norem
exercised these warrants in May 1994. In addition, during 1993, G.A. Norem I,
L.P., of which Mr. Norem is the sole general partner, loaned Viewpoint an
aggregate of $35,500 at an annual interest rate of 8%. Viewpoint repaid these
loans in June 1994. In connection with these loans, Viewpoint granted G.A. Norem
I, L.P. a security interest in all of its assets and issued to G.A. Norem I,
L.P. warrants to purchase 4,536 shares of Common Stock at an exercise price of
$.10 per share. G.A. Norem I, L.P. exercised these warrants in May 1994.
In March 1994, the Company issued an aggregate of 996,364 shares of Common
Stock at a price of $2.20 per share, for which it received net proceeds of
$1,917,241.
In September 1994 through January 1995, the Company issued promissory notes
(the "Convertible Debt") in the aggregate principal amount of $2,677,550 (the
"Convertible Debt Financing"). The Convertible Debt bears interest at the rate
of 8% per annum and is, at the option of the holder, (i) due on the earlier of
the closing of an initial public offering of the Company's equity securities in
excess of $2,000,000 or 18 months from the date of issuance or (ii) convertible
into shares of the securities sold in an initial public offering registered
under the Securities Act of 1933, as amended, (the "Securities Act").
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In addition, pursuant to the terms of the Convertible Debt Financing, investors
electing to convert their Convertible Debt into shares of the securities offered
in an initial public offering will receive one Convertible Debt Warrant for each
$2.00 principal amount of Convertible Debt that is converted and investors
electing repayment of the Convertible Debt will receive one Convertible Debt
Warrant for each $3.00 principal amount of Convertible Debt surrendered for
repayment. The Convertible Debt Warrants are exercisable at an exercise price of
$3.00 per share during a three-year period commencing on the date of the closing
of such initial public offering. The Company used the proceeds of the
Convertible Debt Financing for working capital and general corporate purposes.
Holders of $2,330,300 principal amount of Convertible Debt have elected to
convert into the securities offered hereby and holders of $347,250 principal
amount have elected to be repaid from the proceeds of this offering.
In October 1994, the holder of the $25,000 principal amount note issued in
June 1993 agreed to exchange such note (plus accrued interest of approximately
$1,654) and an additional $346 in cash (a total of $27,000) in the Convertible
Debt Financing. In January 1995, the holders of the remaining $104,891 principal
amount of 5% convertible promissory notes issued in January 1994 agreed to
exchange such notes (plus accrued interest of approximately $5,359) in the
Convertible Debt Financing.
From February through April 1995, the Company received gross proceeds of
$1,100,000 in connection with the issuance and sale of $1,100,000 aggregate
principal amount of short-term secured notes (the "Secured Notes"). The Secured
Notes bear interest at the rate of 15% per annum and were due at the earlier of
the closing of an initial public offering by the Company or 90 days from
issuance. As of December 31, 1995, Secured Notes totalling $791,000, plus
accrued interest, were exchanged for equity in the company by issuing one share
of Common Stock for each $3.00 of debt. In addition, pursuant to the exchange,
each consenting holder received a warrant to purchase one share of Common Stock
for each $2.00 exchanged. The warrants are exercisable at $1.00 per share for
three years. Also at December 31, 1995, the remaining holders of the Secured
Notes agreed to exchange their notes for Demand Notes. In return, each such
holder received a warrant to purchase one share of Common Stock for each $3.33
exchanged to Demand Notes. The warrants are exercisable at $1.00 per share for
three years. The Secured Notes are secured by a lien on all then unencumbered
assets of the Company. The Company used the proceeds of the Secured Notes for
working capital and general corporate purposes.
At the time of the Secured Notes transactions, the Company's funds had been
depleted, only limited product sales had occurred and the Company twice had been
forced to abandon its plans for an initial public offering and other equity
financing. Once these funding avenues were abandoned, the Company was left
without sufficient cash to pay its payroll or continue its development
activities. In consideration of these factors, it was estimated by third-party
appraisal that the stock was worth no more than $.50 per share.
In June and July 1995, the Company received gross proceeds of $310,000 in
connection with the issuance and sale of $310,000 aggregate principal amount of
short-term demand notes (the "Demand Notes"). The Demand Notes bear interest at
the rate of 15% per annum. Pursuant to the terms of the Demand Notes, investors
received one warrant to purchase a share of Company Common Stock for each $4.00
of principal. The warrants are exercisable at an exercise price of $1.00 per
share for three years from the date of issuance. As of December 31, 1995, Demand
Notes totalling $250,000, plus accrued interest, were exchanged for equity in
the Company by issuing one share of Common Stock for each $3.00 of debt.
Pursuant to this exchange, each exchanging holder received a warrant to purchase
one share of Common Stock for each $2.00 exchanged. These warrants are
exercisable at $1.00 per share for three years. Also at December 31, 1995, the
remaining holders of the Demand Notes received an additional warrant to purchase
one share of Common Stock for each $3.33 invested as additional compensation for
extension of demand notes. These warrants are exercisable at $1.00 per share for
three years. The Company used the proceeds of the Demand Notes for working
capital and general corporate purposes.
In August and September 1995, the Company issued an aggregate of 833,333
shares of Common Stock at a price of $3.00 per share, for which it received
gross proceeds of $2,500,000.
In January and February 1996, the Company received gross proceeds of $650,000
in connection with the issuance and sale of $650,000 aggregate principal amount
of a second series of short-term secured notes (the "Secured Notes II"). The
Secured Notes II bear interest at a rate of 8-10% per annum and were due 180
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days from issuance. Pursuant to the terms of the Secured Notes II, the investor
was granted warrants to purchase 65,000 shares of Common Stock of the Company at
$3.00 per share for three (3) years from the date of issuance. As of March 31,
1996, the Secured Notes II, plus accrued interest, were converted into equity in
the Company by issuing one share of Common Stock for each $3.00 of debt.
In April through June 1996, the Company issued an aggregate of 304,016 shares
of Common Stock at a price of $3.00 per share, for which it received gross
proceeds of $912,054.
In July 1996, the Company received gross proceeds of $1,000,000 in connection
with the issuance and sale of $1,000,000 aggregate principal amount of a
convertible note (the "Convertible Debt II"). The Convertible Debt II bears
interest at the rate of 8% per annum and $500,000 is due the earlier of ten days
after the completion of an initial public offering by the Company or 180 days
from issuance, while the balance of $500,000 is due eighteen months from
issuance. Pursuant to the terms of the Convertible Debt II, the investor
received a warrant to purchase 100,000 shares of Common Stock of the Company.
The warrant is exercisable at a price of $3.00 per share for three years from
the date of issuance. In addition, should the investor elect to convert, the
investor will receive an additional warrant to purchase 100,000 shares of Common
Stock at $3.00 per share for three years from the date of conversion.
In September and October 1996, the Company received gross proceeds of
$550,000 in connection with the issuance and sale of $550,000 aggregate
principal amount of a bridge loan (the "Bridge Debt") to Mr. Robert Rubin, a
shareholder of the Company. The Bridge Debt bears interest at the rate of 8% per
annum and is due the earlier of ten days after the completion of an initial
public offering by the Company or 180 days from issuance. Mr. Rubin received a
warrant to purchase 55,000 shares of Common Stock of the Company exercisable at
a price of $3.00 per share for three years from the date of issuance pursuant to
the terms of the Bridge Debt.
In October 1996, Glenn A. Norem, Chief Executive Officer of the Company,
agreed to defer the receipt of $164,154 principal amount of Secured and Demand
Notes, accrued interest of $41,154 and accrued salary and bonuses of $127,781
until December 1997. The Company has agreed to pay Mr. Norem interest at a rate
of 15% per annum on the deferred amount. In addition, Mr. Norem will be repaid
$200,000 principal amount of Secured and Demand Notes and $50,000 principal
amount of Convertible Debt plus accrued interest of $7,419 from the proceeds of
this offering.
In November 1996, the Company received gross proceeds of $300,000 in
connection with the issuance and sale of $300,000 aggregate principal amount of
additional Bridge Debt to Mr. M. Douglas Adkins and Mr. H.T. Ardinger, each
shareholders of the Company. This Bridge Debt bears interest at the rate of 8%
per annum and is due the earlier of ten days after the completion of an initial
public offering by the Company or 180 days from issuance. The holders of this
Bridge Debt received warrants to purchase 30,000 shares of Common Stock of the
Company exercisable at a price of $3.00 per share for three years from the date
of issuance pursuant to the terms of the Bridge Debt.
The Company believes that the net proceeds of this offering together with
available cash will be sufficient to meet the Company's operating expenses and
capital requirements for at least the next twelve months.
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BUSINESS
MultiMedia Access Corporation develops and markets advanced video
communications products for the PC and workstation marketplaces. Applications
include desktop videoconferencing, Internet and Intranet video communications,
video-based training, video surveillance, distance learning and high quality
workgroup video communications. While the Company sells its core video Codec and
video switching technologies to resellers and systems integrators, its primary
strategy is to develop and market video communications applications using its
technologies.
The Company, in September 1996, entered into a reseller agreement with
Unisys, a nationwide systems integrator and reseller, to purchase and resell the
Company's Viewpoint VBX(Trademark). The Viewpoint VBX(Trademark) is a PC-based
video switch which provides workgroup video communications over existing
telephone or network wiring commonly found throughout office buildings. Unlike
commercially available competitive products, the Viewpoint VBX(Trademark)
connects over 100 users per switch and distributes full-motion video at
distances up to 3,500 feet via existing UTP wiring.
The Company entered into a licensing agreement with Boca, a major modem and
PC peripheral supplier, to manufacture and market the Company's
FamilyFone(Trademark) and its ISDN videoconferencing upgrades in January 1996
and delivered its first video surveillance system to Alcatel, a major
communications systems integration company, in the first quarter of 1996. The
Company believes it sells the only currently available standards-based,
multi-algorithm video and audio Codec product for WindowsNT and is developing a
multi-algorithm Codec for Sun workstations.
INDUSTRY BACKGROUND
Videoconferencing was introduced in the late 1970s with the establishment of
videoconferencing room systems. To transmit "live" video images (which may
contain over 90 million bits per second of data) over telecommunications lines,
the video data must be digitized and significantly compressed to fit the
capacity of data networks and telephone lines (as low as 28,800 bits per
second). As video data is compressed, redundant data is eliminated. After
transmission, the video image is reconstructed for display at the receiving end.
The quality of the reconstructed image is a function of (1) the
sophistication of the video and audio compression algorithms, (2) the amount of
real-time data which can be transmitted over networks, (3) the power of the
video and audio coder-decoder hardware, and (4) the speed and power of PCs and
workstations.
The Company believes low-cost videoconferencing and other video network
services are now attainable because the performance and capabilities of these
four key elements have recently improved significantly, making video
communications available at reasonable cost.
Videoconferencing room systems use expensive digital lines and permit
communication only between compatible facilities. These systems currently cost
between $20,000 and $100,000 and are typically used by large corporations
primarily for intra-company communication between different locations. The
Company believes that the high cost of videoconferencing room systems and the
logistical problem of scheduling and availability have limited their use to
large corporations.
According to industry sources, the video communications industry is forecast
to be $3.6 billion by 1999 and the emerging desktop segment of that industry is
forecast to exceed $1.2 billion by 1999. The PC dominates the desktop computing
market with 1995 sales of over 57 million units worldwide and an estimated 100
million new PCs projected to be sold annually by 1999. Industry sources estimate
that over 30% of the new PCs sold in 1996 (principally multimedia capable PCs)
will be purchased by consumers for use in the home. The Company believes it has
developed products which position it to benefit from the growth of these markets
and which will have functions, performance and cost to successfully compete in
the rapidly emerging desktop video communications industry.
The Company currently offers a variety of products with differing video
quality levels: NTSC TV quality with the Viewpoint VBX(Trademark) video switch,
business quality with the Osprey-1000(Trademark) using ISDN lines and consumer
quality video with FamilyFone(Trademark) using modems over ordinary telephone
lines. The
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resolution and framerate of the video varies with the bandwith of the
communications connection. The Company has designed its products in response to
the increasing demand for low-cost desktop videoconferencing and for real-time
collaborative computing applications using telephone and computer networks. The
Company is also preparing to market video products for the Internet and
corporate Intranets.
CORPORATE INTRANET VIDEO
The Company first demonstrated its packet (TCP/IP-based) network video
technologies on the Internet's MBONE and on corporate Intranets in 1993. The
Company introduced its first commercial product, Viewpoint-PRO(Trademark), one
of the first TCP/IP-based videoconferencing systems designed specifically for
LAN and WAN applications in 1994. This system enables users to engage in
real-time, full-color, full-motion video over their existing computer networks.
Viewpoint-PRO(Trademark) provides both point-to-point and up to five site
multipoint videoconferences. The system does not require expensive MCUs, which
typically cost $20,000 or more, that ISDN-based products require to complete a
multipoint video- conference. Viewpoint-PRO(Trademark) also includes a
one-to-many broadcasting capability called ViewCast(Trademark). With
ViewCast(Trademark), "live" broadcasts, such as corporate briefings or news
broadcasts, or pre-recorded content, such as training videos and product and
services information, can be multicast over an existing corporate data network.
Viewpoint-PRO(Trademark) was the first commercial product offering video
multicast using both FTP Software, Inc.'s and Microsoft Corporation's
TCP/IP-multicast PC software. Each Viewpoint-PRO(Trademark) includes software to
enable a Windows PC with a sound card to receive and display a
ViewCast(Trademark). Viewpoint-PRO(Trademark) bundles, as an option, third-party
collaborative computing software which allows videoconference participants to
share a whiteboard or a PC application.
CONSUMER VIDEO
The Company's FamilyFone(Trademark) and WorkFone(Trademark) products are
expected to provide affordable, good quality video communications capabilities
to consumers, small businesses and corporations over standard telephone lines
with 28.8 Kbps modems and over the Internet. Examples of FamilyFone(Trademark)
uses might include: families and grandparents exchanging "live" video birthday
greetings with each other, college students videoconferencing with their parents
or small office/home office business owners accessing video training courses
over the Internet.
In January 1996, the Company signed a licensing agreement with Boca. In this
multi-year contract, the Company licensed its hardware and related firmware and
application software for videoconferencing over standard telephone lines and
over the Internet. Pursuant to the licensing agreement, the Company receives
license fees for the design and on-going royalties for its firmware and its
videoconferencing applications with every shipment of the BocaPRO Video Phone
Elite, which was introduced by Boca in August 1996 at a suggested retail price
of $399. The Company's prospects will be significantly affected by Boca's
ability to market the product and upon the marketing efforts of Boca's
resellers.
VIDEO CODECS
The Company develops and markets standards-based video and audio Codec
products that enable multimedia applications for both PCs and workstations. The
Osprey Codec captures, digitizes, compresses, transmits, receives, decompresses
and displays full-motion video. The Osprey-1000(Trademark) product line supports
multiple video and audio compression formats for both PCs and workstations which
are equipped with the now standard PCI-bus. The Company is developing the
Osprey-1100(Trademark) multi-algorithm Codec for the existing workstations from
Sun that are equipped with the S-bus. The Company believes it is the only
company currently providing standards-based, multi-algorithm Codec products for
WindowsNT. The Osprey Codecs also support Windows 3.1, Windows95, Solaris and
UNIX operating systems.
SLIC-Video(Trademark) is a video capture product that enables Sun workstation
users to view uncompressed, high-quality video and to capture full-motion video
frames. SLIC-Video(Trademark) software also provides access to closed caption
data which allows key words to act as filters and thereby control video
displayed on the screen. SLIC-Video's(Trademark) compatibility with standard Sun
products allows this product to support a wide variety of video applications on
existing Sun workstations.
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The Company intends to continue to establish strategic product development
alliances with companies whose products and technologies complement the
Company's strategic direction. With rapidly evolving technologies in the areas
of video, audio and networks, the Company intends to engage in strategic
alliances that offer expanding access to key new technologies that can be part
of current and future products.
VIDEO SWITCHING HUB AND UTP VIDEO DISTRIBUTION
The Company's Viewpoint VBX(Trademark) product provides high-quality
workgroup video communications with shared gateways to WANs and legacy video
teleconferencing room systems. The Viewpoint VBX(Trademark), a PC-based video
switch, employs a switched architecture to distribute uncompressed, full-motion
video within a building or campus via existing UTP wiring. Shared wide area
gateways allow other Viewpoint VBX(Trademark) networks to be interconnected and
enable connection to standards-based room or desktop videoconferencing products
from third-party manufacturers. The switching architecture employed by Viewpoint
VBX(Trademark) allows point-to-point, multipoint and broadcast modes of
operation to be supported. Both small workgroups and large building or campus
networks of hundreds of users can be supported.
The Viewpoint VBX(Trademark) product line includes a multimedia switch, WAN
interfaces and desktop components. The multimedia switch utilizes standard PC
components and the Company's video switching technology and software to provide
an expandable solution for video communications within an office building or
campus. Video and audio are distributed with NTSC quality by utilizing the
Company's UTP transceiver technology to send video over existing wiring at
distances of up to 3,500 feet. An existing LAN or telephone system is used only
for non-video communications (control signals) between the multimedia switch and
each user, eliminating overload of the computer network as workgroups are
video-enabled.
The Viewpoint VBX(Trademark) also provides shared-resource access to video
sources and storage devices located anywhere within the network. VCRs, videodisk
players, broadcast or cable TV and Direct Broadcast Satellite (DBS) programming
sources may be connected to the switch over unshielded twisted pair or coaxial
cabling and distributed on-demand to any equipped desktop or room.
Desktop PCs, TV monitors and room audio and video system connections are
accommodated using the UTP transceivers which connect standard NTSC video and
audio devices to existing building wiring systems. Viewpoint VBX(Trademark) is
compatible with standard NTSC cameras, audio components, speakerphones and PC
video peripherals to form a complete solution. The Viewpoint VBX(Trademark)
client software allows users to place calls through a personal or system-wide
dialing directory, to originate and subscribe to "live" video broadcasts, to
access pre-recorded video content or to establish a multipoint videoconference.
INTERNET VIDEO
The Company is developing and plans to market a variety of Internet video
products that take advantage of the growing popularity of the World Wide Web.
The popularity of the Web has resulted in subscribers seeking to improve their
Internet access capabilities which in turn has driven growth in the installed
base of 28.8 Kbps modems, ISDN adapters and cable modems. These improvements in
access along with advances in video and audio compression technology and
standards make possible new forms of motion-video content for Internet
publishers and their target audiences.
The Internet has taken on new dimensions including real-time communication
and entertainment. In both cases, the Company believes video communication
products and technologies will play an important role. While certain types of
information on an Internet Web page can be conveyed with graphics, animation and
static images, others require or are enhanced by audio and motion-video.
The Company is currently developing and plans to market three new Internet
video products and software players (downloaded freely to end-users). Each
product is an enhancement of or modification to existing Company designs, but
incorporates new software and firmware modules. These products address the
rapid-growth, emerging market opportunity for the Internet video publishing,
Internet video broadcasting and Internet video call center applications which
are described below.
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INTERNET VIDEO PUBLISHING
Internet video publishing (or video-on-demand) is currently the most
widespread implementation of video on the Internet. Video publishing refers to
stored-video content, designed to be played back to a user's system in
real-time. The Company believes video publishing is becoming popular because it
is far less technically demanding than "live" video production and transmission.
Internet video publishing entails compressing a video "clip" and storing it
on a server. The user is connected to the server by accessing a Web page that
holds the address for the target video server and then establishing a direct
connection to that server. The Company's video Codec technologies will be
utilized with Internet publishing software applications currently under
development by the Company.
INTERNET VIDEO BROADCASTING
Video broadcasting has recently come to the Internet and is characterized by
one-way "live" audio and motion-video. Video broadcasting presents technical
challenges such as the limited bandwidth and multi-cast capabilities of most Web
sites. However, Internet video broadcasting is well suited to delivering video
to the office (without additional hardware), to distance learning sites and to
special interest broadcast recipients. The Company's proposed products are being
designed to work in conjunction with Web server software to establish
connections between multiple users and a broadcast source.
INTERNET VIDEO CALL CENTER
The Internet video call center is a new concept to the Internet, allowing
one-way "live" video and two-way audio across the Internet. The term "call
center" is used because the technology is well suited to replacing existing call
centers such as help desks, catalog ordering centers, reservation systems
(hotels, airlines) and corporate receptionists. The Company believes that the
entertainment possibilities are also significant. The Internet video call center
has the potential to increase on-line purchases over the Internet. The Company
believes its core technologies can be used in video call center applications and
is in the early stages of product development.
VIDEO SURVEILLANCE
The Company believes that commercial and residential video-based surveillance
products represent another strong business opportunity. The Company is creating
effective solutions for customers that are unique in the marketplace. In the
Company's opinion, today's expensive closed circuit surveillance systems can be
replaced with systems that include more functionality at lower cost. The Company
intends to develop alliances with communication system integrators and security
resellers, distributors and/or suppliers to address this market.
The Company has delivered its first video surveillance system to Alcatel, a
major communications systems integration company in Richardson, Texas. This
industrial surveillance system integrates standard alarm and sensing devices
(e.g. door magnets, motion detectors, cameras, etc.), and allows a central
operator to monitor and inspect hundreds of remote sites over the customer's
existing frame relay computer network.
Following an alarm, the surveillance system selects the appropriate camera
and one of its preset positions and captures 10 frames of full resolution NTSC
video. The system also sends an alarm signal to a central monitoring computer
via a frame relay packet network. The security personnel at the central
monitoring station can then observe the remote alarmed location, via the
network, using the camera's remote pan, tilt and zoom features. The Company
believes that high quality video images will assist security personnel in
verifying the accuracy of alarms and in prosecuting intruders.
The surveillance system delivered to Alcatel is based upon existing
Viewpoint-PRO(Trademark) technology. Another version of the system designed to
operate over phone lines is scheduled to be available in early 1997.
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MARKETING AND SALES
The Company will market its products primarily via third-party resellers
including, but not limited to, OEMs, VARs and system integrators. In addition,
the Company plans to enter into strategic alliances with carriers,
telecommunications suppliers and information providers.
For mass market and high volume products the Company will depend on its major
OEM customers who provide access to significant marketing channels. These OEMs
have established relationships with manufacturers and resellers and will pay
licensing fees and royalties to bring new leading edge products to market. The
Company also intends to establish distribution relationships with resellers and
integrators who service corporate, institutional and government customers. These
relationships are expected to be non-exclusive and may require that these
partners participate in the marketing, advertising and technical support of the
Company's products.
The Company believes its Viewpoint VBX(Trademark) product will have an appeal
to resellers such as PBX suppliers, carriers (including cable companies) and
network equipment suppliers. The Company additionally intends to form strategic
alliances with resellers outside the US, where it is especially important to
partner with entrenched suppliers.
The Company intends to expand its marketing activities over the Internet. The
Company believes its products enable new and inventive ways to sell products
over the Internet. The Company intends to use its own products to increase sales
productivity and to pursue alternate low cost selling strategies. The Company
plans to continue modest trade show participation and advertising in trade
publications.
The Company's Internet related products will be marketed primarily to Web
designers and early sales will be conducted primarily through the Company's Web
page with minimal sales support. The Company plans to bundle its products with
other popular Web development products and/or license its subsystems to
resellers to integrate with their Web development products. Such strategic
business alliances are expected to provide Web developers with a rich array of
innovative capabilities with the familiarity of existing tools.
TARGET MARKETS
The Company's target markets can be defined broadly to be anywhere video
communications can be added as a peripheral to installed desktop computers, or
to narrower vertical markets in distance learning, video-based training,
multimedia authoring, Internet and Intranet broadcasting and surveillance. The
Company believes that the growth of video communications during the late 1990s
will be as significant as the growth of LANs in the 1980s. The Company's
strategy is to provide video communications products which will connect to
available networks, including standard telephone lines, data networks and the
Internet. The Company believes that its video communications products will
enhance the increasing demand for connectivity between today's homes and
offices.
Strategic alliances with large OEMs, communication-oriented system
integrators and other resellers should enhance the Company's ability to supply
video communication products to Fortune 1000 companies, federal and state
governments, PC manufacturers, peripheral suppliers and Internet service
providers.
PRODUCTION AND SUPPLY
The Company builds its current products in small quantities using contract
manufacturers in Texas and North Carolina. The operations personnel in Dallas
are responsible for parts planning, procurement and final test and inspection to
quality standards. While the Company believes its products are not difficult to
manufacture, there can be no assurance that the Company's products can be
manufactured on a wide-scale basis on commercially reasonable terms, or at all.
The Company plans for most high- volume production to be handled through large
OEMs or contract manufacturers.
The Company has been and will continue to be dependent on third parties for
the supply and manufacture of its components and electronic parts, including
standard and custom-designed components. The Company generally does not maintain
supply agreements with such third parties but instead
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purchases components and electronic parts pursuant to purchase orders in the
ordinary course of business. The Company is substantially dependent on the
ability of its third-party manufacturers and suppliers to, among other things,
meet the Company's design, performance and quality specifications.
The electronics industry from time to time experiences short supplies of
certain high demand components, which may adversely affect the Company's ability
to meet its production schedules. Failure of manufacturers or suppliers to
supply, or delays in supplying, the Company with components, or allocations in
the supply of certain high-demand components could adversely affect the
Company's operations and ability to meet delivery schedules on a timely and
competitive basis.
INSTALLATION, SERVICE AND MAINTENANCE
Many of the Company's new products will be customer installable. The Company
plans to contract with independent third parties to provide field installation
and support. The Company also plans to maintain a small technical support group
and will also depend on its resellers to install and service its products.
The Company offers 12 to 36 month limited warranties covering workmanship and
materials, during which period the Company or its resellers will replace parts
or make repairs. The Company also maintains an in-house staff of engineering
personnel and offers telephone support to assist resellers and end-users during
normal business hours.
RESEARCH AND DEVELOPMENT
The Company's development efforts during 1995 were devoted to the design and
development of the Osprey-1000(Trademark) PCI-based multi-algorithm video Codec,
the SLIC-Video(Trademark) video capture card, enhancements to the
Viewpoint-PRO(Trademark), design and integration of the surveillance system
delivered to Alcatel, and the development of the Viewpoint VBX(Trademark) video
switching hub.
Total research and development expense for 1995 was approximately $2.0
million. The 1996 research and development plan calls for approximately $1.9
million in development costs. For the nine months ended September 30, 1996, the
Company incurred approximately $1,457,000 in research and development costs.
The Company utilizes its core technologies to create multiple products aimed
at different markets. Software modularity is a major strategy which allows the
Company to develop different vertical applications using modules and components
previously developed for other products. The Company's products are
characterized by rapidly changing technology and evolving standards, often
resulting in product obsolescence or short product life cycles. Accordingly, the
Company's ability to compete will depend in large part on its ability to
introduce its products in a timely manner, to continually enhance and improve
its hardware and software products and to maintain development capabilities to
adapt to technological changes and advances in the video communications
marketplace. There can be no assurance that competitors will not develop
technologies or products that render the Company's systems obsolete or less
marketable, or that the Company will be able to keep pace with the technological
demands of the marketplace or successfully enhance and adapt its products to be
compatible with newly developed products, technologies and software, or satisfy
industry standards and the needs of its consumers and potential consumers.
COMPETITION
The market for DVC systems is highly competitive and characterized by the
frequent introduction of new products based upon rapidly changing technologies.
The Company competes with numerous well-established manufacturers and suppliers
of videoconferencing, networking, telecommunications and multimedia equipment
and products, some of which dominate certain market segments. In addition, the
Company is aware of others that are developing, and in some cases have
introduced, new DVC systems. Most of the Company's competitors possess
substantially greater financial, marketing, personnel and other resources than
the Company, have established reputations relating to product design, develop-
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ment, manufacture, marketing and service of networking, telecommunications and
video products and have significant budgets to permit them to implement
extensive advertising and promotional campaigns to market new products in
response to competitors. Among the Company's direct competitors are Target
Technologies, Inc., VIVO Software, Inc., Zydacron, Inc., VCON, Ltd., Corel
Corporation and VideoLAN Technologies, Inc. In addition, electronics
manufacturers such as Intel actively compete for business in this market.
PATENTS, TRADEMARKS AND PROPRIETARY INFORMATION
The Company holds a United States patent covering certain fundamental aspects
of the compressed packet video Codec incorporated into the
Viewpoint-PRO(Trademark) system. The Company may apply for additional patents
relating to other aspects of its products. There can be no assurance as to the
breadth or degree of protection which existing or future patents, if any, may
afford the Company, that any patent applications will result in issued patents,
that the Company's patents will be upheld, if challenged, or that competitors
will not develop similar or superior methods or products outside the protection
of any patent issued to the Company.
The Company believes that product recognition is an important competitive
factor and, accordingly, the Company promotes the Viewpoint-PRO(Trademark),
ViewCast(Trademark), MultiView(Trademark), Osprey-1000(Trademark),
SLIC-Video(Trademark), Viewpoint-VBX(Trademark), FamilyFone(Trademark) and
WorkFone(Trademark) names, among others, in connection with its marketing
activities, and has applied for trademark registration for such names. The
Company's use of those marks may be subject to challenge by others, which, if
successful, could have a material adverse effect on the Company.
The Company also relies on confidentiality agreements with its directors,
employees, consultants and manufacturers and employs various methods to protect
the source codes, concepts, ideas, proprietary know-how and documentation of its
proprietary technology. However, such methods may not afford the Company
complete protection, and there can be no assurance that others will not
independently develop similar know-how or obtain access to the Company's
know-how or software codes, concepts, ideas and documentation. Furthermore,
although the Company has and expects to continue to have confidentiality
agreements with its directors, employees, consultants, manufacturers, and
appropriate vendors, there can be no assurance that such arrangements will
adequately protect the Company's trade secrets.
The Company purchases certain components that are incorporated into its
products from third- party suppliers and relies on their assurances that such
components do not infringe on the patents of others. A successful claim against
any components used in the Company's products could affect the ability of the
Company to manufacture, supply and support its products. The Company uses its
best efforts to ensure third party supplied components are non-infringing, but
there can be no assurances against future claims.
GOVERNMENT REGULATION
The Company is subject to regulations relating to electromagnetic radiation
from its products, which impose compliance burdens on the Company. In the event
the Company redesigns or otherwise modifies its products or completes the
development of new products, it will be required to comply with Federal
Communications Commission regulations with respect to such products, of which
there can be no assurance prior to their commercialization. In addition, new
legislation and regulations, as well as revisions to existing laws and
regulations, at the federal, state and local levels may be proposed in the
future affecting the video communications industries. Such proposals could
affect the Company's operations, result in material capital expenditures, affect
the marketability of its products and limit opportunities for the Company with
respect to modifications of its products or with respect to new or proposed
products or technologies. Expansion into foreign markets may also require the
Company to comply with additional regulatory requirements. The technology
contained in the Company's products may be subject to U.S. export controls.
There can be no assurance that such export controls, either in their current
form or as may be subsequently enacted, will not delay introduction of new
products or limit the Company's ability to distribute products outside of the
United States. Further, various countries may
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regulate the import of certain technologies contained in the Company's products.
Any such export or import restrictions, new legislation or regulation or
government enforcement of existing regulations could have a material adverse
effect on the Company's business, operating results and/or financial condition.
There can be no assurance that the Company will be able to comply with
additional applicable laws and regulations without excessive cost or business
interruption, if at all, and failure to comply could have a material adverse
effect on the Company.
EMPLOYEES
As of September 30, 1996, the Company had 35 employees, 4 of whom are in
executive positions, 19 of whom are engaged in engineering, research and
development, 6 of whom are engaged in marketing and sales activities and 6 of
whom are in administration. None of the Company's employees is represented by a
labor union. The Company considers its employee relations to be satisfactory.
FACILITIES
The Company's executive offices and assembly operations and some of its
design and development activities are located in approximately 16,159 square
feet of leased space in Dallas, Texas. The lease expires in September of 1997
and provides for a base annual rent of $143,110. Osprey's design and development
activities are located in approximately 2,783 square feet of leased space in
Cary, North Carolina. The lease expires in December of 1997 and provides for a
base annual rent of $38,334. The Company leases an office suite in Burlingame,
California of approximately 100 square feet on a month-to-month basis for a base
annual rent of $4,800. The Company believes that its facilities are adequate for
its current and reasonably foreseeable future needs and its current facilities
can accommodate expansion, if required.
LEGAL PROCEEDINGS
The Company is not currently a party to any litigation that it believes could
have a material adverse effect on the Company or its business.
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MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The directors and executive officers of the Company are as follows:
NAME AGE POSITION
- ------------------- ----- -----------------------------------------------
Glenn A. Norem..... 44 Chief Executive Officer and Director
Philip M.Colquhoun. 55 President and Chief Operating Officer
David T. Stoner ... 40 Vice-President of Operations
William S. Leftwich 47 Chief Financial Officer and Assistant
Secretary
Neal S. Page....... 38 Vice President & General Manager
A. David Boomstein. 41 Vice President of Business Development
Daniel W. Dodson .. 34 Vice President of Marketing
William D. Jobe ... 59 Chairman of the Board of Directors
Joe C. Culp........ 63 Director
- ----------
Glenn A. Norem has been Chief Executive Officer and a director of the Company
since its inception in February 1994. Mr. Norem has been Chief Executive Officer
of each of the Company's subsidiaries since their respective inceptions. Mr.
Norem has also been Chairman and Chief Executive Officer of Catalyst Financial
Corporation ("Catalyst"), an investment and business advisory firm to
development stage companies in the computer and communications industries, since
its inception in January 1990. From March 1984 to December 1989, Mr. Norem was a
general partner of Berry Cash Southwest Partnership, L.P., a venture capital
partnership. From May 1985 to December 1989, Mr. Norem was a general partner of
InterWest III, L.P., a venture capital partnership and, from 1983 to 1984, he
was Corporate Strategic Business Development Manager at Texas Instruments, Inc.
Mr. Norem began his career with IBM Corporation's System Communications Division
R & D Laboratory. Mr. Norem received a B.S. degree in Electrical
Engineering/Systems Engineering from Southern Illinois University and an M.B.A.
(Finance and Marketing) from the University of Chicago.
Philip M. Colquhoun was appointed President and Chief Operating Officer of
the Company in April 1996. He had been President of Viewpoint Systems, Inc. and
Osprey Technologies, Inc., both subsidiaries of the Company, since November
1995. From August 1994 to October 1995, Mr. Colquhoun was President of the
Connectworks Division of Connectware Inc., a wholly owned subsidiary of AMP Inc.
From September 1991 to August 1994, Mr. Colquhoun served as President and Chief
Executive Officer of Visual Information Technologies Inc., a manufacturer of PC
video, graphics and imaging products, which was sold to Connectware Inc. From
February 1990 to September 1991, he was Senior Vice President of Visual
Information Technologies Inc. From August 1984 to February 1990, Mr. Colquhoun
served Recognition Equipment Inc. in various capacities, including Vice
President Manufacturing, Vice President and General Manager, Special Products
Division and President, Postalogic Division. Mr. Colquhoun was the Vice
President of Finance and Administration for Nixdorf Computer Corporation from
1981 to 1984 and was employed by IBM Corporation from 1961 to 1981 in various
engineering, finance and manufacturing positions.
David T. Stoner joined the Company as Vice President of Operations in August
1996. From August 1994 to August 1996, Mr. Stoner was Vice President of
Engineering for the Connectworks Division of Connectware, Inc., a wholly owned
subsidiary of AMP Inc. From July 1986 to August 1994, Mr. Stoner was employed by
Visual Information Technologies, Inc. ("VITec"), a manufacturer of video,
imaging, and graphics products, which was purchased by Connectware, Inc. At
VITec, Mr. Stoner was responsible for the development of hardware and software
products, and served in various positions including Vice President of
Engineering. From January 1979 to July 1986, Mr. Stoner served in various
engineering positions at Texas Instruments, Inc. Mr. Stoner received his B.S.
degree in Electrical Engineering from the University of Kansas.
William S. Leftwich has been Chief Financial Officer of the Company since
March 1995. From January 1993 to March 1995, Mr. Leftwich served as Chief
Financial Officer, Treasurer and Secretary of Integrated Security Systems, Inc.,
a manufacturer, developer, and distributor of integrated security so-
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lutions. From August 1992 to December 1992, Mr. Leftwich served as Controller of
Thomas Group Holding Company, an affiliate of Integrated Security Systems, Inc.
Mr. Leftwich was self-employed as a financial consultant from January 1992 to
July 1992. From January 1989 to December 1991, Mr. Leftwich served as the Chief
Financial Officer of OKC Limited Partnership, an oil and gas exploration
company. For approximately seven years prior to joining OKC Limited Partnership,
Mr. Leftwich served as Vice President -- Finance for Endevco, Inc., a natural
gas transportation and processing company. Mr. Leftwich is a C.P.A. and received
a B.B.A. from Texas A&M University.
Neal S. Page has been Vice President and General Manager of the Osprey
division of the Company since January 1995. From October 1994 to December 1994,
Mr. Page served as Director of Product Development of the Company. From April
1988 to September 1994, Mr. Page was employed by Sun Microsystems where he held
management positions directing development and strategic relationships for
multimedia technology products. Mr. Page developed advanced graphics and imaging
products at General Electric from 1984 to 1988 and at Data General from 1983 to
1984. Mr. Page holds B.S. and M.S. degrees in Electrical and Computer
Engineering from North Carolina State University.
A. David Boomstein has been Vice President of Business Development since
February 1995. From January 1994 to January 1995, Mr. Boomstein was Vice
President for Desktop Programs at Applied Business Telecommunications, a
consulting and research firm focusing on teleconferencing and multimedia
applications. From January 1989 to December 1993, Mr. Boomstein worked with
Boeing Computer Support Services, Inc. on a mission services contract to the
National Aeronautics and Space Administration designing and installing
videoconferencing systems among NASA's world-wide partners. From December 1984
to December 1988, Mr. Boomstein was Product Marketing Manager for Compression
Labs, Inc.'s Rembrandt Video System. From June 1980 to November 1984, Mr.
Boomstein managed the development and deployment of Citicorp N.A.'s satellite
videoconferencing system. Mr. Boomstein received a B.F.A. in Communication Arts
from the New York Institute of Technology and an M.P.S. in Interactive
Telecommunications from New York University.
Daniel W. Dodson joined the Company as Vice President of Marketing in
February 1996. From October 1994 to February 1996, Mr. Dodson was Director of
Marketing for the Connectworks Division of Connectware, Inc., a wholly owned
subsidiary of AMP Inc. While at Connectware Mr. Dodson was responsible for the
market introduction of hardware and software communications products. From 1983
to October 1994, Mr. Dodson was employed by NorTel (formerly Northern Telecom) a
major manufacturer of telecommunications equipment. At NorTel, Mr. Dodson served
in various positions including marketing manager for desktop videoconferencing
products and senior software designer for digital switching products. Mr. Dodson
received his MBA from Harvard University and his B.S. degree in Computer Science
from North Carolina State University.
William D. Jobe has been Chairman of the Board of the Company since November
1994. Since July 1991, Mr. Jobe has been a private venture capitalist and
computer industry advisor. From June 1990 to July 1991, Mr. Jobe was President
of MIPS Technology Development, a subsidiary of MIPS Computer Systems, Inc., a
supplier of reduced instruction set computing products and technology. From
September 1987 to June 1990, Mr. Jobe was Executive Vice President for Sales,
Marketing and Service of MIPS Computer Systems, Inc. From 1993 through 1995, Mr.
Jobe was Chairman and a director of Great Bear Technology, Inc., a
publicly-traded supplier of interactive multimedia software. Mr. Jobe received a
B.S.M.E. and a M.S.M.E. from Texas A & M University and a P.M.D. from Harvard
Business School.
Joe C. Culp has been a director of the Company since November 1995. Since
1990, Mr. Culp has served as President of Culp Communications Associates,
engaging in senior level consulting in the telecommunications industry. From
1989 to 1990, Mr. Culp was Executive Vice President of Communications
Transmission, Inc., a telecommunications provider. From 1988 to 1989, Mr. Culp
served as President and Chief Executive Officer of LIGHTNET, a fiber optic
telecommunications carrier jointly owned by CSX Corporation and Southern New
England Telecommunications. From 1982 to 1988, Mr. Culp was President,
Telecommunications for Rockwell International. Since 1994, Mr. Culp has served
on the Chairman's Advisory Board of Newbridge Networks a publicly-traded company
and since 1996, has served as a director of IXC Communications, a public
company. Mr. Culp received a B.S.E.E. from the University of Arkansas.
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All directors hold office until the next annual meeting of the stockholders
and the election and qualification of their successors. Executive officers are
elected by the Board of Directors annually and serve at the discretion of the
Board.
Messrs. Norem, Jobe and Culp are members of the Audit and Compensation
Committees of the Board of Directors.
DIRECTOR COMPENSATION
Directors currently receive no cash compensation for serving on the Board of
Directors other than reimbursement of reasonable expenses incurred in attending
meetings. In June 1993, Mr. Jobe was granted an option to purchase 5,110 shares
of Common Stock under the 1993 Stock Option Plan at an exercise price of $0.20
per share. This option is fully vested. In November 1994, Mr. Jobe was granted
an option to purchase 125,000 shares of Common Stock under the 1994 Option Plan,
at an exercise price of $3.00 per share. The option vests as to one quarter of
the shares subject to the option one year from the date of grant and one quarter
of the shares subject to the option each year thereafter subject to acceleration
based on the Company's performance. In November 1995, Mr. Jobe and Mr. Culp were
each granted options to purchase 40,000 shares of Common Stock exercisable $3.00
per share under the 1995 Option Plan for consulting activity in addition to
their director responsibilities. These options vest over a three (3) year
period.
In May 1995, the Company adopted a 1995 Director Option Plan (the "Director
Plan") under which only outside directors are eligible to receive stock options.
The Director Plan provides for the grant of nonstatutory stock options to
directors who are not employees of the Company. A total of 250,000 shares of
Common Stock have been authorized for issuance under the Director Plan. As of
September 30, 1996, options to purchase an aggregate of 25,000 shares at an
exercise price of $3.00 per share had been granted under the Director Plan. Each
non-employee director who joins the Board after May 1, 1995 will automatically
be granted a nonstatutory option to purchase 15,000 shares of Common Stock on
the date upon which such person first becomes a director. In addition, each such
non-employee director will automatically be granted a nonstatutory option to
purchase 10,000 shares of Common Stock upon annual re-election to the Board,
provided the director has been a member of the Board for at least six months
upon the date of re-election. The exercise price of each option granted under
the Director Plan is equal to the fair market value of the Common Stock on the
date of grant. Each initial 15,000 share grant vests at the rate of 25% of the
option shares upon the first anniversary of the date of grant and one
forty-eighth of the option shares per month thereafter, and each annual 10,000
share grant vests at the rate of 25% of the option shares upon the first
anniversary of the date of grant and one forty-eighth of the options shares per
month thereafter, in each case unless terminated sooner upon termination of the
optionee's status as a director or otherwise pursuant to the Director Plan. In
the event of a merger of the Company with or into another corporation or a
consolidation, acquisition of assets or other change in control transaction
involving the Company, each option becomes exercisable unless assumed or an
equivalent option substituted by the successor corporation. Unless terminated
sooner, the Director Plan will terminate in 2005. The Director Plan is currently
administered by the Board of Directors. The Board has authority to amend or
terminate the Director Plan, provided that no such action may impair the rights
of any optionee without the optionee's consent.
EXECUTIVE COMPENSATION
The following table sets forth the cash compensation paid or accrued by the
Company to the Company's Chief Executive Officer and the Company's other
executive officers whose compensation exceeded $100,000 for the fiscal years
ended December 31, 1995, 1994 and 1993.
No other officer received cash compensation in excess of $100,000 in 1993,
1994, or 1995.
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SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
ANNUAL COMPENSATION COMPENSATION
NAME AND --------------------- OPTIONS
PRINCIPAL POSITION FISCAL YEAR SALARY BONUS (IN SHARES)
------------------ ----------- ------ ----- -----------
<S> <C> <C> <C> <C> <C>
Glenn A. Norem 1995 $ 90,000 $45,000 (4) --(1)
Chief Executive Officer ......................... 1994 91,875(2) 45,000 (4) 130,000
1993 135,000(3) -- 51,100
William S. Leftwich 1995 90,000(5) 15,000 (6) 60,000
Chief Financial Officer ......................... 1994 -- -- --
1993 -- -- --
Philip M. Colquhoun 1995 90,000(7) 3,500 200,000
President and Chief Operating 1994 -- -- --
Officer ......................................... 1993 -- -- --
</TABLE>
- ----------
(1) Does not include warrants to purchase 118,500 shares of Common Stock of the
Company granted to Mr. Norem and Norem I, L.P. in connection with financing
transactions. See "Certain Transactions".
(2) $22,500 of such amount was accrued as of December 31, 1994, of which
$11,250 was paid in 1995. The remaining $11,250 was accrued as of December
31, 1995.
(3) Represents Mr. Norem's salary as President and CEO of Viewpoint prior to
its acquisition by the Company. All of such amount was accrued as of
December 31, 1993; $70,871 of such amount was paid during 1994 and the
remaining $64,129 was accrued as of December 31, 1995.
(4) In September 1996 this amount was exchanged into a note payable to Mr.
Norem due in December 1997.
(5) Represents Mr. Leftwich's annual salary. He assumed his duties with the
Company on March 29, 1995 and earned $67,268 in salary during 1995.
(6) Amount was accrued as of December 31, 1995 and will be paid from the
proceeds of this offering.
(7) Represents Mr. Colquhoun's annual salary. He assumed his duties as
President of the Viewpoint and Osprey subsidiaries on November 1, 1995 and
earned $14,880 in salary during 1995. Mr. Colquhoun assumed the duties of
President and Chief Operating Officer of the Company in April 1996.
The following table provides information concerning options granted to the
executive officers of the Company in 1995.
OPTION GRANTS IN LAST FISCAL YEAR
% OF TOTAL
OPTIONS GRANTED EXERCISE OR
OPTIONS TO EMPLOYEES IN BASE EXPIRATION
NAME GRANTED FISCAL YEAR PRICE/SHARE DATE
- -------------------- ------------ ---------------- -------------- -------------
Glenn A. Norem...... -- -- -- --
William S. Leftwich. 60,000 (1) 10.9 $ 3.00 3/26/05
Phillip M. Colquhoun 200,000 (2) 36.4 3.00 10/31/05
(1) 34,000 of these options are currently exercisable. All options will become
immediately exercisable upon a "change in control" of the Company.
(2) 46,666 of these options are currently exercisable. All options will become
immediately exercisable upon a "change in control" of the Company.
EMPLOYMENT AGREEMENTS
The Company has entered into a five-year employment agreement with Glenn A.
Norem, effective February 7, 1994, which provides for his employment as Chief
Executive Officer. The employment agreement provides for an annual base
compensation of $90,000, subject to increases upon review by the Board of
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Directors, and annual bonuses at the discretion of the Board of Directors. In
the event the employment agreement is terminated, (other than "for cause" by the
Company) including for "good reason" by Mr. Norem including in the event of a
"change of control" as defined in the agreement, then Mr. Norem will receive (i)
all accrued salary, bonuses and benefits through the date of such termination;
and (ii) a sum equal in the aggregate to the full amount, discounted by three
percent (3%), of (a) the salary and benefits which Mr. Norem would have
received, at the average rate or rates in effect during the six-month period
immediately prior to termination, and (b) the annual bonus or bonuses which Mr.
Norem would have received, at the rate of his annual bonus for the last full
fiscal year of the Company ending prior to termination, had, with respect to
both (a) and (b), Mr. Norem's employment under the agreement continued through
the full term of the agreement. The employment agreement also contains
provisions granting Mr. Norem certain piggyback and demand registration rights
that require the Company to register under the Securities Act any or all shares
of the Company's Common Stock held by Mr. Norem, or issuable upon exercise of
stock options held by Mr. Norem. The employment agreement is automatically
renewed for successive one year terms unless the Company or Mr. Norem elects not
to renew.
In January 1996, Mr. Norem's employment agreement was amended to increase his
annual base compensation to $135,000 and provide for a minimum bonus of $15,000
per year. Concurrent with the amendment, the Board of Directors granted Mr.
Norem a bonus of $45,000 per year for 1994 and 1995 to be paid only upon the
authorization of the Board of Directors. In September 1996, Mr. Norem's
employment agreement was amended to include a non-compete, non-solicitation, and
non-circumvention agreement with the Company for the duration of his employment
and through the two years immediately following the termination of his
employment with the Company.
Pursuant to the consulting agreement with Catalyst, of which Mr. Norem is
Chairman of the Board and principal stockholder, Catalyst may, in specific cases
approved by the Company's Board of Directors, receive fees in connection with a
merger with or the acquisition of another company previously introduced to the
Company by Catalyst and expressly named in the agreement. Catalyst will be paid
3% of the fair market value of each transaction actually consummated plus has
the right to purchase for $1.00, a three year option to purchase Common Stock of
the Company. The number of shares that this option can purchase will be equal to
3% of the fair market value of the transaction divided by the average fair
market price of the Common Stock of the Company during the one week period
preceding the announcement of the transaction. The Consulting Agreement with
Catalyst was terminated by the Company on September 27, 1996. Despite the
termination, Catalyst remains entitled to receive fees if the Company enters
into a merger or acquisition transaction as described above. The Company has no
plans to enter into such a transaction at this time or for the foreseeable
future.
The Company has also entered into employment agreements with its six other
executive officers: Messrs. Colquhoun, Leftwich, Stoner, Dodson, Boomstein and
Page. These employment agreements provide (i) for annual base compensation of
$90,000, $90,000, $120,000, $85,000, $75,000 and $90,000 respectively; (ii) that
the officer is eligible to participate in the Company's Employee Stock Option
Plans and Executive Bonus Plans; and (iii) that the employment of each officer
with the Company is "at will" and may be terminated by the officer or the
Company at any time, for any reason or no reason.
EMPLOYEE STOCK PLANS
1995 Stock Plan
The 1995 Stock Plan (the "1995 Option Plan") provides for the grant to
employees of the Company of incentive stock options within the meaning of
Section 422 of the Internal Revenue Code of 1986, as amended (the "Code") and
for the grant to employees and consultants of the company of nonstatutory stock
options and stock purchase rights. A total of 2,000,000 shares of Common Stock
have been reserved for issuance under the 1995 Option Plan. As of September 30,
1996, options had been granted to purchase an aggregate of 758,025 shares at an
exercise price of $3.00 per share, 160,000 shares at an exercise price of $3.30
per share and 126,000 shares at an exercise price of $4.00 per share. The 1995
Option Plan may be administered by the Board or a committee approved by the
Board in a manner that complies with Rule 16b-3 promulgated under the Securities
Act. Currently, the 1995 Option Plan is administered by the Board of Directors,
which determines the terms of options and rights granted, exercise price, number
of shares subject to the option or right
41
<PAGE>
and the exercisability thereof. Options and rights granted under the 1995 Option
Plan are not transferable other than by will or the laws of descent or
distribution, and each option or right is exercisable during the lifetime of the
recipient only by such person. Options that are outstanding under the 1995
Option Plan will remain outstanding until they are exercised or they expire in
accordance with the terms of each option. The exercise price of all incentive
stock options granted under the 1995 Option Plan must be at least equal to the
fair market value of the shares of Common Stock on the date of grant. With
respect to any participant who owns stock possessing more than 10% of the voting
power of all classes of stock of the Company, the exercise price of any
incentive stock option granted must equal at least 110% of the fair market value
on the grant date and the maximum term of the option must not exceed five years.
The term of all other options granted under the 1995 Option Plan may not exceed
ten years. In the event of certain changes in control of the Company, the 1995
Option Plan permits each outstanding option and right to become exercisable in
full or assumed or an equivalent option to be substituted by the successor
corporation. Included are options to purchase 160,000 shares at $3.30 per share
granted to Mr. Norem in January 1996, options to purchase 40,000 shares at $3.00
per share granted to each of Mr. Jobe and Mr. Culp in November 1995, options to
purchase 200,000 shares at $3.00 per share and 50,000 shares at $3.00 per share
granted to Mr. Colquhoun in November 1995 and April 1996, respectively, and
options to purchase 60,000 shares at $3.00 per share and 30,000 shares at $3.00
per share granted to Mr. Leftwich in March 1995 and January 1996, respectively.
The options granted to Messrs. Norem, Colquhoun, and Leftwich vest over a five
year period. The options granted to Messrs. Jobe and Culp vest over a three year
period. See "Executive Compensation" and "Principal Stockholders".
1994 Stock Option Plan
In February 1994, the Board of Directors and stockholders approved the
Company's 1994 Stock Option Plan (the "1994 Option Plan") pursuant to which an
aggregate of 2,000,000 shares of Common Stock were reserved for issuance in
connection with the stock options ("Options") available for grant. The Options
may be granted in either or both of the following: (i) Incentive Stock Options
or (ii) Non-Qualified Stock Options. Non-Qualified Stock Options may be granted
to employees, directors and consultants of the Company.
The 1994 Option Plan was administered by the Board of Directors or, at their
discretion, by a committee which was appointed by the Board to perform such
function. The Board or such committee, as the case may be, within the
limitations of the 1994 Option Plan, determined, among other things, when to
grant Options, the persons to whom Options were to be granted, the number of
shares for each Option, whether Options granted were intended to be Incentive
Stock Options or Non-Qualified Stock Options, the duration and rate of exercise
of each Option, the share purchase price and the manner of exercise, and whether
restrictions such as repurchase rights by the Company were to be imposed on
shares subject to Options.
In connection with Incentive Stock Options the exercise price of each
Incentive Stock Options may not be less than 100% of the fair market value of
the Common Stock on the date of grant (or 110% of fair market value in the case
of an employee holding 10% or more of the outstanding stock of the Company). The
aggregate fair market value of shares for which Incentive Stock Options granted
to any employee are exercisable for the first time by such employee during any
calendar year (pursuant to all stock option plans of the Company and any related
corporation) may not exceed $100,000. Non-qualified Stock Options may be granted
at a price determined by the Board or Committee, but not at less than the par
value of the Common Stock. Stock options granted pursuant to the 1994 Option
Plan will expire not more than ten years from the date of grant (five years in
the case of the Incentive Stock Options granted to persons holding 10% or more
of the voting stock of the Company).
As of September 30, 1996, options had been granted to purchase an aggregate
of 908,016 shares as follows: 70,000 shares at an exercise price of $0.10;
222,633 shares at an exercise price of $2.20; 130,000 shares at an exercise
price of $2.42; and 485,383 shares at an exercise price of $3.00. Included are
options to purchase 130,000 and 125,000 shares at a price of $2.42 and $3.00 per
share, respectively, granted to Messrs. Norem and Jobe in May 1994 and November
1994, respectively, all of which expire in May 1999 and November 1999 and vest
at the rate of 20% per year as to Mr. Norem and 25% per year as to Mr. Jobe
commencing in May 1995 and November 1995, respectively, subject to certain
acceleration provisions. In April 1995, the Board of Directors voted to grant no
further options under the 1994 Option Plan. See "Executive Compensation" and
"Principal Stockholders."
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<PAGE>
1993 Stock Option Plan
In May 1994, pursuant to the terms of the acquisition of Viewpoint, the
Company assumed the obligations of Viewpoint's 1993 Stock Option Plan (the "1993
Option Plan"). Stock options to purchase 287,564 shares of Common Stock were
assumed by the Company. Accordingly, the Company reserved 287,564 shares of
Common Stock for issuance pursuant to these outstanding stock options.
Since the assumption of the 1993 Option Plan, stock options to purchase an
aggregate of 178,427 shares have been exercised and stock options to purchase
5,588 shares have been cancelled. Of the remaining options to purchase 103,549
shares of Common Stock, options to purchase 51,100 shares at a price of $.04 per
share were granted to Mr. Norem. These options are fully exercisable and expire
in November 1998. In early 1995, the Board of Directors voted to grant no
further options under the 1993 Option Plan. See "Executive Compensation" and
"Principal Stockholders."
1995 Employee Stock Purchase Plan
In May 1995 the Company established an Employee Stock Purchase Plan (the
"ESPP") to provide employees of the Company with an opportunity to purchase
Common Stock through payroll deductions. Under the ESPP, up to 250,000 shares of
Common Stock have been reserved for issuance, subject to certain antidilution
adjustments. The ESPP, by its terms, becomes effective at the time of this
offering. The ESPP is intended to qualify as an employee stock purchase plan
within the meaning of Section 423 of the Internal Revenue Code.
Each offering period will be for a period of six months except the first
offering period under the ESPP will be from the date of this Prospectus through
April 30, 1997. The ESPP terminates in April, 2005. Eligible employees may
participate in the ESPP by authorizing payroll deductions during an offering
period within a percentage range determined by the Board of Directors.
Initially, the amount of authorized payroll deductions will be not more than 10%
of an employee's cash compensation during an offering period, but not more than
$25,000 per year. Amounts withheld from payroll are applied at the end of each
offering period to purchase shares of Common Stock. Participants may withdraw
their contributions at any time before stock is purchased, and in the event of
withdrawal such contributions will be returned to the participants. The purchase
price of the Common Stock is equal to 85% of the lower of (i) the market price
of Common Stock immediately before the beginning of the applicable offering
period or (ii) the market price of Common Stock at the end of each offering
period. All expenses incurred in connection with the implementation and
administration of the ESPP will be paid by the Company.
Director Stock Option Plan
In May 1995, the Company adopted the Director Plan under which outside
directors only are eligible to receive stock options. The Director Plan provides
for the grant of nonstatutory stock options to directors who are not employees
of the Company. See "Management -- Director Compensation."
LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS
As permitted by the Delaware General Corporation Law, the Company has
included in its Certificate of Incorporation a provision to eliminate the
personal liability of its directors for monetary damages for breach or alleged
breach of their fiduciary duties as directors, subject to certain exceptions. In
addition, the bylaws of the Company provide that the Company is required to
indemnify its officers and directors, employees and agents under certain
circumstances, including those circumstances in which indemnification would
otherwise be discretionary, and the Company is required to advance expenses to
its officers and directors as incurred in connection with proceedings against
them for which they may be indemnified. The bylaws provide that the Company,
among other things, will indemnify such officers and directors, employees and
agents against certain liabilities that may arise by reason of their status or
service as directors, officers, or employees (other than liabilities arising
from willful misconduct of a culpable nature), and to advance their expenses
incurred as a result of any proceeding against them as to which they could be
indemnified. At present, the Company is not aware of any pending or threatened
litigation or proceeding involving a director, officer, employee or agent of the
Company in which indemnification would be required or permitted. The Company
believes that its charter provisions and indemnification agreements are
necessary to attract and retain qualified persons as directors and officers.
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<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth information as of September 30, 1996 and as
adjusted to reflect the sale of Common Stock offered by the Company hereby,
based on information obtained from the persons named below, with respect to the
beneficial ownership of shares of Common Stock by (i) each person or a group
known by the Company to be the owner of more than 5% of the outstanding shares
of Common Stock, (ii) each director, (iii) each executive officer named in the
Summary Compensation Table under the caption "Management", and (iv) all officers
and directors as a group.
<TABLE>
<CAPTION>
PERCENTAGE OF OUTSTANDING
AMOUNT AND SHARES OWNED(2)(3)
NATURE OF ---------------------------
NAME AND ADDRESS BENEFICIAL PRIOR TO
OF BENEFICIAL OWNER(1) OWNERSHIP(2) OFFERING AFTER OFFERING
<S> <C> <C> <C>
Fred Kassner ................... 1,375,242(4) 15.0 12.6
69 Spring Street
Ramsey, NJ 07446
Robert Moody, Jr. .............. 1,086,531(5) 11.9 9.9
601 Moody National Bank Building
Galveston, TX 77550 ...........
H.T. Ardinger, Jr. ............. 1,047,455(6) 11.5 9.6
9040 Governors Row
Dallas, TX 75247
Glenn A. Norem ................. 835,148(7) 9.1 7.6
M. Douglas Adkins............... 688,759(8) 7.5 6.3
1601 Elm Street, #3000
Dallas, TX 75201
Robert Sterling Trust .......... 532,059(9)(10) 5.8 4.9
c/o Thomas E. Brown
1715 West 35th Street
Pine Bluff, AR 71603
Robert Bernardi Trust........... 430,394(11) 4.7 3.9
c/o Richard Bernardi
440 Wood Crest Road
Stratford, PA 19087
William D. Jobe................. 84,414(12) * *
William S. Leftwich ............ 40,000(13) * *
Joe C. Culp .................... 19,930(14) * *
Philip M. Colquhoun............. 46,666(15) * *
David T. Stoner................. --(16) * *
All officers and directors as a
group (nine persons)........... 1,129,870(7)(12)(13)(14)(15)(16)(17) 12.4 10.3
</TABLE>
Messrs. Sterling and Bernardi may be deemed to be "founders" of the Company,
as such term is defined under the federal securities laws.
- ----------
* Less than 1%
(1) Unless otherwise indicated, the address of each individual is c/o the
Company, 2665 Villa Creek Drive, Dallas, Texas 75234.
(2) A person is deemed to be the beneficial owner of securities that can be
acquired by such person within 60 days from the date of this Prospectus
upon the exercise of warrants or options. Each beneficial owner's
percentage ownership is determined by assuming that options or warrants
that are held by such person (but not those held by any other person) and
which are exercisable within 60 days from the date of this Prospectus have
been exercised. Unless otherwise indicated, the Company believes that all
persons named in the table have sole voting and investment power with
respect to all shares of Common Stock beneficially owned by them.
(3) Based on a total of (i) 5,054,314 shares issued and outstanding, (ii)
477,244 shares of Common Stock issued on the date of this Prospectus upon
the conversion of $2,330,300 principal amount of Convertible Debt and
approximately $342,294 accrued interest (based on an assumed offering price
of $5.50 per share and $.10 per Public Warrant), (iii) 1,442,505 shares of
Common Stock reserved for issuance upon exercise of outstanding warrants to
purchase common stock, (iv) 1,280,900 shares
44
<PAGE>
of Common Stock reserved for issuance upon exercise of the Convertible Debt
Warrants and (v) 888,196 shares of Common Stock reserved for issuance upon
exercise of vested stock options as of September 30, 1996. Does not include
(i) 180,000 shares of Common Stock reserved for issuance upon exercise of
the Underwriters' Warrants, and 180,000 shares of Common Stock reserved for
issuance upon exercise of Underwriters' Public Warrants. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations,"
"Management -- Employee Stock Plans," "Description of Securities" and
"Underwriting."
(4) Includes (i) 35,714 shares issuable upon the conversion of Convertible Debt
to equity, (ii) 100,000 shares issuable at $3.00 per share upon exercise of
warrants issued in connection with the conversion of Convertible Debt to
equity, (iii) 65,000 shares issuable at $3.00 per share upon exercise of
warrants issued in connection with the conversion of Secured Notes II to
equity, (iv) 100,000 shares issuable at $3.00 per share upon exercise of
warrants issued in connection with the Convertible Debt II.
(5) Includes (i) 250,000 shares beneficially owned by Moody Insurance Group,
Inc., of which Mr. Moody is Chairman, President and the sole stockholder,
(ii) warrants to purchase 200,000 shares at $1.00 per share issued in
connection with the exchange of a Secured Note for equity, (iii) 114,280
shares issuable upon the conversion of Convertible Debt and accrued
interest to equity, and (iv) warrants to purchase 275,000 shares at $3.00
per share issued in connection with the conversion of Convertible Debt to
equity.
(6) Includes (i) 54,501 shares owned by Mr. Ardinger's wife, (ii) warrants to
purchase 120,000 shares at $1.00 per share issued in connection with the
exchange of a Secured Note and a Demand Note for equity, held by either Mr.
Ardinger or his wife, (iii) warrants to purchase 375,000 shares at $3.00
per share issued in connection with the conversion of Convertible Debt to
equity, (iv) 155,953 shares issuable upon the conversion of Convertible
Debt and accrued interest to equity, and (v) 37,500 shares issuable at
$1.00 per share granted for the issuance of a Demand Note.
(7) Includes (i) 51,100 shares issuable at $.04 per share upon the exercise of
options issued under the 1993 Option Plan, (ii) 95,333 shares issuable at
$2.42 per share upon exercise of options issued under the 1994 Option Plan,
(iii) 75,000 shares issuable at $1.00 per share upon exercise of warrants
granted for the exchange of a Secured Note for a Demand Note, and (iv)
16,667 shares issuable at $3.00 per share upon exercise of warrants issued
for the repayment of Convertible Debt.
(8) Includes (i) 25,000 shares issuable at $1.00 per share upon the exercise of
warrants granted for the issuance of a Demand Note, (ii) 145,500 shares
issuable at $1.00 per share upon the exercise of warrants in connection
with the exchange of a Secured Note for equity, (iii) 50,000 shares
issuable at $1.00 per share upon exercise of warrants in connection with
the exchange of a Demand Note for equity, (iv) 63,388 shares issuable upon
the conversion of Convertible Debt and accrued interest to equity and (v)
152,500 shares issuable at $3.00 per share upon the exercise of warrants in
connection with the conversion of Convertible Debt to equity.
(9) Shares subject to the control of Thomas E. Brown, as voting trustee of the
Robert Sterling Trust. On January 24, 1995, Robert M. Sterling, Jr. and
Thomas E. Brown, as voting trustee, entered into a Voting Trust Agreement
covering all capital stock beneficially owned by Mr. Sterling as of January
24, 1995 or subsequently acquired. The voting trustee is entitled,in his
discretion, to vote the shares deposited therewith and also has exclusive
investment control of said shares. The Voting Trust Agreement is
irrevocable and expires on January 20, 1998. Mr. Sterling is the sole
beneficiary of the Voting Trust Agreement.
(10) Includes (i) 58,333 shares issuable at $2.20 per share upon exercise of
options issued under the 1994 Option Plan and (ii) 16,667 shares issuable
at $3.00 per share for the exercise of warrants in connection with the
repayment of Convertible Debt.
(11) Shares subject to the control of Richard Bernardi, as voting trustee of the
Robert Bernardi Trust. On January 20, 1995, Robert P. Bernardi and Richard
Bernardi, as voting trustee, entered into a Voting Trust Agreement covering
all capital stock beneficially owned by Mr. Bernardi as of January 20, 1995
or subsequently acquired. The voting trustee is entitled,in his discretion,
to vote the shares deposited therewith and also has exclusive investment
control of said shares. The Voting Trust Agreement is irrevocable and
expires on January 20, 1998. Mr. Bernardi is the sole beneficiary of the
Voting Trust Agreement.
(12) Includes (i) 60,833 shares issuable at $3.00 per share upon the exercise of
options granted under the 1994 Option Plan and (ii) 15,555 shares issuable
at $3.00 per share upon exercise of options granted under the 1995 Option
Plan, (iii) 5,110 shares issuable at $.20 per share upon exercise of
options granted under the 1993 Plan and (iv) 2,916 shares issuable at $3.00
per share upon exercise of options granted under the 1995 Directors Plan.
(13) Includes 34,000 shares issuable at $3.00 per share upon the exercise of
options issued under the 1994 Option Plan and 6,000 shares issuable at
$3.00 per share upon the exercise of options issued under the 1995 Option
Plan.
(14) Includes 15,555 shares issuable at $3.00 per share upon exercise of options
granted under the 1995 Option Plan and 4,375 shares issuable at $3.00 per
share upon exercise of options granted under the 1995 Directors Plan.
(15) Includes 46,666 shares issuable at $3.00 share upon exercise of options
granted under the 1995 Option Plan.
(16) None of the 100,000 options to purchase Common Stock of the Company at
$4.00 per share have vested as of the date of this Prospectus.
(17) Includes 81,234 and 22,478 shares issuable at $3.00 per share to Mr. Page
and Mr. Boomstein, respectively, upon exercise of options granted under the
1994 and 1995 Option Plans.
45
<PAGE>
CERTAIN TRANSACTIONS
In December 1992, Viewpoint issued 102,200 shares of Common Stock to Glenn A.
Norem, Chief Executive Officer of the Company, in consideration of $200 and
issued warrants to purchase 511,000 shares of Common Stock at an exercise price
of $.001 per share to Glenn A. Norem as assignee for Catalyst, of which Mr.
Norem was the Chairman, Chief Executive Officer, and sole stockholder, in
consideration for services rendered by Catalyst. Mr. Norem exercised these
warrants in June 1993.
During 1993, Mr. Norem loaned Viewpoint an aggregate of $90,700 at an annual
interest rate of 8%. These loans were repaid by the Company in November 1994. In
connection with these loans Viewpoint issued warrants to Mr. Norem to purchase
an aggregate of 11,587 shares of Common Stock at an exercise price of $0.20 per
share. Mr. Norem exercised these warrants in May 1994.
During 1993 and 1994, G.A. Norem I, L.P., of which Mr. Norem is the sole
general partner, loaned Viewpoint an aggregate of $35,500 at an annual interest
rate of 8%. The Company repaid these loans in June 1994. In connection with
these loans, Viewpoint granted G.A. Norem I, L.P. a security interest on all of
its assets and issued to G.A. Norem I, L.P. warrants to purchase 4,536 shares of
Common Stock at $.10 per share. G.A. Norem I, L.P. exercised these warrants in
May 1994.
In February 1994, the Company issued 650,000 shares of Common Stock to each
of Messrs. Bernardi and Sterling, the Company's founders, for aggregate
consideration of $130. In January 1995, Messrs. Bernardi and Sterling each sold
back to the Company 127,940 shares of Common Stock for aggregate consideration
of $25.58.
In February 1994, the Company entered into five-year consulting agreements
with each of SCG and BCG, each of which agreements provides for annual
compensation of $60,000, subject to increases and annual bonuses at the
discretion of the Board of Directors, and options to purchase 100,000 shares.
The SCG agreement also provided that, at the sole discretion of the Board of
Directors, the Company may pay a fee, not to exceed 6% of the transaction value,
in connection with any acquisition transaction consummated. Mr. Sterling, a
principal stockholder of the Company, is the sole stockholder of SCG, and Mr.
Bernardi, a principal stockholder of the Company, is the sole proprietor of BCG.
The consulting agreements also contain provisions granting Messrs. Sterling and
Bernardi certain piggyback and demand registration rights exercisable at any
time during the term of the consulting agreement. The consulting agreement with
BCG was voluntarily terminated by Mr. Bernardi effective March 15, 1995.
In June 1996, accrued but unpaid consulting fees of $80,000 payable through
April 1996 to SCG pursuant to the consulting agreement were exchanged for Common
Stock of the Company at $3.00 per share. In addition, consulting fees due from
May 1996 through the date of this Prospectus were deferred by Mr. Sterling until
completion of this offering. Pursuant to the consulting agreement, in July 1996
SCG was issued a warrant to purchase 75,000 shares of Common Stock of the
Company exercisable at $3.00 per share.
In March 1994, the Company entered into an agreement with Catalyst. Pursuant
to this agreement, the Company agreed to pay Catalyst a monthly fee of $10,000
for Catalyst's services in seeking suitable acquisition candidates for the
Company. The agreement also provides for a fee in connection with any
transaction consummated pursuant to the agreement. The agreement was terminated,
with respect to the monthly fee, on September 30, 1994 and $11,692 remains
unpaid as of the date of this Prospectus.
In May 1994, the Company acquired all of the outstanding stock and options of
Viewpoint in exchange for 1,100,004 shares of Common Stock and options to
purchase Common Stock. Mr. Norem was President and Chief Executive Officer of
Viewpoint at the time of the acquisition and exchanged his shares and options of
Viewpoint for shares of Common Stock and options of the Company on the same
terms as the other Viewpoint security holders. Of the 198,758 option shares
received by Mr. Norem in May 1994, 68,758 were returned to the Company in
October 1994 at the request of the Company's Board of Directors.
In July and October 1994, the Company sold certain videoconferencing
equipment and software enhancements to Network Imaging Corporation ("NIC") for
$58,260. Mr. Sterling is a former Chairman of NIC and Mr. Bernardi is currently
Chairman of NIC and formerly served as President and Chief Executive Officer of
NIC. Such sales were made on the same terms and conditions and at the same
prices as sales made to disinterested parties during the period in which the
sales occurred.
46
<PAGE>
From September 1994 through January 1995, in connection with the Convertible
Debt Financing, the Company issued to each of Mr. Norem and Mrs. Elizabeth
Sterling, the wife of Mr. Sterling, $50,000 principal amount of Convertible Debt
and to Messrs. M. Douglas Adkins, Robert Moody, Jr., Fred Kassner and H. T.
Ardinger, each a principal stockholder of the Company, $205,000, $550,000,
$200,000 and $750,000 principal amount of Convertible Debt, respectively. All
issuances were on the same terms and conditions as the other investors in the
Convertible Debt Financing. In addition, the Company issued to the Adkins Family
Partnership, Ltd. $100,000 principal amount of Convertible Debt. Mr. Adkins and
Driftwood Corporation, of which Mr. Adkins is President, are the general
partners of the Adkins Family Partnership, Ltd.
In January 1995, Messrs. Bernardi and Sterling each entered into a Memorandum
of Understanding with the Company in which each agreed to sell to the Company at
par 127,940 shares of the Company's Common Stock as a condition imposed by the
Company's prior underwriter for its participation in the initial filing of the
Company's public offering. Messrs. Sterling and Bernardi also agreed to an
increase in the exercise price of options to purchase 100,000 shares of Common
Stock of the Company from $.10 per share to $2.20 per share for similar
consideration. Mr. Bernardi voluntarily terminated his consulting agreement in
March 1995.
In February through April 1995, in connection with the issuance of Secured
Notes, the Company issued to Messrs. Norem, Moody, Adkins, Ardinger, Mrs. Mary
Ardinger, wife of Mr. Ardinger and G.A. Norem I, L.P., each a principal
stockholder of the Company $254,000, $400,000, $291,000, $45,000, $45,000 and
$35,000 principal amount of Secured Notes, respectively. All issuances were on
the same terms and conditions as the other investors in the Secured Notes. As of
December 31, 1995, Messrs. Moody, Adkins, Ardinger and Mrs. Ardinger exchanged
their respective Secured Notes for Common Stock of the Company at $3.00 per
share. As an incentive to exchange the Secured Notes for equity, Messrs. Moody,
Adkins, Ardinger and Mrs. Ardinger were granted 200,000, 145,500, 22,500 and
22,500 warrants, respectively, to purchase Company Common Stock at $1.00 per
share for three (3) years. Mr. Norem received 85,500 Warrants to exchange his
Secured Notes for a Demand Note. Mr. Norem's Warrants are also priced at $1.00
per share for three (3) years.
In June and July 1995, in connection with the Demand Notes, the Company
issued to Messrs. Ardinger, Adkins, Mrs. Ardinger and Mr. Norem, each a
principal stockholder of the Company, $75,000, $100,000, $75,000 and $60,000
principal amount of Demand Notes, respectively. As an incentive to advance the
Demand Notes, Messrs. Ardinger, Adkins, Mrs. Ardinger and Mr. Norem were granted
18,750, 25,000, 18,750 and 15,000 warrants, respectively, to purchase Company
Common Stock at $1.00 per share for three (3) years. As of December 31, 1995,
Messrs. Ardinger, Adkins and Mrs. Ardinger exchanged their respective Demand
Notes for Common Stock of the Company at $3.00 per share. As an incentive to
exchange the Demand Notes for equity, Messrs. Ardinger, Adkins and Mrs. Ardinger
were granted 37,500, 50,000 and 37,500 Warrants, respectively, to purchase
Company Common Stock at $1.00 per share for three (3) years. Mr. Norem received
18,000 Warrants to purchase Company Common Stock as additional compensation for
extending his Demand Note. Mr. Norem's Warrants are also priced at $1.00 per
share for three (3) years.
In August 1995, the Company authorized a private placement for the issuance
and sale of up to 2,666,667 shares of the Common Stock of the Company at $3.00
per share (the "Regulation D Offering"). For its services as placement agent for
the Regulation D Offering, Network 1 Financial Securities, Inc., one of the
Representatives in this offering, received a commission in the amount of eight
percent (8%) of the gross proceeds of the Regulation D Offering. The gross
proceeds of the Regulation D Offering were $5,425,755 and Network 1 earned
$395,000 in commissions on such proceeds.
In January and February 1996, in connection with the Secured Notes II, the
Company issued to Mr. Fred Kassner, a principal stockholder of the Company,
$650,000 principal amount of Secured Notes II. As an incentive to advance the
Secured Notes II, Mr. Kassner was granted warrants to purchase 65,000 shares of
Common Stock at $3.00 per share for three (3) years. As of March 31, 1996, Mr.
Kassner converted his Secured Notes II to Common Stock of the Company at $3.00
per share.
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In January 1996, Messrs. Norem, Colquhoun and Leftwich received options to
purchase 160,000, 50,000 and 30,000 shares of Common Stock, respectively, under
the 1995 Employee Stock Option Plan, exercisable at $3.30, $3.00 and $3.00 per
share, respectively, vesting over a five-year period subject to acceleration.
In July 1996, the Company received gross proceeds of $1,000,000 in connection
with the issuance and sale of $1,000,000 aggregate principal amount of a
convertible note to Mr. Fred Kassner, a principal shareholder of the Company
(the "Convertible Debt II"). Pursuant to the terms of the Convertible Debt II,
Mr. Kassner received a warrant to purchase 100,000 shares of Common Stock of the
Company. The warrant is exercisable at a price of $3.00 per share for three
years from the date of issuance. In addition, should Mr. Kassner elect to
convert, he will receive an additional warrant to purchase 100,000 shares of
Common Stock at $3.00 per share for three years from the date of conversion.
In September and October 1996, the Company received gross proceeds of
$550,000 in connection with the issuance and sale of $550,000 aggregate
principal amount of Bridge Debt to Mr. Robert Rubin, a shareholder of the
Company. Mr. Rubin received a warrant to purchase 55,000 shares of Common Stock
of the Company exercisable at a price of $3.00 per share for three years from
the date of issuance pursuant to the terms of the Bridge Debt.
In October 1996, Glenn A. Norem, Chief Executive Officer of the Company,
agreed to defer the receipt of $164,154 principal amount of Secured and Demand
Notes, accrued interest of $41,154 and accrued salary and bonuses of $127,781
until December 1997. The Company has agreed to pay Mr. Norem interest at a rate
of 15% per annum on the deferred amount. In addition, Mr. Norem will be repaid
$200,000 principal amount of Secured and Demand Notes and $50,000 principal
amount of Convertible Debt plus accrued interest of $7,419 from the proceeds of
this offering.
In November 1996, the Company received gross proceeds of $300,000 in
connection with the issuance and sale of an additional $300,000 aggregate
principal amount of Bridge Debt to Mr. M. Douglas Adkins and Mr. H.T. Ardinger,
each shareholders of the Company. The holders of the Bridge Debt received
warrants to purchase 30,000 shares of Common Stock of the Company exercisable at
a price of $3.00 share for ten years from the date of issuance pursuant to the
terms of the Bridge Debt.
All future transactions between the Company and its officers, directors or 5%
stockholders will be on terms no less favorable than could be obtained from
unaffiliated third parties and will be approved by a majority of the independent
disinterested Directors of the Company.
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DESCRIPTION OF SECURITIES
The Company is authorized to issue 20,000,000 shares of Common Stock, $.0001
par value per share and 5,000,000 shares of preferred stock, par value $.0001
per share. As of the date of this Prospectus, the 5,054,314 shares of Common
Stock outstanding are held by 70 holders of record, and no shares of preferred
stock are outstanding.
COMMON STOCK
The holders of Common Stock are entitled to one vote for each share held of
record on all matters to be voted on by stockholders. There is no cumulative
voting with respect to the election of directors, with the result that the
holders of more than 50% of the shares voting for the election of directors can
elect all of the directors. The current shareholders of the Company (including
officers and directors) will continue to own more than 75.4% (or more if they
purchase any of the shares offered hereby) of the shares of Common Stock after
the offering and, accordingly, may be able to effectively elect all of the
Company's directors and control corporate policy. Holders of shares of Common
Stock are entitled to receive dividends when, as and if declared by the Board of
Directors in its discretion, out of funds legally available therefor. In the
event of liquidation, dissolution or winding up of the Company, the holders of
Common Stock are entitled to share ratably in the assets of the Company, if any,
legally available for distribution to them after payment of debts and
liabilities of the Company and after provision has been made for each class of
stock, if any, having liquidation preference over the Common Stock. Holders of
shares of Common Stock have no conversion, preemptive or other subscription
rights, and there are no redemption or sinking fund provisions applicable to the
Common Stock. All of the outstanding shares of Common Stock are, and the shares
of Common Stock offered will be, when issued upon payment of the consideration
set forth in this Prospectus, fully paid and non-assessable.
PREFERRED STOCK
The Company is authorized to issue preferred stock with such designations,
rights and preferences as may be determined from time to time by the Board of
Directors. Accordingly, the Board of Directors is empowered, without stockholder
approval, to issue preferred stock with dividend, liquidation, conversion,
voting or other rights which could adversely affect the voting power or other
rights of the holders of the Company's Common Stock. In the event of issuance,
the preferred stock could be utilized, under certain circumstances, as a method
of discouraging, delaying or preventing a change in control of the Company. The
Company has no present intention to issue any shares of its preferred stock.
WARRANTS
The following is a brief summary of certain provisions of the Public
Warrants, but such summary does not purport to be complete and is qualified in
all respects by reference to the actual text of the warrant agreement (the
"Warrant Agreement") among the Company, the Representatives, and Continental
Stock Transfer & Trust Co. (the "Warrant Agent"). A copy of the Warrant
Agreement has been filed as an exhibit to the Registration Statement of which
this Prospectus is a part. As of the date hereof, there are no Public Warrants
outstanding. See "Additional Information."
Exercise Price and Terms. Each Public Warrant entitles the registered holder
thereof to purchase, at any time over a fifty-four month period commencing six
(6) months after the date of this Prospectus, one share of Common Stock at a
price of 120% of the initial public offering price per share, subject to
adjustment in accordance with the anti-dilution and other provisions referred to
below. The holder of any Public Warrant may exercise such Public Warrant by
surrendering the certificate representing the Public Warant to the Warrant
Agent, with the subscription form thereon properly completed and executed,
together with payment of the exercise price. The Public Warrants may be
exercised at any time in whole or in part at the applicable exercise price until
expiration of the Public Warrants. No fractional shares will be issued upon the
exercise of the Public Warrants.
The exercise price of the Public Warrants bears no relationship to any
objective criteria of value and should in no event be regarded as an indication
of any future market price of the securities offered hereby.
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Adjustments. The holders of the Public Warrants are protected against
dilution of their interests by adjustments, as set forth in the Warrant
Agreement, of the exercise price and the number of shares of Common Stock
purchasable upon the exercise of the Public Warrants upon the occurrence of
certain events, including stock dividends, stock splits, combinations or
reclassification of the Common Stock, or sale by the Company of shares of its
Common Stock or other securities convertible into Common Stock at a price below
the then-applicable exercise price of the Public Warrants. Additionally, an
adjustment would be made in the case of a reclassification or exchange of Common
Stock, consolidation or merger of the Company with or into another corporation
(other than a consolidation or merger in which the Company is the surviving
corporation) or sale of all or substantially all of the assets of the Company in
order to enable warrantholders to acquire the kind and number of shares of stock
or other securities or property receivable in such event by holder of the number
of shares of Common Stock that might otherwise have been purchased upon the
exercise of the Public Warrant.
Redemption Provisions. Commencing eighteen (18) months after the date of this
Prospectus, all, but not less than all, of the Public Warrants are subject to
redemption at $0.10 per Public Warrant on not less than thirty (30) days' prior
written notice to the holders of the Public Warrants provided the per share
closing price or bid quotation of the Common Stock as reported on Nasdaq equals
or exceeds $ [250% of the initial public offering price per Share] for any
twenty (20) trading days within a period of thirty (30) consecutive trading days
ending on the fifth trading day prior to the date on which the Company gives
notice of redemption. The Public Warrants will be exercisable until the close of
business on the day immediately preceding the date fixed for redemption in such
notice. If any Public Warrant called for redemption is not exercised by such
time, it will cease to be exercisable and the holder will be entitled only to
the redemption price.
Transfer, Exchange and Exercise. The Public Warrants are in registered form
and may be presented to the Warrant Agent for transfer, exchange or exercise at
any time on or prior to their expiration date five (5) years from the date of
this Prospectus, at which time the Public Warrants become wholly void and of no
value. If a market for the Public Warrants develops, the holder may sell the
Public Warrants instead of exercising them. There can be no assurance, however,
that a market for the Public Warrants will develop or continue.
The Public Warrants are not exercisable unless, at the time of the exercise,
the Company has a current prospectus covering the shares of Common Stock
issuable upon exercise of the Public Warrants, and such shares have been
registered, qualified or deemed to be exempt under the securities laws of the
state of residence of the exercising holder of the Public Warrants. Although the
Company will use its best efforts to have all the shares of Common Stock
issuable upon exercise of the Public Warrants registered or qualified on or
before the exercise date and to maintain a current prospectus relating thereto
until the expiration of the Public Warrants, there can be assurance that it will
be able to do so.
The Public Warrants are separately transferable immediately upon issuance.
Although the Public Warrants will not knowingly be sold to purchasers in
jurisdictions in which the Public Warrants are not registered or otherwise
qualified for sale or exemption, purchasers may buy Public Warrants in the
after-market in, or may move to, jurisdictions in which Public Warrants and the
Common Stock underlying the Public Warrants are not so registered or qualified
or exempt. In this event, the Company would be unable lawfully to issue Common
Stock to those persons desiring to exercise their Public Warrants (and the
Public Warrants would not be exercisable by those persons) unless and until the
Public Warrants and the underlying Common Stock are registered, or qualified for
sale in jurisdictions in which such purchasers reside, or any exemption from
registration or qualification exists in such jurisdiction.
Warrantholder Not a Stockholder. The Public Warrants do not confer upon
holders any voting, dividend or other rights as stockholders of the Company.
Modification of Public Warrants. The Company and the Warrant Agent may make
such modifications to the Public Warrants as they deem necessary and desirable
that do not adversely affect the interests of the warrantholders. The Company
may, in its sole discretion, lower the exercise price of the Public Warrants for
a period of not less than thirty (30) days on not less than thirty (30) days'
prior written notice to the warrantholders and the Representative. Modification
of the number of securites
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purchasable upon the exercise of any Public Warrant, the exercise price and the
expiration date with respect to any Public Warrant requires the consent of
two-thirds of the warrantholders. No other modifications may be made to the
Public Warrants, without the consent of two-thirds of the warrantholders.
DELAWARE LAW WITH RESPECT TO BUSINESS COMBINATIONS
As of the date of this Prospectus, the Company will be subject to the State
of Delaware's "business combination" statute, Section 203 of the Delaware
General Corporation Law. In general, such statute prohibits a publicly held
Delaware corporation from engaging in a "business combination" with a person who
is an "interested stockholder" for a period of three years after the date of the
transaction in which that person became an interested stockholder, unless the
business combination is approved in a prescribed manner. A "business
combination" includes a merger, asset sale or other transaction resulting in a
financial benefit to the interested stockholder. An "interested stockholder" is
a person who, together with affiliates, owns (or, within three years prior to
the proposed business combination, did own) 15% or more of the Delaware
corporation's voting stock. The statute could prohibit or delay mergers or other
takeover or change in control attempts with respect to the Company and,
accordingly, may discourage attempts to acquire the Company.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock is Continental Stock
Transfer and Trust Company, 2 Broadway, New York, New York 10004.
REPORTS TO STOCKHOLDERS
The Company intends to furnish its stockholders with annual reports
containing audited financial statements and such other periodic reports as the
Company may determine to be appropriate or as may be required by law.
As of the date of this Prospectus, the Company has registered its Common
Stock and Warrants under the provisions of Section 12(g) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and the Company has
agreed that it will use its best efforts to continue to maintain such
registration for a minimum of five years from the date of this Prospectus. Such
registration will require the Company to comply with periodic reporting, proxy
solicitation and certain other requirements of the Exchange Act.
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SHARES ELIGIBLE FOR FUTURE SALE
Upon the consummation of this offering, the Company will have 7,331,558
shares of Common Stock outstanding (7,601,558 shares if the Representatives'
over-allotment option is exercised in full)(assuming no exercise of outstanding
options and warrants). Of these shares, the 1,800,000 shares sold in this
offering (2,070,000 shares if the Representatives' over-allotment option is
exercised in full) and the 477,244 shares of Common Stock registered
concurrently with this Prospectus (the "Selling Securityholders Shares") being
offered pursuant to the Selling Securityholder Prospectus included in the
Registration Statement of which this Prospectus forms a part will be freely
tradeable subject to "lock-up" agreements described below under the Securities
Act, except for any shares purchased by an "affiliate" of the Company (in
general, a person who has a control relationship with the Company), which shares
will be subject to the resale limitations of Rule 144 adopted under the
Securities Act. The remaining 5,054,314 shares are deemed to be "restricted
securities," as that term is defined under Rule 144 promulgated under the
Securities Act, in that such shares were issued and sold by the Company in
private transactions not involving a public offering and are not currently part
of an effective registration. Except for the "lock-up" agreement described
below, such shares are eligible for sale under Rule 144, or will become so
eligible at various times through October 1996. In addition, the Company has
granted the Representatives demand and piggyback registration rights with
respect to the securities issuable upon exercise of the Representatives'
Warrants. No prediction can be made as to the effect, if any, that sales of
shares of Common Stock or even the availability of such shares for sale will
have on the market prices prevailing from time to time. If the holders of the
shares eligible for registration so choose they could require the Company to
register all of said shares at any time.
In general, under Rule 144 as currently in effect, subject to the
satisfaction of certain other conditions, a person, including an affiliate of
the Company (or other persons whose shares are aggregated), who has owned
restricted shares of Common Stock beneficially for at least two years is
entitled to sell, within any three-month period, a number of shares that does
not exceed the greater of 1% of the total number of outstanding shares of the
same class or, if the Common Stock is quoted on NASDAQ, the average weekly
trading volume during the four calendar weeks preceding the sale. A person who
has not been an affiliate of the Company for at least the three months
immediately preceding the sale and who has beneficially owned shares of Common
Stock for at least three years is entitled to sell such shares under Rule 144
without regard to any of the limitations described above.
Except upon the consent of both Representatives during the first twelve (12)
months of the term of the lock-up period and thereafter upon the consent of one
of the Representatives, all executive officers, all directors and holders of
substantially all of the outstanding stock of the Company and substantally all
holders of any options, warrants or other securities convertible, exercisable or
exchangeable for shares of Common Stock have agreed not to, directly or
indirectly, issue, offer, agree or offer to sell, sell, transfer, assign,
encumber, grant an option for the purchase or sale of, pledge, hypothecate or
otherwise dispose of any beneficial interest in such securities for a period of
twenty-four (24) months following the effective date of the Registration
Statement. The Underwriters have agreed to release twenty-five percent (25%) of
the securities held by Mr. Robert Bernardi on the three hundred sixty-sixth
(366th) day after the effective date of the Registration Statement and an
additional twenty five percent (25%) every ninety (90) days thereafter until no
securities held by Mr. Bernardi are subject to the lock-up agreement. Holders of
_____________of the "restricted securities" have not agreed not to sell such
shares, all of which will be eligible for sale under, and subject to, Rule 144
within three months following the date of this Prospectus. For a period of two
years from the date of this Prospectus, the Company has also agreed not to file
any registration statement relating to the offering or sale of the Company's
securities (not including any registration statement on Form S-8) without the
consent of the Representatives.
Prior to this offering, there has been no market for the Common Stock and no
prediction can be made as to the effect, if any, that market sales of shares of
Common Stock or the availability of such shares for sale will have on the market
prices prevailing from time to time. Nevertheless, the possibility that
substantial amounts of Common Stock may be sold in the public market may
adversely affect prevailing market prices for the Common Stock and could impair
the Company's ability to raise capital through the sale of its equity
securities.
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UNDERWRITING
The Underwriters named below (the "Underwriters"), for whom National
Securities Corporation and Network 1 Financial Securities, Inc. are acting as
representatives (in such capacity, the "Representatives"), have severally
agreed, subject to the terms and conditions of the Underwriting Agreement (the
"Underwriting Agreement") to purchase from the Company and the Company has
agreed to sell to the Underwriters on a firm commitment basis, the respective
number of Securities set forth opposite their names:
NUMBER OF
UNDERWRITER SECURITIES
------------------------------------------ ---------
National Securities Corporation...........
Network 1 Financial Securities,Inc .......
---------
Total ................................. 1,800,000
=========
The Underwriters are committed to purchase all the shares of Common Stock and
Public Warrants offered hereby, if any of such securities are purchased. The
Underwriting Agreement provides that the obligations of the several Underwriters
are subject to conditions precedent specified therein.
The Company has been advised by the Representatives that the Underwriters
propose initially to offer the Securities to the public at the initial public
offering prices set forth on the cover page of this Prospectus and to certain
dealers at such prices less concessions not in excess of $____ per share and
$____ per Public Warrant. Such dealers may reallow a concession not in excess of
$____ per share and $____ per Public Warrant to certain other dealers. After the
commencement of the offering, the public offering prices, concession and
reallowance may be changed by the Representatives.
The Representatives have informed the Company that they do not expect sales
to discretionary accounts by the Underwriters to exceed five percent of the
securities offered hereby.
The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act, or to contribute to
payments that the Underwriters may be required to make. The Company has also
agreed to pay to the Representatives a non-accountable expense allowance equal
to 3% of the gross proceeds derived from the sale of the Securities
underwritten, of which $25,000 has been paid to date.
The Company has granted to the Underwriters an over-allotment option,
exercisable during the forty-five (45) day period from the date of this
Prospectus, to purchase up to an additional 270,000 shares of Common Stock
and/or 270,000 Public Warrants at the initial public offering price per share
and Public Warrant, respectively, offered hereby, less underwriting discounts
and the non-accountable expense allowance. Such option may be exercised only for
the purpose of covering over-allotments, if any, incurred in the sale of the
securities offered hereby. To the extent such option is exercised in whole or in
part, each Underwriter will have a firm commitment, subject to certain
conditions, to purchase the number of the additional securities proportionate to
its initial commitment.
In connection with this offering, the Company has agreed to sell to the
Representatives, for nominal consideration, warrants to purchase from the
Company up to 180,000 shares of Common Stock and/or 180,000 Public Warrants (the
"Representatives' Warrants"). The Representatives' Warrants are initially
exercisable at a price of $___ per share of Common Stock [120% of the initial
public offering price per Share] and $_______ per Public Warrant [120% of the
initial public offering price per Public Warrant] for a period of four (4)
years, commencing at the beginning of the second year after their issuance and
sale. The Representatives' Warrants are restricted from sale, transfer,
assignment or hypothecation for a period of twelve (12) months from the date
hereof, except to officers of the Representatives. The Representatives' Warrants
provide for adjustment in the number of shares of Common Stock and Public
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Warrants issuable upon the exercise thereof and in the exercise price of the
Representatives' Warrants as a result of certain events, including subdivisions
and combinations of the Common Stock. The Representatives' Warrants grant to the
holders thereof certain rights of registration for the securities issuable upon
exercise thereof.
Except upon the consent of both Representatives during the first twelve (12)
months of the term of the lock-up period and thereafter upon the consent of one
of the Representatives, all executive officers, all directors and holders of
substantially all of the outstanding stock of the Company and substantially all
holders of any options, warrants or other securities convertible, exercisable or
exchangeable for shares of Common Stock have agreed not to, directly or
indirectly, issue, offer, agree or offer to sell, sell, transfer, assign,
encumber, grant an option for the purchase or sale of, pledge, hypothecate or
otherwise dispose of any beneficial interest in such securities for a period of
twenty-four (24) months following the effective date of the Registration
Statement. An appropriate legend shall be marked on the face of certificates
representing all such securities. In addition, without the consent of both
Representatives and except pursuant to the exercise of the Public Warrants and
the Representatives' Warrants, the Company has agreed that it, its subsidiaries
and affiliates shall not sell or offer for sale any of their securities
commencing the effective date of the Registration Statement of which this
Prospectus is a part for a period of twelve (12) months thereafter, except
pursuant to (i) options outstanding or available for grant under the Company's
option plans existing on the date hereof (and subject to their issuance at the
greater of fair market value and the initial public offering price per share of
Common Stock on the date of grant) and (ii) the ESPP. The Company has further
agreed for a period of twenty-four (24) months following the effective date of
the Registration Statement of which this Prospectus is a part, not to file a
registration statement covering any of its securities without the prior written
consent of National Securities Corporation, except (i) a registration statement
covering a maximum of 477,244 shares and warrants to purchase an additional
477,244 shares and (ii) a registration statement on Form S-8 relating to the
Company's stock option plans described in the Registration Statement; provided
in each of the foregoing cases, all such securityholders deliver a lock-up
agreement to National as described above.
The Company has agreed that National Securities Corporation may nominate for
election one person to the Company's Board of Directors (which person shall be
reasonably acceptable to the Company) for a period of three (3) years from the
effective date of the Registration Statement and that certain of the Company's
officers, directors and stockholders have agreed to vote their shares of common
stock in favor of such designee. In the event National Securities Corporation
elects not to exercise the right, then National Securities Corporation may
designate one person to attend meetings of the Company's Board of Directors as a
non-voting advisor (which person shall be reasonably acceptable to the Company).
Such designee shall be entitled to attend all such meetings of the Company's
Board of Directors and to receive all notices and other correspondence and
communications sent by the Company to members of its Board of Directors. The
Company has agreed to reimburse designees of National Securities Corporation for
their out-of-pocket expenses incurred in connection with their attendance of
meetings of the Company's Board of Directors.
Prior to this offering, there has been no public market for the Common Stock
or the Public Warrants. Consequently, the initial public offering prices of the
securities has been determined by negotiation between the Company and the
Representatives and does not necessarily bear any relationship to the Company's
asset value, net worth or other established criteria of value. The factors
considered in such negotiations, in addition to prevailing market conditions,
included the history of and prospects for the industry in which the Company
competes, an assessment of the Company's management, the prospects of the
Company, its capital structure, the market for initial public offerings and
certain other factors as were deemed relevant.
Upon the exercise of any Public Warrants more than one year after the date of
this Prospectus, which exercise was solicited by a Representative, and to the
extent not inconsistent with the guidelines of the NASD and the Rules and
Regulations of the Commission, the Company has agreed to pay such Representative
a commission which shall not exceed five percent (5%) of the aggregate exercise
price of such Public Warrants in connection with bona fide services provided by
such Representative relating to any warrant solicitation undertaken by such
Representative. In addition, the individual must designate
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the firm entitled to payment of such warrant solicitation fee. However, no
compensation will be paid to the Representative in connection with the exercise
of the Public Warrants if (a) the market price of the Common Stock is lower than
the exercise price, (b) the Public Warrants were held in a discretionary
account, or (c) the exercise of the Public Warrants is not solicited by the
Representative. Unless granted an exemption by the Commission from its Rule
10b-6 under the Exchange Act, the Representatives will be prohibited from
engaging in any market-making activities with regard to the Company's securities
for the period from nine (9) business days (or other such applicable periods as
Rule 10b-6 may provide) prior to any solicitation of the exercise of the Public
Warrants until the later of the termination of such solicitation activity or the
termination (by waiver or otherwise) of any right the Representatives may have
to receive a fee. As a result, the Representatives may be unable to continue to
provide a market for the Common Stock or Public Warrants during certain periods
while the Public Warrants are exercisable. If a Representative has engaged in
any of the activities prohibited by Rule 10b-6 during the periods described
above, such Representative undertakes to waive unconditionally its rights to
receive a commission on the exercise of such Public Warrants.
The foregoing is a summary of the principal terms of the agreements described
above and does not purport to be complete. Reference is made to a copy of each
such agreement which are filed as exhibits to the Registration Statement. See
"Additional Information."
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CONCURRENT REGISTRATION OF SECURITIES
Concurrently with this offering, 477,244 shares of Common Stock (the "Selling
Securityholders' Shares") 477,244 Public Warrants (the "Selling Securityholders'
Warrants") and 477,244 shares underlying the Selling Securityholders' Warrants
have been registered by the Company under the Securities Act on behalf of
certain of its securityholders (the "Selling Securityholders"), pursuant to a
Selling Securityholders' Prospectus included within the Registration Statement
of which this Prospectus forms a part. The Selling Securityholders' Shares, the
Selling Securityholders Warrants, and the shares underlying the Selling
Securityholders Warrants are not part of this underwritten offering and all of
these shares and warrants may not be sold prior to 24 months from the date of
this Prospectus, in each case, without the prior written consent of the
Representatives. The Company will not receive any of the proceeds from the sale
of the Selling Securityholders' Shares, the Selling Securityholders' Warrants,
or the shares underlying the Selling Securityholders' Warrants, but will receive
proceeds from the exercise of the Selling Securityholders' Warrants.
INTEREST OF NAMED EXPERTS AND COUNSEL
John S. Stoppelman, a principal of The Stoppelman Law Firm, P.C., counsel to
the Company owns 42,666 shares of Common Stock of the Company, or less than one
percent (1.0%) of the shares outstanding before this offering.
LEGAL MATTERS
The legality of the securities offered hereby will be passed upon for the
Company by The Stoppelman Law Firm, P.C., McLean, Virginia. Orrick, Herrington &
Sutcliffe L.L.P., New York, NY has acted as special counsel to National in
connection with this offering. Gersten, Savage, Kaplowitz, & Curtin, L.L.P., New
York, NY has acted as counsel for the several underwriters in connection with
this offering.
EXPERTS
The consolidated financial statements of the Company and its subsidiaries
(companies in the development stage) at December 31, 1995 and for the year ended
December 31, 1995, appearing in this Prospectus and Registration Statement have
been audited by Ernst & Young LLP, independent auditors, as set forth in their
report thereon appearing elsewhere herein, and are included in reliance upon
such report given upon the authority of such firm as experts in accounting and
auditing.
The consolidated financial statements of the Company and its subsidiaries
(companies in the development stage) at December 31, 1994 and for the year ended
December 31, 1994, appearing in this Prospectus and Registration Statement have
been audited by Hoffman, Morrison & Fitzgerald, P.C. ("Hoffman"), independent
auditors, as set forth in their report thereon appearing elsewhere herein, and
are included in reliance upon such report given upon the authority of such firm
as experts in accounting and auditing.
The former independent auditor for the Company, Hoffman, Morrison &
Fitzgerald, P.C., was dismissed by the Company on November 3, 1995. Hoffman's
report on the financial statements for the fiscal year ended December 31, 1994
did not contain an adverse opinion or disclaimer of opinion, and, except for an
emphasis paragraph describing substantial doubt about the Company's ability to
continue as a going concern, was not modified as to uncertainty, audit scope or
accounting principles. Management is not aware of any disagreements with Hoffman
on any matter of accounting principles or practices, financial statement
disclosure or auditing scope or procedure through the date of dismissal, which,
if not resolved to Hoffman's satisfaction, would have caused Hoffman to make
reference to the subject matter of the disagreement in connection with its
report.
56
<PAGE>
ADDITIONAL INFORMATION
The Company has filed with the Commission a registration statement on Form
SB-2 (the "Registration Statement") under the Securities Act with respect to the
Common Stock and Public Warrants offered by this Prospectus. This Prospectus
does not contain all of the information set forth in the Registration Statement,
certain parts of which are omitted in accordance with the rules and regulations
of the Commission. For further information with respect to the Company and this
offering, reference is made to the Registration Statement, including the
exhibits filed therewith, which may be inspected without charge at the
Commission's principal office at 450 Fifth Street, N.W., Washington, D.C. 20549;
at the New York Regional Office, 7 World Trade Center, New York, New York 10048
and at the Midwest Regional Office, Citicorp Center, 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661. Copies of the Registration Statement may be
obtained from the Commission at its principal office and regional office upon
payment of prescribed fees and over the Internet at www.sec.gov. Statements
contained in this Prospectus as to the contents of any contract or other
document are not necessarily complete and, where the contract or other document
has been filed as an exhibit to the Registration Statement, each statement is
qualified in all respects by reference to the applicable document filed with the
Commission.
57
<PAGE>
GLOSSARY
Algorithm: A step-by-step problem solving or mathematical
procedure.
Asynchronous: That which takes place in different time frames and
is accessed at the user's convenience.
Bandwidth: The amount of information that can be transmitted
across an information channel.
Frame Relay: Packet data protocol with less error correction to
speed up communication over high quality
connections.
Intranet: A private Internet.
Internet: A network of computer networks using TCP/IP
protocol.
ISDN: (Integrated Services Digital Network) -- digital
network that provides seamless communication of
voice, video and text.
Kilobits: A thousand bits; a measure of the rate of data
transmission.
LAN: (Local Area Network) -- a private computer network
connecting computers in the same building or campus
using coaxial cable, twisted pair or multimode
fiber.
MBONE: A portion of the Internet with multimedia broadcast
capability.
Multimedia: A combination of multiple digitized data types:
text, sound, computer-generated graphics and
animations, photographs and video.
NTSC: The standard for scanning television signals in the
US, Canada and Japan.
Packet: A grouping of data, typically from one to 512
characters in size, which usually represents one
transaction.
PCI-Bus: A fast 32 bit peripheral interface for PC's and
workstations.
Protocol: A set of rules for data communications; a set of
rules and procedures for establishing and
controlling the exchange of data between computers.
S-Bus: A proprietary high speed peripheral interface for
Sun workstations.
Standards-based A product which is designed to comply with
standards promulgated by a recognized industry
organization.
Switched Architecture: Any network or device in which switching is present
and is used to direct messages from the sender to
the ultimate recipient.
TCP/IP: (Transmission Control Protocol/Internet Protocol)
-- the protocol used for packet oriented
communication between networked computers.
UTP: (Unshielded Twisted Pair) -- standard building
wiring currently used to transmit voice (telephone)
and data throughout an office or building.
WAN: (Wide Area Network) -- a voice, data and/or video
network covering a geographic area larger than a
campus, generally linking multiple smaller
networks.
Whiteboard: A shared drawing or graphics session or capability
between two remote computers.
World Wide Web: A very large collection of linked Internet servers
using a standard linking and display language.
i
<PAGE>
MULTIMEDIA ACCESS CORPORATION AND SUBSIDIARIES
(A Development Stage Company)
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
<S> <C>
Reports of Independent Auditors ............................................................. F-2
Consolidated Balance Sheets at December 31, 1994 and 1995 and September 30, 1996
(Unaudited).................................................................................. F-4
Consolidated Statements of Operations for the years ended December 31, 1994 and 1995, the
nine months ended September 30, 1995 and 1996 (Unaudited) and Cumulative from Inception
(November 19, 1992) to September 30, 1996 (Unaudited)........................................ F-5
Consolidated Statements of Stockholders' Equity (Deficit) from Inception (November 19, 1992)
to December 31, 1995 and the nine months ended September 30, 1996 (Unaudited) ............... F-6
Consolidated Statements of Cash Flows for the years ended December 31, 1994 and 1995, the
nine months ended September 30, 1995 and 1996 (Unaudited) and Cumulative from Inception
(November 19, 1992) to September 30, 1996 (Unaudited)........................................ F-8
Notes to Consolidated Financial Statements................................................... F-9
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors
MultiMedia Access Corporation
We have audited the accompanying consolidated balance sheet of MultiMedia Access
Corporation and subsidiaries (a development stage company) as of December 31,
1995, and the related consolidated statements of operations, stockholders'
equity (deficit) and cash flows for the year then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
MultiMedia Access Corporation and subsidiaries at December 31, 1995, and the
consolidated results of its operations and its cash flows for the year then
ended in conformity with generally accepted accounting principles.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern which contemplates the
realization of assets and liquidation of liabilities in the normal course of
business. As more fully described in Note 1, the Company is dependent upon the
proceeds from an initial public offering of its common stock or other
alternative financing, has incurred recurring losses from operations and has a
substantial working capital deficiency. These conditions raise substantial doubt
about the Company's ability to continue as a going concern. The consolidated
financial statements do not include any adjustments to reflect the possible
future effects on the recoverability and classification of assets or the amounts
and classification of liabilities that may result from the outcome of this
uncertainty.
Dallas, Texas ERNST & YOUNG LLP
April 5, 1996
F-2
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
MultiMedia Access Corporation and Subsidiaries
Dallas, TX
We have audited the accompanying consolidated balance sheets of MultiMedia
Access Corporation and Subsidiaries (a development stage company) as of December
31, 1994, and the related consolidated statements of operations, stockholders'
equity (deficit) and cash flows for the year then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated statements based
on our audits.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the consolidated financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the consolidated financial statements.
An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of MultiMedia Access
Corporation and Subsidiaries as of December 31, 1994, and the results of its
operations and its cash flows for the year then ended, in conformity with
generally accepted accounting principles.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern which contemplates the
realization of assets and liquidation of liabilities in the normal course of
business. As more fully described in Note 1, the Company is dependent upon the
proceeds from an initial public offering of its common stock or other
alternative financing, has incurred recurring losses from operations and has a
substantial working capital deficiency. These conditions raise substantial doubt
about the Company's ability to continue as a going concern. The consolidated
financial statements do not include any adjustments to reflect the possible
future effects on the recoverability and classification of assets or the amounts
and classification of liabilities that may result from the outcome of this
uncertainty.
HOFFMAN, DYKES & FITZGERALD, P.C.
March 17, 1995, except for Note 12,
which is as of May 8, 1995
Vienna, Virginia
F-3
<PAGE>
MULTIMEDIA ACCESS CORPORATION AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
--------------------------- 1996
1994 1995
------------- ------------- ------------
ASSETS (UNAUDITED)
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents........................................ $ 31,360 $ 16,605 $ 21,523
Accounts receivable, less allowance for doubtful accounts (none
at December 31, 1994, $29,647 and $44,196 at December 31, 1995
and September 30, 1996 (unaudited), respectively)............... 36,581 4,564 128,755
Inventory, less reserve (none at December 31, 1994, $220,000 at
December 31, 1995 and $215,000 at September 30, 1996
(unaudited).................................................... 365,103 197,469 377,313
Prepaid expenses................................................. 36,331 18,971 70,267
Due from debt holder............................................. -- 315,300 --
Deferred charges................................................. 307,115 44,165 324,593
------------- ------------- --------------
Total current assets........................................... 776,490 597,074 922,451
Property and equipment, net....................................... 534,031 485,700 481,851
Software development costs, net................................... 210,256 143,795 116,689
Deferred charges, net............................................. 151,772 -- 20,833
Deposits.......................................................... 17,829 18,197 18,272
Patent, net....................................................... 90,677 -- --
------------- ------------- --------------
Total assets................................................... $ 1,781,055 $ 1,244,766 $ 1,560,096
============= ============= ==============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable................................................. $ 432,623 $ 580,160 $ 523,347
Accrued compensation............................................. 253,755 354,268 230,048
Deferred revenue................................................. 17,471 75,513 27,091
Other accrued liabilities........................................ 273,513 370,398 777,299
Short-term debt, officer......................................... -- 364,154 364,154
Short-term debt, other........................................... 8,271 66,633 1,003,554
Current portion of long-term debt................................ -- 2,677,550 2,677,550
------------- ------------- --------------
Total current liabilities...................................... 985,633 4,488,676 5,603,043
Long-term debt.................................................... 2,195,174 8,654 500,000
Commitments and contingencies
Stockholders' equity (deficit):
Preferred stock, $.0001 par value:
Authorized shares - 5,000,000
Issued shares - none............................................ -- -- --
Common stock, $.0001 par value:
Authorized shares - 20,000,000
Issued and outstanding shares - 3,507,231 at December 31, 1994,
4,721,268 at December 31, 1995 and 5,315,811 at September 30,
1996 (unaudited)................................................ 350 472 532
Additional paid-in capital....................................... 1,163,274 4,736,933 6,527,572
Stock subscription receivable.................................... (191) -- --
Deficit accumulated during the development stage................. (2,563,185) (7,978,063) (11,059,145)
Treasury stock, 261,497 shares at December 31, 1995 and September
30, 1996 (unaudited)............................................ -- (11,906) (11,906)
------------- ------------- --------------
Total stockholders' equity (deficit)........................... (1,399,752) (3,252,564) (4,542,947)
------------- ------------- --------------
Total liabilities and stockholders' equity (deficit)........... $ 1,781,055 $ 1,244,766 $ 1,560,096
============= ============= ==============
</TABLE>
See accompanying notes.
F-4
<PAGE>
MULTIMEDIA ACCESS CORPORATION AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
CUMULATIVE
FOR THE NINE MONTHS FROM
YEAR ENDED DECEMBER 31, ENDED SEPTEMBER 30, INCEPTION
----------------------------- ----------------------------- (NOVEMBER 19, 1992)
1994 1995 1995 1996 TO SEPTEMBER 30, 1996
-------------- -------------- -------------- -------------- ---------------------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net sales.......................... $ 127,531 $ 285,354 $ 244,223 $ 900,446 $ 1,377,407
Cost of goods sold................. 64,363 136,381 112,452 315,437 547,994
-------------- -------------- -------------- -------------- --------------------
Gross profit....................... 63,168 148,973 131,771 585,009 829,413
Operating expenses:
Selling, general and
administrative................... 1,795,485 2,297,497 1,737,201 1,712,494 6,320,012
Research and development.......... 864,847 1,983,310 1,149,333 1,457,001 4,427,001
Depreciation and amortization..... 80,360 439,752 185,789 153,035 704,172
-------------- -------------- -------------- -------------- --------------------
Total operating expenses......... 2,740,692 4,720,559 3,072,323 3,322,530 11,451,185
-------------- -------------- -------------- -------------- --------------------
Operating loss..................... (2,677,524) (4,571,586) (2,940,552) (2,727,521) (10,621,772)
Other income (expense):
Dividend and interest income...... 29,215 5,372 1,842 69 34,656
Interest expense.................. (81,503) (847,905) (570,470) (343,630) (1,286,027)
Other............................. 12,391 (759) (330) -- 11,632
-------------- -------------- -------------- -------------- --------------------
Total other income (expense)..... (39,897) (843,292) (568,958) (343,561) (1,239,739)
-------------- -------------- -------------- -------------- --------------------
Net loss........................... $(2,717,421) $(5,414,878) $(3,509,510) $(3,081,082) $(11,861,511)
============== ============== ============== ============== ====================
Net loss per share................. $ (0.53) $ (0.98) $ (0.64) $ (0.49)
============== ============== ============== ==============
Weighted average number of common
and common equivalent shares
outstanding....................... 5,157,932 5,542,184 5,480,438 6,283,167
============== ============== ============== ==============
</TABLE>
See accompanying notes.
F-5
<PAGE>
MULTIMEDIA ACCESS CORPORATION AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
FROM INCEPTION (NOVEMBER 19, 1992) TO DECEMBER 31, 1995
AND THE NINE MONTHS ENDED SEPTEMBER 30, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
ACCUMULATED ACCUMULATED
COMMON STOCK ADDITIONAL STOCK DEFICIT DEFICIT TOTAL
------------------- PAID-IN SUBSCRIPTIONS AS AN S AS A C TREASURY STOCKHOLDERS'
SHARES PAR VALUE CAPITAL RECEIVABLE CORPORATION CORPORATION STOCK (DEFICIT)
------ --------- ------- ---------- ----------- ----------- ----- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net loss from inception
(November 19, 1992) to
December 31, 1992........ -- $ -- $ -- $ -- $ (53,925) $ -- $ -- $ (53,925)
----------- ----------- ------------ --------------- ------------- ------------- ----------
----------------
Balance, December 31,
1992 -- -- -- -- (53,925) -- -- (53,925)
Exercise of options...... 194,180 19 361 (342) -- -- -- 38
Exercise of warrants .... 511,000 51 949 (900) -- -- -- 100
Net loss................. -- -- -- -- (594,205) -- -- (594,205)
----------- ----------- ------------ --------------- ------------- ------------- ---------- ------------
Balance, December 31,
1993 705,180 70 1,310 (1,242) 648,130) -- -- (647,992)
Sale of common stock,
February 1994............ 1,510,000 151 -- -- -- -- -- 151
Sale of common stock,
March 1994............... 996,364 100 1,917,141 -- -- -- -- 1,917,241
Exercise of options...... 25,126 2 535 -- -- -- -- 537
Net loss as an S
Corporation January 1,
1994 to May 10, 1994 .... -- -- -- -- (154,236) -- -- (154,236)
Reclassification of S
Corporation losses upon
merger with Viewpoint ... -- -- (802,366) -- 802,366 -- -- --
Common stock issued,
June 1994................ 10,000 1 21,999 -- -- -- -- 22,000
Exercise of warrants .... 107,261 11 21,670 (844) -- -- -- 20,837
Exercise of options...... 153,300 15 2,985 -- -- -- -- 3,000
Payment of stock
subscriptions............ -- -- -- 1,895 -- -- -- 1,895
Net loss................. -- -- -- -- -- (2,563,185) -- (2,563,185)
----------- ----------- ------------ --------------- ------------- ------------- ---------- ------------
Balance, December 31,
1994 3,507,231 350 1,163,274 (191) -- (2,563,185) -- (1,399,752)
</TABLE>
F-6
<PAGE>
MULTIMEDIA ACCESS CORPORATION AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT) (CONTINUED)
FROM INCEPTION (NOVEMBER 19, 1992) TO DECEMBER 31, 1995
AND THE NINE MONTHS ENDED SEPTEMBER 30, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
ACCUMULATED ACCUMULATED
COMMON STOCK ADDITIONAL STOCK DEFICIT DEFICIT TOTAL
------------------- PAID-IN SUBSCRIPTIONS AS AN S AS A C TREASURY STOCKHOLDERS'
SHARES PAR VALUE CAPITAL RECEIVABLE CORPORATION CORPORATION STOCK (DEFICIT)
------ --------- ------- ---------- ----------- ----------- ----- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31,
1994 3,507,231 $ 350 $1,163,274 $ (191) $-- $ (2,563,185) $ -- $ (1,399,752)
Payment of stock
subscriptions ..... -- -- -- 191 -- -- -- 191
Repurchase of 255,880
shares of common stock
at par ............ -- -- -- -- -- -- (26) (26)
Sale of common stock,
net of expenses,
September 1995 .... 833,333 83 2,166,811 -- -- -- -- 2,166,894
Satisfaction of trade
receivable for 5,617
shares of common stock . -- -- -- -- -- -- (11,880) (11,880)
Exchange of short-term
debt for common stock,
December 1995 ..... 380,704 39 1,406,848 -- -- -- -- 1,406,887
Net loss ........... -- -- -- -- -- (5,414,878) -- (5,414,878)
---------- ------------ --------- ------ --- ------------ ---------- ------------
Balance, December 31,
1995 4,721,268 472 4,736,933 -- -- (7,978,063) (11,906) (3,252,564)
Exchange of short-term
debt for common stock,
net of expenses
(unaudited) ....... 221,195 22 571,167 -- -- -- -- 571,189
Sales of common stock,
net of expenses
(unaudited) ....... 304,016 31 896,481 -- -- -- -- 896,512
Exchange of trade
payables for common
stock (unaudited) . 69,332 7 207,991 -- -- -- -- 207,998
Issuance of warrants
(unaudited) ....... -- -- 115,000 -- -- -- -- 115,000
Net loss (unaudited) -- -- -- -- -- (3,081,082) -- (3,081,082)
---------- ------------ ---------- ------ --- ------------ --------- -------------
Balance, September 30,
1996 (unaudited) .. 5,315,811 $ 532 $6,527,572 $ -- $-- $(11,059,145) $(11,906) $ (4,542,947)
========== ============ ========== ====== === ============= ========== =============
</TABLE>
See accompanying notes.
F-7
<PAGE>
MULTIMEDIA ACCESS CORPORATION AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
CUMULATIVE
FOR THE NINE MONTHS FROM
YEAR ENDED DECEMBER 31, ENDED SEPTEMBER 30, INCEPTION
------------------------ ------------------------ (NOVEMBER 19, 1992)
1994 1995 1995 1996 TO SEPTEMBER 30, 1996
(UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Operating activities:
Net loss..................................... $(2,717,421) $(5,414,878) $(3,509,510) $(3,081,082) $(11,861,511)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation of fixed assets................ 50,109 126,443 93,267 114,929 292,305
Amortization of software development........ 0 222,632 69,853 38,106 260,738
Amortization of patent...................... 30,251 90,677 22,669 -- 151,129
Loss on asset dispositions.................. -- 1,955 2,280 -- 1,955
Non-cash charges to interest expense........ -- 264,777 140,125 69,165 333,942
Common stock issued in lieu of cash for
consulting services........................ 22,000 -- -- -- 22,000
Inventory reserve adjustment................ -- 220,000 -- -- 220,000
Write off of deferred charges............... -- 376,633 306,633 -- 376,633
Changes in operating assets and liabilities:
Accounts receivable........................ (19,120) 32,208 (51,496) (124,191) (128,564)
Inventory.................................. (365,103) (52,366) (13,221) (179,844) (597,313)
Prepaid expenses........................... (36,331) 17,360 9,344 (51,296) (70,267)
Due from debt holder....................... -- (315,300) (315,300) 315,300 --
Deferred charges........................... (458,887) 38,089 (326,176) (363,368) (784,166)
Deposits................................... (17,829) (368) 591 (75) (18,272)
Accounts payable........................... 336,723 147,537 92,982 151,185 731,345
Accrued compensation....................... (50,836) 100,513 147,496 (124,220) 230,048
Deferred revenue........................... 1,880 58,042 0 (48,422) 27,091
Other accrued liabilities.................. 200,461 219,696 172,219 420,490 913,699
-------------- -------------- -------------- -------------- --------------------
Net cash used in operating activities..... (3,024,103) (3,866,350) (3,158,244) (2,863,323) (9,899,208)
-------------- -------------- -------------- -------------- --------------------
Investing activities:
Purchase of property and equipment........... (532,871) (108,143) (57,637) (111,080) (764,680)
Software development costs................... (210,256) (156,171) (284,560) (11,000) (377,427)
Purchase of patent........................... -- -- -- -- (151,129)
Other........................................ -- 28,076 26,64 -- 28,076
-------------- -------------- -------------- -------------- --------------------
Net cash used in investing activities..... (743,127) (236,238) (315,552) (122,080) (1,265,160)
-------------- -------------- -------------- -------------- --------------------
Financing activities:
Net proceeds from issuance (repayment) of
short-term debt............................. (100,000) 1,096,000 1,061,000 1,585,000 2,806,000
Net proceeds from issuance (repayment) of
short-term debt- officer.................... (87,000) 345,000 345,000 -- 345,000
Other........................................ (1,210) (8,270) (6,130) (6,733) (16,213)
Proceeds from issuance of long-term debt..... 2,040,300 500,115 500,115 500,000 3,040,415
Proceeds from exercise of stock options and
warrants.................................... 26,268 -- -- -- 26,406
Purchase of treasury stock................... -- (11,906) (26) -- (11,906)
Net proceeds from sale of common stock....... 1,917,241 2,166,894 2,500,000 912,054 4,996,189
-------------- -------------- -------------- -------------- --------------------
Net cash provided by financing activities. 3,795,599 4,087,833 4,399,959 2,990,321 11,185,891
-------------- -------------- -------------- -------------- --------------------
Net increase (decrease) in cash and cash
equivalents.................................. 28,369 (14,755) 926,163 4,918 21,523
Cash and cash equivalents, beginning of
period....................................... 2,991 31,360 31,360 16,605 --
-------------- -------------- -------------- -------------- --------------------
Cash and cash equivalents, end of period ..... $ 31,360 $ 16,605 $ 957,523 $ 21,523 $ 21,523
============== ============== ============== ============== ====================
</TABLE>
See accompanying notes.
F-8
<PAGE>
MULTIMEDIA ACCESS CORPORATION AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION WITH RESPECT TO SEPTEMBER 30, 1996 AND THE NINE MONTH PERIODS ENDED
SEPTEMBER 30, 1995 AND 1996 IS UNAUDITED.)
1. THE COMPANY AND GOING CONCERN CONSIDERATIONS
The accompanying consolidated financial statements include the accounts of
MultiMedia Access Corporation (MMAC), and its wholly-owned subsidiaries,
Viewpoint Systems, Inc. (Viewpoint), VideoWare, Inc. (VideoWare) and Osprey
Technologies, Inc. (Osprey) (collectively, the Company). MMAC, Viewpoint,
VideoWare and Osprey were incorporated in Delaware in February 1994, November
1992, September 1994 and September 1995, respectively. The Company is a
development stage company engaged in developing and marketing advanced video
communications products that integrate video capabilities into existing desktop
computers, applications and networks. The Company markets its products directly
to end-users, through value-added resellers and computer system integrators,
primarily in the continental United States.
The Company's capital requirements in connection with the design, development
and commercialization of its products have been and will continue to be
significant. To date, the Company has been substantially dependent upon loans
from its principal stockholders, as well as private placements of its debt and
equity securities, to finance its working capital requirements. The Company is
dependent on the proceeds of this offering to commence full-scale marketing
activities in connection with its products, to complete the development of
additional product and software applications and to fund its working capital
requirements. In the event that the Company's plans change or prove to be
inaccurate or if the proceeds of this offering prove to be insufficient to fund
operations, the Company could be required to seek additional financing sooner
than currently anticipated or could be required to curtail or cease its
activities. The Company has no current arrangements with respect to, or sources
of, additional financing and there can be no assurance that existing
stockholders will provide any portion of the Company's future financing
requirements. There can be no assurance that any additional financing will be
available to the Company on acceptable terms, or at all.
Inasmuch as the Company intends to increase its level of activities following
consummation of this offering and will be required to make significant
expenditures in connection with marketing and product development activities,
the Company anticipates that losses will continue for the foreseeable future and
until such time as the Company is able to build an effective marketing and sales
organization, develop a network of independent resellers and achieve market
acceptance of its products.
There can be no assurance that the Company will be able to successfully
implement its marketing strategy, generate significant revenues or achieve
profitable operations.
The accompanying consolidated financial statements have been prepared
assuming that the Company will continue as a going concern. As reflected in the
accompanying consolidated financial statements, the Company incurred significant
losses of $2,717,421 and $5,414,878 during the years ended December 31, 1994 and
1995, respectively, and $3,081,082 during the nine months ended September 30,
1996 (unaudited). These losses, in conjunction with the matters discussed above,
raise substantial doubt about the Company's ability to continue as a going
concern. The consolidated financial statements do not include any adjustments
which might be necessary should the Company be unable to continue as a going
concern.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
In May 1994 the Company acquired Viewpoint in a transaction accounted for as
a pooling of interests (see Note 3). The accompanying consolidated financial
statements include the financial position, results of operations and cash flows
of Viewpoint, as adjusted retroactively to give effect to the pooling of
interests. All material intercompany transactions have been eliminated. No
changes in accounting policies were adopted as a result of the pooling of
interests.
F-9
<PAGE>
MULTIMEDIA ACCESS CORPORATION AND SUBSIDIARIES -
(A Development Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -(Continued)
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments purchased with an initial
maturity of three months or less to be cash equivalents.
INVENTORY
Inventory consists primarily of purchased electronic components and computer
system products, along with the related documentation manuals and packaging
materials. Inventory is carried at the lower of cost or market. Effective
January 1, 1995, the Company changed its method of costing inventory from the
first-in, first-out method to the standard cost method, which approximates
average cost. This change did not result in any material change in the valuation
of inventory.
PROPERTY AND EQUIPMENT
Property and equipment is recorded at cost. Depreciation is determined using
the straight-line method over the estimated useful lives, generally five years,
of the related assets. Leasehold improvements are amortized over the lives of
the related leases. Expenditures for repairs and maintenance are charged to
operations as incurred; renewals and betterments are capitalized.
SOFTWARE DEVELOPMENT COSTS
Costs of developing new software products and substantial enhancements to
existing software products are expensed as incurred until technological
feasibility has been established, after which time additional costs incurred are
capitalized in accordance with Statement of Financial Accounting Standards No.
86, "Accounting for the Costs of Computer Software to be Sold, Leased, or
Otherwise Marketed." Amortization of capitalized software development costs
begins when products are available for general release to customers, and is
computed using the straight-line method over a period not to exceed three years.
No amount was charged to amortization expense through December 31, 1994, and
$222,632 (including $155,597 to fully amortize remaining costs of the Viewpoint
product line) and $38,106 was charged to amortization expense during the year
ended December 31, 1995 and the nine months ended September 30, 1996
(unaudited), respectively.
PATENT
The Company holds a patent related to its proprietary technology and trade
secrets. The costs associated with obtaining and defending the patent are
amortized on the straight-line basis over its estimated remaining life, not to
exceed five years. During 1995, the Company fully amortized its patent. Total
accumulated amortization of patent costs was $60,452 at December 31, 1994.
REVENUE RECOGNITION
Revenue from the sale of video communication systems and licensing of the
related software is recognized upon shipment to customers. With pre-approval by
a return merchandise authorization, a customer may return undamaged product to
the Company, subject to a 30-day money back guarantee. The Company maintains an
accrued warranty reserve for products which are returned defective during the
warranty period.
NET LOSS PER SHARE
Net loss per share is computed based on the weighted average number of common
and common equivalent shares outstanding. The Company has computed common and
common equivalent shares in determining the number of shares used in calculating
earnings per share for all periods presented pur-
F-10
<PAGE>
MULTIMEDIA ACCESS CORPORATION AND SUBSIDIARIES -
(A Development Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -(Continued)
suant to the Securities and Exchange Commission Staff Accounting Bulletin (SAB)
No. 83. SAB No. 83 requires the Company to include all common shares and all
common share equivalents issued in the 12 month period preceding the filing date
of the initial public offering in its calculation of the number of shares used
to determine earnings per share as if the shares had been outstanding for all
periods presented. Options and warrants issued more than 12 months prior to the
initial public offering have been excluded since their effect is antidilutive.
Supplemental loss per share is $.95 for the year ended December 31, 1995 and
$.46 for the nine months ended September 30, 1996 (unaudited) assuming (1)
issuance of the securities offered by the Company hereby, receipt by the Company
of the net proceeds thereof and use of the proceeds to repay $257,548 and
$1,192,548 principal amount of secured and demand notes at December 31, 1995 and
September 30, 1996 (unaudited), respectively, and to repay approximately
$347,250 principal amount of convertible debt and (2) weighted average common
and common equivalent shares of 5,652,147 and 6,563,130 for the year ended
December 31, 1995 and the nine months ended September 30, 1996 (unaudited),
respectively.
DEFERRED CHARGES AND OTHER ASSETS
Deferred charges at December 31, 1994 consisted of legal, accounting and
other expenses associated with the private placement of 8% promissory notes,
which were amortized using the straight-line method over the term of the notes.
During 1995, the Company incurred $333,106 of additional legal, accounting and
underwriting costs in connection with a private placement of common stock which
have been charged against the proceeds from the sale of the common stock. During
1995, the Company wrote off deferred charges consisting of legal, accounting,
underwriting and printing costs incurred in connection with a canceled initial
public offering of common stock which resulted in a charge against income of
$376,633. Deferred charges at September 30, 1996 consist of legal, accounting
and other expenses associated with the impending initial public offering, as
well as expenses associated with the issuance of 8% debt in July and September
of 1996.
During September 1995 the Company advanced a debt holder of the Company
$315,300 which was repaid in the first quarter of 1996.
CONCENTRATION OF CREDIT RISK
The Company invests its cash with financial institutions that include a Texas
commercial bank and a commercial brokerage firm. The brokerage firm maintains
accounts in several banks throughout the country and in government securities.
Cash balances at the Texas commercial bank are insured by the Federal Deposit
Insurance Corporation up to $100,000. The Company believes it has no significant
concentration of credit risk.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Actual results could differ from those estimates.
INCOME TAXES
The Company utilizes the liability method of accounting for income taxes as
set forth in Statement of Financial Accounting Standards No. 109, "Accounting
for Income Taxes." Under this method, deferred tax assets and liabilities are
determined based upon the differences between the financial statement and tax
bases of assets and liabilities, as measured by the enacted tax rates expected
to be in effect when these differences reverse.
F-11
<PAGE>
MULTIMEDIA ACCESS CORPORATION AND SUBSIDIARIES -
(A Development Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -(Continued)
FAIR VALUE OF FINANCIAL INSTRUMENTS
Management expects its pending initial public offering to result in the
conversion to common stock or settlement in cash of its outstanding short-term
and long-term debt. However, as a result of the uncertainties described in Note
1, management believes it is not practicable to determine the fair value of its
short and long term debt in accordance with Statement of Financial Accounting
Standards No. 107.
Interim Financial Information
The consolidated financial statements as of September 30, 1996 and for the
nine months ended September 30, 1995 and 1996 are unaudited and include, in the
opinion of management, all adjustments, consisting of only normal recurring
adjustments, which the Company considers necessary to present fairly the
financial position, results of operations and cash flows of the Company for
those interim periods. The operating results for the nine months ended September
30, 1996 are not necessarily indicative of the results that may be expected for
the full fiscal year.
3. ACQUISITION OF VIEWPOINT
In May 1994, the Company acquired Viewpoint in a transaction accounted for as
a pooling of interests. The Company acquired all of the outstanding common stock
and options to purchase common stock of Viewpoint in exchange for 812,440 shares
of common stock, resulting from the exercise of 194,180 options and 511,000
warrants exercised in 1993 and 107,261 warrants exercised in 1994, and 287,564
stock options to purchase the Company's common stock. This represents an
exchange ratio of .511 of the Company's common shares for each share of
Viewpoint. The options issued in exchange for the Viewpoint options have
exercise prices ranging from $.02 to $.20 a share and expire between September
2003 and May 2004.
A summary of the results of operations of MMAC and Viewpoint for the period
February 1994 through May 1994 and January 1994 through May 1994, respectively,
is as follows:
MMAC VIEWPOINT
------------ ------------
Sales..... $ -- $ 16,077
============ ============
Net loss . $(148,634) $(154,236)
============ ============
4. INVENTORY
Inventory consists of the following:
DECEMBER 31,
------------------ SEPTEMBER 30,
1994 1995 1996
------------------- ------------
(UNAUDITED)
Purchased materials.......... $229,019 $144,986 $239,652
Finished goods..... 136,084 52,483 137,661
---------- ---------- --------------
$365,103 $197,469 $377,313
========== ========== ==============
Results of operations for 1995 reflect a charge of $220,000 for technological
obsolescence of component parts and finished goods associated with one of the
Company's early-developed product lines. Inventory at December 31, 1995 and
September 30, 1996 (unaudited) is presented net of a $220,000 and $215,000
reserve, respectively.
F-12
<PAGE>
MULTIMEDIA ACCESS CORPORATION AND SUBSIDIARIES -
(A Development Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -(Continued)
5. PROPERTY AND EQUIPMENT
Property and equipment, at cost, consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------- SEPTEMBER 30,
1994 1995 1996
---- ---- ----
(UNAUDITED)
<S> <C> <C> <C>
Computer equipment............................. $432,275 $ 455,055 $ 521,305
Software....................................... 39,756 79,552 121,841
Leasehold improvements......................... 36,985 36,985 36,985
Office furniture and equipment................. 75,949 85,090 87,630
---------- ----------- --------------
584,965 656,682 767,761
Less accumulated depreciation and amortization (50,934) (170,982) (285,910)
---------- ----------- --------------
$534,031 $ 485,700 $ 481,851
========== =========== ==============
</TABLE>
6. SHORT-TERM DEBT
Short-term debt consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------- SEPTEMBER 30,
1994 1995 1996
--------------------- -------------
(UNAUDITED)
<S> <C> <C> <C>
Officer:
Secured note payable to an officer and affiliate
of the Company, due on demand with interest at
15%. Collateralized by all assets of the
Company........................................ $ -- $364,154 $ 364,154
======== ========== ===============
Other:
Secured note payable to an individual investor,
due on demand with interest at 15%. Collat-
eralized by all assets of the Company.... $ -- 22,548 22,548
Convertible secured debt payable to a princi-
pal stockholder of the Company, due on de-
mand 10 days subsequent to an initial public
offering or 180 days after date of issue, with
interest at 8%. Collateralized by all assets of
the Company........................................ -- -- 500,000
Unsecured notes payable to a stockholder of the
Company, due on demand 10 days subsequent to an
initial public offering or 180 days after date
of issue with interest at 8%................... -- -- 350,000
Unsecured, non-interest bearing note payable to
one of the Company's underwriters ............. -- 35,000 120,000
Other........................................... 8,271 9,085 11,006
-------- ---------- ---------------
Total short-term debt, other ................... $8,271 $ 66,633 $1,003,554
======== ========== ===============
</TABLE>
Between February and May 1995, the Company issued $1,096,000 of 15% 90-day
secured notes to existing stockholders, an officer and director of the Company
and two individual investors. The secured
F-13
<PAGE>
MULTIMEDIA ACCESS CORPORATION AND SUBSIDIARIES -
(A Development Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -(Continued)
notes were collateralized by all assets of the Company. As an incentive to lend
the secured debt to the Company, an officer and director, and two former
directors of the Company (all three founders and significant stockholders of the
Company), sold 202,750 of their common shares to the lenders at par value. The
excess of the fair market value of the shares of $.50 per share as determined by
independent appraisal sold to the note holders over their purchase price, was
charged to expense over the term of the notes as additional interest expense.
During June and July 1995, $310,000 of 15% unsecured demand notes were issued
to existing stockholders, note holders and an officer and director of the
Company. As an incentive to lend the unsecured debt to the Company, the Company
issued 77,500 three-year warrants to purchase common stock at $1.00 per share to
the lenders. The fair market value of the warrants of $.50 as determined by
independent appraisal, was charged to interest expense over the term of the
notes.
In December 1995, $791,000 of the secured notes and $250,000 of the unsecured
notes, along with accrued interest of $101,109, were exchanged for 380,704
shares of common stock plus 520,500 three-year warrants to purchase common stock
at $1.00 per share. As determined by independent appraisal, the fair market
value of the equity instruments exchanged equaled the carrying value of the debt
and accrued interest and, accordingly, no gain or loss was recorded.
Additionally, in December 1995, in connection with the exchange of secured
notes for demand notes, the Company issued 109,500 three-year warrants to
purchase common stock at $1.00 per share to the holders of the secured and
unsecured notes remaining outstanding. 103,500 of these warrants were issued to
the Company's Chief Executive Officer. Based on an independent appraisal, the
fair market value of these warrants of $.60 per share was charged to interest
expense.
In January and February 1996, the Company issued $650,000 of 10% 90-day
secured notes to an existing stockholder of the Company. As an incentive to
advance these notes, the stockholder was granted the right to receive 65,000
three-year warrants to purchase Company stock at $3.00 per share. Based on an
independent appraisal, the fair market value of these warrants of $.50 per share
was charged to interest expense over the term of the notes.
In July of 1996, the Company issued $500,000 of 8% secured convertible debt
to a principal stockholder of the Company. The convertible debt is due on demand
10 days subsequent to an initial public offering of the Company's equity
securities or 180 days from date of issue. As an incentive to advance these
notes, the stockholder was granted the right to receive 50,000 three-year
warrants to purchase Company stock at $3.00 per share. Based on an independent
appraisal, the fair market value of these warrants of $.50 per share is being
charged to interest expense over the term of the debt.
In September of 1996, the Company issued $350,000 of 8% unsecured notes to an
existing stockholder of the Company. The notes are due on demand 10 days
subsequent to an initial public offering of the Company's equity securities or
180 days from date of issue. As an incentive to advance these notes, the
stockholder was granted the right to receive 50,000 three-year warrants to
purchase Company stock at $3.00 per share. Based on an independent appraisal,
the fair market value of these warrants of $1.00 per share is being charged to
interest expense over the term of the notes.
Interest paid was $11,377, $23,811 and $1,046 for the year ended December 31,
1994 and 1995 and the nine months ended September 30, 1996 (unaudited),
respectively.
F-14
<PAGE>
MULTIMEDIA ACCESS CORPORATION AND SUBSIDIARIES -
(A Development Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -(Continued)
7. LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------- SEPTEMBER 30,
1994 1995 1996
---- ---- ----
(UNAUDITED)
<S> <C> <C> <C>
Convertible notes............................... $2,067,300 $2,567,300 $2,567,300
Short-term notes converted to convertible notes. 110,135 110,250 110,250
Convertible secured debt payable to a principal
stockholder of the Company, due January 1998
with interest at 8%, collateralized by all
assets of the Company........................... -- -- 500,000
Other........................................... 17,739 8,654 --
------------ ------------ --------------
2,195,174 2,686,204 3,177,550
Less: current portion of convertible notes .... -- 2,677,550 2,677,550
------------ ------------ --------------
$2,195,174 $ 8,654 $ 500,000
============ ============ ==============
</TABLE>
In September 1994 the Company began a private placement of convertible debt
(the Agreements) and through March 31, 1995, received $2,567,300. The unsecured
convertible promissory notes, which were sold in units of $10,000, bear interest
at 8% and mature between March 1996 and July 1996. As of December 31, 1995 and
September 30, 1996 all of the convertible notes are scheduled to mature within
twelve months and, therefore, have been classified as a current liability.
The Agreements allow convertible note holders, upon a proposed public
offering of the Company's equity securities with proceeds exceeding $2,000,000,
the right to convert their notes to registered equity securities of the Company
at the public offering price and receive 5,000 three-year warrants to purchase
the Company's common stock at $3.00 per share for each $10,000 unit.
Alternatively, the convertible note holders may elect to request repayment of
their notes from the proceeds of the proposed public offering and receive 3,334
three-year warrants to purchase the Company's common stock at $3.00 for each
$10,000 unit. In June of 1996, holders of $2,330,300 principal amount of the
convertible notes elected to convert into Common Stock and Public Warrants and
holders of $347,250 principal amount elected to be repaid from the proceeds of
this offering. In addition, by virtue of the aforementioned elections,
convertible notes in the amount of $2,067,300, which originally matured between
March and June of 1996, were extended to the closing date of the initial public
offering.
In July of 1996, the Company issued $500,000 of 18-month 8% convertible debt
to a principal stockholder of the Company. As an incentive to advance these
notes, the stockholder was granted 50,000 three-year warrants to purchase
Company stock at $3.00 per share. Based on an independent appraisal, the fair
market value of these warrants of $.50 per share is being charged to interest
expense over the term of the notes.
Effective December 1994, certain short-term debt holders converted their
promissory notes including accrued interest to $110,250 of convertible notes.
F-15
<PAGE>
MULTIMEDIA ACCESS CORPORATION AND SUBSIDIARIES -
(A Development Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -(Continued)
1994
8. INCOME TAXES
Prior to the pooling with the Company which was consummated in May 1994,
Viewpoint had elected to be treated as an S Corporation for federal income tax
purposes. As an S Corporation, the tax effect of Viewpoint's revenues and
expenses were attributed directly to its stockholders on a pass-through basis.
Accordingly, the accompanying consolidated financial statements do not reflect a
provision for income taxes for Viewpoint for any tax reporting period ended
prior to May 1994. Net operating losses and any tax credits generated by
Viewpoint while it was an S Corporation are not available to the Company to
offset taxable income, if any, generated after the change to C Corporation
status. Accordingly, accumulated deficits of $802,366 generated by Viewpoint as
an S Corporation from November 19, 1992 through May 10, 1994, have been
reclassified to additional paid-in capital. Viewpoint's S Corporation election
was terminated effective with the pooling of interests discussed in Note 3.
MMAC, VideoWare and Osprey have been classified as C Corporations since their
inception in February 1994, September 1994 and September 1995, respectively.
Accordingly, the Company has accounted for income taxes for these entities since
their respective dates of inception, and for Viewpoint since May 1994, in
accordance with Statement of Financial Accounting Standards (SFAS) No. 109,
"Accounting for Income Taxes." SFAS No. 109 requires a valuation allowance to be
recorded when it is "more likely than not that some portion or all of the
deferred tax assets will not be realized." In the opinion of management,
realization of the Company's net operating loss carryforward is not reasonably
assured, and a valuation allowance of $1,076,000, $2,966,000 and $4,051,000 has
been provided against deferred tax assets in excess of deferred tax liabilities
in the accompanying consolidated financial statements at December 31, 1994 and
1995 and September 30, 1996 (unaudited), respectively.
The components of the Company's net deferred taxes are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------- SEPTEMBER 30,
1994 1995 1996
---- ---- ----
(UNAUDITED)
<S> <C> <C> <C>
Deferred tax assets:
Net operating loss carryforward........................ $ 997,000 $ 2,860,000 $ 3,868,000
Excess of tax over financial statement basis of patent 13,000 45,000 42,000
Accruals deductible for tax purposes when paid......... 160,000 156,000 228,000
-------------- ------------- --------------
Total deferred tax assets ........................... 1,170,000 3,061,000 4,138,000
Less: valuation allowance............................... (1,076,000) (2,966,000) (4,051,000)
-------------- ------------- --------------
94,000 95,000 87,000
Deferred tax liabilities:
Excess of financial statement over tax basis of
property and equipment................................ 16,000 42,000 44,000
Excess of financial statement over tax basis of
software development costs............................ 78,000 53,000 43,000
-------------- ------------- --------------
Total deferred tax liabilities....................... 94,000 95,000 87,000
============== ============= ==============
Net deferred taxes...................................... $ -- $ -- $ --
============== ============= ==============
</TABLE>
F-16
<PAGE>
MULTIMEDIA ACCESS CORPORATION AND SUBSIDIARIES -
(A Development Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -(Continued)
A reconciliation between the federal income tax benefit calculated by
applying U.S. federal statutory rates to net loss and the absence of a tax
benefit reported in the accompanying consolidated financial statements is as
follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------- SEPTEMBER 30,
1994 1995 1996
---- ---- ----
(UNAUDITED)
<S> <C> <C> <C>
U.S. federal statutory rate applied to pretax loss ... $(924,000) $(1,841,000) $(1,047,500)
Accrued compensation and other accruals................ 33,000 2,500 (22,500)
Amortization of patent................................. 6,000 27,500 (2,500)
Depreciation of property and equipment................. (14,500) (27,000) (4,500)
Software development costs for financial reporting
purposes............................................... (71,500) (29,000) 9,000
Viewpoint 1994 S-Corporation loss...................... 48,000 -- --
Net operating loss carryforward not recognized for
financial reporting purposes........................... 918,000 1,714,000 1,034,000
Inventory and doubtful account reserves ............... -- 50,500 3,000
Non-deductible interest expenses....................... -- 90,000 30,500
Other.................................................. 5,000 12,500 500
------------ -------------- --------------
$ -- $ -- $ --
============ ============== ==============
</TABLE>
The Company has a federal income tax net operating loss carryforward of
approximately $7,400,000 at December 31, 1995. Approximately $2,700,000 of the
carryforward will expire in 2009 and $4,700,000 will expire in 2010. The Company
is subject to limitations existing under Internal Revenue Code Section 382
(Change of Control) relating to the availability of the operating loss
carryforward. Beginning with 1994, approximately $790,000 of the carryforward
that will expire in 2009 is limited to utilization at a rate of approximately
$300,000 per year.
9. STOCKHOLDERS' EQUITY (DEFICIT)
COMMON STOCK
In March 1994 the Company sold 996,364 shares of common stock at a price of
$2.20 per share in a private placement to certain qualified investors. Proceeds
to the Company were $1,917,241 net of related offering costs of $274,759. These
offering costs have been charged against additional paid-in capital in the
accompanying consolidated financial statements.
In September 1995, the Company began a second private placement of up to
2,666,667 shares of common stock to qualified investors. In September 1995, the
Company sold 833,333 shares to an existing stockholder at $3.00 per share.
Proceeds to the Company were $2,166,894 net of related offering costs of
$333,106. The offering costs have been charged against additional paid-in
capital. As described in Note 6, in December 1995 and March 1996, certain
secured and demand note holders of the Company exchanged $1,805,698 of notes and
accrued interest for 601,899 shares of common stock and 520,500 warrants in the
offering. In April through June of 1996, the Company sold 304,016 shares of the
offering to individual investors at $3.00 per share. Proceeds to the Company
were $912,054. Additionally, in May and June of 1996, the Company converted
approximately $208,000 of accounts payable into 69,332 shares of the offering at
$3.00 per share.
F-17
<PAGE>
MULTIMEDIA ACCESS CORPORATION AND SUBSIDIARIES -
(A Development Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -(Continued)
STOCK OPTION PLAN
In April 1995, the Company adopted its 1995 Stock Plan (1995 Stock Option
Plan) under which 2,000,000 shares of the Company's common stock are reserved
for issuance to officers, key employees and consultants of the Company. The
objectives of the stock plan are to attract and retain qualified personnel for
positions of substantial responsibility, and to provide additional incentives to
employees and consultants to promote the success of the Company's business.
Options granted under the plan may be incentive stock options or non-qualified
stock options. The plan is administered by the Board of Directors. The options
are granted at the discretion of the Board of Directors at an option price per
share not less than fair market value, as determined by the Board of Directors,
at the date of grant.
In April 1995, the Company also adopted the 1995 Director Option Plan under
which 250,000 shares of the Company's common stock are reserved for issuance to
outside directors of the Company. The objective of the director plan is to
attract and retain qualified personnel for service as outside directors of the
Company, and to encourage their continued service to the Board. Only
non-qualified stock options may be granted. Grants under the plan are automatic
and nondiscretionary, and are issued at an option price per share not less than
fair market value, as determined the Board of Directors, at the date of grant.
In February 1994 the Company adopted its 1994 Stock Option Plan under which
2,000,000 shares of the Company's common stock were reserved for issuance to
officers, key employees, non-employee directors and consultants of the Company,
pursuant to incentive and non-qualified stock options. Upon the adoption of the
1995 Stock Option Plan, the 1994 Stock Option Plan was terminated as to any
future issuance of options.
Upon the consummation of the pooling of interests between Viewpoint and MMAC
in May 1994, all outstanding stock options of Viewpoint were converted to stock
options of the Company at the pooling exchange ratio of .511 of the Company's
common shares for each share of Viewpoint. The following is a summary of stock
option activity from December 31, 1993 through September 30, 1996. All stock
options issued by Viewpoint have been restated to give effect to the pooling of
interests transaction described in Note 3.
<TABLE>
<CAPTION>
NON-QUALIFIED STOCK OPTIONS INCENTIVE STOCK OPTIONS
--------------------------- -----------------------
NUMBER PRICE PER NUMBER PRICE PER
OF SHARES SHARE OF SHARES SHARE
--------- ----- --------- -----
<S> <C> <C> <C> <C>
Outstanding at December 31, 1993 ... 58,293 $ .20 332,917 $ .02-.04
Granted............................. 510,000 .10-3.00 1,127,158 2.20-3.00
Exercised........................... 256 .20 178,171 .02
Canceled............................ -- -- 224,405 .02-2.42
----------- -----------
Outstanding at December 31, 1994 ... 568,037 .10-3.00 1,057,499 .04-3.00
Granted............................. 143,458 3.00 549,800 3.00
Exercised .......................... -- -- -- --
Canceled ........................... 160,588 2.20-3.00 346,432 2.20-3.00
----------- -----------
Outstanding at December 31, 1995 .. 550,907 .10-3.00 1,260,867 .04-3.00
Granted (unaudited)................. -- 765,400 3.00-4.00
Exercised (unaudited) .............. -- --
Canceled (unaudited)................ 35,833 3.00 460,751 2.20-3.00
Outstanding at September 30, 1996
(unaudited) ........................ 515,074 $.10-3.00 1,565,516 $.04-4.00
=========== ===========
</TABLE>
F-18
<PAGE>
MULTIMEDIA ACCESS CORPORATION AND SUBSIDIARIES -
(A Development Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -(Continued)
At December 31, 1995, 176,820 non-qualified stock options at prices ranging
from $.20 to $3.00 and 390,256 incentive stock options at prices ranging from
$.04 to $3.00 were exercisable.
WARRANTS
The Company has issued warrants to purchase common stock of the Company in
connection with certain notes payable (as described in Note 6) and as
compensation for services rendered by various consultants, and a financial
consulting firm controlled by an officer, director, and stockholder of the
Company. All warrants issued prior to 1995 have been exercised with the
exception of the rights available to convertible debt holders as described in
Note 7. The following is a summary of warrant activity from December 31, 1993
through September 30, 1996. All warrants issued by Viewpoint have been restated
to reflect the pooling of interests transaction described in Note 3.
WARRANTS
NUMBER OF PRICE PER
SHARES SHARES
------ ------
Outstanding at December 31, 1993............ 74,041 $ .02-.50
Granted..................................... 33,220 .20-.50
Exercised................................... 107,261 .02-.50
-----------
Outstanding at December 31, 1994............ --
Granted..................................... 1,147,500 1.00-3.00
Exercised................................... -- --
Outstanding at December 31, 1995............ 1,147,500 1.00-3.00
Granted (unaudited)......................... 295,005 3.00
Exercised (unaudited)....................... --
-----------
Outstanding at September 30, 1996
(unaudited)................................. 1,442,505 $1.00-3.00
===========
All warrants outstanding at December 31, 1995 were exercisable.
10. COMMITMENTS AND CONTINGENCIES
The Company leases office facilities under non-cancelable operating leases
extending through 1998 with an average monthly rental of $15,432. The landlords
pay all operating costs and real estate taxes associated with the office lease,
which is subject to cost escalation not to exceed 4% annually. The Company is
amortizing the total rent payments over the lease term on a straight-line basis.
Prior to September 1994, the Company leased office facilities under a
month-to-month operating lease with monthly payments ranging from $1,300 to
$2,500. The Company also leases certain office and computer equipment under
non-cancelable operating leases.
OPERATING
LEASES
-----------
Year ended December 31:
1996....................... $210,169
1997....................... 165,030
1998....................... 14,842
-----------
Total minimum lease payments. $390,041
===========
F-19
<PAGE>
MULTIMEDIA ACCESS CORPORATION AND SUBSIDIARIES -
(A Development Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -(Continued)
Rent expense was $59,495 and $233,305 for the years ended December 31, 1994
and 1995, respectively, and $187,441 for the nine months ended September 30,
1996 (unaudited).
The Company has entered into an employment contract with its Chief Executive
Officer through February 1999 that provides for a minimum annual salary and
incentives based generally on the Company's performance. The total compensation,
including incentives, which was accrued and included in accrued compensation in
the accompanying consolidated financial statements was $120,428, $112,929 and
$77,781 at December 31, 1994 and 1995 and September 30, 1996 (unaudited),
respectively.
11. RELATED PARTY TRANSACTIONS AND OTHER MATTERS
During 1994 the Company sold certain desktop videoconferencing equipment to a
company which has two directors who are former directors of the Company for
$58,260. Direct product costs associated with the sale aggregated $43,521.
In February 1994 the Company entered into two five-year consulting agreements
with two of its former directors, pursuant to which the Company agreed to pay
monthly consulting fees of $5,000 to each individual. In March 1995 one of these
consulting agreements was canceled with no further liability to the Company. The
Company paid $110,000 in such consulting fees for the year ended December 31,
1994 and $72,500 and $12,500 in consulting fees remained accrued at December 31,
1995 and September 30, 1996 (unaudited), respectively. Consulting fees charged
to expense with respect to the aforementioned agreements were $110,000, $72,500,
and $20,000 for the years ended December 31, 1994 and 1995 and the nine months
ended September 30, 1996 (unaudited), respectively. In June of 1996, the Company
converted $80,000 of accounts payable owed on the remaining consulting agreement
into 26,666 shares of common stock at $3.00 per share. By mutual agreement,
effective May 1, 1996 consulting fees from the remaining consulting contract
were suspended until the effective date of the initial public offering.
In March 1994 the Company entered into a consulting agreement with a company
which is owned by the Chief Executive Officer of the Company. The retainer
portion of this agreement was terminated effective December 31, 1994. Consulting
fees of $35,000, $11,692 and $11,607 were accrued at December 31, 1994 and 1995
and September 30, 1996 (unaudited), respectively. Consulting fees charged to
expense during the year ended December 31, 1994 with respect to this agreement
were $35,000. No amounts were charged to expense during 1995 and $2,503 was
charged to expense during the nine months ended September 30, 1996 (unaudited).
Additionally, $12,500 was paid by the Company in 1995 for services rendered
during 1994. In May of 1996, the Company issued 5,005 three-year warrants to
purchase Company stock at $3.00 per share as consideration for consulting
services rendered during 1996. The fair market value of the warrants of $.50 per
share was determined by independent appraisal.
From October 1994 through January 1995 the Company issued to four principal
stockholders, a principal stockholder and director of the Company and the spouse
of another principal stockholder and former director, convertible debt totaling
$1,905,000 under the terms described in Note 7. Upon completion of the initial
public offering, holders of $1,805,000 principal amount of this convertible debt
have elected to convert their debt into common stock of the Company at the
initial offering price per share and holders of $100,000 principal amount have
elected to be repaid from the proceeds of the offering.
From February through April 1995, the Company issued to five principal
stockholders of the Company secured notes totaling $1,070,000 under the terms
described in Note 6. During December 1995, $781,000 of these secured notes were
exchanged for equity securities of the Company under the terms described in Note
6.
During June and July 1995, the Company issued to three principal stockholders
of the Company demand notes totaling $310,000 under the terms described in Note
6. During December 1995, $250,000 of these secured notes were exchanged for
equity securities of the Company under the terms described in Note 6.
F-20
<PAGE>
MULTIMEDIA ACCESS CORPORATION AND SUBSIDIARIES -
(A Development Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -(Continued)
During July 1996, the Company issued $1,000,000 of secured convertible debt
to a principal stockholder of the Company. The convertible debt bears interest
at 8%. $500,000 of the convertible debt matures on demand 10 days subsequent to
an initial public offering of the Company's equity securities or 180 days from
date of issue, and the balance matures in 18 months. As an incentive to advance
the debt, the stockholder was issued 100,000 three-year warrants to purchase
Company stock at $3.00 per share.
During July 1996, the Company issued to a stockholder and former director of
the Company, 75,000 three-year warrants to purchase Company stock at $3.00 per
share pursuant to the terms of a consulting agreement more fully described in
Note 11.
12. SUBSEQUENT EVENTS (UNAUDITED)
In October 1996, the Chief Executive Officer of the Company agreed to defer
receipt of $164,154 principal amount Secured and Demand Notes, accrued interest
of $41,154 and accrued salary and bonuses of $127,781 until December 1997. The
Company has agreed to pay the Chief Executive Officer interest rate of 15% per
annum on the deferred amount. In addition, the Chief Executive Officer will be
repaid $200,000 principal amount of Secured and Demand Notes and $50,000
principal amount of Convertible Debt plus accrued interest of $7,419 from the
proceeds of this offering.
In October 1996, the Company issued $200,000 of 8% unsecured notes payable to
a stockholder of the Company. The notes are due on demand 10 days subsequent to
an initial public offeringof the Company's equity securities or 180 days from
the date of issue.
In November 1996, the Company issued $300,000 of 8% unsecured notes payable
to two stockholders of the Company. The notes are due on demand 10 days
subsequent to an initial public offering of the Company's equity securities from
the date of issue.
F-21
<PAGE>
====================================== =====================================
No dealer, salesperson or any
other person has been authorized to
give any information or to make any
representations other than those
contained in this Prospectus, and, if
given or made, such information or MULTIMEDIA ACCESS
representations must not be relied on CORPORATION
as having been authorized by the
Company or the Representative. This
Prospectus does not constitute an
offer to sell or the solicitation of
an offer to buy any security other
than the securities offered by this
Prospectus, or an offer to sell or a
solicitation of an offer to buy any
security by any person in any
jurisdiction in which such offer or
solicitation would be unlawful.
Neither the delivery of this
Prospectus nor any sale made hereunder
shall, under any circumstances, imply
that the information in this 1,800,000 SHARES
Prospectus is correct as of any time OF COMMON STOCK AND
subsequent to the date of this
Prospectus.
------------------
TABLE OF CONTENTS
Page
----
Prospectus Summary ................ 3
Risk Factors ...................... 8 1,800,000 REDEEMABLE
Use of Proceeds ................... 17 COMMON STOCK
Dividends.......................... 18 PURCHASE WARRANTS
Dilution .......................... 19
Capitalization .................... 21
Selected Consolidated Financial
Data ............................ 22
Management's Discussion and
Analysis of Financial Condition
and Results of Operations ........ 23
Business .......................... 28
Management ........................ 36
Principal Stockholders ............ 43 ----------
Certain Transactions .............. 45 PROSPECTUS
Description of Securities ......... 48 ----------
Shares Eligible for Future Sale ... 51
Underwriting ...................... 52
Concurrent Registration of
Securities ...................... 55
Interest of Named Experts and
Counsel .......................... 55
Legal Matters ..................... 55
Experts ........................... 55
Additional Information ............ 56
Glossary .......................... i
Index to Consolidated Financial National Securities Corporation
Statements .......................F-1
Network 1 Financial Securities
Until --, 1996 (25 days after the
date of this Prospectus), all dealers
effecting transactions in the
registered securities, whether or not
participating in this distribution,
may be required to deliver a
Prospectus. This is in addition to the
obligation of dealers to deliver a
Prospectus when acting as underwriters , 1996
and with respect to their unsold
allotments or subscriptions.
====================================== =====================================
<PAGE>
[ALTERNATE PAGE FOR SELLING SECURITYHOLDERS PROSPECTUS]
SUBJECT TO COMPLETION, DATED NOVEMBER 21, 1996
PROSPECTUS
[LOGO]
MULTIMEDIA ACCESS CORPORATION
477,244 SHARES OF COMMON STOCK
477,244 REDEEMABLE COMMON STOCK PURCHASE WARRANTS
This Prospectus relates to the offer and sale by certain persons (the
"Selling Securityholders") of up to 477,244 shares of Common Stock, $.0001 par
value per share (the "Common Stock"), 477,244 redeemable common stock purchase
warrants to purchase one (1) share of Common Stock (the "Public Warrants") and
the 477,244 shares underlying the Public Warrants of Multimedia Access
Corporation (the "Company"), hereinafter referred to as the "Offering". The
shares offered hereby were issued in connection with a debt retirement and debt
for equity exchange. Each Public Warrant entitles the holder to purchase one (1)
share of Common Stock at $ per share (120% of the price offered to the public),
subject to adjustment under certain circumstances, at any time commencing one
year from the date of this Prospectus through and including five years from the
date of this Prospectus. The Public Warrants are redeemable by the Company, at
any time commencing eighteen (18) months from the date of this Prospectus, upon
notice of not less than thirty (30) days, at a price of $.10 per Public Warrant,
provided that the closing price or bid price of the Common Stock for any twenty
(20) trading days within a period of thirty (30) consecutive trading days ending
on the fifth (5th) day prior to the day on which the Company gives notice of
redemption has been at least 250% (currently $ , subject to adjustment) of the
then effective exercise price of the Public Warrants. The Company will not
receive any of the proceeds from the sale of such shares of Common Stock and
Public Warrants, and the shares of Common Stock underlying the Public Warrants.
To the extent the Public Warrants and Selling Securityholders Warrants are
exercised, the Company will receive proceeds represented by the exercise price
of such Warrants. See "Selling Securityholders and Plan of Distribution."
Prior to this Offering, there has been no public market for the Common Stock
or Public Warrants and there can be no assurance that any such market will
develop. It is anticipated that the Common Stock and the Public Warrants will be
quoted on the NASDAQ Small-Cap Market ("NASDAQ") under the symbols "MMAC" and
"MMACW" respectively. For a discussion of the factors considered in determining
the offering prices of the Common Stock and Public Warrants, see "Selling
Securityholders and Plan of Distribution."
Concurrently with this Offering, the Company is offering by separate
prospectus 1,800,000 shares of Common Stock (the "Company Offered Shares") and
redeemable warrants to purchase 1,800,000 shares of Common Stock (the "Company
Offered Public Warrants") (the "Company Offering"). See "Concurrent Registation
of Securities."
----------
THE SECURITIES OFFERED HEREBY ARE SPECULATIVE AND INVOLVE A HIGH DEGREE OF
RISK AND IMMEDIATE DILUTION AND SHOULD NOT BE PURCHASED BY INVESTORS
WHO CANNOT AFFORD THE LOSS OF THEIR ENTIRE INVESTMENT. SEE "RISK
FACTORS" AND "DILUTION."
----------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The date of this Prospectus is , 1996
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of securities in any
State in which such offer, solicitation or sale would be unlawful prior to
registration or qualification under the securities laws of any such State.
<PAGE>
[ALTERNATE PAGE FOR SELLING SECURITYHOLDERS PROSPECTUS]
THE OFFERING
Securities Offered........ 470,649 shares of Common Stock, 470,649 Public
Warrants to purchase one (1) share of Common Stock
at $ (120% of price offered to the public) and the
470,649 shares underlying the Public Warrants. See
"Risk Factors -- Warrants Redeemable at Nominal
Price" and "Description of Securities."
Common Stock to be Outstand-
ing after the Offering(1. 7,331,558
Warrants to be Outstanding
after the Offering...... 5,000,649
Terms of the Public
Warrants.................. Each Public Warrant is exercisable at any time
commencing one year from the date of this
Prospectus and entitles the holder thereof to
purchase one share of Common Stock at a price of $
per share (120% of the price offered to the
public), subject to adjustment in certain
circumstances, at any time until five years after
the date of this Prospectus. The Public Warrants
are redeemable by the Company, at any time
commencing eighteen months after the date of this
Prospectus, at a price of $.10 per Public Warrant,
upon not less than 30 days prior written notice to
the registered holders of the Public Warrants,
provided that the closing price or bid price of
the Common Stock equals or exceeds 250% of the
exercise price (currently $ , subject to
adjustment) of the Public Warrants for any 20
trading days within a period of 30 consecutive
trading days ending on the fifth day prior to the
day on which the Company gives notice of
redemption. See "Description of Securities --
Warrants."
Risk Factors............... The securities offered hereby are speculative and
involve a high degree of risk and immediate
substantial dilution and should not be purchased
by investors who cannot afford the loss of their
entire investment. See "Risk Factors" and
"Dilution."
Proposed Nasdaq Symbols..... Common Stock -- MMAC
Public Warrants -- MMACW
- ----------
(1) Includes 477,244 shares of Common Stock issued on the date of this
Prospectus upon the conversion of $2,330,300 principal amount of Convertible
Debt and approximately $342,294 of accrued interest at the offering price of the
Common Stock and Public Warrants (based on an assumed offering price of $5.50
per share and $.10 per Public Warrant). Does not include (i) 1,442,505 shares of
Common Stock reserved for issuance upon exercise of outstanding warrants to
purchase common stock, (ii) 180,000 shares of Common Stock reserved for issuance
upon exercise of the Representative's Warrants, (iii) 180,000 shares of Common
Stock reserved for issuance upon exercise of Representative's Public Warrants
issuable upon exercise of Representative's Warrants, (iv) 957,975 shares of
Common Stock reserved for issuance upon exercise of options available for future
grant under the 1995 Option Plan, (v) 1,042,025 shares of Common Stock reserved
for issuance upon exercise of options granted under the 1995 Option Plan, (vi)
906,749 shares of Common Stock reserved for issuance upon exercise of options
granted under the 1994 Option Plan, (vii) 103,549 shares of Common Stock
reserved for issuance upon exercise of options granted under the 1993 Option
Plan, (viii) 25,000 shares of Common Stock reserved for issuance upon exercise
of options granted under the 1995 Directors Stock Option Plan, (ix) 225,000
shares of Common Stock reserved for issuance upon exercise of options available
for future grant under the 1995 Directors Stock Option Plan, (x) 250,000 shares
of Common Stock reserved for issuance under the Employee Stock Purchase Plan,
(xi) 1,280,900 shares of Common Stock reserved for issuance upon exercise of the
Convertible Debt Warrants, (xii) 1,800,000 shares of Common Stock reserved for
issuance upon exercise of the Public Warrants, and (xiii) 477,244 shares of
Common Stock reserved for issuance upon exercise of Public Warrants issued on
the date of this Prospectus upon conversion of $2,330,300 principal amount of
Convertible Debt and approximately $342,294 of accrued interest at the offering
price of Common Stock and Public Warrants based on an assumed offering price of
$5.50 per share and $.10 per Public Warrant. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations," "Management -- Stock
Option Plans," "Description of Securities -- Convertible Debt Financing" and
"Selling Securityholders and Plan Distribution."
6
<PAGE>
[Alternate Page for Selling Securityholders Prospectus]
RISK FACTORS
The securities offered hereby are speculative and involve a high degree of
risk. Each prospective investor should carefully consider the following risk
factors inherent in and affecting the business of the Company and this offering
before making an investment decision.
Development Stage Company; Limited Operating History; Going Concern
Qualification in Independent Auditor's Report. The Company is a development
stage company and has commenced limited marketing of its products. Accordingly,
the Company has a limited operating history upon which an evaluation of its
prospects can be made. Such prospects must be considered in light of the risks,
expense, delays, problems and difficulties frequently encountered in the
establishment of a new business in an industry characterized by intense
competition, as well as risks encountered in the shift from development to
commercialization of new products based on innovative technologies. The
Company's prospects are dependent upon the successful commercialization of its
products. There can be no assurance that the Company will be able to implement
its business plan or that unanticipated expenses, problems or difficulties,
technical or otherwise, will not result in material delays in its
implementation. The Company's independent auditors have included a going concern
qualification in their audit report on the Company's consolidated financial
statements stating that such financial statements have been prepared assuming
that the Company will continue as a going concern and that, among other things,
the Company's financial condition and losses from operations since inception
raise substantial doubt about the ability of the Company to continue as a going
concern. Statement of Financial Accounting Standards No. 107 ("SFAS 107")
requires an entity to disclose the fair value of financial instruments for which
it is practicable to estimate that value. Manangement of the Company has
determined that it is not practicable to estimate, in accordance with SFAS 107,
the fair values at December 31, 1995 of its long and short term debt. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," "Business" and Note 1 and Note 2 of "Notes to Consolidated
Financial Statements."
Limited Revenue; Significant Losses; Accumulated Deficit. Since inception,
the Company has generated limited revenue, including revenues of $127,531,
$285,354, and $900,446 and incurred significant losses, including losses of
$2,717,421, $5,414,878 and $3,081,082 for the years ended December 31, 1994 and
1995, and the nine months ended September 30, 1996, respectively, and has
continued to incur significant additional losses to date. At September 30, 1996,
cumulative losses since inception through September 30, 1996 were $11,861,511.
Inasmuch as the Company intends to increase its level of activities following
consummation of this offering and will be required to make significant
expenditures in connection with marketing and product development activities,
the Company anticipates that losses will continue for the foreseeable future and
until such time as the Company is able to build an effective marketing and sales
organization, develop a network of independent resellers and achieve market
acceptance of its products. In addition, the Company's future performance will
be subject to a number of business factors beyond the Company's control, such as
technological changes and developments by others and unfavorable general
economic conditions, including downturns in the economy or a decline in the DVC
or PC industries or in targeted commercial markets, which would result in a
reduction or deferral of capital expenditures by prospective customers. There
can be no assurance that the Company will be able to successfully implement its
marketing strategy, generate significant revenues or achieve profitable
operations. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and "Consolidated Financial Statements."
Significant Capital Requirements; Dependence on Offering Proceeds; Possible
Need for Additional Financing. The Company's capital requirements in connection
with the design, development and commercialization of its products have been and
will continue to be significant. To date, the Company has been substantially
dependent upon loans from its principal stockholders, as well as private
placements of its debt and equity securities, to finance its working capital
requirements. The Company is dependent on the proceeds of the Company Offering
to commence full-scale marketing activities in connection with its products, to
complete the development of additional product and software applications, and to
fund the Company's working capital requirements. The Company anticipates, based
on currently proposed plans and assumptions relating to its operations, that the
proceeds of the Company Offering will be sufficient to satisfy its contemplated
cash requirements for at least twelve months following the consummation of
8
<PAGE>
[Alternate Page for Selling Securityholders Prospectus]
the Company offering. In the event that the Company's plans change or prove to
be inaccurate or if the proceeds of the Company offering prove to be
insufficient to fund operations, the Company could be required to seek
additional financing sooner than currently anticipated or could be required to
curtail its activities. The Company has no current arrangements with respect to,
or sources of, additional financing, and there can be no assurance that existing
stockholders will provide any portion of the Company's future financing
requirements. There can be no assurance that any additional financing will be
available to the Company on acceptable terms, or at all. Additional equity
financing may involve substantial dilution to the interests of the Company's
then existing stockholders. See "Use of Proceeds" and "Certain Transactions."
Technological Factors; Uncertainty of Product Development and
Commercialization. The Company has only recently commenced limited
commercialization of its products for a limited number of users. Accordingly,
there can be no assurance that, upon widespread commercial use, if any, these
products will satisfactorily perform all of the functions for which they have
been designed or that they will operate satisfactorily. The Company intends to
use a portion of the proceeds of this offering in connection with product
refinement and enhancement and the development of additional products. Product
development, commercialization and continued system refinement and enhancement
efforts remain subject to all of the risks inherent in development of new
products based on innovative technologies, including unanticipated delays,
expenses and technical problems or difficulties, as well as the possible
insufficiency of funds to implement development efforts, which could result in
abandonment or substantial change in product commercialization. The Company's
success will be largely dependent upon its products meeting targeted cost and
performance objectives of large-scale production, the Company's ability to adapt
its products to satisfy industry standards and the timely introduction of its
products into the marketplace, among other things. There can be no assurance
that, upon wide-scale commercial introduction, the Company's products and
software applications will satisfy current price or performance objectives, that
unanticipated technical or other problems which would result in increased costs
or material delays in introduction and commercialization will not occur, or that
the Company's products will prove to be sufficiently reliable or durable under
actual operating conditions or otherwise be commercially viable. Software and
other technologies as complex as those incorporated into the Company's systems
may contain errors which become apparent subsequent to widespread commercial
use. Remedying such errors could delay the Company's plans and cause it to incur
additional costs, having a material adverse impact on the Company. See "Business
- -- Products" and "-- Marketing and Sales."
Concentration of Revenue; Dependence on Key Customers; Concentration of
Credit Risk. A substantial portion of the Company's sales are made to a small
number of customers, generally on an open account basis with no collateral
required. There can be no assurance that these customers will maintain their
volume of business with the Company. A loss of the Company's sales to these
customers could have a material adverse effect on the Company's results of
operations unless other customers were found to provide the Company with similar
revenues. The Company performs ongoing credit evaluation of its customers and
maintains reserves for potential credit losses. Although such losses in the
aggregate have not exceeded management's expectations, there can be no assurance
that potential credit losses will not exceed reserves in the future. In
addition, the Company invests its cash and cash equivalents with two financial
institutions, one a Texas commercial bank, and the other a major brokerage
house. Cash balances at the Texas commercial bank are insured by the Federal
Deposit Insurance Corporation up to $100,000 and the brokerage house maintains
accounts in several banks throughout the country and in government securities.
Should either the Texas commercial bank or the brokerage house cease business
operations, there can be no assurance that the Company will not suffer losses.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations."
Uncertainty of Market Acceptance. The DVC industry is characterized by
emerging and evolving markets and an increasing number of market entrants who
have introduced or are developing an array of new DVC systems. Each of these
entrants is seeking to establish its products as the preferred solution for
desktop video applications. As is typical in the case of emerging and evolving
markets, demand and market acceptance for newly introduced products and services
is subject to a high level of uncertainty. The Company has not yet commenced
significant marketing activities relating to product commercialization and
currently has limited marketing experience and limited financial, personnel and
other resources to undertake extensive marketing activities. The Company has not
conducted and does not
9
<PAGE>
[Alternate Page for Selling Securityholders Prospectus]
that the Company will be able to keep pace with the technological demands of the
marketplace or successfully enhance and adapt its products to be compatible with
newly developed PC and networking products and technologies or software
products, or satisfy industry standards and the needs of its consumers and
potential consumers. Industry standards covering the Company's products are
being established by, among others, the International Telecommunications Union.
Such standards will provide for acceptable product performance levels and
interoperability and compatibility standards. If such standards, when adopted,
differ from the proposed standards, or are changed after adoption, customer
confidence in, and the market for, the applicable product could be adversely
affected. There can be no assurance that such standards will remain the same,
and if changed, that the Company will be able to comply with any changed
standards. If any product does not comply with the applicable standards the
Company may have to discontinue sales of such product until such time, if ever,
as it is able to modify or redesign its technology. In addition, the
establishment of standards adverse to the Company's system could provide
substantial competitive advantages to manufacturers of other videoconferencing
systems. In particular, the Company's compressed packet video Codec utilized in
the current version of the Viewpoint-PRO(Trademark) system does not meet the
newly proposed applicable standards and the Company will have to modify or
redesign the non-conforming portion of the product. The project to upgrade the
Viewpoint-PRO to the new industry standards will involve the development of a
new product based on a technology derivative of the Company's Osprey-1000 Codec.
The Company estimates that the project will take 8 man-months to complete at a
cost of approximately $70,000. The Company projects that the upgraded
Viewpoint-PRO will be available during 1997. The Research and Development
portion of the Use of Proceeds includes the cost of this project. See "Business
- -- Competition."
Dependence Upon Third-Party Manufacturers and Suppliers. The Company has, to
date, engaged small contract manufacturers to supply its products in limited
quantities pursuant to purchase orders. There can be no assurance that its
products can be manufactured reliably on a large-scale basis on commercially
reasonable terms, or at all. In addition, the Company has been and will continue
to be dependent on third parties for the supply and manufacture of all of its
component and electronic parts, including standard and custom-designed
components. The Company generally does not maintain supply agreements with such
third parties but instead purchases components and electronic parts pursuant to
purchase orders in the ordinary course of business. The Company is substantially
dependent on the ability of its third-party manufacturers and suppliers to,
among other things, meet the Company's design, performance and quality
specifications.
Failure by the Company's third-party manufacturers and suppliers to comply
with these and other requirements could have a material adverse effect on the
Company. There can be no assurance that the Company's third-party manufacturers
and suppliers will dedicate sufficient production capacity to meet the Company's
scheduled delivery requirements or that the Company's suppliers or manufacturers
will have sufficient production capacity to satisfy the Company's requirements
during any period of sustained demand. Moreover, the electronics industry from
time to time experiences short supplies of certain high demand components, which
may adversely affect the Company's ability to meet its production schedules.
Furthermore, although the Company owns the designs and dies for its custom
designed components and believes that alternative sources of supply are
available, the Company currently purchases all of its specially designed
components and certain high demand components from sole source suppliers.
Failure of manufacturers or suppliers to supply, or delays in supplying, the
Company with systems or components, or allocations in the supply of certain high
demand components could materially adversely affect the Company's operations and
ability to meet its own delivery schedules on a timely and competitive basis.
See "Business -- Production and Supply."
Broad Discretion in Application of Proceeds. Approximately $2,619,600 (31.7%)
of the estimated net proceeds from the Company Offering has been allocated to
working capital and general corporate purposes. Accordingly, the Company will
have broad discretion as to the application of such proceeds. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations --
Liquidity" and "Description of Securities."
Proceeds to Repay Indebtedness; Offering Benefits Directors and Selling
Securityholders. The Company will use a portion of the proceeds of the Company
Offering to (i) repay $222,548 principal amount of Secured and Demand Notes,
including $200,000 payable to Glenn A. Norem, CEO of the Company, plus accrued
11
<PAGE>
[Alternate Page for Selling Securityholders Prospectus]
its operations or that the Company will not remain largely dependent on
non-recurring systems to a limited customer base, which sales will constitute
all or a significant portion of the Company's revenue. See "Use of Proceeds" and
"Business -- Government Regulation."
Possible Fluctuations in Operating Results. The Company's operating results
could vary from period to period as a result of the length of the Company's
sales cycle, as well as from purchasing patterns of potential customers, the
timing of introduction of new products, software applications and product
enhancements by the Company and its competitors, technological factors,
variations in sales by distribution channels, competitive pricing, and generally
nonrecurring system sales. The Company's sales order cycle, which generally
commences at a time a prospective user demonstrates an interest in purchasing
one of the Company's products and ends upon execution of a purchase order with
that customer, could range from one to eighteen months. The period from the
execution of a purchase order until delivery of system components to the
Company, assembly and shipment, at which time the Company recognizes revenue,
may range from approximately one to four months. Although the Company intends to
use a portion of the proceeds of this offering to purchase additional component
parts, which the Company believes may reduce the length of its production and
delivery cycle, there can be no assurance that such factors will not cause
significant fluctuations in operating results in the future. Additionally, the
Company anticipates that upon entering into agreements with resellers for
distribution of the Company's products, of which there can be no assurance, such
distributors may place initial stocking orders for systems, component parts and
software programs, which could also result in material fluctuations in the
Company's operating results. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and "Business -- Production and
Supply."
Limitations on Use of Net Operating Loss Carry Forwards. At December 31,
1995, the Company had substantial net operating loss carry forwards for federal
tax purposes available to offset future taxable income. Under Section 382 of the
Internal Revenue Code of 1986, as amended, utilization of prior net operating
loss carry forwards is limited after an ownership change, as defined in Section
382. There can be no assurance that the Company will not in the future be
subject to further significant limitations on the use of its net operating loss
carry forwards. In the event the Company achieves profitable operations, any
significant limitation on the utilization of net operating loss carry forwards
would have the effect of increasing the Company's tax liability and reducing net
income and available cash resources. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations -- Liquidity."
Government Regulation. The Company is subject to regulations relating to
electromagnetic radiation from its products, which impose compliance burdens on
the Company. In the event the Company redesigns or otherwise modifies its
products or completes the development of new products, it will be required to
comply with Federal Communications Commission regulations with respect to such
products prior to their commercialization. There can be no assurance that the
Company will be able to comply with such regulations. In addition, new
legislation and regulations, as well as revisions to existing laws and
regulations at the federal, state and local levels may be proposed in the future
affecting the video communications industries. Such proposals could affect the
Company's operations, result in material capital expenditures, affect the
marketability of its products and limit opportunities for the Company with
respect to modifications of its products or with respect to new or proposed
products or technologies. Expansion into foreign markets may also require the
Company to comply with additional regulatory requirements. The technology
contained in the Company's products may be subject to U.S. export controls.
There can be no assurance that such export controls, either in their current
form or as may be subsequently enacted, will not delay introduction of new
products or limit the Company's ability to distribute products outside of the
United States. Further, various countries may regulate the import of certain
technologies contained in the Company's products. Any such export or import
restrictions, new legislation or regulation or government enforcement of
existing regulations could have a material adverse effect on the Company's
business, operating results and/or financial condition. There can be no
assurance that the Company will be able to comply with additional applicable
laws and regulations without excessive cost or business interruption, if at all,
and failure to comply could have a material adverse effect on the Company. See
"Business -- Government Regulation."
Dependence on Key Personnel. The success of the Company will be largely
dependent on the personal efforts of Glenn A. Norem, its Chief Executive
Officer, and other key personnel. The Company
13
<PAGE>
[Alternate Page for Selling Securityholders Prospectus]
entered into a five-year employment agreement with Mr. Norem in February 1994.
All other key personnel, including Philip M. Colquhoun, President of the
Company, William S. Leftwich, Chief Financial Officer of the Company, David T.
Stoner, Vice President of Operations of the Company, Neal S. Page, Vice
President and General Manager of Osprey, A. David Boomstein, Vice President of
Business Development of the Company and Daniel W. Dodson, Vice President of
Marketing of the Comapny, are "at-will" employees by terms of their employment
agreements. The employment of each such key employee may therefore be terminated
by the officer or the Company at any time, for any reason or no reason. The loss
of the services of Mr. Norem or certain other key employees could have a
material adverse effect on the Company's business and prospects. The Company
plans to obtain "key-man" life insurance on the life of Mr. Norem in the amount
of $1,000,000. The success of the Company is also dependent upon its ability to
hire and retain qualified operational, financial, technical, marketing, sales
and other personnel. There can be no assurance that the Company will be able to
hire or retain such necessary personnel. See "Business -- Employees" and
"Management."
Control by Current Principal Stockholders; Potential Underwriters Influence
on the Company Upon Exercise of Right to Designate Board Member. Upon the
consummation of the Company Offering, the officers, directors and existing
stockholders of the Company will beneficially own approximately 75.4% of the
Company's outstanding Common Stock (72.8% if the Representatives' over-allotment
option is exercised in full). While these persons will not individually control
a majority of the shares of Common Stock of the Company, they may be able to
effectively control the decisions on matters including election of all of the
Company's directors, increasing the authorized capital stock, dissolution,
merger or sale of the assets of the Company and generally may be able to direct
the affairs of the Company. In addition, upon consummation of the offering, the
Representative has been granted, for a period of five years, the right to
designate a person to serve as a director of the Company. If the Representative
were to exercise such right, it could be deemed under certain circumstances to
be in a position to assert influence over the Company. See "Management,"
"Principal Stockholders" and "Certain Transactions."
Significant Outstanding Options and Warrants. As of September 30, 1996 there
were outstanding stock options to purchase an aggregate of approximately
2,080,590 shares of Common Stock at exercise prices ranging from $.04 to $4.00
per share and warrants to purchase an aggregate of approximately 1,442,505
shares of Common Stock at prices ranging from $1.00 to $3.00 per share. To the
extent that outstanding options and warrants are exercised, dilution to the
Company's stockholders will occur. Moreover, the terms upon which the Company
will be able to obtain additional equity capital may be adversely affected
because the holders of outstanding options and warrants can be expected to
exercise them at a time when the Company would, in all likelihood, be able to
obtain any needed capital on terms more favorable to the Company than the
exercise terms provided by such outstanding securities. See "Management --
Employee Stock Plans" and "Certain Transactions."
Immediate and Substantial Dilution. Assuming all 1,800,000 shares of Common
Stock offered hereby are sold at an assumed initial public offering price of
$5.50 per share and $0.10 per Public Warrant, the Company Offering will involve
an immediate and substantial dilution of $4.69 (85.3%) per share between the pro
forma net tangible book value per share of Common Stock and the offering price.
The Company believes that the net proceeds of this offering together with
available cash will be sufficient to meet the Company's operating expenses and
capital requirements for at least the next twelve months. The Company
anticipates that additional funding will be required after the use of the net
proceeds of this offering. Such additional funding will likely result in further
dilution to the Company's stockholders.
See "Dilution."
No Dividends. The Company has not paid any cash dividends on its Common Stock
and does not expect to declare or pay any cash dividends in the foreseeable
future. Certain of the Company's debt instruments include covenants precluding
the payment of cash dividends until after such debt instruments are repaid. See
"Dividends."
Authorization and Discretionary Issuance of Preferred Stock. The Company's
Certificate of Incorporation authorizes the issuance of "blank check" preferred
stock with such designations, rights and preferences as may be determined from
time to time by the Board of Directors. Accordingly, the Board
14
<PAGE>
[Alternate Page for Selling Securityholders Prospectus]
of Directors is empowered, without stockholder approval, to issue preferred
stock with dividend, liquidation, conversion, voting or other rights which could
adversely affect the voting power or other rightsof the holders of the Company's
Common Stock. In the event of issuance, the preferred stock could be utilized,
under certain circumstances, as a method of discouraging, delaying or preventing
a change in control of the Company. Although the Company has no present
intention to issue any shares of its preferred stock, there can be no assurance
that the Company will not do so in the future. See "Description of Securities --
Preferred Stock."
Limitation on Monetary Liability of Officers and Directors to Stockholders.
Section 145 of the General Corporation Law of the State of Delaware contains
provisions entitling directors and officers of the Company to indemnification
from judgments, fines, amounts paid in settlement and reasonable expenses,
including attorney's fees, as the result of an action or proceeding in which
they may be involved by reason of being or having been a director or officer of
the Company provided said officers or directors acted in good faith. Articles
Seven and Ten of the Company's Certificate of Incorporation contain provisions
indemnifying officers and directors of the Company to the fullest extent
permitted by Delaware law. These provisions provide, among other things, that a
director of the Company shall not be liable either to the Company or its
stockholders for monetary damages for breach of fiduciary duty as a director.
The Company has also entered into indemnification agreements with Messrs. Norem,
Leftwich, Colquhoun, Stoner, Dodson, Boomstein, Page, Jobe, and Culp which
provide for indemnification to the fullest extent allowable under the laws of
the State of Delaware. These provisions may limit the ability of the Company's
stockholders to collect on any monetary liability owed to them by an officer or
director of the Company.
Arbitrary Determination of Offering Price. The initial public offering price
of the Common Stock and the exercise price and terms of the Public Warrants have
been determined arbitrarily by negotiations between the Company and the
Representatives. Factors considered in such negotiations, in addition to
prevailing market conditions, included the history and prospects for the
industry in which the Company competes, an assessment of the Company's
management, the prospects of the Company, its capital structure and certain
other factors deemed relevant. Therefore, the public offering price of the
Common Stock and the exercise price and terms of the Public Warrants do not
necessarily bear any relationship to established valuation criteria and may not
be indicative of prices that may prevail at any time or from time to time in the
public market for the Common Stock. See "Underwriting."
Shares Eligible for Future Sale; Registration Rights. Upon the consummation
of the Company Offering, the Company will have 7,331,558 shares of Common Stock
outstanding (7,601,558 shares if the Representatives' over-allotment option is
exercised in full)(assuming no exercise of outstanding options and warrants). Of
these shares, the 1,800,000 shares sold in the Company Offering (2,070,000
shares if the Representatives' over-allotment option is exercised in full) and
the 477,244 shares of Common Stock registered concurrently with this Prospectus
being offered pursuant to the Selling Securityholder Prospectus included in the
Registration Statement of which this Prospectus forms a part will be freely
tradeable, subject to "lock-up" agreements (see "Shares Eligible for Future
Sale"), under the Securities Act, except for any shares purchased by an
"affiliate" of the Company (in general, a person who has a control relationship
with the Company), which shares will be subject to the resale limitations of
Rule 144 adopted under the Securities Act. The remaining 5,054,314 shares are
deemed to be "restricted securities," as that term is defined under Rule 144
promulgated under the Securities Act, in that such shares were issued and sold
by the Company in private transactions not involving a public offering and are
not currently part of an effective registration. Except for "lock-up"
agreements, such shares are eligible for sale under Rule 144, or will become so
eligible at various times through October 1996. In addition, the Company has
granted the Representatives demand and piggyback registration rights with
respect to the securities issuable upon exercise of the Representatives'
Warrants.
Under Rule 144, a stockholder who has beneficially owned Restricted Shares
for at least two (2) years (including persons who may be deemed to be
"affiliates" of the Company under Rule 144) may sell within any three (3) month
period a number of shares that does not exceed the greater of: a) one percent
(1%) of the then outstanding shares of a particular class of the Company's
Common Stock as reported on its 10-Q filing, or b) the average weekly volume on
NASDAQ during the four (4) calendar weeks preceding such sale and may only sell
such shares through unsolicited brokers' transactions. A stockholder who is not
deemed to have been an "affiliate" of the Company for at least ninety (90) days
15
<PAGE>
[ALTERNATE PAGE FOR SELLING SECURITYHOLDERS PROSPECTUS]
USE OF PROCEEDS
The Company will not receive any of the proceeds from the sale of the Shares
of Common Stock and Public Warrants by the Selling Securityholders. To the
extent that the Public Warrants are exercised, the Company will receive proceeds
represented by the exercise price of the Public Warrants. In addition, to the
extent that the Public Warrants are exercised, the Company will receive proceeds
represented by the exercise price of the Public Warrants. Any such proceeds will
be added to the Company's working capital. The net proceeds to the Company from
the sale of the 1,800,000 shares of Common Stock and 1,800,000 Public Warrants
offered pursuant to the Company Offering (based on an assumed offering price of
$5.50 per share of Common Stock and $.10 per Public Warrant) are estimated to be
approximately $8,269,600 ($9,585,040 if the over-allotment option granted to the
Underwriter of the Company Offering is exercised in full). The Company expects
to use such proceeds (assuming no exercise of the over-allotment option granted
to the Representatives of the Company Offering) as follows:
<TABLE>
<CAPTION>
APPROXIMATE
APPLICATION OF NET PROCEEDS DOLLAR AMOUNT % OF PROCEEDS
- ------------------------------------------------------------ --------------- ----------------
<S> <C> <C>
Repayment of outstanding accounts payable and
indebtedness(1)............................................. $2,490,000 30.1
Research and development(2) ................................ 1,960,000 23.7
Marketing and sales(3) ..................................... 1,200,000 14.5
Working capital and general corporate purposes(4) ......... 2,619,600 31.7
--------------- ----------------
Total ................................................... $8,269,600 100.0
=============== ================
</TABLE>
(1) Represents (i) the repayment of $222,548 principal amount of Secured Notes
and Demand Notes plus accrued interest of approximately $13,933, including
$200,000 principal amount of Secured Notes and Demand Notes payable to
Glenn A. Norem, CEO of the Company, a partnership he controls; (ii)
repayment of $347,250 principal amount of Convertible Debt plus accrued
interest of $97,898, (iii) payment of accrued expenses and trade accounts
payable of approximately $420,000, (iv) repayment of $500,000 principal
amount of Convertible Debt II plus accrued interest of approximately
$31,123 and (v) repayment of $850,000 principal amount of Bridge Debt plus
accrued interest of approximately $6,641. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Liquidity" and
"Description of Securities."
(2) Includes amounts associated with continued refinement and enhancement of
the Company's products and amounts associated with the development of
additional products.
(3) Represents anticipated costs associated with marketing and sales
activities, including approximately $250,000 for the cost of print media,
participation in trade shows and direct mailings and approximately $400,000
for the salaries of four additional marketing and sales personnel and three
additional customer support personnel.
(4) Includes amounts for the payment of salaries of executive officers
anticipated to be approximately $385,000 over the 12 months following
consummation of this offering. See "Management," "Certain Transactions" and
"Business -- Production and Supply."
In the event that the Company's plans change or its assumptions change or
prove to be inaccurate or if the proceeds of the Company Offering prove
insufficient to fund operations (due to unanticipated expenses or difficulties
or otherwise), the Company may find it necessary or advisable to reallocate some
of the proceeds within the above-described categories or to use portions thereof
for other purposes or may be required to seek additional financing or curtail
its operations. Future events, including changes in economic or industry
conditions or the Company's planned operations, may require the Company to use
proceeds allocated to working capital for marketing and sales or reallocate
proceeds among the various intended uses if it is determined at a later date
that an increase in such expenditures or reallocation of proceeds is necessary
or desirable. Any such determination would be based on, among other things,
whether and to what extent revenue from systems sales is sufficient to offset
operating expenses and the capital requirements associated with maintaining an
inventory of system components. Alternatively, the Company may use less of the
proceeds for marketing and sales in the event that such initial efforts prove
more successful than anticipated or the Company generates sufficient cash flow
from operations to otherwise fund such efforts.
18
<PAGE>
[ALTERNATE PAGE FOR SELLING SECURITYHOLDERS PROSPECTUS]
The Company may, if and when the opportunity arises, use a portion of the
proceeds of the Company Offering allocated to working capital, together with the
issuance of debt or equity securities, to acquire rights to technology and/or
products or to acquire existing companies in businesses the Company believes are
compatible with its business. Any decision to make such an acquisition will be
based upon a variety of factors, including, among others, the purchase price and
other financial terms of the transaction, the business prospects and competitive
position of, and technology or products provided by, the acquisition candidate
and the extent to which any technology or business would enhance the Company's
prospects. Potential acquisition candidates may include companies with products
or technologies that are compatible with the Company's products, or that the
Company believes would provide the Company with additional distribution
channels. As of the date of this Prospectus, the Company has no agreements,
understandings or arrangements with respect to any such acquisition. There can
be no assurance that the Company will be able to successfully consummate any
acquisition or successfully integrate any acquired business into its operations.
Investors in this offering will not have an opportunity to evaluate the specific
merits or risks of any acquisition.
The Company believes that the net proceeds of the Company Offering together
with available cash will be sufficient to meet the Company's operating expenses
and capital requirements for at least the next twelve months. The Company
anticipates that additional funding will be required after the use of the net
proceeds of the offering. No assurance can be given that such additional
financing will be available when needed on terms acceptable to the Company, if
at all. See "Risk Factors -- Significant Capital Requirements; Dependence on
Offering Proceeds; Possible Need for Additional Financing."
Proceeds not immediately required for the purposes set forth above will be
invested in short-term, investment-grade, interest-bearing securities.
DIVIDENDS
The Company has never paid cash dividends on its Common Stock. The Board of
Directors does not anticipate paying cash dividends in the foreseeable future as
it intends to retain future earnings to finance the growth of the business. The
payment of future cash dividends will depend on such factors as earnings levels,
anticipated capital requirements, the operating and financial condition of the
Company and other factors deemed relevant by the Board of Directors.
Certain of the Company's debt instruments include covenants precluding
payment of cash dividends until after such debt instruments are repaid.
19
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[ALTERNATE PAGE FOR SELLING SECURITYHOLDERS PROSPECTUS]
[This Page Intentionally Left Blank]
20
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[ALTERNATE PAGE FOR SELLING SECURITYHOLDERS PROSPECTUS]
[This Page Intentionally Left Blank]
21
<PAGE>
[ALTERNATE PAGE FOR SELLING SECURITYHOLDERS PROSPECTUS]
CAPITALIZATION
The following sets forth the capitalization of the Company as of June 30,
1996 (A) on an actual basis, (B) pro forma to reflect transactions occurring
after June 30, 1996 but before the date of this Prospectus consisting of 1)
receipt of stock subscription receivable of $220,000, 2) issuance of $1,000,000
aggregate principal amount of Convertible Debt II and (3) issuance of $500,000
aggregate principal amount of Bridge Debt and (C) pro forma as adjusted to
reflect the issuance and sale of shares of Common Stock and Public Warrants
offered pursuant to the Company Offering (based on an assumed offering price of
$5.50 per share and $.10 per Public Warrant); and the initial application of
estimated net proceeds therefrom.
<TABLE>
<CAPTION>
JUNE 30, 1996
--------------------------------------------
PRO FORMA
AS
ACTUAL PRO FORMA ADJUSTED(1)
-------------- -------------- --------------
<S> <C> <C> <C>
Short-term debt.......................................... $ 3,293,775 $ 4,293,775 $ 295,100
============== ============== ==============
Long-term debt........................................... $ 3,780 $ 503,780 $ 503,780
-------------- -------------- --------------
Stockholders' equity:
Preferred stock, $.0001 par value, 5,000,000 shares
authorized, none issued or outstanding.................. -- -- --
Common Stock, $.0001 par value, 20,000,000 shares
authorized; 5,315,811 shares issued (actual),
5,315,811 shares issued (pro forma) and 7,593,055
shares issued (pro forma as adjusted)................... 532 532 760
Additional paid-in capital.............................. 6,192,572 6,412,572 17,469,538
Accumulated deficit..................................... (10,036,220) (10,036,220) (10,036,220)
Treasury stock, 261,497 shares, at cost................. (11,906) (11,906) (11,906)
-------------- -------------- --------------
Total stockholders' equity (deficit)..................... (3,855,022) (3,635,022) 6,399,247
-------------- -------------- --------------
Total capitalization..................................... $ (3,851,242) $ (3,131,242) $ 6,899,247
============== ============== ==============
</TABLE>
- ----------
(1) Includes 477,244 shares of Common Stock and 477,244 Public Warrants issued
on the date of this Prospectus upon the conversion of $2,330,300 principal
amount of Convertible Debt and approximately $342,294 of accrued interest
(based on an assumed offering price of $5.50 per share and $.10 per Public
Warrant). Does not include (i) 1,442,505 shares of Common Stock reserved
for issuance upon exercise of outstanding warrants to purchase common
stock, (ii) 180,000 shares of Common Stock reserved for issuance upon
exercise of the Representative's Warrants, (iii) 180,000 shares of Common
Stock reserved for issuance upon exercise of Representative's Public
Warrants issuable upon exercise of Representatives' Warrants, (iv) 957,975
shares of Common Stock reserved for issuance upon exercise of options
available for future grant under the 1995 Option Plan, (v) 1,042,025
shares of Common Stock reserved for issuance upon exercise of options
granted under the 1995 Option Plan, (vi) 906,749 shares of Common Stock
reserved for issuance upon exercise of options granted under the 1994
Option Plan, (vii) 103,549 shares of Common Stock reserved for issuance
upon exercise of options granted under the 1993 Option Plan, (viii) 25,000
shares of Common Stock reserved for issuance upon exercise of options
granted under the 1995 Directors Stock Option Plan, (ix) 225,000 shares of
Common Stock reserved for issuance upon exercise of options available for
future grant under the 1995 Directors Stock Option Plan, (x) 250,000
shares of Common Stock reserved for issuance under the Employee Stock
Purchase Plan, (xi) 1,280,900 shares of Common Stock reserved for issuance
upon exercise of the Convertible Debt Warrants, and (xii) 1,800,000 shares
of Common Stock reserved for issuance upon exercise of the Public
Warrants. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations," "Management -- Employee Stock Plans,"
"Description of Securities -- Convertible Debt Financing" and
"Underwriting."
22
<PAGE>
[ALTERNATE PAGE FOR SELLING SECURITYHOLDERS PROSPECTUS]
Selling, General and Administrative Expense. Selling, general and
administrative expense increased $502,012 to $2,297,497 for the year ended
December 31, 1995. This 28.0% increase over the prior year can be attributed to
increases in employees and consultants, higher occupancy costs and increased
business development, sales and marketing related expenses corresponding to the
introduction of the Viewpoint-PRO(Trademark), Viewpoint VBX(Trademark) and
Osprey-1000(Trademark) product lines in 1995. The Viewpoint VBX(Trademark) and
Osprey-1000(Trademark) products were still undergoing customer evaluation at the
end of 1995.
Research and Development Expense. The Company's research and development
expense increased $1,118,463 to $1,983,310 in 1995 primarily due the
establishment of the Company's North Carolina development office. Expenses
related to this office included salaries for newly hired engineers and support
staff and the cost of office facility and equipment. During 1995, this
development office was engaged in the development of the Osprey-1000(Trademark)
and SLIC-Video(Trademark) products introduced in late-1995 and mid-1995,
respectively.
Other Income (Expense). For the year ended December 31, 1995, other income
(expense) increased to ($843,292) for the year compared to ($39,897) for the
year ended December 31, 1994. This increase was primarily the result of an
approximate $766,402 increase in interest expense for 1995 over 1994, as a
result of additional borrowings pursuant to the Convertible Debt and borrowings
pursuant to the Secured Notes and Demand Notes. See "Certain Transactions."
LIQUIDITY
At June 30, 1996, the Company had a working capital deficit of $(4,483,604).
To date, the Company has been dependent upon loans from its principal
stockholders, as well as private placements of its debt and equity securities,
to finance its working capital requirements.
Net cash used in operating activities for the six months ended June 30, 1996
was $1,399,250. Increases in inventory and accounts payable were a result of an
increase in production levels to meet anticipated sales.
Cash used in investing activities for the six months ended June 30, 1996
consisted of $85,901 of capital expenditures. As of the date of this Prospectus,
the Company does not have any material commitments for capital expenditures.
Cash provided by financing activities for the six months ended June 30, 1996
was primarily a result of the receipt of the proceeds of the Secured Notes II in
January through February 1996 and the private placement of Common Stock during
the second quarter of 1996. At June 30, 1996, the Company had cash of $54,072
The Company currently has no plans or agreements to seek loan financing. The
Company may choose to seek additional financing to provide additional working
capital at sometime in the future. Such financing may include loans or lines of
credit and could include factoring agreements. However, the Company believes
that the proceeds of the initial public offering will be sufficient to meet its
capital requirements for the next twelve months.
The Company's independent auditors have included an explanatory paragraph in
their audit report on the Company's consolidated financial statements stating
that certain factors raise substantial doubt about the Company's ability to
continue as a going concern. The Company Offering is an integral part of the
Company's plan to continue as a going concern. In the event that the Company's
plans change or its assumptions change or prove to be inaccurate or if the
proceeds of the Company Offering prove to be insufficient to fund operations
(due to unanticipated expenses or difficulties or otherwise), the Company may be
required to seek additional financing sooner than currently anticipated. The
Company has no current arrangements with respect to, or sources of, additional
financing. There can be no assurance that existing stockholders will provide any
portion of the Company's future financing requirements. There can be no
assurance that any additional financing will be available to the Company on
acceptable terms, or at all. Additional equity financing may involve substantial
dilution to the Company's then existing stockholders.
25
<PAGE>
[ALTERNATE PAGE FOR SELLING SECURITYHOLDERS PROSPECTUS]
PRINCIPAL STOCKHOLDERS
The following table sets forth information as of September 30, 1996 and as
adjusted to reflect the sale of Common Stock offered by the Company pursuant to
the Company Offering, based on information obtained from the persons named
below, with respect to the beneficial ownership of shares of Common Stock by (i)
each person or a group known by the Company to be the owner of more than 5% of
the outstanding shares of Common Stock, (ii) each director, (iii) each executive
officer named in the Summary Compensation Table under the caption "Management",
and (iv) all officers and directors as a group.
<TABLE>
<CAPTION>
AMOUNT AND PERCENTAGE OF OUTSTANDING
NATURE OF SHARES OWNED(2)(3)
NAME AND ADDRESS BENEFICIAL -------------------------------
OF BENEFICIAL OWNER(1) OWNERSHIP(2) PRIOR TO
---------------------- ------------ OFFERING AFTER OFFERING
<S> <C> <C> <C>
Fred Kassner ................... 1,375,242(4) 15.0 12.6
69 Spring Street
Ramsey, NJ 07446
Robert Moody, Jr. .............. 1,086,531(5) 11.9 9.9
601 Moody National Bank Bldg.
Galveston, TX 77550 ...........
H.T. Ardinger, Jr. ............. 1,047,455(6) 11.5 9.6
9040 Governors Row
Dallas, TX 75247
Glenn A. Norem ................. 835,148(7) 9.1 7.6
M. Douglas Adkins............... 688,759(8) 7.5 6.3
1601 Elm Street, #3000
Dallas, TX 75201
Robert Sterling Trust .......... 532,059(9)(10) 5.8 4.9
c/o Thomas E. Brown
1715 West 35th Street
Pine Bluff, AR 71603
Robert Bernardi Trust........... 430,394(11) 4.7 3.9
c/o Richard Bernardi
440 Wood Crest Road
Stratford, PA 19087
William D. Jobe................. 84,414(12) * *
William S. Leftwich ............ 40,000(13) * *
Joe C. Culp .................... 19,930(14) * *
Philip M. Colquhoun............. 46,666(15) * *
David T. Stoner................. -- 16) * *
All officers and directors as a
group (nine persons)........... 1,129,870(7)(12)(13)(14)(15)(16)(17) 12.4 10.3
</TABLE>
Messrs. Sterling and Bernardi may be deemed to be "founders" of the Company,
as such term is defined under the federal securities laws.
- ----------
* Less than 1%
(1) Unless otherwise indicated, the address of each individual is c/o the
Company, 2665 Villa Creek Drive, Dallas, Texas 75234.
(2) A person is deemed to be the beneficial owner of securities that can be
acquired by such person within 60 days from the date of this Prospectus
upon the exercise of warrants or options. Each beneficial owner's
percentage ownership is determined by assuming that options or warrants
that are held by such person (but not those held by any other person) and
which are exercisable within 60 days from the date of this Prospectus have
been exercised. Unless otherwise indicated, the Company believes that all
persons named in the table have sole voting and investment power with
respect to all shares of Common Stock beneficially owned by them.
(3) Based on a total of (i) 5,054,314 shares issued and outstanding, (ii)
470,649 shares of Common Stock issued on the date of this Prospectus upon
the conversion of $2,330,300 principal amount of Convertible Debt and
approximately $305,362 accrued interest (based on an assumed offering
price of $5.50 per share and $.10 per Public Warrant), (iii) 1,392,505
shares of Common Stock reserved for issuance upon exercise of outstanding
warrants to purchase common stock, (iv) 1,280,900 shares
44
<PAGE>
[ALTERNATE PAGE FOR SELLING SECURITYHOLDERS PROSPECTUS]
of Common Stock reserved for issuance upon exercise of the Convertible
Debt Warrants and (v) 888,196 shares of Common Stock reserved for issuance
upon exercise of vested stock options as of September 30, 1996. Does not
include (i) 180,000 shares of Common Stock reserved for issuance upon
exercise of the Underwriters' Warrants, and 180,000 shares of Common Stock
reserved for issuance upon exercise of Underwriters' Public Warrants. See
"Management's Discussion and Analysis of Financial Condition and Results
of Operations," "Management -- Employee Stock Plans," "Description of
Securities" and "Underwriting."
(4) Includes (i) 35,714 shares issuable upon the conversion of Convertible
Debt to equity, (ii) 100,000 shares issuable at $3.00 per share upon
exercise of warrants issued in connection with the conversion of
Convertible Debt to equity, (iii) 65,000 shares issuable at $3.00 per
share upon exercise of warrants issued in connection with the conversion
of Secured Notes II to equity, (iv) 100,000 shares issuable at $3.00 per
share upon exercise of warrants issued in connection with the Convertible
Debt II.
(5) Includes (i) 250,000 shares beneficially owned by Moody Insurance Group,
Inc., of which Mr. Moody is Chairman, President and the sole stockholder,
(ii) warrants to purchase 200,000 shares at $1.00 per share issued in
connection with the exchange of a Secured Note for equity, (iii) 114,280
shares issuable upon the conversion of Convertible Debt and accrued
interest to equity, and (iv) warrants to purchase 275,000 shares at $3.00
per share issued in connection with the conversion of Convertible Debt to
equity.
(6) Includes (i) 54,501 shares owned by Mr. Ardinger's wife, (ii) warrants to
purchase 120,000 shares at $1.00 per share issued in connection with the
exchange of a Secured Note and a Demand Note for equity, held by either
Mr. Ardinger or his wife, (iii) warrants to purchase 375,000 shares at
$3.00 per share issued in connection with the conversion of Convertible
Debt to equity, (iv) 155,953 shares issuable upon the conversion of
Convertible Debt and accrued interest to equity, and (v) 37,500 shares
issuable at $1.00 per share granted for the issuance of a Demand Note.
(7) Includes (i) 51,100 shares issuable at $.04 per share upon the exercise of
options issued under the 1993 Option Plan, (ii) 95,333 shares issuable at
$2.42 per share upon exercise of options issued under the 1994 Option
Plan, (iii) 75,000 shares issuable at $1.00 per share upon exercise of
warrants granted for the exchange of a Secured Note for a Demand Note, and
(iv) 16,667 shares issuable at $3.00 per share upon exercise of warrants
issued for the repayment of Convertible Debt.
(8) Includes (i) 25,000 shares issuable at $1.00 per share upon the exercise
of warrants granted for the issuance of a Demand Note, (ii) 145,500 shares
issuable at $1.00 per share upon the exercise of warrants in connection
with the exchange of a Secured Note for equity, (iii) 50,000 shares
issuable at $1.00 per share upon exercise of warrants in connection with
the exchange of a Demand Note for equity, (iv) 63,388 shares issuable upon
the conversion of Convertible Debt and accrued interest to equity and (v)
152,500 shares issuable at $3.00 per share upon the exercise of warrants
in connection with the conversion of Convertible Debt to equity.
(9) Shares subject to the control of Thomas E. Brown, as voting trustee of the
Robert Sterling Trust. On January 24, 1995, Robert M. Sterling, Jr. and
Thomas E. Brown, as voting trustee, entered into a Voting Trust Agreement
covering all capital stock beneficially owned by Mr. Sterling as of
January 24, 1995 or subsequently acquired. The voting trustee is
entitled,in his discretion, to vote the shares deposited therewith and
also has exclusive investment control of said shares. The Voting Trust
Agreement is irrevocable and expires on January 20, 1998. Mr. Sterling is
the sole beneficiary of the Voting Trust Agreement.
(10) Includes (i) 58,333 shares issuable at $2.20 per share upon exercise of
options issued under the 1994 Option Plan and (ii) 16,667 shares issuable
at $3.00 per share for the exercise of warrants in connection with the
repayment of Convertible Debt.
(11) Shares subject to the control of Richard Bernardi, as voting trustee of
the Robert Bernardi Trust. On January 20, 1995, Robert P. Bernardi and
Richard Bernardi, as voting trustee, entered into a Voting Trust Agreement
covering all capital stock beneficially owned by Mr. Bernardi as of
January 20, 1995 or subsequently acquired. The voting trustee is
entitled,in his discretion, to vote the shares deposited therewith and
also has exclusive investment control of said shares. The Voting Trust
Agreement is irrevocable and expires on January 20, 1998. Mr. Bernardi is
the sole beneficiary of the Voting Trust Agreement.
(12) Includes (i) 60,833 shares issuable at $3.00 per share upon the exercise
of options granted under the 1994 Option Plan and (ii) 15,555 shares
issuable at $3.00 per share upon exercise of options granted under the
1995 Option Plan, (iii) 5,110 shares issuable at $.20 per share upon
exercise of options granted under the 1993 Plan and (iv) 2,916 shares
issuable at $3.00 per share upon exercise of options granted under the
1995 Directors Plan.
<PAGE>
(13) Includes 34,000 shares issuable at $3.00 per share upon the exercise of
options issued under the 1994 Option Plan and 6,000 shares issuable at
$3.00 per share upon the exercise of options issued under the 1995 Option
Plan.
(14) Includes 15,555 shares issuable at $3.00 per share upon exercise of
options granted under the 1995 Option Plan and 4,375 shares issuable at
$3.00 per share upon exercise of options granted under the 1995 Directors
Plan.
(15) Includes 46,666 shares issuable at $3.00 share upon exercise of options
granted under the 1995 Option Plan.
(16) None of the 100,000 options to purchase Common Stock of the Company at
$4.00 per share have vested as of the date of this Prospectus.
(17) Includes 81,234 and 22,478 shares issuable at $3.00 per share to Mr. Page
and Mr. Boomstein, respectively, upon exercise of options granted under
the 1994 and 1995 Option Plans.
45
<PAGE>
[ALTERNATE PAGE FOR SELLING SECURITYHOLDERS PROSPECTUS]
SHARES ELIGIBLE FOR FUTURE SALE
Upon the consummation of the Company Offering, the Company will have
7,331,558 shares of Common Stock outstanding (7,601,558 shares if the
Representatives' over-allotment option is exercised in full)(assuming no
exercise of outstanding options and warrants). Of these shares, the 1,800,000
shares sold in the Company Offering (2,070,000 shares if the Representatives'
over-allotment option is exercised in full) and the 477,244 shares of Common
Stock registered concurrently with this Prospectus (the "Selling Securityholders
Shares") offered hereby will be freely tradeable subject to "lock-up" agreements
described below under the Securities Act, except for any shares purchased by an
"affiliate" of the Company (in general, a person who has a control relationship
with the Company), which shares will be subject to the resale limitations of
Rule 144 adopted under the Securities Act. The remaining 5,054,314 shares are
deemed to be "restricted securities," as that term is defined under Rule 144
promulgated under the Securities Act, in that such shares were issued and sold
by the Company in private transactions not involving a public offering and are
not currently part of an effective registration. Except for the "lock-up"
agreement described below, such shares are eligible for sale under Rule 144, or
will become so eligible at various times through October 1996. In addition, the
Company has granted the Representatives demand and piggyback registration rights
with respect to the securities issuable upon exercise of the Representatives'
Warrants. No prediction can be made as to the effect, if any, that sales of
shares of Common Stock or even the availability of such shares for sale will
have on the market prices prevailing from time to time. If the holders of the
shares eligible for registration so choose they could require the Company to
register all of said shares at any time.
In general, under Rule 144 as currently in effect, subject to the
satisfaction of certain other conditions, a person, including an affiliate of
the Company (or other persons whose shares are aggregated), who has owned
restricted shares of Common Stock beneficially for at least two years is
entitled to sell, within any three-month period, a number of shares that does
not exceed the greater of 1% of the total number of outstanding shares of the
same class or, if the Common Stock is quoted on NASDAQ, the average weekly
trading volume during the four calendar weeks preceding the sale. A person who
has not been an affiliate of the Company for at least the three months
immediately preceding the sale and who has beneficially owned shares of Common
Stock for at least three years is entitled to sell such shares under Rule 144
without regard to any of the limitations described above.
Except upon the consent of both Representatives during the first twelve (12)
months of the term of the lock-up period and thereafter upon the consent of one
of the Representatives, all executive officers, all directors and holders of
substantially all of the outstanding stock of the Company and substantally all
holders of any options, warrants or other securities convertible, exercisable or
exchangeable for shares of Common Stock have agreed not to, directly or
indirectly, issue, offer, agree or offer to sell, sell, transfer, assign,
encumber, grant an option for the purchase or sale of, pledge, hypothecate or
otherwise dispose of any beneficial interest in such securities for a period of
twenty-four (24) months following the effective date of the Registration
Statement. Holders of of the "restricted securities" have not agreed not to sell
such shares, all of which will be eligible for sale under, and subject to, Rule
144 within three months following the date of this Prospectus. For a period of
two years from the date of this Prospectus, the Company has also agreed not to
file any registration statement relating to the offering or sale of the
Company's securities (not including any registration statement on Form S-8)
without the consent of the Representatives.
Prior to this offering, there has been no market for the Common Stock and no
prediction can be made as to the effect, if any, that market sales of shares of
Common Stock or the availability of such shares for sale will have on the market
prices prevailing from time to time. Nevertheless, the possibility that
substantial amounts of Common Stock may be sold in the public market may
adversely affect prevailing market prices for the Common Stock and could impair
the Company's ability to raise capital through the sale of its equity
securities.
52
<PAGE>
[ALTERNATE PAGE FOR SELLING SECURITYHOLDERS PROSPECTUS]
SELLING SECURITYHOLDERS AND PLAN OF DISTRIBUTION
An aggregate of up to 470,649 shares of Common Stock, 470,649 Public Warrants
and 470,649 shares of Common Stock issuable upon the exercise of Public Warrants
may be offered and sold pursuant to this Prospectus by the Selling
Securityholders from time to time as market conditions permit in the
over-the-counter market, or otherwise, at prices and terms then prevailing or at
prices related to the then current market price, or in negotiated transactions
subject to "lock-up" agreements (See "Shares Eligible for Future Sale"). The
Company has agreed to register such shares and warrants under the Securities Act
and to pay all expenses in connection therewith (other than brokerage
commissions and fees and expenses of counsel). Such shares and warrants have
been included in the Registration Statement of which this Prospectus forms a
part. Other than H.T. Ardinger, M. Douglas Adkins, Robert Moody, Jr., and Fred
Kassner, none of the Selling Securityholders beneficially owns 5% or more of the
Company's outstanding Common Stock. See "Principal Stockholders."
<TABLE>
<CAPTION>
Beneficial Ownership of Shares Beneficial
of Common Stock Prior to Sale Beneficial Ownership of
----------------------------- Ownership of Warrants
Public Shares of ----------------
Warrant Warrant Common Stock Prior to After
Selling Securityholder Shares Share Share Total after Sale(1) Sale Sale
- ---------------------- ------ ----- ----- ----- ------------- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Robert Gillings 55,171 597,650 55,171 707,992 0 652,821 597,650
A. Starke Taylor, Jr.. 92,017 25,000 8,684 125,701 83,333 33,684 25,000
H.T. Ardinger, Jr. ... 489,308 532,500 130,306 1,152,114 359,002 662,806 332,883
M. Douglas Adkins .... 305,334 373,000 52,963 731,297 497,251 425,963 373,000
Robert Moody, Jr. .... 592,736 475,000 95,485 1,163,221 252,371 570,485 475,000
Fred Kassner(2)....... 1,256,346 365,000 181,818 1,803,164 1,074,528 546,818 365,000
Henry Wendt........... 1,742 5,000 1,742 8,484 0 6,742 5,000
William Heim.......... 17,107 50,000 17,107 84,214 0 67,107 50,000
Joseph W. Geary....... 49,908 25,000 7,575 82,483 42,333 32,575 25,000
</TABLE>
(1) Assumes all of the Selling Securityholders' shares of Common Stock offered
hereby are sold and no additional shares are acquired.
The shares, warrants, and shares underlying such warrants may be sold by one
or more of the following methods: (a) a block trade in which a broker or dealer
so engaged will attempt to sell the shares and/or warrants as agent but may
position and resell a portion of the block as principal to facilitate the
transaction; (b) purchases by a broker or dealer as principal and resale by such
broker or dealer for its account pursuant to this Prospectus; and (c)
face-to-face transactions between sellers and purchasers without a
broker/dealer. In effecting sales, brokers or dealers engaged by the Selling
Securityholders may arrange for other brokers or dealers to participate. Such
brokers or dealers may receive commissions or discounts from Selling
Securityholders in amounts to be negotiated. Such brokers and dealers and any
other participating brokers and dealers may be deemed to be "Underwriters"
within the meaning of the Securities Act in connection with such sales.
53
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[THIS PAGE INTENTIONALLY LEFT BLANK]
54
<PAGE>
[ALTERNATE PAGE FOR SELLING SECURITYHOLDERS PROSPECTUS]
[THIS PAGE INTENTIONALLY LEFT BLANK]
55
<PAGE>
[ALTERNATE PAGE FOR SELLING SECURITYHOLDERS PROSPECTUS]
CONCURRENT REGISTRATION OF SECURITIES
Concurrently with this offering, 1,800,000 shares of Common Stock (the
"Common Stock") and 1,800,000 Public Warrants have been registered by the
Company under the Securities Act of 1933, as amended (the "Securities Act"),
pursuant to the Company Prospectus included within the Registration Statement of
which this Prospectus forms a part. The Common Stock and the Public Warrants may
not be sold prior to 24 months from the date of this Prospectus, in each case,
without the prior written consent of the Representatives.
INTEREST OF NAMED EXPERTS AND COUNSEL
John S. Stoppelman, a principal of The Stoppelman Law Firm, P.C., counsel to
the Company owns 42,666 shares of Common Stock of the Company, or less than one
percent (1.0%) of the shares outstanding before this offering.
LEGAL MATTERS
The legality of the securities offered hereby will be passed upon for the
Company by The Stoppelman Law Firm, P.C., McLean, Virginia. Orrick, Herrington &
Sutcliffe L.L.P., New York, NY has acted as special counsel to National in
connection with this offering. Gersten, Savage, Kaplowitz, & Curtin, L.L.P., New
York, NY has acted as counsel for the several underwriters in connection with
this offering.
EXPERTS
The consolidated financial statements of the Company and its subsidiaries
(companies in the development stage) at December 31, 1995 and for the year ended
December 31, 1995, appearing in this Prospectus and Registration Statement have
been audited by Ernst & Young LLP, independent auditors, as set forth in their
report thereon appearing elsewhere herein, and are included in reliance upon
such report given upon the authority of such firm as experts in accounting and
auditing.
The consolidated financial statements of the Company and its subsidiaries
(companies in the development stage) at December 31, 1994 and for the year ended
December 31, 1994, appearing in this Prospectus and Registration Statement have
been audited by Hoffman, Morrison & Fitzgerald, P.C. ("Hoffman"), independent
auditors, as set forth in their report thereon appearing elsewhere herein, and
are included in reliance upon such report given upon the authority of such firm
as experts in accounting and auditing.
The former independent auditor for the Company, Hoffman, Morrison &
Fitzgerald, P.C., was dismissed by the Company on November 3, 1995. Hoffman's
report on the financial statements for the fiscal year ended December 31, 1994
did not contain an adverse opinion or disclaimer of opinion, and, except for an
emphasis paragraph describing substantial doubt about the Company's ability to
continue as a going concern, was not modified as to uncertainty, audit scope or
accounting principles. Management is not aware of any disagreements with Hoffman
on any matter of accounting principles or practices, financial statement
disclosure or auditing scope or procedure through the date of dismissal, which,
if not resolved to Hoffman's satisfaction, would have caused Hoffman to make
reference to the subject matter of the disagreement in connection with its
report.
56
<PAGE>
.
[Alternate Page for Selling Securityholders Prospectus]
====================================== =====================================
No dealer, salesperson or any
other person has been authorized to
give any information or to make any
representations other than those
contained in this Prospectus, and, if
given or made, such information or MULTIMEDIA ACCESS
representations must not be relied on CORPORATION
as having been authorized by the
Company or the Representative. This
Prospectus does not constitute an
offer to sell or the solicitation of
an offer to buy any security other
than the securities offered by this
Prospectus, or an offer to sell or a
solicitation of an offer to buy any
security by any person in any
jurisdiction in which such offer or
solicitation would be unlawful.
Neither the delivery of this
Prospectus nor any sale made hereunder
shall, under any circumstances, imply
that the information in this 477,244 SHARES
Prospectus is correct as of any time OF COMMON STOCK AND
subsequent to the date of this
Prospectus.
------------------
TABLE OF CONTENTS
Page
----
Prospectus Summary ................ 3
Risk Factors ...................... 8 477,244 REDEEMABLE
Use of Proceeds ................... 17 COMMON STOCK
Dividends.......................... 18 PURCHASE WARRANTS
Dilution .......................... 19
Capitalization .................... 21
Selected Consolidated Financial
Data ............................ 22
Management's Discussion and
Analysis of Financial Condition
and Results of Operations ........ 23
Business .......................... 28
Management ........................ 36
Principal Stockholders ............ 43 ----------
Certain Transactions .............. 45 PROSPECTUS
Description of Securities ......... 48 ----------
Shares Eligible for Future Sale ... 51
Underwriting ...................... 52
Concurrent Registration of
Securities ...................... 55
Interest of Named Experts and
Counsel .......................... 55
Legal Matters ..................... 55
Experts ........................... 55
Additional Information ............ 56
Glossary .......................... i
Index to Consolidated Financial National Securities Corporation
Statements .......................F-1
Network 1 Financial Securities
Until --, 1996 (25 days after the
date of this Prospectus), all dealers
effecting transactions in the
registered securities, whether or not
participating in this distribution,
may be required to deliver a
Prospectus. This is in addition to the
obligation of dealers to deliver a
Prospectus when acting as underwriters , 1996
and with respect to their unsold
allotments or subscriptions.
====================================== =====================================
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Articles Seven and Ten of the Company's Certificate of Incorporation, contain
the following provisions with respect to indemnification of Directors and
Officers:
SEVENTH. The Corporation shall, to the fullest extent permitted by Section
145 of the General Corporation Law of the State of Delaware, as the same may be
amended and supplemented, indemnify any and all persons whom it shall have power
to indemnify under said section from and against any and all of the expenses,
liabilities or other matters referred to in or covered by said section, and the
indemnification provided for herein shall not be deemed exclusive of any other
rights to which those indemnified may be entitled under any By-Law, agreement,
vote of stockholders or disinterested Directors or otherwise, both as to action
in his official capacity and as to action in another capacity while holding such
office, and shall continue as to a person who has ceased to be director,
officer, employee or agent and shall inure to the benefit of the heirs,
executors and administrators of such a person.
TENTH. To the fullest extent permitted by Delaware General Corporation Law, a
director of the Corporation shall not be personally liable to the Corporation or
its stockholders for monetary damages for breach of fiduciary duty as a
director. Neither any amendment nor repeal of this Article, nor the adopting of
any provision of this Certificate of Incorporation inconsistent with this
Article shall eliminate or reduce the effect of this Article in respect of any
matter occurring, or any cause of action, suit or claim that, but for this
Article would accrue or arise, prior to such amendment, repeal or adoption of an
inconsistent provision.
Section 145 of the General Corporation Law of the State of Delaware contains
provisions entitling directors and officers of the Company to indemnification
from judgments, fines, amounts paid in settlement and reasonable expenses,
including attorney's fees, as the result of an action or proceeding in which
they may be involved by reason of being or having been a director or officer of
the Company provided said officers or directors acted in good faith.
The Company has also entered into indemnification agreements with Messrs.
Norem, Leftwich, Colquhoun, Jobe, and Culp which provide for the indemnification
of said officers and directors to the fullest extent allowable under the laws of
the State of Delaware.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
SEC Registration ............ $ 12,736
NASD Listing Fee ............ 4,000*
NASDAQ Listing Fee .......... 10,000*
Transfer Agent Fee .......... 3,500*
Printing and Engraving Costs 120,000*
Legal Fees and Expenses .... 90,000*
Accounting Fees and Expenses 140,000*
Blue Sky Fees and Expenses . 50,000*
Miscellaneous ............... 69,764*
----------
TOTAL .................... $500,000
==========
- ----------
* Estimated.
II-1
<PAGE>
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES
The following shares of Common Stock were issued by the Company during the
past three years without registering the securities under the Securities Act.
There were no underwriting discounts or commissions paid in connection with the
issuance of any of said securities, except as noted.
The sales of the securities described in the following table were made in
reliance upon Section 4(2) of the Securities Act, which provides exemptions for
transactions not involving a public offering, to the founders of the Company.
With regard to the Company's reliance upon the exemption from registration
provided by Section 4(2) of the Securities Act of the sale of securities
described below, certain inquiries were made by the Company to establish that
such sales qualified for such exemption. In particular, the Company confirmed
that with respect to the exemption claimed under Section 4(2) of the Securities
Act (i) each investor made representations that he or she was sophisticated
and/or an "accredited investor" within the meaning of Regulation D of the
Securities Act in relation to such investments and (ii) each purchaser gave
written assurance of his or her investment intent, and the certificates for the
securities bear a legend accordingly.
NUMBER OF
SHARES OF CONSIDERATION
PURCHASER DATE COMMON STOCK PER SHARE
----------------------- -------- -------------- ---------------
Robert P. Bernardi .... 2/2/94 650,000 $0.0001
Robert M. Sterling, Jr. 2/2/94 650,000 0.0001
Herbert Welch.......... 2/2/94 150,000 0.0001
Michael Rakusin........ 2/2/94 60,000 0.0001
--------
Total............. 1,510,000
=========
The sales of the securities described in the following table were made in
reliance upon Regulation D, Rule 506 of the Securities Act, which provides
exemptions for transactions not involving a public offering. With regard to the
Company's reliance upon the exemption from registration provided by Regulation
D, Rule 506 of the Securities Act of the sale of securities described below,
certain inquiries were made by the Company to establish that such sales
qualified for such exemption. In particular, the Company confirmed that with
respect to the exemption claimed under Regulation D, Rule 506 of the Securities
Act (i) each investor made representations that he or she was sophisticated
and/or an "accredited investor" within the meaning of Regulation D of the
Securities Act in relation to such investments and (ii) each purchaser gave
written assurance of his or her investment intent, and the certificates for the
securities bear a legend accordingly.
NUMBER OF
SHARES OF CONSIDERATION
PURCHASER DATE COMMON STOCK PER SHARE
- -------------------------------- --------- -------------- ---------------
H. J. Partnership .............. 3/16/94 200,000 $2.20
H. T. Ardinger, Jr.............. 3/16/94 250,000 2.20
Michael Robbins................. 3/16/94 10,000 2.20
Fred Kassner.................... 3/16/94 20,000 2.20
Joseph & Pilar Serrano.......... 3/16/94 50,000 2.20
A. Starke Taylor, Jr............ 3/16/94 30,000 2.20
B. Michael Pisani............... 3/16/94 10,000 2.20
Socrates Skiadas................ 3/16/94 50,000 2.20
Robert E. Murello............... 3/16/94 50,000 2.20
Moody Insurance Group, Inc. .... 3/16/94 250,000 2.20
M. Douglas Adkins............... 3/16/94 36,364 2.20
John R. Whitman................. 3/16/94 20,000 2.20
Christian & Erika Brunnschweiler 3/16/94 20,000 2.20
-------
Total...................... 996,364
=======
II-2
<PAGE>
The sales of the securities described in the following table were made in
reliance upon Section 4(2) of the Securities Act, which provides exemptions for
transactions not involving a public offering. The sales were made in connection
with the acquisition of Viewpoint by the Company. All of the outstanding Common
Stock and Options of Viewpoint were exchanged for Common Stock and Options of
the Company at an exchange ratio of .511 shares of the Company to one (1) share
of Viewpoint.
NUMBER OF
SHARES OF
PURCHASER DATE COMMON STOCK
- ----------------------------------------------- --------- --------------
Glenn A. Norem ................................ 5/11/94 113,787
Glenn A. Norem assignee for Catalyst Financial
Corporation.................................... 5/11/94 511,000
Michael Nissenbaum............................. 5/11/94 91,980
Robert Arnold.................................. 5/11/94 432
Greg Garcia.................................... 5/11/94 19,164
June Pappas.................................... 5/11/94 25,550
Chris Hann..................................... 5/11/94 12,775
G.A. Norem I L.P............................... 5/11/94 4,536
Gary Motley.................................... 5/11/94 12,776
Newell V. Starks............................... 5/11/94 7,665
Sherri N. Davis................................ 5/11/94 12,775
Richard Penn................................... 5/11/94 153,300*
Glenn A. Norem................................. 5/11/94 51,100*
David Kaufman.................................. 5/11/94 4,259*
Alfred Riccomi................................. 5/11/94 28,560*
Curtis Barlowe................................. 5/11/94 20,108*
William Jobe................................... 5/11/94 5,110*
Minnie Branch.................................. 5/11/94 256*
Michael T. Zimmerman........................... 5/11/94 3,066*
Charles B. Humphreyson......................... 5/11/94 8,624*
Leonard A. Woods............................... 5/11/94 6,388*
Eric Eldridge.................................. 5/11/94 3,066*
Chris Hann..................................... 5/31/94 3,727*
---------
Total..................................... 1,100,004
===========
- ----------
* Indicates options to purchase the number of shares indicated. Messrs.
Branch, Zimmerman, Humphreyson, Woods, Eldridge and Hann exercised their
options on 5/31/94. Mr. Penn exercised his options on 10/31/94.
II-3
<PAGE>
The Company sold 10,000 shares of Common Stock on June 29, 1994 in exchange
for consulting services, valued at $22,000, rendered by M.F. Branch Associates,
Inc. The sale was made in reliance upon Section 4(2) of the Securities Act,
which provides exemptions for transactions not involving a public offering.
The sales of the securities described in the following table were made in
reliance upon Regulation D, Rule 506 of the Securities Act, which provides
exemptions for transactions not involving a public offering. With regard to the
Company's reliance upon the exemption from registration provided by Regulation
D, Rule 506 of the Securities Act of the sale of securities described below,
certain inquiries were made by the Company to establish that such sales
qualified for such exemption. In particular, the Company confirmed that with
respect to the exemption claimed under Regulation D, Rule 506 of the Securities
Act (i) each investor made representations that he or she was sophisticated
and/or an "accredited investor" within the meaning of Regulation D of the
Securities Act in relation to such investments and (ii) each purchaser gave
written assurance of his or her investment intent, and the certificates for the
securities bear a legend accordingly.
BRIDGE
PURCHASER DATE NOTES PURCHASED
- ------------------------------- ---------- -------------------
H.T. Ardinger.................. 9/26/94 $ 500,000
Robert Moody, Jr............... 9/27/94 300,000
M. Douglas Adkins.............. 9/28/94 205,000
Fred Kassner................... 9/30/94 200,000
Henry Wendt.................... 10/17/94 10,000
John R. Whitman................ 10/17/94 60,000
Robert Gillings................ 10/21/94 315,300
Elizabeth Sterling............. 10/24/94 50,000
Glenn A. Norem................. 10/24/94 50,000
Richard Pizitz................. 10/24/94 20,000
Michael Pizitz................. 10/24/94 30,000
Greg Garcia.................... 10/26/94 27,000
A. Starke Taylor, Jr........... 10/31/94 50,000
Robert Moody, Jr............... 12/20/94 250,000
Joseph Geary................... 1/10/95 50,000
H.T. Ardinger.................. 1/10/95 250,000
Adkins Family Partnership, Ltd. 1/16/95 100,000
Greg Garcia.................... 1/17/95 27,562.50
June Pappas.................... 1/17/95 55,125
Gary Motley.................... 1/18/95 27,562.50
William Heim................... 1/19/95 100,000
-------------------
Total........................ $2,677,550
===================
Holders of $2,330,300 principal amount of convertible debt and approximately
$305,000 of accrued interest have elected to convert these amounts to 470,649
shares of Common Stock and 470,649 Public Warrants (based on an assumed offering
price of $5.50 per share and $0.10 per Public Warrant). The remaining dollar
amount of bridge notes purchased plus accrued interest will be repaid with the
proceeds of this offering.
II-4
<PAGE>
The sales of the securities described in the following table were made in
reliance upon Regulation D, Rule 506 of the Securities Act, which provides
exemptions for transactions not involving a public offering. With regard to the
Company's reliance upon the exemption from registration provided by Regulation
D, Rule 506 of the Securities Act of the sale of securities described below,
certain inquiries were made by the Company to establish that such sales
qualified for such exemption. In particular, the Company confirmed that with
respect to the exemption claimed under Regulation D, Rule 506 of the Securities
Act (i) each investor made representations that he or she was sophisticated
and/or an "accredited investor" within the meaning of Regulation D of the
Securities Act in relation to such investments and (ii) each purchaser gave
written assurance of his or her investment intent, and the certificates for the
securities bear a legend accordingly.
NUMBER OF
SHARES OF CONSIDERATION
PURCHASER DATE COMMON STOCK PER SHARE
- ----------------------- ---------- -------------- ---------------
Fred Kassner........... 8/4/95 833,333 $3.00
H. T. Ardinger......... 12/31/95 16,504 3.00
M. L. Ardinger......... 12/31/95 16,504 3.00
Doug Adkins............ 12/31/95 107,444 3.00
Robert Moody........... 12/31/95 147,251 3.00
Anthony Bellissimo .... 12/31/95 3,694 3.00
H. T. Ardinger......... 12/31/95 26,747 3.00
M. L. Ardinger......... 12/31/95 26,747 3.00
Doug Adkins............ 4/18/96 35,813 3.00
Fred Kassner........... 3/31/96 221,195 3.00
William Wells.......... 4/18/96 16,750 3.00
David Motley........... 4/18/96 3,333 3.00
Shain McCaig........... 4/18/96 10,000 3.00
Rhett Bently........... 4/18/96 30,000 3.00
James Johnson.......... 4/18/96 10,000 3.00
Craig Noonan........... 4/18/96 3,333 3.00
Jerry S. Harris........ 5/7/96 10,000 3.00
Lanie R. Hughes........ 4/30/96 10,000 3.00
Joseph W. Geary........ 5/24/96 42,333 3.00
John S. Stoppelman .... 6/1/96 42,666 3.00
Robert M. Sterling, Jr. 6/28/96 26,666 3.00
Richard Epstein........ 6/28/96 20,000 3.00
Stanley Epstein........ 6/19/96 5,000 3.00
Joan Etayo............. 6/21/96 16,600 3.00
Paul Ehrlich........... 6/28/96 8,334 3.00
Jared Shaw............. 6/28/96 4,167 3.00
Daniel Kodsi........... 6/28/96 4,167 3.00
A. Starke Taylor....... 6/28/96 53,333 3.00
Richard Friedman....... 6/28/96 20,000 3.00
Robert Rubin........... 6/28/96 36,666 3.00
--------------
Total............... 1,808,580
==============
II-5
<PAGE>
ITEM 27. LIST OF EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
PAGE NO. DESCRIPTION OF EXHIBIT
- ------------ -----------------------------------------------------------------------------------------
<S> <C>
1 Form of Underwriting Agreement
2 Agreement and Plan of Merger and Reorganization**
3.01 Certificate of Incorporation**
3.02 Amendment to Certificate of Incorporation**
3.03 Restated By-Laws**
4.01 Form of Common Stock Certificate*
4.02 Form of Warrant Certificate*
4.03 Form of Warrant Agreement between the Company and Continental Stock Transfer & Trust
Company
4.04 Representatives' Warrant Agreement
5 Opinion of The Stoppelman Law Firm, P.C. on Legality of Securities Being Registered***
9.01 Voting Trust Agreement between Robert M. Sterling, Jr. and Thomas E. Brown**
9.02 Voting Trust Agreement between Robert P. Bernardi and Richard Bernardi**
9.03 Form of Lock-Up Agreement***
9.04 Lock-Up Agreement with Robert Sterling Trust***
9.05 Lock-Up Agreement with Robert Bernardi Trust***
9.06 Lock-Up Agreement with Michael Nissenbaum***
10.01 Modified Employment Agreement between the Company and Glenn A. Norem***
10.02 Modified Consulting Agreement between the Company and Sterling Capital Group Inc.**
10.03 Form of Indemnification Agreement between the Company and Executive Officers and
Directors**
10.04 1995 Stock Option Plan**
10.05 1994 Stock Option Plan**
10.06 1993 Viewpoint Stock Plan**
10.07 1995 Director Option Plan**
10.08 Lease Agreement between the Company and Metro Squared, L.P.**
10.09 Employee Stock Purchase Plan**
10.10 Licensing Agreement between the Company and Boca Research, Inc.***
10.11 Agreement between the Company and Unisys Corporation***
10.12 Employment Agreement between the Company and Philip M. Colquhoun***
10.13 Employment Agreement between the Company and William S. Leftwich***
10.14 Employment Agreement between the Company and David T. Stoner***
10.15 Employment Agreement between the Company and Neal Page***
10.16 Employment Agreement between the Company and A. David Boomstein***
10.17 Employment Agreement between the Company and Daniel W. Dodson***
10.18 Lease between the Company and Burlingame Home Office, Inc.***
10.19 Lease between the Company and Family Funds Partnership***
10.20 Agreement between the Company and Catalyst Financial Corporation***
10.21 Promissory Note by the Company payable to Robert Rubin dated September 5, 1996.
10.22 Promissory Note by the Company payable to M. Douglas Adkins dated November 15, 1996
10.23 Promissory Note by the Company payable to H.T. Ardinger dated November 15, 1996
11 Calculation of Net Loss Per Share
16 Letter from Hoffman, Morrison, & Fitzgerald, P.C.
21 List of Subsidiaries of the Company**
23.01 Consent of The Stoppelman Law Firm, P.C.
23.02 Consent of Ernst & Young LLP
23.03 Consent of Hoffman, Morrison, & Fitzgerald, P.C.
24 Power of Attorney*****
</TABLE>
- ----------
* To be filed by amendment.
** Filed with initial filing dated August 9, 1996.
*** Filed with Amendment 1 dated October 4, 1996.
**** The Company has requested confidential treatment of certain portions of
this document and such portions have been redacted from this agreement.
***** Included with signature pages.
II-6
<PAGE>
ITEM 28. UNDERTAKINGS
A. Certificates
The undersigned registrant hereby undertakes to provide to the Representative
at the closing specified in the underwriting agreement, certificates in such
denominations and registered in such names as required by the underwriter to
permit prompt delivery to each purchaser.
B. Rule 415 Offering
The undersigned Company hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this Registration Statement to: (i) Include any
prospectus required by Section 10(a)(3) of the Securities Act; (ii) Reflect in
the prospectus any facts or events which, individually or together, represent a
fundamental change in the information in the registration statement and; (iii)
Include any additional or changed material information on the plan of
distribution.
(2) For determining liability under the Securities Act, treat each
post-effective amendment as a new registration statement of the securities
offered, and the offering of the securities at that time to be the initial bona
fide offering.
(3) File a post-effective amendment to remove from registration any of the
securities that remain unsold at the end of the offering.
C. Request for Acceleration of Effective Date
The Company may elect to request acceleration of the effective date of the
Registration Statement under Rule 461 of the Securities Act.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 (the "Securities Act") may be permitted to directors, officers and
controlling persons of the small business issuer pursuant to the foregoing
provisions, or otherwise, the small business issuer has been advised that in the
opinion of the Securities and Exchange 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 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.
II-7
<PAGE>
SIGNATURES
In accordance with 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 of filing on Form SB-2 and authorized this registration
statement to be signed on its behalf by the undersigned, in the County of Dallas
in the State of Texas on 13th day of November, 1996.
Multimedia Access Corporation
By: /s/ Glenn A. Norem
------------------------------------
Glenn A. Norem
Chief Executive Officer
KNOW ALL MEN BY THESE PRESENT, that each person whose signature appears below
constitutes and appoints Glenn A. Norem, his true and lawful attorney-in-fact
and agent, with full power of substitution and resubstitution, for him and in
his name, place and stead, in any and all capacities, to sign any and all
amendments (including post-effective amendments) to this registration statement,
and to file the same, with all exhibits thereto and other documents in
connection therewith, with the Securities and Exchange Commission, granting unto
said attorney-in-fact and agent, full power and authority to do and perform each
and every act and thing requisite or necessary to be done in and about the
premises, as full to all intents and purposes as he might or could do in person,
hereby ratifying and confirming all that said attorney-in-fact and agent or
either of them or their or his substitute or substitutes, may lawfully do or
cause to be done by virtue hereof.
In accordance with the requirements of the Securities Act of 1933, this
Registration Statement was signed by the following persons in the capacities and
on the dates stated.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ Glenn A. Norem Chief Executive Officer November 13, 1996
- ----------------------------- and Director
Glenn A. Norem
/s/ William S. Leftwich Chief Financial Officer November 13, 1996
- -----------------------------
William S. Leftwich
/s/ William D. Jobe Director November 13, 1996
- -----------------------------
William D. Jobe
/s/ Joe C. Culp Director November 13, 1996
- ------------------------------
Joe C. Culp
II-8
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIAL
EXHIBIT PAGE
PAGE NO. DESCRIPTION OF EXHIBIT NUMBER
- ------------ -----------------------------------------------------------------------------------------
<S> <C>
1 Form of Underwriting Agreement
2 Agreement and Plan of Merger and Reorganization**
3.01 Certificate of Incorporation**
3.02 Amendment to Certificate of Incorporation**
3.03 Restated By-Laws**
4.01 Form of Common Stock Certificate*
4.02 Form of Warrant Certificate*
4.03 Form of Warrant Agreement between the Company and Continental Stock Transfer & Trust
Company
4.04 Representatives' Warrant Agreement
5 Opinion of The Stoppelman Law Firm, P.C. on Legality of Securities Being Registered***
9.01 Voting Trust Agreement between Robert M. Sterling, Jr. and Thomas E. Brown**
9.02 Voting Trust Agreement between Robert P. Bernardi and Richard Bernardi**
9.03 Form of Lock-Up Agreement***
9.04 Lock-Up Agreement with Robert Sterling Trust***
9.05 Lock-Up Agreement with Robert Bernardi Trust***
9.06 Lock-Up Agreement with Michael Nissenbaum***
10.01 Modified Employment Agreement between the Company and Glenn A. Norem***
10.02 Modified Consulting Agreement between the Company and Sterling Capital Group Inc.**
10.03 Form of Indemnification Agreement between the Company and Executive Officers and
Directors**
10.04 1995 Stock Option Plan**
10.05 1994 Stock Option Plan**
10.06 1993 Viewpoint Stock Plan**
10.07 1995 Director Option Plan**
10.08 Lease Agreement between the Company and Metro Squared, L.P.**
10.09 Employee Stock Purchase Plan**
10.10 Licensing Agreement between the Company and Boca Research, Inc.***
10.11 Agreement between the Company and Unisys Corporation***
10.12 Employment Agreement between the Company and Philip M. Colquhoun***
10.13 Employment Agreement between the Company and William S. Leftwich***
10.14 Employment Agreement between the Company and David T. Stoner***
10.15 Employment Agreement between the Company and Neal Page***
10.16 Employment Agreement between the Company and A. David Boomstein***
10.17 Employment Agreement between the Company and Daniel W. Dodson***
10.18 Lease between the Company and Burlingame Home Office, Inc.***
10.19 Lease between the Company and Family Funds Partnership***
10.20 Agreement between the Company and Catalyst Financial Corporation***
10.21 Promissory Note by the Company payable to Robert Rubin dated September 5, 1996.
10.22 Promissory Note by the Company payable to M. Douglas Adkins dated November 15, 1996
10.23 Promissory Note by the Company payable to H.T. Ardinger dated November 15, 1996
11 Calculation of Net Loss Per Share
16 Letter from Hoffman, Morrison, & Fitzgerald, P.C.
21 List of Subsidiaries of the Company**
23.01 Consent of The Stoppelman Law Firm, P.C.
23.02 Consent of Ernst & Young LLP
23.03 Consent of Hoffman, Morrison, & Fitzgerald, P.C.
24 Power of Attorney*****
</TABLE>
- ----------
* To be filed by amendment.
** Filed with initial filing dated August 9, 1996.
*** Filed with Amendment 1 dated October 4, 1996.
**** The Company has requested confidential treatment of certain portions of
this document and such portions have been redacted from this agreement.
***** Included with signature pages.
10/25/96
[Form of Underwriting Agreement - Subject to Additional Review]
1,800,000 Shares of Common Stock
and 1,800,000 Redeemable Warrants
MULTIMEDIA ACCESS CORPORATION
UNDERWRITING AGREEMENT
----------------------
New York, New York
, 1996
NATIONAL SECURITIES CORPORATION
As Representative of the
Several Underwriters listed on Schedule A hereto
1001 Fourth Avenue
Suite 2200
Seattle, Washington 98154
Ladies and Gentlemen:
Multimedia Access Corporation, a Delaware corporation (the "Company"),
confirms its agreement with National Securities Corporation ("National") and
each of the underwriters named in Schedule A hereto (collectively, the
"Underwriters," which term shall also include any underwriter substituted as
hereinafter provided in Section 11), for whom National is acting as
representative (in such capacity, National shall hereinafter be referred to as
"you" or the "Representative"), with respect to the sale by the Company and the
purchase by the Underwriters, acting severally and not jointly, of the
respective numbers of shares ("Shares") of the Company's common stock, $.0001
par value per share ("Common Stock"), and redeemable common stock purchase
warrants (the "Redeemable Warrants"), each to purchase one share of Common
Stock, set forth in Schedule A hereto. The aggregate 1,800,000 Shares and
1,800,000 Redeemable Warrants will be separately tradeable upon issuance and are
hereinafter referred to as the "Firm Securities." Each Redeemable Warrant is
exercisable
<PAGE>
commencing on ____________, 1997 [6 months from the date of this Agreement]
until ____________, 2001 [60 months from the date of this Agreement], unless
previously redeemed by the Company, at an initial exercise price of $_______
[120% of the initial public offering price] per share of Common Stock. The
Redeemable Warrants may be redeemed by the Company at a redemption price of $.10
per Redeemable Warrant at any time after _____________, 1998 [18 months from the
date of this Agreement] on thirty (30) days' prior written notice, provided that
the average closing bid price of the Common Stock equals or exceeds
$_____________ [250% of the exercise price] per share, for any twenty (20)
trading days within a period of thirty (30) consecutive trading days ending on
the fifth trading day prior to the notice of redemption, all in accordance with
the terms and conditions of the Warrant Agreement (herein defined).
Upon your request, as provided in Section 2(b) of this Agreement, the
Company shall also issue and sell to the Underwriters, acting severally and not
jointly, up to an additional 270,000 shares of Common Stock and/or 270,000
Redeemable Warrants for the purpose of covering over-allotments, if any. Such
270,000 shares of Common Stock and 270,000 Redeemable Warrants are hereinafter
collectively to as the "Option Securities." The Company also proposes to issue
and sell to you warrants (the "Representative's Warrants") pursuant to the
Representative's Warrant Agreement (the "Representative's Warrant Agreement")
for the purchase of an additional 180,000 shares of Common Stock and/or 180,000
Redeemable Warrants. The shares of Common Stock and Redeemable Warrants issuable
upon exercise of the Representative's Warrants are hereinafter referred to as
the "Representative's Securities." The Firm Securities, the Option Securities,
the Representative's Warrants and the Representative's Securities (collectively,
hereinafter referred to as the "Securities") are more fully described in the
Registration Statement and the Prospectus referred to below.
1. Representations and Warranties of the Company. The Company represents
and warrants to, and agrees with, each of the Underwriters as of the date
hereof, and as of the Closing Date (as hereinafter defined) and each Option
Closing Date (as hereinafter defined), if any, as follows:
a. The Company has prepared and filed with the Securities and
Exchange Commission (the "Commission") a registration statement, and an
amendment or amendments thereto, on Form SB-2 (No. 333-09935), including any
related preliminary prospectus ("Preliminary Prospectus"), for the registration
of the Firm Securities, the Option Securities and the Representative's
Securities under the Securities Act of 1933, as amended (the "Act"), which
registration statement and amendment or amendments have been prepared by the
Company in conformity with the requirements of the Act, and the rules and
regulations (the "Regulations") of the Commission under the Act. The Company
will promptly file a further amendment to said registration statement in the
form heretofore delivered to the Underwriters and will not file any other
amendment thereto to which the Underwriters shall have objected in writing after
having been furnished with a copy thereof. Except as the context may otherwise
require, such registration statement, as amended, on file with the Commission at
the time the registration statement becomes effective (including the prospectus,
financial statements, schedules, exhibits and all other documents filed as a
part thereof or incorporated therein (including, but not limited to those
documents or information incorporated by reference therein) and all information
deemed
2
<PAGE>
to be a part thereof as of such time pursuant to paragraph (b) of Rule 430(A) of
the Regulations), is hereinafter called the "Registration Statement", and the
form of prospectus in the form first filed with the Commission pursuant to Rule
424(b) of the Regulations, is hereinafter called the "Prospectus." For purposes
hereof, "Rules and Regulations" mean the rules and regulations adopted by the
Commission under either the Act or the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), as applicable.
b. Neither the Commission nor any state regulatory authority has
issued any order preventing or suspending the use of any Preliminary Prospectus,
the Registration Statement or Prospectus or any part of any thereof and no
proceedings for a stop order suspending the effectiveness of the Registration
Statement or any of the Company's securities have been instituted or are pending
or threatened. Each of the Preliminary Prospectus, the Registration Statement
and Prospectus at the time of filing thereof conformed with the requirements of
the Act and the Rules and Regulations, and none of the Preliminary Prospectus,
the Registration Statement or Prospectus at the time of filing thereof contained
an untrue statement of a material fact or omitted to state a material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading, except
that this representation and warranty does not apply to statements made in
reliance upon and in conformity with written information furnished to the
Company with respect to the Underwriters by or on behalf of the Underwriters
expressly for use in such Preliminary Prospectus, Registration Statement or
Prospectus or any amendment thereof or supplement thereto.
c. When the Registration Statement becomes effective and at all
times subsequent thereto up to the Closing Date (as defined herein) and each
Option Closing Date (as defined herein), if any, and during such longer period
as the Prospectus may be required to be delivered in connection with sales by
the Underwriters or a dealer, the Registration Statement and the Prospectus will
contain all statements which are required to be stated therein in accordance
with the Act and the Rules and Regulations, and will conform to the requirements
of the Act and the Rules and Regulations; neither the Registration Statement nor
the Prospectus, nor any amendment or supplement thereto, will contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading, provided, however,
that this representation and warranty does not apply to statements made or
statements omitted in reliance upon and in strict conformity with information
furnished to the Company in writing by or on behalf of any Underwriter expressly
for use in the Preliminary Prospectus, Registration Statement or Prospectus or
any amendment thereof or supplement thereto.
d. Each of the Company and the Company's wholly-owned
subsidiaries, Viewpoint Systems Inc., Viewpoint Videoware Inc. and Osprey
Technologies Inc., all Delaware companies (such subsidiaries being the only
subsidiaries that are "significant subsidiaries" (as defined in the Rules and
Regulations) of the Company, is hereinafter referred to as the "Subsidiaries"),
has been duly organized and is validly existing as a corporation in good
standing under the laws of the state of its incorporation. Except as set forth
in the Prospectus, neither the Company nor the Subsidiaries own an interest in
any corporation, partnership, trust, joint venture or other business entity.
Each of the Company and the Subsidiaries is duly qualified and licensed and
3
<PAGE>
in good standing as a foreign corporation in each jurisdiction in which its
ownership or leasing of any properties or the character of its operations
requires such qualification or licensing. The Company owns, directly or
indirectly, one hundred percent (100%) of the outstanding capital stock of the
Subsidiaries, and all of such shares have been validly issued, are fully paid
and non-assessable, were not issued in violation of any preemptive rights, and,
except as set forth in the Prospectus, are owned free and clear of any liens,
charges, claims, encumbrances, pledges, security interests, defects or other
restrictions or equities of any kind whatsoever. Each of the Company and the
Subsidiaries has all requisite power and authority (corporate and other), and
has obtained any and all necessary authorizations, approvals, orders, licenses,
certificates, franchises and permits of and from all governmental or regulatory
officials and bodies (including, without limitation, those having jurisdiction
over environmental or similar matters), domestic or foreign, to own or lease its
properties and conduct its business as described in the Prospectus; each of the
Company and the Subsidiaries is and has been doing business in compliance with
all such authorizations, approvals, orders, licenses, certificates, franchises
and permits and all applicable federal, state, local and foreign laws, rules and
regulations; and neither the Company nor the Subsidiaries have received any
notice of proceedings relating to the revocation or modification of any such
authorization, approval, order, license, certificate, franchise, or permit
which, singly or in the aggregate, if the subject of an unfavorable decision,
ruling or finding, would materially and adversely affect the condition,
financial or otherwise, or the earnings, position, prospects, value, operation,
properties, business or results of operations of the Company or the
Subsidiaries. The disclosures in the Registration Statement concerning the
effects of federal, state, local, and foreign laws, rules and regulations on the
Company's and the Subsidiaries' businesses as currently conducted and as
contemplated are correct in all material respects and do not omit to state a
material fact required to be stated therein or necessary to make the statements
contained therein not misleading in light of the circumstances under which they
were made.
e. The Company has a duly authorized, issued and outstanding
capitalization as set forth in the Prospectus under "Capitalization" and
"Description of Securities" and will have the adjusted capitalization set forth
therein on the Closing Date and each Option Closing Date, if any, based upon the
assumptions set forth therein, and the Company is not a party to or bound by any
instrument, agreement or other arrangement providing for it to issue any capital
stock, rights, warrants, options or other securities, except for this Agreement,
the Warrant Agreement, the Representative's Warrant Agreement and as described
in the Prospectus. The Securities and all other securities issued or issuable by
the Company conform or, when issued and paid for, will conform, in all respects
to all statements with respect thereto contained in the Registration Statement
and the Prospectus. All issued and outstanding securities of the Company have
been duly authorized and validly issued and are fully paid and non-assessable
and the holders thereof have no rights of rescission with respect thereto, and
are not subject to personal liability by reason of being such holders; and none
of such securities were issued in violation of the preemptive rights of any
holders of any security of the Company or similar contractual rights granted by
the Company. The Securities are not and will not be subject to any preemptive or
other similar rights of any stockholder, have been duly authorized and, when
issued, paid for and delivered in accordance with the terms hereof, will be
validly issued, fully paid and non-assessable and will conform to the
description thereof contained in the Prospectus; the holders thereof will not be
subject to any liability solely as such holders; all corporate action required
4
<PAGE>
to be taken for the authorization, issue and sale of the Securities has been
duly and validly taken; and the certificates representing the Securities will be
in due and proper form. Upon the issuance and delivery pursuant to the terms
hereof of the Securities to be sold by the Company hereunder, the Underwriters
or the Representative, as the case may be, will acquire good and marketable
title to such Securities free and clear of any lien, charge, claim, encumbrance,
pledge, security interest, defect or other restriction or equity of any kind
whatsoever.
f. The consolidated financial statements of the Company and the
Subsidiaries, together with the related notes and schedules thereto, included in
the Registration Statement, each Preliminary Prospectus and the Prospectus
fairly present the financial position, income, changes in cash flow, changes in
stockholders' equity and the results of operations of the Company and the
Subsidiaries at the respective dates and for the respective periods to which
they apply and such financial statements have been prepared in conformity with
generally accepted accounting principles and the Rules and Regulations,
consistently applied throughout the periods involved and such financial
statements as are audited have been examined by Ernst & Young LLP, who are
independent certified public accountants within the meaning of the Act and the
Rules and Regulations, as indicated in their report filed therewith. There has
been no adverse change or development involving a prospective adverse change in
the condition, financial or otherwise, or in the earnings, position, prospects,
value, operation, properties, business, or results of operations of the Company
and the Subsidiaries taken as a whole, whether or not arising in the ordinary
course of business, since the date of the financial statements included in the
Registration Statement and the Prospectus and the outstanding debt, the
property, both tangible and intangible, and the business of the Company and the
Subsidiaries, conform in all material respects to the descriptions thereof
contained in the Registration Statement and the Prospectus. Financial
information (including, without limitation, any pro forma financial information)
set forth in the Prospectus under the headings "Summary Consolidated Financial
Information", "Selected Consolidated Financial Data," "Capitalization," and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," fairly present, on the basis stated in the Prospectus, the
information set forth therein, and have been derived from or compiled on a basis
consistent with that of the audited financial statements included in the
Prospectus; and, in the case of pro forma financial information, if any, the
assumptions used in the preparation thereof are reasonable and the adjustments
used therein are appropriate to give effect to the transactions and
circumstances referred to therein. The amounts shown as accrued for current and
deferred income and other taxes in such financial statements are sufficient for
the payment of all accrued and unpaid federal, state, local and foreign income
taxes, interest, penalties, assessments or deficiencies applicable to the
Company and the Subsidiaries, whether disputed or not, for the applicable period
then ended and periods prior thereto; adequate allowance for doubtful accounts
has been provided for unindemnified losses due to the operations of the Company
and the Subsidiaries; and the statements of income do not contain any items of
special or nonrecurring income not earned in the ordinary course of business,
except as specified in the notes thereto.
g. Each of the Company and the Subsidiaries (i) has paid all
federal, state, local, and foreign taxes for which it is liable, including, but
not limited to, withholding taxes and amounts payable under Chapters 21 through
24 of the Internal Revenue Code of 1986, as amended (the "Code"), and has
furnished all information returns it is required to furnish pursuant to the
Code,
5
<PAGE>
(ii) has established adequate reserves for such taxes which are not due and
payable, and (iii) does not have any tax deficiency or claims outstanding,
proposed or assessed against it.
h. No transfer tax, stamp duty or other similar tax is payable by
or on behalf of the Underwriters in connection with (i) the issuance by the
Company of the Securities, (ii) the purchase by the Underwriters of the Firm
Securities and the Option Securities from the Company and the purchase by the
Representative of the Representative's Warrants from the Company, (iii) the
consummation by the Company of any of its obligations under this Agreement, or
(iv) resales of the Firm Securities and the Option Securities in connection with
the distribution contemplated hereby.
i. Each of the Company and the Subsidiaries maintains insurance
policies, including, but not limited to, general liability, product and property
insurance, which insures each of the Company, the Subsidiaries and their
respective employees, against such losses and risks generally insured against by
comparable businesses. Neither the Company nor the Subsidiaries (A) have failed
to give notice or present any insurance claim with respect to any matter,
including but not limited to the Company's business, property or employees,
under any insurance policy or surety bond in a due and timely manner, (B) have
any disputes or claims against any underwriter of such insurance policies or
surety bonds or has failed to pay any premiums due and payable thereunder, or
(C) have failed to comply with all conditions contained in such insurance
policies and surety bonds. There are no facts or circumstances under any such
insurance policy or surety bond which would relieve any insurer of its
obligation to satisfy in full any valid claim of the Company or the
Subsidiaries.
j. There is no action, suit, proceeding, inquiry, arbitration,
investigation, litigation or governmental proceeding (including, without
limitation, those having jurisdiction over environmental or similar matters),
domestic or foreign, pending or threatened against (or circumstances that may
give rise to the same), or involving the properties or business of, the Company
or the Subsidiaries which (i) questions the validity of the capital stock of the
Company, this Agreement, the Warrant Agreement or the Representative's Warrant
Agreement, or of any action taken or to be taken by the Company pursuant to or
in connection with this Agreement, the Warrant Agreement or the Representative's
Warrant Agreement, (ii) is required to be disclosed in the Registration
Statement which is not so disclosed (and such proceedings as are summarized in
the Registration Statement are accurately summarized in all material respects),
or (iii) might materially and adversely affect the condition, financial or
otherwise, or the earnings, position, prospects, stockholders' equity, value,
operation, properties, business or results of operations of the Company and the
Subsidiaries taken as a whole.
k. The Company has full legal right, power and authority to
authorize, issue, deliver and sell the Securities, enter into this Agreement,
the Warrant Agreement and the Representative's Warrant Agreement and to
consummate the transactions provided for in this Agreement, the Warrant
Agreement and the Representative's Warrant Agreement; and this Agreement, the
Warrant Agreement and the Representative's Warrant Agreement have each been duly
and properly authorized, executed and delivered by the Company. Each of this
Agreement, the Warrant Agreement and the Representative's Warrant Agreement
constitutes a legal, valid and binding agreement of the Company enforceable
against the Company in accordance with its
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terms, and none of the Company's issue and sale of the Securities, execution or
delivery of this Agreement, the Warrant Agreement or the Representative's
Warrant Agreement, its performance hereunder and thereunder, its consummation of
the transactions contemplated herein and therein, or the conduct of its business
as described in the Registration Statement, the Prospectus, and any amendments
or supplements thereto, conflicts with or will conflict with or results or will
result in any breach or violation of any of the terms or provisions of, or
constitutes or will constitute a default under, or result in the creation or
imposition of any lien, charge, claim, encumbrance, pledge, security interest,
defect or other restriction or equity of any kind whatsoever upon, any property
or assets (tangible or intangible) of either the Company or the Subsidiaries
pursuant to the terms of (i) the certificate of incorporation or by-laws of
either the Company or the Subsidiaries, (ii) any license, contract, collective
bargaining agreement, indenture, mortgage, deed of trust, lease, voting trust
agreement, stockholders agreement, note, loan or credit agreement or any other
agreement or instrument to which either the Company or the Subsidiaries are a
party or by which either the Company or the Subsidiaries are or may be bound or
to which any of their respective properties or assets (tangible or intangible)
is or may be subject, or any indebtedness, or (iii) any statute, judgment,
decree, order, rule or regulation applicable to either the Company or the
Subsidiaries of any arbitrator, court, regulatory body or administrative agency
or other governmental agency or body (including, without limitation, those
having jurisdiction over environmental or similar matters), domestic or foreign,
having jurisdiction over either the Company or the Subsidiaries or any of their
respective activities or properties.
l. No consent, approval, authorization or order of, and no filing
with, any court, regulatory body, government agency or other body, domestic or
foreign, is required for the issuance of the Securities pursuant to the
Prospectus and the Registration Statement, the performance of this Agreement,
the Warrant Agreement and the Representative's Warrant Agreement and the
transactions contemplated hereby and thereby, including without limitation, any
waiver of any preemptive, first refusal or other rights that any entity or
person may have for the issue and/or sale of any of the Securities, except such
as have been or may be obtained under the Act or may be required under state
securities or Blue Sky laws in connection with the Underwriters' purchase and
distribution of the Firm Securities and the Option Securities, and the
Representative's Warrants to be sold by the Company hereunder.
m. All executed agreements, contracts or other documents or copies
of executed agreements, contracts or other documents filed as exhibits to the
Registration Statement to which either the Company or the Subsidiaries are a
party or by which either of them may be bound or to which any of their
respective assets, properties or business may be subject have been duly and
validly authorized, executed and delivered by the Company or the Subsidiaries,
as the case may be, and constitute the legal, valid and binding agreements of
the Company or the Subsidiaries, as the case may be, enforceable against each of
them in accordance with their respective terms. The descriptions in the
Registration Statement of agreements, contracts and other documents are accurate
and fairly present the information required to be shown with respect thereto by
Form SB-2, and there are no contracts or other documents which are required by
the Act to be described in the Registration Statement or filed as exhibits to
the Registration Statement which are not described or filed as required, and the
exhibits which have been filed are complete and correct copies of the documents
of which they purport to be copies.
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n. Subsequent to the respective dates as of which information is
set forth in the Registration Statement and Prospectus, and except as may
otherwise be indicated or contemplated herein or therein, neither the Company
nor the Subsidiaries have (i) issued any securities or incurred any liability or
obligation, direct or contingent, for borrowed money, (ii) entered into any
transaction other than in the ordinary course of business, or (iii) declared or
paid any dividend or made any other distribution on or in respect of its capital
stock of any class, and there has not been any change in the capital stock, or
any change in the debt (long or short term) or liabilities or material adverse
change in or affecting the general affairs, management, financial operations,
stockholders' equity or results of operations of either the Company or the
Subsidiaries.
o. No default exists in the due performance and observance of any
term, covenant or condition of any license, contract, collective bargaining
agreement, indenture, mortgage, installment sale agreement, lease, deed of
trust, voting trust agreement, stockholders agreement, partnership agreement,
note, loan or credit agreement, purchase order, or any other agreement or
instrument evidencing an obligation for borrowed money, or any other material
agreement or instrument to which either the Company or the Subsidiaries are a
party or by which either the Company or the Subsidiaries may be bound or to
which the property or assets (tangible or intangible) of either the Company or
the Subsidiaries are subject or affected.
p. Each of the Company and the Subsidiaries has generally enjoyed
a satisfactory employer-employee relationship with its employees and is in
compliance with all federal, state, local, and foreign laws and regulations
respecting employment and employment practices, terms and conditions of
employment and wages and hours. There are no pending investigations involving
either the Company or the Subsidiaries by the U.S. Department of Labor, or any
other governmental agency responsible for the enforcement of such federal,
state, local, or foreign laws and regulations. There is no unfair labor practice
charge or complaint against either the Company or the Subsidiaries pending
before the National Labor Relations Board, or any comparable foreign agency, or
any lockout, strike, picketing, boycott, dispute, slowdown or stoppage pending
or threatened against or involving either the Company or the Subsidiaries, or
any predecessor entity, and none has ever occurred. No representation question
exists respecting the employees of either the Company or the Subsidiaries, and
no collective bargaining agreement or modification thereof is currently being
negotiated by either the Company or the Subsidiaries. No grievance or
arbitration proceeding is pending under any expired or existing collective
bargaining agreements of either the Company or the Subsidiaries. No labor
dispute with the employees of either the Company or the Subsidiaries exists, or,
is imminent.
q. Neither the Company nor the Subsidiaries maintain, sponsor or
contribute to any program or arrangement that is an "employee pension benefit
plan," an "employee welfare benefit plan," or a "multiemployer plan" as such
terms are defined in Sections 3(2), 3(1) and 3(37), respectively, of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA") ("ERISA
Plans"). Neither the Company nor the Subsidiaries maintain or contribute, now or
at any time previously, to a defined benefit plan, as defined in Section 3(35)
of ERISA. No ERISA Plan (or any trust created thereunder) has engaged in a
"prohibited transaction" within the meaning of Section 406 of ERISA or Section
4975 of the Code, which could subject the Company or the Subsidiaries to any tax
penalty on prohibited transactions and which has not
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<PAGE>
adequately been corrected. Each ERISA Plan is in compliance with all reporting,
disclosure and other requirements of the Code and ERISA as they relate to any
such ERISA Plan. Determination letters have been received from the Internal
Revenue Service with respect to each ERISA Plan which is intended to comply with
Code Section 401(a), stating that such ERISA Plan and the attendant trust are
qualified thereunder. Neither the Company nor the Subsidiaries have ever
completely or partially withdrawn from a "multiemployer plan."
r. Neither the Company, the Subsidiaries, nor any of their
respective employees, directors, stockholders, partners, or affiliates (within
the meaning of the Rules and Regulations) of any of the foregoing have taken or
will take, directly or indirectly, any action designed to or which has
constituted or which might be expected to cause or result in, under the Exchange
Act, or otherwise, stabilization or manipulation of the price of any security of
the Company to facilitate the sale or resale of the Securities or otherwise.
s. Except as otherwise disclosed in the Prospectus, none of the
patents, patent applications, trademarks, service marks, trade names and
copyrights, and licenses and rights to the foregoing presently owned or held by
either the Company or the Subsidiaries, are in dispute so far as known by the
Company or are in any conflict with the right of any other person or entity.
Each of the Company and the Subsidiaries (i) owns or has the right to use, free
and clear of all liens, charges, claims, encumbrances, pledges, security
interests, defects or other restrictions or equities of any kind whatsoever, all
patents, trademarks, service marks, trade names and copyrights, technology and
licenses and rights with respect to the foregoing, used in the conduct of its
business as now conducted or proposed to be conducted without infringing upon or
otherwise acting adversely to the right or claimed right of any person,
corporation or other entity under or with respect to any of the foregoing and
(ii) is not obligated or under any liability whatsoever to make any payment by
way of royalties, fees or otherwise to any owner or licensee of, or other
claimant to, any patent, trademark, service mark, trade name, copyright,
know-how, technology or other intangible asset, with respect to the use thereof
or in connection with the conduct of its business or otherwise.
t. Each of the Company and the Subsidiaries owns and has the
unrestricted right to use all trade secrets, know-how (including all other
unpatented and/or unpatentable proprietary or confidential information, systems
or procedures), inventions, designs, processes, works of authorship, computer
programs and technical data and information (collectively herein "intellectual
property") that are material to the development, manufacture, operation and sale
of all products and services sold or proposed to be sold by either the Company
or the Subsidiaries, free and clear of and without violating any right, lien, or
claim of others, including without limitation, former employers of its
employees; provided, however, that the possibility exists that other persons or
entities, completely independently of either the Company or the Subsidiaries, or
any of their respective employees or agents, could have developed trade secrets
or items of technical information similar or identical to those of either the
Company or the Subsidiaries. Neither the Company nor the Subsidiaries are aware
of any such development of similar or identical trade secrets or technical
information by others.
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u. Each of the Company and the Subsidiaries has taken reasonable
security measures to protect the secrecy, confidentiality and value of its
intellectual property in all material respects.
v. Each of the Company and the Subsidiaries has good and
marketable title to, or valid and enforceable leasehold estates in, all items of
real and personal property stated in the Prospectus to be owned or leased by it,
free and clear of all liens, charges, claims, encumbrances, pledges, security
interests, defects, or other restrictions or equities of any kind whatsoever,
other than those referred to in the Prospectus and liens for taxes not yet due
and payable.
w. Ernst & Young LLP, whose report is filed with the Commission as
a part of the Registration Statement, are independent certified public
accountants as required by the Act and the Rules and Regulations.
x. The Company has caused to be duly executed legally binding and
enforceable agreements ("Lock-up Agreements") pursuant to which each of the
officers and directors of the Company, all holders of more than 20,000 Shares of
Common Stock issued and outstanding on the effective date of the Registration
Statement, and all holders of options, warrants or other securities exchangeable
or exercisable for or convertible into more than 20,000 Shares of Common Stock
issued and outstanding on the effective date of the Registration Statement has
agreed (i) not to, directly or indirectly, issue, offer, offer to sell, sell,
grant any option for the sale or purchase of, assign, transfer, pledge,
hypothecate or otherwise encumber or dispose of any shares of Common Stock or
securities convertible into, exercisable or exchangeable for or evidencing any
right to purchase or subscribe for any shares of Common Stock (either pursuant
to Rule 144 of the Rules and Regulations or otherwise) or dispose of any
beneficial interest therein for a period of not less than twelve (12) months
following the effective date of the Registration Statement without the prior
written consent of National and Network 1 Financial Securities, Inc. ("Network
1") and 12 additional months without the consent of either National or Network 1
and (ii) to waive all rights to request or demand the registration pursuant to
the Act of any securities of the Company which are registered in the name of or
beneficially owned by any such holder. The Company has also used its best
efforts to cause all holders of 200,000 or less Shares of Common Stock issued
and outstanding on the effective date of the Registration Statement and all
holders of options, warrants or other securities convertible, exercisable or
exchangeable for 200,000 or less Shares of Common Stock issued and outstanding
on the effective date of the Registration Statement to enter into Lock-up
Agreements. During the twenty-four (24) month period commencing on the effective
date of the Registration Statement, the Company shall not, without the prior
written consent of the Representative, sell, contract or offer to sell, issue,
transfer, assign, pledge, distribute, or otherwise dispose of, directly or
indirectly, any shares of Common Stock or any options, rights or warrants with
respect to any shares of Common Stock, except pursuant to options, rights or
warrants existing on the effective date of the Registration Statement; provided,
however, that the Company and any subsidiaries or affiliates thereof may sell or
offer for sale any of their securities without the consent of the Representative
in connection with any merger or acquisition transaction, joint venture or other
"corporate partnering" transaction entered into by any of the Company and its
subsidiaries or affiliates. The Company will cause the Transfer Agent (as
hereinafter defined) to mark an
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appropriate legend on the face of stock certificates representing all of such
securities and to place "stop transfer" orders on the Company's stock ledgers.
y. There are no claims, payments, issuances, arrangements or
understandings, whether oral or written, for services in the nature of a
finder's or origination fee with respect to the sale of the Securities hereunder
or any other arrangements, agreements, understandings, payments or issuance with
respect to the Company, the Subsidiaries, or any of their respective officers,
directors, stockholders, partners, employees or affiliates, that may affect the
Underwriters' compensation, as determined by the National Association of
Securities Dealers, Inc. ("NASD").
z. The Common Stock has been approved for quotation on the Nasdaq
National Market ("Nasdaq").
aa. None of the Company, the Subsidiaries, nor any of their
respective officers, employees, agents or any other person acting on behalf of
either the Company or the Subsidiaries have, directly or indirectly, given or
agreed to give any money, gift or similar benefit (other than legal price
concessions to customers in the ordinary course of business) to any customer,
supplier, employee or agent of a customer or supplier, or official or employee
of any governmental agency (domestic or foreign) or instrumentality of any
government (domestic or foreign) or any political party or candidate for office
(domestic or foreign) or other person who was, is, or may be in a position to
help or hinder the business of either the Company or the Subsidiaries (or assist
either the Company or the Subsidiaries in connection with any actual or proposed
transaction) which (a) might subject either the Company or the Subsidiaries, or
any other such person to any damage or penalty in any civil, criminal or
governmental litigation or proceeding (domestic or foreign), (b) if not given in
the past, might have had a material adverse effect on the assets, business or
operations of either the Company or the Subsidiaries, or (c) if not continued in
the future, might adversely affect the assets, business, condition, financial or
otherwise, earnings, position, properties, value, operations or prospects of
either the Company or the Subsidiaries. The Company's and the Subsidiaries'
internal accounting controls are sufficient to cause each of the Company and the
Subsidiaries to comply with the Foreign Corrupt Practices Act of 1977, as
amended.
bb. Except as set forth in the Prospectus, no officer, director,
stockholder or partner of the Company or of the Subsidiaries, or any "affiliate"
or "associate" (as these terms are defined in Rule 405 promulgated under the
Rules and Regulations) of any of the foregoing persons or entities has or has
had, either directly or indirectly, (i) an interest in any person or entity
which (A) furnishes or sells services or products which are furnished or sold or
are proposed to be furnished or sold by either the Company or the Subsidiaries,
or (B) purchases from or sells or furnishes to either the Company or the
Subsidiaries any goods or services, or (ii) a beneficiary interest in any
contract or agreement to which the Company or the Subsidiaries are a party or by
which it may be bound or affected. Except as set forth in the Prospectus under
"Certain Transactions," there are no existing agreements, arrangements,
understandings or transactions, or proposed agreements, arrangements,
understandings or transactions, between or among the Company or the
Subsidiaries, and any officer, director, or 5% or greater
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<PAGE>
securityholder of the Company or the Subsidiaries, or any partner, affiliate or
associate of any of the foregoing persons or entities.
cc. Any certificate signed by any officer of the Company or the
Subsidiaries, and delivered to the Underwriters or to Underwriters' Counsel (as
defined herein) shall be deemed a representation and warranty by the Company to
the Underwriters as to the matters covered thereby.
dd. The minute books of each of the Company and the Subsidiaries
have been made available to the Underwriters and contain a complete summary of
all meetings and actions of the directors (including committees thereof) and
stockholders of each of the Company and the Subsidiaries, since [___________,
19__], and reflect all transactions referred to in such minutes accurately in
all material respects.
ee. Except and to the extent described in the Prospectus, no
holders of any securities of the Company or of any options, warrants or other
convertible or exchangeable securities of the Company have the right to include
any securities issued by the Company in the Registration Statement or any
registration statement to be filed by the Company or to require the Company to
file a registration statement under the Act and no person or entity holds any
anti-dilution rights with respect to any securities of the Company.
ff. (A) Each of the Company and the Subsidiaries is in compliance
with all federal, state, local or foreign laws, common law, rules, codes,
administrative orders or regulations relating to pollution or protection of
human health, the environment (including, without limitation, ambient air,
surface water, groundwater, land surface or subsurface strata) or wildlife,
including without limitation, all laws, common law, rules, codes, administrative
orders and regulations relating to the release or threatened release of
chemicals, pollutants, contaminants, wastes, toxic substances, hazardous
substances, petroleum or petroleum products (collectively, "Hazardous
Materials") or to the manufacture, processing, distribution, use, treatment,
storage, disposal, transport or handling of Hazardous Materials (collectively,
"Environmental Laws") and (B) to the best of the Company's knowledge, there are
no events or circumstances that could form the basis of an order for clean-up or
remediation, or an action, suit or proceeding by any private party or
governmental body or agency, against or affecting either the Company or the
Subsidiaries relating to any Hazardous Materials or the violation of any
Environmental Laws. The Company has no reason to believe that it will not
receive all necessary and required approvals, authorizations, validations and
certifications from the EPA and other applicable regulatory authorities to
enable the Company to commence full operations as contemplated in the
Registration Statement and the Prospectus.
gg. In the ordinary course of its business, each of the Company
and the Subsidiaries conducts a periodic review of the effect of Environmental
Laws on the business, operations and properties of the Company and the
Subsidiaries, in the course of which it identifies and evaluates associated
costs and liabilities (including, without limitation, any capital or operating
expenditures required for clean-up, closure of properties or compliance with
Environmental Laws or any permit, license or approval, any related constraints
on operating activities and any potential liabilities to third parties). On the
basis of such review, each of the Company and the
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<PAGE>
Subsidiaries has reasonably concluded that such associated costs and liabilities
would not, singly or in the aggregate, have a material adverse effect on the
Company or the Subsidiaries.
hh. The Company has as of the effective date of the Registration
Statement (i) entered into an employment agreement with Glenn A. Norem in the
form filed as Exhibit ___ to the Registration Statement and (ii) purchased term
key person life insurance on the life of Mr. Norem in the amount of one million
($1,000,000), which policy names the Company as the sole beneficiary thereof.
ii. As of the date hereof, the Company does not have more than
________________ shares of Common Stock issued and outstanding (including
securities with equivalent rights as the Common Stock and shares of Common
Stock, or such equivalent securities, issuable upon exercise of any and all
options, warrants and other contract rights and securities convertible directly
or indirectly into shares of Common Stock or such equivalent securities, but
excluding up to _____________ shares of Common Stock issuable upon the exercise
of options granted under the Company's 1993 Stock Option Plan, 1994 Stock Option
Plan, 1995 Employee Stock Purchase Plan and Director Stock Option Plan at prices
not less than the higher of the market value of the shares at the date of the
grant or the offering price per share).
jj. Each of the Company and the Subsidiaries confirms as of the
date hereof that it is in compliance with all provisions of Section 1 of Laws of
Florida, Chapter 92-198, An Act Relating to Disclosure of Doing Business with
Cuba, and each of the Company and the Subsidiaries further agrees that if it or
any affiliate commences engaging in business with the government of Cuba or with
any person or affiliate located in Cuba after the date the Registration
Statement becomes or has become effective with the Commission or with the
Florida Department of Banking and Finance (the "Department"), whichever date is
later, or if the information reported or incorporated by reference in the
Prospectus, if any, concerning the Company's, the Subsidiaries' or any
affiliate's, business with Cuba or with any person or affiliate located in Cuba
changes in any material way, the Company will provide the Department notice of
such business or change, as appropriate, in a form acceptable to the Department.
kk. The Company is not, and upon the issuance and sale of the
Securities as herein contemplated and the application of the net proceeds
therefrom as described in the Prospectus under the caption "Use of Proceeds"
will not be, an "investment company" or an entity "controlled" by an "investment
company" as such terms are defined in the Investment Company Act of 1940, as
amended (the "1940 Act").
ll. Each of the Company and the Subsidiaries maintains a system of
internal accounting controls sufficient to provide reasonable assurance that (i)
transactions are executed in accordance with management's general or specific
authorizations; (ii) transactions are recorded as necessary to permit
preparation of financial statements in conformity with generally accepted
accounting principles and to maintain accountability for assets; (iii) access to
assets is permitted only in accordance with management's general or specific
authorizations; and (iv) the recorded accountability for assets is compared with
the existing assets at reasonable intervals and appropriate action is taken with
respect to any differences.
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<PAGE>
mm. The Company has entered into a warrant agreement substantially
in the form filed as Exhibit ____ to the Registration Statement (the "Warrant
Agreement") with the Representative and Continental Stock Transfer & Trust
Company, as Warrant Agent, in form and substance satisfactory to the
Representative, with respect to the Redeemable Warrants.
2. Purchase, Sale and Delivery of the Securities.
a. On the basis of the representations, warranties, covenants and
agreements herein contained, but subject to the terms and conditions herein set
forth, the Company agrees to sell to each Underwriter, and each Underwriter,
severally and not jointly, agrees to purchase from the Company at a price of
$_______ [90% of the public offering price] per Share and $_______ [90% of the
public offering price] per Redeemable Warrant, that number of Firm Securities
set forth in Schedule A opposite the name of such Underwriter, subject to such
adjustment as the Representative in its sole discretion shall make to eliminate
any sales or purchases of fractional shares, plus any additional number of Firm
Securities which such Underwriter may become obligated to purchase pursuant to
the provisions of Section 11 hereof.
b. In addition, on the basis of the representations, warranties,
covenants and agreements herein contained, but subject to the terms and
conditions herein set forth, the Company hereby grants an option to the
Underwriters, severally and not jointly, to purchase all or any part of an
additional 270,000 shares of Common Stock at a price of $ ____ [90% of the
public offering price] per share of Common Stock and/or an additional 270,000
Redeemable Warrants at a price of $______ [90% of the public offering price] per
Redeemable Warrant. The option granted hereby will expire forty-five (45) days
after (i) the date the Registration Statement becomes effective, if the Company
has elected not to rely on Rule 430A under the Rules and Regulations, or (ii)
the date of this Agreement if the Company has elected to rely upon Rule 430A
under the Rules and Regulations, and may be exercised in whole or in part from
time to time only for the purpose of covering over-allotments which may be made
in connection with the offering and distribution of the Firm Securities upon
notice by the Representative to the Company setting forth the number of Option
Securities as to which the several Underwriters are then exercising the option
and the time and date of payment and delivery for any such Option Securities.
Any such time and date of delivery (an "Option Closing Date") shall be
determined by the Representative, but shall not be later than three (3) full
business days after the exercise of said option, nor in any event prior to the
Closing Date, as hereinafter defined, unless otherwise agreed upon by the
Representative and the Company. Nothing herein contained shall obligate the
Underwriters to make any over-allotments. No Option Securities shall be
delivered unless the Firm Securities shall be simultaneously delivered or shall
theretofore have been delivered as herein provided.
c. Payment of the purchase price for, and delivery of certificates
for, the Firm Securities shall be made at the offices of the Representative at
1001 Fourth Avenue, Suite 2200, Seattle, Washington 98154, or at such other
place as shall be agreed upon by the Representative and the Company. Such
delivery and payment shall be made at 10:00 a.m. (New York City time) on , 1996
or at such other time and date as shall be agreed upon by the Representative and
the Company, but not less than three (3) nor more than five (5) full business
days after the effective date of the Registration Statement (such time and date
of payment and
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delivery being herein called the "Closing Date"). In addition, in the event that
any or all of the Option Securities are purchased by the Underwriters, payment
of the purchase price for, and delivery of certificates for, such Option
Securities shall be made at the above-mentioned office of the Representative or
at such other place as shall be agreed upon by the Representative and the
Company on each Option Closing Date as specified in the notice from the
Representative to the Company. Delivery of the certificates for the Firm
Securities and the Option Securities, if any, shall be made to the Underwriters
against payment by the Underwriters, severally and not jointly, of the purchase
price for the Firm Securities and the Option Securities, if any, to the order of
the Company for the Firm Securities and the Option Securities, if any, by New
York Clearing House funds. In the event such option is exercised, each of the
Underwriters, acting severally and not jointly, shall purchase that proportion
of the total number of Option Securities then being purchased which the number
of Firm Securities set forth in Schedule A hereto opposite the name of such
Underwriter bears to the total number of Firm Securities, subject in each case
to such adjustments as the Representative in its discretion shall make to
eliminate any sales or purchases of fractional shares. Certificates for the Firm
Securities and the Option Securities, if any, shall be in definitive, fully
registered form, shall bear no restrictive legends and shall be in such
denominations and registered in such names as the Underwriters may request in
writing at least two (2) business days prior to the Closing Date or the relevant
Option Closing Date, as the case may be. The certificates for the Firm
Securities and the Option Securities, if any, shall be made available to the
Representative at such office or such other place as the Representative may
designate for inspection, checking and packaging no later than 9:30 a.m. on the
last business day prior to the Closing Date or the relevant Option Closing Date,
as the case may be.
d. The Underwriters shall act as the Company's exclusive agent
with respect to the solicitation of the Redeemable Warrants, and receive from
the Company a commission of five percent (5%) of the exercise price of the
Redeemable Warrants commencing twelve (12) months after the effective date,
payable upon exercise.
e. On the Closing Date, the Company shall issue and sell to the
Representative Representative's Warrants at a purchase price of $.0001 per
warrant, which Representative's Warrants shall entitle the holders thereof to
purchase an aggregate of 180,000 shares of Common Stock and/or 180,000
Redeemable Warrants. The Representative's Warrants shall be exercisable for a
period of four (4) years commencing one (1) year from the effective date of the
Registration Statement at a price equaling one hundred twenty percent (120%) of
the respective initial public offering price of the Shares and the Redeemable
Warrants. The Representative's Warrant Agreement and form of Warrant Certificate
shall be substantially in the form filed as Exhibit 4.2 to the Registration
Statement. Payment for the Representative's Warrants shall be made on the
Closing Date.
3. Public Offering of the Shares and Redeemable Warrants. As soon after
the Registration Statement becomes effective as the Representative deems
advisable, the Underwriters shall make a public offering of the Shares and
Redeemable Warrants (other than to residents of or in any jurisdiction in which
qualification of the Shares and Redeemable Warrants is required and has not
become effective) at the price and upon the other terms set forth in the
Prospectus. The Representative may from time to time increase or decrease the
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respective public offering price after distribution of the Shares and Redeemable
Warrants has been completed to such extent as the Representative, in its sole
discretion deems advisable. The Underwriters may enter into one of more
agreements as the Underwriters, in each of their sole discretion, deem advisable
with one or more broker-dealers who shall act as dealers in connection with such
public offering.
4. Covenants and Agreements of the Company. The Company covenants and
agrees with each of the Underwriters as follows:
a. The Company shall use its best efforts to cause the
Registration Statement and any amendments thereto to become effective as
promptly as practicable and will not at any time, whether before or after the
effective date of the Registration Statement, file any amendment to the
Registration Statement or supplement to the Prospectus or file any document
under the Act or Exchange Act before termination of the offering of the Shares
and Redeemable Warrants by the Underwriters of which the Representative shall
not previously have been advised and furnished with a copy, or to which the
Representative shall have objected or which is not in compliance with the Act,
the Exchange Act or the Rules and Regulations.
b. As soon as the Company is advised or obtains knowledge thereof,
the Company will advise the Representative and confirm the notice in writing (i)
when the Registration Statement, as amended, becomes effective, if the
provisions of Rule 430A promulgated under the Act will be relied upon, when the
Prospectus has been filed in accordance with said Rule 430A and when any
post-effective amendment to the Registration Statement becomes effective; (ii)
of the issuance by the Commission of any stop order or of the initiation, or the
threatening, of any proceeding suspending the effectiveness of the Registration
Statement or any order preventing or suspending the use of the Preliminary
Prospectus or the Prospectus, or any amendment or supplement thereto, or the
institution of proceedings for that purpose; (iii) of the issuance by the
Commission or by any state securities commission of any proceedings for the
suspension of the qualification of any of the Securities for offering or sale in
any jurisdiction or of the initiation, or the threatening, of any proceeding for
that purpose; (iv) of the receipt of any comments from the Commission; and (v)
of any request by the Commission for any amendment to the Registration Statement
or any amendment or supplement to the Prospectus or for additional information.
If the Commission or any state securities commission shall enter a stop order or
suspend such qualification at any time, the Company will make every effort to
obtain promptly the lifting of such order.
c. The Company shall file the Prospectus (in form and substance
satisfactory to the Representative) or transmit the Prospectus by a means
reasonably calculated to result in filing with the Commission pursuant to Rule
424(b)(1) (or, if applicable and if consented to by the Representative, pursuant
to Rule 424(b)(4)) not later than the Commission's close of business on the
earlier of (i) the second business day following the execution and delivery of
this Agreement and (ii) the fifth business day after the effective date of the
Registration Statement.
d. The Company will give the Representative notice of its
intention to file or prepare any amendment to the Registration Statement
(including any post-effective amendment) or any amendment or supplement to the
Prospectus (including any revised prospectus which the
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Company proposes for use by the Underwriters in connection with the offering of
the Securities which differs from the corresponding prospectus on file at the
Commission at the time the Registration Statement becomes effective, whether or
not such revised prospectus is required to be filed pursuant to Rule 424(b) of
the Rules and Regulations), and will furnish the Representative with copies of
any such amendment or supplement a reasonable amount of time prior to such
proposed filing or use, as the case may be, and will not file any such
prospectus to which the Representative or Orrick, Herrington & Sutcliffe LLP
("Underwriters' Counsel") shall object.
e. The Company shall endeavor in good faith, in cooperation with
the Representative, at or prior to the time the Registration Statement becomes
effective, to qualify the Securities for offering and sale under the securities
laws of such jurisdictions as the Representative may designate to permit the
continuance of sales and dealings therein for as long as may be necessary to
complete the distribution, and shall make such applications, file such documents
and furnish such information as may be required for such purpose; provided,
however, the Company shall not be required to qualify as a foreign corporation
or file a general or limited consent to service of process in any such
jurisdiction. In each jurisdiction where such qualification shall be effected,
the Company will, unless the Representative agrees that such action is not at
the time necessary or advisable, use all reasonable efforts to file and make
such statements or reports at such times as are or may reasonably be required by
the laws of such jurisdiction to continue such qualification.
f. During the time when a prospectus is required to be delivered
under the Act, the Company shall use all reasonable efforts to comply with all
requirements imposed upon it by the Act and the Exchange Act, as now and
hereafter amended and by the Rules and Regulations, as from time to time in
force, so far as necessary to permit the continuance of sales of or dealings in
the Securities in accordance with the provisions hereof and the Prospectus, or
any amendments or supplements thereto. If at any time when a prospectus relating
to the Securities is required to be delivered under the Act, any event shall
have occurred as a result of which, in the opinion of counsel for the Company or
Underwriters' Counsel, the Prospectus, as then amended or supplemented, includes
an untrue statement of a material fact or omits to state any material fact
required to be stated therein or necessary to make the statements therein, in
the light of the circumstances under which they were made, not misleading, or if
it is necessary at any time to amend the Prospectus to comply with the Act, the
Company will notify the Representative promptly and prepare and file with the
Commission an appropriate amendment or supplement in accordance with Section 10
of the Act, each such amendment or supplement to be satisfactory to
Underwriters' Counsel, and the Company will furnish to the Underwriters copies
of such amendment or supplement as soon as available and in such quantities as
the Underwriters may request.
g. As soon as practicable, but in any event not later than
forty-five (45) days after the end of the 12-month period beginning on the day
after the end of the fiscal quarter of the Company during which the effective
date of the Registration Statement occurs (ninety (90) days in the event that
the end of such fiscal quarter is the end of the Company's fiscal year), the
Company shall make generally available to its security holders, in the manner
specified in Rule 158(b) of the Rules and Regulations, and to the
Representative, an earnings statement which will
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be in the detail required by, and will otherwise comply with, the provisions of
Section 11(a) of the Act and Rule 158(a) of the Rules and Regulations, which
statement need not be audited unless required by the Act, covering a period of
at least twelve (12) consecutive months after the effective date of the
Registration Statement.
h. During a period of seven (7) years after the date hereof, the
Company will furnish to its stockholders, as soon as practicable, annual reports
(including financial statements audited by independent public accountants) and
unaudited quarterly reports of earnings, and will deliver to the Representative:
i. concurrently with furnishing such quarterly reports to its
stockholders, statements of income of the Company for each quarter in
the form furnished to the Company's stockholders and certified by the
Company's principal financial or accounting officer;
ii. concurrently with furnishing such annual reports to its
stockholders, a balance sheet of the Company as at the end of the
preceding fiscal year, together with statements of operations,
stockholders' equity, and cash flows of the Company for such fiscal
year, accompanied by a copy of the certificate thereon of independent
certified public accountants;
iii. as soon as they are available, copies of all reports
(financial or other) mailed to stockholders;
iv. as soon as they are available, copies of all reports and
financial statements furnished to or filed with the Commission, the NASD
or any securities exchange;
v. every press release and every material news item or article of
interest to the financial community in respect of the Company, or its
affairs, which was released or prepared by or on behalf of the Company;
and
vi. any additional information of a public nature concerning the
Company (and any future subsidiary) or its businesses which the
Representative may request.
During such seven-year period, if the Company has an active subsidiary,
the foregoing financial statements will be on a consolidated basis to the extent
that the accounts of the Company and its subsidiary(ies) are consolidated, and
will be accompanied by similar financial statements for any significant
subsidiary which is not so consolidated.
i. The Company will maintain a transfer agent and warrant agent
("Transfer Agent") and, if necessary under the jurisdiction of incorporation of
the Company, a Registrar (which may be the same entity as the Transfer Agent)
for its Common Stock and Redeemable Warrants.
j. The Company will furnish to the Representative or on the
Representative's order, without charge, at such place as the Representative may
designate, copies of each Preliminary Prospectus, the Registration Statement and
any pre-effective or post-effective amendments thereto (two of which copies will
be signed and will include all financial statements and
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<PAGE>
exhibits), the Prospectus, and all amendments and supplements thereto, including
any prospectus prepared after the effective date of the Registration Statement,
in each case as soon as available and in such quantities as the Representative
may request.
k. On or before the effective date of the Registration Statement,
the Company shall provide the Representative with true original copies of duly
executed, legally binding and enforceable Lock-up Agreements pursuant to which,
for a period of twelve (12) months from the effective date of the Registration
Statement, each of the Company's officers and directors, all holders of more
than 20,000 Shares of Common Stock issued and outstanding on the effective date
of the Registration Statement, and all holders of options, warrants or other
securities exchangeable or exercisable for or convertible into more of the
Common Stock issued and outstanding on the effective date of the Registration
Statement agrees that it or he or she (i) will not, directly or indirectly,
issue, offer to sell, sell, grant an option for the sale or purchase of, assign,
transfer, pledge, hypothecate or otherwise encumber or dispose of any shares of
Common Stock or securities convertible into, exercisable or exchangeable for or
evidencing any right to purchase or subscribe for any shares of Common Stock
(either pursuant to Rule 144 of the Rules and Regulations or otherwise) or
dispose of any beneficial interest therein without the prior consent of National
and Network 1 and for twelve (12) additional months without the consent of
either National or Network 1 and (ii) waives any and all rights to request or
demand the registration pursuant to the Act, of any securities of the Company
which are registered in the name of or beneficially owned by it or he or she,
respectively. The Company will also use its best efforts to cause all holders of
20,000 or less Shares of Common Stock issued and outstanding on the effective
date of the Registration Statement and all holders of options, warrants or other
securities convertible, exercisable or exchangeable for less than 20,000 or less
Shares of Common Stock issued and outstanding on the effective date of the
Registration Statement to enter into Lock-up Agreements. During the twenty-four
(24) month period commencing on the effective date of the Registration
Statement, the Company shall not, without the prior written consent of the
Representative, sell, contract or offer to sell, issue, transfer, assign,
pledge, distribute, or otherwise dispose of, directly or indirectly, any shares
of Common Stock or any options, rights or warrants with respect to any shares of
Common Stock, except pursuant to options, rights or warrants existing on the
effective date of the Registration Statement; provided, however, that the
Company and any subsidiaries or affiliates thereof may sell or offer for sale
any of their securities without the consent of the Representative in connection
with any merger or acquisition transaction, joint venture or other "corporate
partnering" transaction entered into by any of the Company and its subsidiaries
or affiliates. On or before the Closing Date, the Company shall deliver
instructions to the Transfer Agent authorizing it to place appropriate legends
on the certificates representing the securities subject to the Lock-up
Agreements and to place appropriate stop transfer orders on the Company's
ledgers.
l. None of the Company, the Subsidiaries, nor any of their
respective officers, directors, stockholders, nor any of their respective
affiliates (within the meaning of the Rules and Regulations) will take, directly
or indirectly, any action designed to, or which might in the future reasonably
be expected to cause or result in, stabilization or manipulation of the price of
any securities of the Company.
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<PAGE>
m. The Company shall apply the net proceeds from the sale of the
Securities in the manner, and subject to the conditions, set forth under "Use of
Proceeds" in the Prospectus. No portion of the net proceeds will be used,
directly or indirectly, to acquire any securities issued by the Company.
n. The Company shall timely file all such reports, forms or other
documents as may be required (including, but not limited to, a Form SR as may be
required pursuant to Rule 463 under the Act) from time to time, under the Act,
the Exchange Act, and the Rules and Regulations, and all such reports, forms and
documents filed will comply as to form and substance with the applicable
requirements under the Act, the Exchange Act, and the Rules and Regulations.
o. The Company shall furnish to the Representative as early as
practicable prior to each of the date hereof, the Closing Date and each Option
Closing Date, if any, but no later than two (2) full business days prior
thereto, a copy of the latest available unaudited interim financial statements
of the Company (which in no event shall be as of a date more than thirty (30)
days prior to the date of the Registration Statement) which have been read by
the Company's independent public accountants, as stated in their letters to be
furnished pursuant to Sections 6(l) and 6(m) hereof.
p. The Company shall cause the Common Stock and Redeemable
Warrants to be quoted on Nasdaq and, for a period of seven (7) years from the
date hereof, use its best efforts to maintain the Nasdaq quotation of the Common
Stock and the Redeemable Warrants to the extent outstanding.
q. For a period of five (5) years from the Closing Date, the
Company shall furnish to the Representative at the Company's sole expense, (i)
daily consolidated transfer sheets relating to the Common Stock and Redeemable
Warrants (ii) the list of holders of all of the Company's securities and (iii) a
Blue Sky "Trading Survey" for secondary sales of the Company's securities
prepared by counsel to the Company.
r. As soon as practicable, (i) but in no event more than five (5)
business days before the effective date of the Registration Statement, file a
Form 8-A with the Commission providing for the registration under the Exchange
Act of the Securities and (ii) but in no event more than thirty (30) days after
the effective date of the Registration Statement, take all necessary and
appropriate actions to be included in Standard and Poor's Corporation
Descriptions and Moody's OTC Manual and to continue such inclusion for a period
of not less than seven (7) years.
s. The Company hereby agrees that it will not, for a period of
twelve (12) months from the effective date of the Registration Statement, adopt,
propose to adopt or otherwise permit to exist any employee, officer, director,
consultant or compensation plan or similar arrangement permitting (i) the grant,
issue, sale or entry into any agreement to grant, issue or sell any option,
warrant or other contract right (x) at an exercise price that is less than the
greater of the public offering price of the Shares set forth herein and the fair
market value on the date of grant or sale or (y) to any of its executive
officers or directors or to any holder of 5% or more of the Common Stock, except
as provided in subsection (ii) of this subparagraph;
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(ii) the maximum number of shares of Common Stock or other securities of the
Company purchasable at any time pursuant to options or warrants issued by the
Company to exceed those _____ shares reserved for future issuance under the
Company's 1995 Option Plan, 1994 Option Plan, 1993 Option Plan, 1995 Directors
Stock Option Plan and the Employee Stock Purchase Plan as described in footnote
one (1) to the "Prospectus Summary - The Offering" section of the Prospectus;
(iii) the payment for such securities with any form of consideration other than
cash; or (iv) the existence of stock appreciation rights, phantom options or
similar arrangements.
t. Until the completion of the distribution of the Securities, the
Company shall not, without the prior written consent of the Representative and
Underwriters' Counsel, issue, directly or indirectly, any press release or other
communication or hold any press conference with respect to the Company or its
activities or the offering contemplated hereby, other than trade releases issued
in the ordinary course of the Company's business consistent with past practices
with respect to the Company's operations.
u. For a period equal to the lesser of (i) seven (7) years from
the date hereof, and (ii) the sale to the public of the Representative's
Securities, the Company will not take any action or actions which may prevent or
disqualify the Company's use of Form SB-2 (or other appropriate form) for the
registration under the Act of the Representative's Securities. The Company
further agrees to use its best efforts to file such post-effective amendments to
the Registration Statement, as may be necessary, in order to maintain its
effectiveness and to keep such Registration Statement effective while any of the
Redeemable Warrants or Representative's Warrants remain outstanding.
v. At the effective date of the Registration Statement and on each
of the Closing Date and each Option Closing Date, if any, the Company shall have
obtained all necessary and required approvals, authorizations, franchises,
licenses, orders, permits, validations and certifications from all domestic and
foreign regulatory authorities required to conduct its business as presently
conducted and described in the Prospectus, and none of such approvals,
authorizations, franchises, licenses, orders, permits, validations and
certifications shall have been revoked, restricted or limited in any manner and
all of such approvals, authorizations, franchises, licenses, orders, permits,
validations and certifications shall be in full force and effect on each of the
effective date of the Registration Statement, the Closing Date and each Option
Closing Date, if any.
w. The Company hereby agrees that the Underwriters may nominate
for election one person to the Company's Board of Directors (which person shall
be reasonably acceptable to the Company) for a period of three (3) years from
the Effective Date and that certain of the Company's officers, directors and
stockholders have agreed to vote their shares of common stock in favor of such
designee. In the event the Underwriters elects not to exercise the right as set
forth in this paragraph, then the Underwriters may designate one person (which
person shall be reasonably acceptable to the Company) to attend meetings of the
Company's Board of Directors and a non-voting advisor. Such designee shall be
entitled to attend all such meetings of the Company's Board of Directors and to
receive all notices and other correspondence and communications sent by the
Company to members of its Board of Directors. The Company shall
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<PAGE>
reimburse designees of the Representative for their out-of-pocket expenses
incurred in connection with their attendance of meetings of the Company's Board
of Directors.
5. Payment of Expenses.
a. The Company hereby agrees to pay on each of the Closing Date
and the Option Closing Date (to the extent not paid at the Closing Date) all
expenses and fees (other than fees of Underwriters' Counsel, except as provided
in (iv) below) incident to the performance of the obligations of the Company
under this Agreement, the Warrant Agreement and the Representative's Warrant
Agreement, including, without limitation, (i) the fees and expenses of
accountants and counsel for the Company, (ii) all costs and expenses incurred in
connection with the preparation, duplication, printing (including mailing and
handling charges), filing, delivery and mailing (including the payment of
postage with respect thereto) of the Registration Statement and the Prospectus
and any amendments and supplements thereto and the printing, mailing (including
the payment of postage with respect thereto) and delivery of this Agreement, the
Warrant Agreement, the Representative's Warrant Agreement, the Agreement Among
Underwriters, the Selected Dealer Agreements, and related documents, including
the cost of all copies thereof and of the Preliminary Prospectuses and of the
Prospectus and any amendments thereof or supplements thereto supplied to the
Underwriters and such dealers as the Underwriters may request, in quantities as
hereinabove stated, (iii) the printing, engraving, issuance and delivery of the
Securities including, but not limited to, (x) the purchase by the Underwriters
of the Firm Securities and the Option Securities and the purchase by the
Representative of the Representative's Warrants from the Company, (y) the
consummation by the Company of any of its obligations under this Agreement, the
Warrant Agreement and the Representative's Warrant Agreement, and (z) resale of
the Firm Securities and the Option Securities by the Underwriters in connection
with the distribution contemplated hereby, (iv) the qualification of the
Securities under state or foreign securities or "Blue Sky" laws and
determination of the status of such securities under legal investment laws,
including the costs of printing and mailing the "Preliminary Blue Sky
Memorandum", the "Supplemental Blue Sky Memorandum" and "Legal Investments
Survey," if any, and disbursements and fees of counsel in connection therewith,
(v) advertising costs and expenses, including but not limited to costs and
expenses in connection with the "road show", information meetings and
presentations, bound volumes and prospectus memorabilia and "tomb-stone"
advertisement expenses; (vi) costs and expenses in connection with due diligence
investigations, including but not limited to the fees of any independent
counsel, expert or consultant retained, (vii) fees and expenses of the Transfer
Agent and registrar and all issue and transfer taxes, if any, (viii)
applications for assignment of a rating of the Securities by qualified rating
agencies, (ix) the fees payable to the Commission and the NASD, and (x) the fees
and expenses incurred in connection with the quotation of the Securities on
Nasdaq and any other exchange. It is agreed that the services to be provided
under clause (iv) of the foregoing sentence shall be performed by Underwriters'
Counsel.
b. If this Agreement is terminated by the Underwriters in
accordance with the provisions of Section 6 or Section 12, the Company shall
reimburse and indemnify the Underwriters for all of their actual out-of-pocket
expenses, including the fees and disbursements of Underwriters' Counsel, less
any amounts already paid pursuant to Section 5(c) hereof; provided, however,
that the Representative will refund to the Company any unaccounted-for
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portion of any amounts already advanced by the Company to the Representative
pursuant to Section 5(c) hereof. In addition, the Company shall remain liable
for all Blue Sky counsel fees and disbursements, expenses and filing fees.
c. The Company further agrees that, in addition to the expenses
payable pursuant to subsection (a) of this Section 5, it will pay to the
Representative on the Closing Date by certified or bank cashier's check or, at
the election of the Representative, by deduction from the proceeds of the
offering contemplated herein, a non-accountable expense allowance equal to three
percent (3%) of the gross proceeds received by the Company from the sale of the
Firm Securities, $25,000 of which has been paid to date. In the event the
Representative elects to exercise the over-allotment option described in Section
2(b) hereof, the Company agrees to pay to the Representative on the Option
Closing Date (by certified or bank cashier's check or, at the Representative's
election, by deduction from the proceeds of the offering) a non-accountable
expense allowance equal to three percent (3%) of the gross proceeds received by
the Company from the sale of the Option Securities.
6. Conditions of the Underwriters' Obligations. The obligations of the
Underwriters hereunder shall be subject to the continuing accuracy of the
representations and warranties of the Company herein as of the date hereof and
as of the Closing Date and each Option Closing Date, if any, as if they had been
made on and as of the Closing Date or each Option Closing Date, as the case may
be; the accuracy on and as of the Closing Date or Option Closing Date, if any,
of the statements of the officers of the Company made pursuant to the provisions
hereof; and the performance by the Company on and as of the Closing Date and
each Option Closing Date, if any, of its covenants and obligations hereunder and
to the following further conditions:
a. The Registration Statement shall have become effective not
later than 12:00 P.M., New York time, on the date of this Agreement or such
later date and time as shall be consented to in writing by the Representative,
and, at the Closing Date and each Option Closing Date, if any, no stop order
suspending the effectiveness of the Registration Statement shall have been
issued and no proceedings for that purpose shall have been instituted or shall
be pending or contemplated by the Commission and any request on the part of the
Commission for additional information shall have been complied with to the
reasonable satisfaction of Underwriters' Counsel. If the Company has elected to
rely upon Rule 430A of the Rules and Regulations, the price of the Shares and
Redeemable Warrants and any price-related information previously omitted from
the effective Registration Statement pursuant to such Rule 430A shall have been
transmitted to the Commission for filing pursuant to Rule 424(b) of the Rules
and Regulations within the prescribed time period and, prior to the Closing
Date, the Company shall have provided evidence satisfactory to the
Representative of such timely filing, or a post-effective amendment providing
such information shall have been promptly filed and declared effective in
accordance with the requirements of Rule 430A of the Rules and Regulations.
b. The Representative shall not have advised the Company that the
Registration Statement, or any amendment thereto, contains an untrue statement
of fact which, in the Representative's opinion, is material, or omits to state a
fact which, in the Representative's opinion, is material and is required to be
stated therein or is necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading, or that the
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Prospectus, or any supplement thereto, contains an untrue statement of fact
which, in the Representative's opinion, is material, or omits to state a fact
which, in the Representative's opinion, is material and is required to be stated
therein or is necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading.
c. On or prior to each of the Closing Date and each Option Closing
Date, if any, the Representative shall have received from Underwriters' Counsel,
such opinion or opinions with respect to the organization of the Company, the
validity of the Securities, the Registration Statement, the Prospectus and other
related matters as the Representative may request and Underwriters' Counsel
shall have received such papers and information as they request to enable them
to pass upon such matters.
d. At the Closing Date, the Underwriters shall have received the
favorable opinion of the Stoppelman Law Firm, P.C., counsel to the Company and
the Subsidiaries, dated the Closing Date, addressed to the Underwriters and in
form and substance satisfactory to Underwriters' Counsel, to the effect that:
i. each of the Company and the Subsidiaries (A) has been duly
organized and is validly existing as a corporation in good standing
under the laws of its jurisdiction, (B) is duly qualified and licensed
and in good standing as a foreign corporation in each jurisdiction in
which its ownership or leasing of any properties or the character of its
operations requires such qualification or licensing, and (C) has all
requisite corporate power and authority, and has obtained any and all
necessary authorizations, approvals, orders, licenses, certificates,
franchises and permits of and from all governmental or regulatory
officials and bodies (including, without limitation, those having
jurisdiction over environmental or similar matters), to own or lease its
properties and conduct its business as described in the Prospectus; each
of the Company and the Subsidiaries is and has been doing business in
compliance with all such authorizations, approvals, orders, licenses,
certificates, franchises and permits and all federal, state, local and
foreign laws, rules and regulations; and, neither the Company nor the
Subsidiaries has received any notice of proceedings relating to the
revocation or modification of any such authorization, approval, order,
license, certificate, franchise, or permit which, singly or in the
aggregate, if the subject of an unfavorable decision, ruling or finding,
would materially adversely affect the business, operations, condition,
financial or otherwise, or the earnings, business affairs, position,
prospects, value, operation, properties, business or results of
operations of the Company and the Subsidiaries taken as whole. The
disclosures in the Registration Statement concerning the effects of
federal, state, local and foreign laws, rules and regulations on each of
the Company's and the Subsidiaries' businesses as currently conducted
and as contemplated are correct in all material respects and do not omit
to state a fact required to be stated therein or necessary to make the
statements contained therein not misleading in light of the
circumstances in which they were made.
ii. The Company owns, directly or indirectly, one hundred percent
(100%) of the outstanding capital stock of the Subsidiaries, and all
such shares have been validly issued, are fully paid and non-assessable,
were not issued in violation of any preemptive rights
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and are owned free and clear of any liens, charges, claims,
encumbrances, pledges, security interests, defects or other restrictions
or equities of any kind whatsoever;
iii. except as described in the Prospectus, neither the Company nor
the Subsidiaries own an interest in any other corporation, partnership,
joint venture, trust or other business entity;
iv. the Company has a duly authorized, issued and outstanding
capitalization as set forth in the Prospectus, and any amendment or
supplement thereto, under "CAPITALIZATION", and the Company is not a
party to or bound by any instrument, agreement or other arrangement
providing for it to issue, sell, transfer, purchase or redeem any
capital stock, rights, warrants, options or other securities, except for
this Agreement, the Warrant Agreement and the Representative's Warrant
Agreement and as described in the Prospectus. The Securities and all
other securities issued or issuable by the Company conform in all
material respects to all statements with respect thereto contained in
the Registration Statement and the Prospectus. All issued and
outstanding securities of the Company have been duly authorized and
validly issued and are fully paid and non-assessable; the holders
thereof have no rights of rescission with respect thereto, and are not
subject to personal liability by reason of being such holders; and none
of such securities were issued in violation of the preemptive rights of
any holders of any security of the Company or any similar rights granted
by the Company. The Securities to be sold by the Company hereunder and
under the Warrant Agreement and the Representative's Warrant Agreement
are not and will not be subject to any preemptive or other similar
rights of any stockholder, have been duly authorized and, when issued,
paid for and delivered in accordance with the terms hereof, will be
validly issued, fully paid and non-assessable and conform to the
description thereof contained in the Prospectus; the holders thereof
will not be subject to any liability solely as such holders; all
corporate action required to be taken for the authorization, issue and
sale of the Securities has been duly and validly taken; and the
certificates representing the Securities are in due and proper form. The
Representative's Warrants and the Redeemable Warrants constitute valid
and binding obligations of the Company to issue and sell, upon exercise
thereof and payment therefor, the number and type of securities of the
Company called for thereby. Upon the issuance and delivery pursuant to
this Agreement of the Firm Securities and the Option Securities and the
Representative's Warrants to be sold by the Company, the Underwriters
and the Representative, respectively, will acquire good and marketable
title to the Firm Securities and the Option Securities and the
Representative's Warrants free and clear of any pledge, lien, charge,
claim, encumbrance, pledge, security interest, or other restriction or
equity of any kind whatsoever. No transfer tax is payable by or on
behalf of the Underwriters in connection with (A) the issuance by the
Company of the Securities, (B) the purchase by the Underwriters and the
Representative of the Firm Securities and the Option Securities and the
Representative's Warrants, respectively, from the Company, (C) the
consummation by the Company of any of its obligations under this
Agreement, the Warrant Agreement or the Representative's Warrant
Agreement, or (D) resales of the Firm Securities and the Option
Securities in connection with the distribution contemplated hereby.
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v. the Registration Statement is effective under the Act, and, if
applicable, filing of all pricing information has been timely made in
the appropriate form under Rule 430A, and no stop order suspending the
use of the Preliminary Prospectus, the Registration Statement or
Prospectus or any part of any thereof or suspending the effectiveness of
the Registration Statement has been issued and no proceedings for that
purpose have been instituted or are pending or, to the best of such
counsel's knowledge, threatened or contemplated under the Act;
vi. each of the Preliminary Prospectus, the Registration
Statement, and the Prospectus and any amendments or supplements thereto
(other than the financial statements and other financial and statistical
data included therein, as to which no opinion need be rendered) comply
as to form in all material respects with the requirements of the Act and
the Rules and Regulations.
vii. to the best of such counsel's knowledge, (A) there are no
agreements, contracts or other documents required by the Act to be
described in the Registration Statement and the Prospectus and filed as
exhibits to the Registration Statement other than those described in the
Registration Statement (or required to be filed under the Exchange Act
if upon such filing they would be incorporated, in whole or in part, by
reference therein) and the Prospectus and filed as exhibits thereto, and
the exhibits which have been filed are correct copies of the documents
of which they purport to be copies; (B) the descriptions in the
Registration Statement and the Prospectus and any supplement or
amendment thereto of contracts and other documents to which the Company
or the Subsidiaries are a party or by which it is bound, including any
document to which the Company or the Subsidiaries are a party or by
which it is bound, incorporated by reference into the Prospectus and any
supplement or amendment thereto, are accurate and fairly represent the
information required to be shown by Form SB-2; (C) there is no action,
arbitration, suit, proceeding, inquiry, investigation, litigation,
governmental or other proceeding (including, without limitation, those
having jurisdiction over environmental or similar matters), domestic or
foreign, pending or threatened against (or circumstances that may give
rise to the same), or involving the properties or business of either the
Company or the Subsidiaries which (x) is required to be disclosed in the
Registration Statement which is not so disclosed (and such proceedings
as are summarized in the Registration Statement are accurately
summarized in all respects), (y) questions the validity of the capital
stock of the Company or this Agreement, the Warrant Agreement or the
Representative's Warrant Agreement, or of any action taken or to be
taken by the Company pursuant to or in connection with any of the
foregoing; (D) no statute or regulation or legal or governmental
proceeding required to be described in the Prospectus is not described
as required; and (E) there is no action, suit or proceeding pending, or
threatened, against or affecting either the Company or the Subsidiaries
before any court or arbitrator or governmental body, agency or official
(or any basis thereof known to such counsel) in which there is a
reasonable possibility of a decision which may result in a material
adverse change in the condition, financial or otherwise, or the
earnings, position, prospects, stockholders' equity, value, operation,
properties, business or results of operations of either the Company or
the Subsidiaries, which could adversely affect the present or
prospective ability of the Company to perform its obligations under this
Agreement, the Warrant Agreement or the
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Representative's Warrant Agreement or which in any manner draws into
question the validity or enforceability of this Agreement, the Warrant
Agreement or the Representative's Warrant Agreement;
viii. the Company has full legal right, power and authority to
enter into each of this Agreement, the Warrant Agreement and the
Representative's Warrant Agreement, and to consummate the transactions
provided for therein; and each of this Agreement, the Warrant Agreement
and the Representative's Warrant Agreement has been duly authorized,
executed and delivered by the Company. Each of this Agreement, the
Warrant Agreement and the Representative's Warrant Agreement, assuming
due authorization, execution and delivery by each other party thereto
constitutes a legal, valid and binding agreement of the Company
enforceable against the Company in accordance with its terms (except as
such enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other laws of general application relating
to or affecting enforcement of creditors' rights and the application of
equitable principles in any action, legal or equitable, and except as
rights to indemnity or contribution may be limited by applicable law),
and none of the Company's execution or delivery of this Agreement, the
Warrant Agreement and the Representative's Warrant Agreement, its
performance hereunder or thereunder, its consummation of the
transactions contemplated herein or therein, or the conduct of its
business as described in the Registration Statement, the Prospectus, and
any amendments or supplements thereto, conflicts with or will conflict
with or results or will result in any breach or violation of any of the
terms or provisions of, or constitutes or will constitute a default
under, or result in the creation or imposition of any lien, charge,
claim, encumbrance, pledge, security interest, defect or other
restriction or equity of any kind whatsoever upon, any property or
assets (tangible or intangible) of either the Company or the
Subsidiaries pursuant to the terms of, (A) the certificate of
incorporation or by-laws of either the Company or the Subsidiaries, (B)
any license, contract, collective bargaining agreement, indenture,
mortgage, deed of trust, lease, voting trust agreement, stockholders
agreement, note, loan or credit agreement or any other agreement or
instrument to which either the Company or the Subsidiaries are a party
or by which either of them is or may be bound or to which any of their
respective properties or assets (tangible or intangible) is or may be
subject, or any indebtedness, or (C) any statute, judgment, decree,
order, rule or regulation applicable to either the Company or the
Subsidiaries of any arbitrator, court, regulatory body or administrative
agency or other governmental agency or body (including, without
limitation, those having jurisdiction over environmental or similar
matters), domestic or foreign, having jurisdiction over either the
Company or the Subsidiaries or any of their respective activities or
properties.
ix. no consent, approval, authorization or order, and no filing
with, any court, regulatory body, government agency or other body (other
than such as may be required under Blue Sky laws, as to which no opinion
need be rendered) is required in connection with the issuance of the
Firm Securities and the Option Securities pursuant to the Prospectus and
the Registration Statement, the issuance of the Representative's
Warrants, the performance of this Agreement, the Warrant Agreement and
the Representative's Warrant Agreement, and the transactions
contemplated hereby and thereby;
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x. the properties and business of each of the Company and the
Subsidiaries conform in all material respects to the description thereof
contained in the Registration Statement and the Prospectus; and each of
the Company and the Subsidiaries has good and marketable title to, or
valid and enforceable leasehold estates in, all items of real and
personal property stated in the Prospectus to be owned or leased by it,
in each case free and clear of all liens, charges, claims, encumbrances,
pledges, security interests, defects or other restrictions or equities
of any kind whatsoever, other than those referred to in the Prospectus
and liens for taxes not yet due and payable;
xi. neither the Company nor the Subsidiaries are in breach of, or
in default under, any term or provision of any license, contract,
collective bargaining agreement, indenture, mortgage, installment sale
agreement, deed of trust, lease, voting trust agreement, stockholders'
agreement, partnership agreement, note, loan or credit agreement or any
other agreement or instrument evidencing an obligation for borrowed
money, or any other agreement or instrument to which either the Company
or the Subsidiaries are a party or by which either the Company or the
Subsidiaries may be bound or to which the respective properties or
assets (tangible or intangible) of either the Company or the
Subsidiaries are subject or affected; and neither the Company nor the
Subsidiaries are in violation of any term or provision of its Articles
of Incorporation or By-Laws or in violation of any franchise, license,
permit, judgment, decree, order, statute, rule or regulation, domestic
or foreign;
xii. the statements in the Prospectus under "THE COMPANY,"
"BUSINESS," "MANAGEMENT," "PRINCIPAL STOCKHOLDERS," "CERTAIN
TRANSACTIONS," "DESCRIPTION OF SECURITIES," and "SHARES ELIGIBLE FOR
FUTURE SALE" have been reviewed by such counsel, and insofar as they
refer to statements of law, descriptions of statutes, licenses, rules or
regulations or legal conclusions, are correct in all material respects;
xiii. the Securities have been accepted for quotation on Nasdaq;
xiv. the persons listed under the caption "PRINCIPAL STOCKHOLDERS"
in the Prospectus are the respective "beneficial owners" (as such phrase
is defined in regulation 13d-3 under the Exchange Act) of the securities
set forth opposite their respective names thereunder as and to the
extent set forth therein;
xv. none of the Company, the Subsidiaries nor any of their
respective officers, stockholders, employees or agents, nor any other
person acting on behalf of either the Company or the Subsidiaries have,
directly or indirectly, given or agreed to give any money, gift or
similar benefit (other than legal price concessions to customers in the
ordinary course of business) to any customer, supplier, employee or
agent of a customer or supplier, or official or employee of any
governmental agency or instrumentality of any government (domestic or
foreign) or any political party or candidate for office (domestic or
foreign) or other person who is or may be in a position to help or
hinder the business of either the Company or the Subsidiaries (or assist
it in connection with any actual or proposed transaction) which (A)
might subject either the Company or the Subsidiaries to
28
<PAGE>
any damage or penalty in any civil, criminal or governmental litigation
or proceeding, (B) if not given in the past, might have had an adverse
effect on the assets, business or operations of the Company and the
Subsidiaries taken as a whole, as reflected in any of the financial
statements contained in the Registration Statement, or (C) if not
continued in the future, might adversely affect the assets, business,
operations or prospects of the Company and the Subsidiaries taken as a
whole;
xvi. no person, corporation, trust, partnership, association or
other entity has the right to include and/or register any securities of
the Company in the Registration Statement, require the Company to file
any registration statement or, if filed, to include any security in such
registration statement;
xvii. except as described in the Prospectus, there are no claims,
payments, issuances, arrangements or understandings for services in the
nature of a finder's or origination fee with respect to the sale of the
Securities hereunder or financial consulting arrangements or any other
arrangements, agreements, understandings, payments or issuances that may
affect the Underwriters' compensation, as determined by the NASD;
xviii. assuming due execution by the parties thereto other than
the Company, the Lock-up Agreements are legal, valid and binding
obligations of the parties thereto, enforceable against the party and
any subsequent holder of the securities subject thereto in accordance
with its terms (except as such enforceability may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium or other
laws of general application relating to or affecting enforcement of
creditors' rights and the application of equitable principles in any
action, legal or equitable, and except as rights to indemnity or
contribution may be limited by applicable law);
xix. except as described in the Prospectus, neither the Company
nor the Subsidiaries (A) maintains, sponsors or contributes to any ERISA
Plans, (B) maintains or contributes, now or at any time previously, to a
defined benefit plan, as defined in Section 3(35) of ERISA, and (C) has
ever completely or partially withdrawn from a "multiemployer plan";
xx. the minute books of each of the Company and the Subsidiaries
have been made available to the Underwriters and contain a complete
summary of all meetings and actions of the directors and stockholders of
the Company since [19__] and reflect all transactions referred to in
such minutes accurately in all material respects;
xxi. except as set forth in the Prospectus and to the best
knowledge of such counsel, no officer, director or stockholder of either
the Company or the Subsidiaries, or any "affiliate" or "associate" (as
these terms are defined in Rule 405 promulgated under the Rules and
Regulations) of any of the foregoing persons or entities has or has had,
either directly or indirectly, (A) an interest in any person or entity
which (x) furnishes or sells services or products which are furnished or
sold or are proposed to be furnished or sold by either the Company or
the Subsidiaries, or (y) purchases from or sells or furnishes to either
the Company or the Subsidiaries any goods or services, or (B) a
beneficial interest in any contract or agreement to which either the
Company or the Subsidiaries are a party
29
<PAGE>
or by which either of them may be bound or affected. Except as set forth
in the Prospectus under "CERTAIN TRANSACTIONS," there are no existing
agreements, arrangements, understandings or transactions, or proposed
agreements, arrangements, understandings or transactions, between or
among any of the Company or the Subsidiaries, and any officer, director,
or 5% or greater securityholder of any of the Company or the
Subsidiaries, or any affiliate or associate of any such person or
entity;
xxii. each of the Company and the Subsidiaries is in compliance
with all provisions of Section 1 of Laws of Florida, Chapter 92-198, An
Act Relating to Disclosure of Doing Business with Cuba;
xxiii. none of the Company, the Subsidiaries or any of their
respective affiliates shall be subject to the requirements of or shall
be deemed an "Investment Company," pursuant to and as defined under,
respectively, the Investment Company Act.
Such counsel shall state that such counsel has participated in
conferences with officers and other representatives of the Company and the
Subsidiaries, and representatives of the independent public accountants for the
Company and the Subsidiaries, at which conferences such counsel made inquiries
of such officers, representatives and accountants and discussed the contents of
the Preliminary Prospectus, the Registration Statement, the Prospectus, and
related matters and, although such counsel is not passing upon and does not
assume any responsibility for the accuracy, completeness or fairness of the
statements contained in the Preliminary Prospectus, the Registration Statement
and Prospectus, on the basis of the foregoing, no facts have come to the
attention of such counsel which lead them to believe that either the
Registration Statement or any amendment thereto, at the time such Registration
Statement or amendment became effective or the Preliminary Prospectus or
Prospectus or any amendment or supplement thereto as of the date of such opinion
contained any untrue statement of a material fact or omitted to state a material
fact required to be stated therein or necessary to make the statements therein
not misleading (it being understood that such counsel need express no opinion
with respect to the financial statements and schedules and other financial and
statistical data included in the Preliminary Prospectus, the Registration
Statement or the Prospectus). Such counsel shall further state that its opinion
may be relied upon by Underwriters' Counsel in rendering its opinion to the
Underwriters.
In rendering such opinion, such counsel may rely (A) as to matters
involving the application of laws other than the laws of the United States and
jurisdictions in which they are admitted, to the extent such counsel deems
proper and to the extent specified in such opinion, if at all, upon an opinion
or opinions (in form and substance satisfactory to Underwriters' Counsel) of
other counsel acceptable to Underwriters' Counsel, familiar with the applicable
laws; (B) as to matters of fact, to the extent they deem proper, on certificates
and written statements of responsible officers of each of the Company and the
Subsidiaries and certificates or other written statements of officers of
departments of various jurisdictions having custody of documents respecting the
corporate existence or good standing of each of the Company and the
Subsidiaries, provided that copies of any such statements or certificates shall
be delivered to Underwriters' Counsel if requested. The opinion of such counsel
for the Company and the Subsidiaries shall state that the opinion of any such
other counsel is in form satisfactory to such
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<PAGE>
counsel and that the Representative, Underwriters' Counsel and they are each
justified in relying thereon. Any opinion of counsel for the Company and the
Subsidiaries shall not state that it is to be governed or qualified by, or that
it is otherwise subject to, any treatise, written policy or other document
relating to legal opinions, including, without limitation, the Legal Opinion
Accord of the ABA Section of Business Law (1991) or any comparable state accord.
e. At each Option Closing Date, if any, the Underwriters shall
have received the favorable opinion of the Stoppelman Law Firm, P.C., counsel to
the Company and the Subsidiaries, dated such Option Closing Date, addressed to
the Underwriters and in form and substance satisfactory to Underwriters' Counsel
confirming as of such Option Closing Date the statements made by the Stoppelman
Law Firm, P.C. in its opinion delivered on the Closing Date.
f. On or prior to each of the Closing Date and each Option Closing
Date, if any, Underwriters' Counsel shall have been furnished such documents,
certificates and opinions as they may reasonably require for the purpose of
enabling them to review or pass upon the matters referred to in subsection (c)
of this Section 6, or in order to evidence the accuracy, completeness or
satisfaction of any of the representations, warranties or conditions of the
Company, or herein contained.
g. Prior to each of the Closing Date and each Option Closing Date,
if any, (i) there shall have been no adverse change nor development involving a
prospective change in the condition, financial or otherwise, earnings, position,
value, properties, results of operations, prospects, stockholders' equity or the
business activities of either the Company or the Subsidiaries, whether or not in
the ordinary course of business, from the latest dates as of which such
condition is set forth in the Registration Statement and Prospectus; (ii) there
shall have been no transaction, not in the ordinary course of business, entered
into by either the Company or the Subsidiaries, from the latest date as of which
the financial condition of the Company and the Subsidiaries are set forth in the
Registration Statement and Prospectus which is adverse to the Company and the
Subsidiaries taken as a whole; (iii) neither the Company nor the Subsidiaries
shall be in default under any provision of any instrument relating to any
outstanding indebtedness; (iv) neither the Company nor the Subsidiaries shall
have issued any securities (other than the Securities) or declared or paid any
dividend or made any distribution in respect of its capital stock of any class
and there has not been any change in the capital stock or any change in the debt
(long or short term) or liabilities or obligations of either the Company or the
Subsidiaries (contingent or otherwise); (v) no material amount of the assets of
either the Company or the Subsidiaries shall have been pledged or mortgaged,
except as set forth in the Registration Statement and Prospectus; (vi) no
action, suit or proceeding, at law or in equity, shall have been pending or
threatened (or circumstances giving rise to same) against either the Company or
the Subsidiaries, or affecting any of their respective properties or businesses
before or by any court or federal, state or foreign commission, board or other
administrative agency wherein an unfavorable decision, ruling or finding may
adversely affect the business, operations, earnings, position, value,
properties, results of operations, prospects or financial condition or income of
the Company and the Subsidiaries taken as a whole; and (vii) no stop order shall
have been issued under the Act and no proceedings therefor shall have been
initiated, threatened or contemplated by the Commission.
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h. At each of the Closing Date and each Option Closing Date, if
any, the Underwriters shall have received a certificate of the Company signed by
the principal executive officer and by the chief financial or chief accounting
officer of the Company, dated the Closing Date or Option Closing Date, as the
case may be, to the effect that each of such persons has carefully examined the
Registration Statement, the Prospectus and this Agreement, and that:
i. The representations and warranties of the Company in this
Agreement are true and correct, as if made on and as of the Closing Date
or the Option Closing Date, as the case may be, and the Company has
complied with all agreements and covenants and satisfied all conditions
contained in this Agreement on its part to be performed or satisfied at
or prior to such Closing Date or Option Closing Date, as the case may
be;
ii. No stop order suspending the effectiveness of the Registration
Statement or any part thereof has been issued, and no proceedings for
that purpose have been instituted or are pending or, to the best of each
of such person's knowledge, after due inquiry, are contemplated or
threatened under the Act;
iii. The Registration Statement and the Prospectus and, if any,
each amendment and each supplement thereto, contain all statements and
information required to be included therein, and none of the
Registration Statement, the Prospectus nor any amendment or supplement
thereto includes any untrue statement of a material fact or omits to
state any material fact required to be stated therein or necessary to
make the statements therein not misleading and neither the Preliminary
Prospectus or any supplement thereto included any untrue statement of a
material fact or omitted to state any material fact required to be
stated therein or necessary to make the statements therein, in light of
the circumstances under which they were made, not misleading; and
iv. Subsequent to the respective dates as of which information is
given in the Registration Statement and the Prospectus, (a) neither the
Company nor the Subsidiaries have incurred up to and including the
Closing Date or the Option Closing Date, as the case may be, other than
in the ordinary course of its business, any material liabilities or
obligations, direct or contingent; (b) neither the Company nor the
Subsidiaries have paid or declared any dividends or other distributions
on its capital stock; (c) neither the Company nor the Subsidiaries have
entered into any transactions not in the ordinary course of business;
(d) there has not been any change in the capital stock or long-term debt
or any increase in the short-term borrowings (other than any increase in
the short-term borrowings in the ordinary course of business) of either
the Company or the Subsidiaries; (e) neither the Company nor the
Subsidiaries have sustained any loss or damage to any of their
respective properties or assets, whether or not insured; (f) there is no
litigation which is pending or threatened (or circumstances giving rise
to same) against any of the Company or the Subsidiaries or any
affiliated party of any of the foregoing which is required to be set
forth in an amended or supplemented Prospectus which has not been set
forth; and (g) there has occurred no event required to be set forth in
an amended or supplemented Prospectus which has not been set forth.
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<PAGE>
References to the Registration Statement and the Prospectus in this subsection
(j) are to such documents as amended and supplemented at the date of such
certificate.
i. By the Closing Date, the Underwriters will have received
clearance from the NASD as to the amount of compensation allowable or payable to
the Underwriters, as described in the Registration Statement.
j. At the time this Agreement is executed, the Underwriters shall
have received a letter, dated such date, addressed to the Underwriters in form
and substance satisfactory (including the non-material nature of the changes or
decreases, if any, referred to in clause (iii) below) in all respects to the
Underwriters and Underwriters' Counsel, from Ernst & Young LLP:
i. confirming that they are independent certified public
accountants with respect to the Company and the Subsidiaries within the
meaning of the Act and the applicable Rules and Regulations;
ii. stating that it is their opinion that the consolidated
financial statements and supporting schedules of the Company and the
Subsidiaries included in the Registration Statement comply as to form in
all material respects with the applicable accounting requirements of the
Act and the Rules and Regulations thereunder and that the Representative
may rely upon the opinion of Ernst & Young LLP with respect to the
consolidated financial statements and supporting schedules included in
the Registration Statement;
iii. stating that, on the basis of a limited review which included
a reading of the latest available unaudited interim financial statements
of each of the Company and the Subsidiaries, a reading of the latest
available minutes of the stockholders and board of directors and the
various committees of the boards of directors of each of the Company and
the Subsidiaries, consultations with officers and other employees of
each of the Company and the Subsidiaries responsible for financial and
accounting matters and other specified procedures and inquiries, nothing
has come to their attention which would lead them to believe that (A)
the unaudited consolidated financial statements and supporting schedules
of the Company and the Subsidiaries included in the Registration
Statement do not comply as to form in all material respects with the
applicable accounting requirements of the Act and the Rules and
Regulations or are not fairly presented in conformity with generally
accepted accounting principles applied on a basis substantially
consistent with that of the audited consolidated financial statements of
the Company and the Subsidiaries included in the Registration Statement,
or (B) at a specified date not more than five (5) days prior to the
effective date of the Registration Statement, there has been any change
in the capital stock or long-term debt of either the Company or the
Subsidiaries, or any decrease in the stockholders' equity or net current
assets or net assets of either the Company or the Subsidiaries as
compared with amounts shown in the June 30, 1996 balance sheet included
in the Registration Statement, other than as set forth in or
contemplated by the Registration Statement, or, if there was any change
or decrease, setting forth the amount of such change or decrease, and
(C) during the period from July
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1, 1996 to a specified date not more than five (5) days prior to the
effective date of the Registration Statement, there was any decrease in
net revenues, net earnings or increase in net earnings per common share
of either the Company or the Subsidiaries, in each case as compared with
the corresponding period beginning July 1, 1995, other than as set forth
in or contemplated by the Registration Statement, or, if there was any
such decrease, setting forth the amount of such decrease;
iv. setting forth, at a date not later than five (5) days prior to
the date of the Registration Statement, the amount of liabilities of the
Company and the Subsidiaries taken as a whole (including a break-down of
commercial paper and notes payable to banks);
v. stating that they have compared specific dollar amounts,
numbers of shares, percentages of revenues and earnings, statements and
other financial information pertaining to the Company and the
Subsidiaries set forth in the Prospectus in each case to the extent that
such amounts, numbers, percentages, statements and information may be
derived from the general accounting records, including work sheets, of
the Company and the Subsidiaries and excluding any questions requiring
an interpretation by legal counsel, with the results obtained from the
application of specified readings, inquiries and other appropriate
procedures (which procedures do not constitute an examination in
accordance with generally accepted auditing standards) set forth in the
letter and found them to be in agreement;
vi. statements as to such other matters incident to the
transaction contemplated hereby as the Representative may request.
k. At the Closing Date and each Option Closing Date, if any, the
Underwriters shall have received from Ernst & Young LLP a letter, dated as of
the Closing Date or the Option Closing Date, as the case may be, to the effect
that they reaffirm that statements made in the letter furnished pursuant to
subsection (l) of this Section, except that the specified date referred to shall
be a date not more than five (5) days prior to the Closing Date or the Option
Closing Date, as the case may be, and, if the Company has elected to rely on
Rule 430A of the Rules and Regulations, to the further effect that they have
carried out procedures as specified in clause (v) of subsection (l) of this
Section with respect to certain amounts, percentages and financial information
as specified by the Representative and deemed to be a part of the Registration
Statement pursuant to Rule 430A(b) and have found such amounts, percentages and
financial information to be in agreement with the records specified in such
clause (v).
l. On each of the Closing Date and each Option Closing Date, if
any, there shall have been duly tendered to the Representative for the several
Underwriters' accounts the appropriate number of Securities.
m. No order suspending the sale of the Securities in any
jurisdiction designated by the Representative pursuant to subsection (e) of
Section 4 hereof shall have been issued on either the Closing Date or the Option
Closing Date, if any, and no proceedings for that purpose shall have been
instituted or shall be contemplated.
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n. On or before the Closing Date, the Company shall have executed
and delivered to the Representative, (i) the Representative's Warrant Agreement
substantially in the form filed as Exhibit 4.2 to the Registration Statement, in
final form and substance satisfactory to the Representative, and (ii) the
Representative's Warrants in such denominations and to such designees as shall
have been provided to the Company.
o. On or before the Closing Date, the Firm Securities and Option
Securities shall have been duly approved for quotation on Nasdaq, subject to
official notice of issuance.
p. On or before the Closing Date, there shall have been delivered
to the Representative all of the Lock-up Agreements, in form and substance
satisfactory to Underwriters' Counsel.
q. On or before the Closing Date, the Company shall have executed
and delivered to the Representative and the Transfer Agent the Warrant Agreement
substantially in the form filed as Exhibit [____] to the Registration Statement,
in final form and substance satisfactory to the Representative.
If any condition to the Underwriters' obligations hereunder to be
fulfilled prior to or at the Closing Date or the relevant Option Closing Date,
as the case may be, is not so fulfilled, the Representative may terminate this
Agreement or, if the Representative so elects, it may waive any such conditions
which have not been fulfilled or extend the time for their fulfillment.
7. Indemnification.
a. The Company agrees to indemnify and hold harmless the
Underwriter (for purposes of this Section 7, "Underwriter" shall include the
officers, directors, partners, employees, agents and counsel of the
Underwriter), and each person, if any, who controls the Underwriter
("controlling person") within the meaning of Section 15 of the Act or Section
20(a) of the Exchange Act, from and against any and all losses, claims, damages,
expenses or liabilities, joint or several (and actions in respect thereof),
whatsoever (including but not limited to any and all expenses whatsoever
reasonably incurred in investigating, preparing or defending against any
litigation, commenced or threatened, or any claim whatsoever), as such are
incurred, to which the Underwriter or such controlling person may become subject
under the Act, the Exchange Act or any other statute or at common law or
otherwise or under the laws of foreign countries, arising out of or based upon
(A) any untrue statement or alleged untrue statement of a material fact
contained (i) in any Preliminary Prospectus, the Registration Statement or the
Prospectus (as from time to time amended and supplemented); (ii) in any
post-effective amendment or amendments or any new registration statement and
prospectus in which is included securities of the Company issued or issuable
upon exercise of the Securities; or (iii) in any application or other document
or written communication (in this Section 7, collectively referred to as
"applications") executed by the Company or based upon written information
furnished by the Company in any jurisdiction in order to qualify the Securities
under the securities laws thereof or filed with the Commission, any state
securities commission or agency, the NASD, Nasdaq or any securities exchange;
(B) the omission or alleged omission therefrom of a material fact required to be
stated therein or necessary to make the statements therein not misleading (in
the
35
<PAGE>
case of the Prospectus, in light of the circumstances in which they were made);
or (C) any breach of any representation, warranty, covenant or agreement of the
Company contained herein or in any certificate by or on behalf of the Company or
any of its officers delivered pursuant hereto, unless, in the case of clause (A)
or (B) above, such statement or omission was made in reliance upon and in
conformity with written information furnished to the Company with respect to the
Underwriter by or on behalf of the Underwriter expressly for use in any
Preliminary Prospectus, the Registration Statement or the Prospectus, or any
amendment thereof or supplement thereto, or in any application, as the case may
be. The indemnity agreement in this Section 7(a) shall be in addition to any
liability which the Company may have at common law or otherwise.
The indemnity agreement in this subsection (a) shall be in addition to
any liability which the Company may have at common law or otherwise.
b. Each of the Underwriters agrees severally, but not jointly, to
indemnify and hold harmless the Company, each of its directors, each of its
officers who has signed the Registration Statement, and each other person, if
any, who controls the Company within the meaning of the Act, to the same extent
as the foregoing indemnity from the Company to the Underwriters but only with
respect to statements or omissions, if any, made in any Preliminary Prospectus,
the Registration Statement or Prospectus or any amendment thereof or supplement
thereto or in any application made in reliance upon, and in strict conformity
with, written information furnished to the Company with respect to any
Underwriter by such Underwriter expressly for use in such Preliminary
Prospectus, the Registration Statement or Prospectus or any amendment thereof or
supplement thereto or in any such application, provided that such written
information or omissions only pertain to disclosures in the Preliminary
Prospectus, the Registration Statement or Prospectus directly relating to the
transactions effected by the Underwriters in connection with this Offering. The
Company acknowledges that the statements with respect to the public offering of
the Firm Securities and the Option Securities set forth under the heading
"Underwriting" and the stabilization legend in the Prospectus have been
furnished by the Underwriters expressly for use therein and constitute the only
information furnished in writing by or on behalf of the Underwriters for
inclusion in the Prospectus.
c. Promptly after receipt by an indemnified party under this
Section 7 of notice of the commencement of any claim, action, suit,
investigation, inquiry, proceeding or litigation, such indemnified party shall,
if a claim in respect thereof is to be made against one or more indemnifying
parties under this Section 7, notify each party against whom indemnification is
to be sought in writing of the commencement thereof (but the failure so to
notify an indemnifying party shall not relieve it from any liability which it
may have under this Section 7 except to the extent that it has been prejudiced
in any material respect by such failure or from any liability which it may have
otherwise). In case any such claim, action, suit, investigation, inquiry,
proceeding or litigation is brought against any indemnified party, and it
notifies an indemnifying party or parties of the commencement thereof, the
indemnifying party or parties will be entitled to participate therein, and to
the extent it may elect by written notice delivered to the indemnified party
promptly after receiving the aforesaid notice from such indemnified party, to
assume the defense thereof with counsel reasonably satisfactory to such
indemnified party. Notwithstanding the foregoing, the indemnified party or
parties shall have the right to employ
36
<PAGE>
its or their own counsel in any such case but the fees and expenses of such
counsel shall be at the expense of such indemnified party or parties unless (i)
the employment of such counsel shall have been authorized in writing by the
indemnifying parties in connection with the defense thereof at the expense of
the indemnifying party, (ii) the indemnifying parties shall not have employed
counsel reasonably satisfactory to such indemnified party to have charge of the
defense thereof within a reasonable time after notice of commencement thereof,
or (iii) such indemnified party or parties shall have reasonably concluded that
there may be defenses available to it or them which are different from or
additional to those available to one or all of the indemnifying parties (in
which case the indemnifying parties shall not have the right to direct the
defense thereof on behalf of the indemnified party or parties), in any of which
events such fees and expenses of one additional counsel shall be borne by the
indemnifying parties. In no event shall the indemnifying parties be liable for
fees and expenses of more than one counsel (in addition to any local counsel)
separate from their own counsel for all indemnified parties in connection with
any one claim, action, suit, investigation, inquiry, proceeding or litigation or
separate but similar or related claims, actions, suits, investigations,
inquiries, proceedings or litigation in the same jurisdiction arising out of the
same general allegations or circumstances. Anything in this Section 7 to the
contrary notwithstanding, an indemnifying party shall not be liable for any
settlement of any claim, action, suit, investigation, inquiry, proceeding or
litigation effected without its written consent; provided, however, that such
consent was not unreasonably withheld. An indemnifying party will not, without
the prior written consent of the indemnified parties, settle, compromise or
consent to the entry of any judgment with respect to any pending or threatened
claim, action, suit, investigation, inquiry, proceeding or litigation in respect
of which indemnification or contribution may be sought hereunder (whether or not
the indemnified parties are actual or potential parties to such claim, action,
suit, investigation, inquiry, proceeding or litigation), unless such settlement,
compromise or consent (i) includes an unconditional release of each indemnified
party from all liability arising out of such claim, action, suit, investigation,
inquiry, proceeding or litigation and (ii) does not include a statement as to or
an admission of fault, culpability or a failure to act by or on behalf of any
indemnified party.
d. In order to provide for just and equitable contribution in any
case in which (i) an indemnified party makes claim for indemnification pursuant
to this Section 7, but it is judicially determined (by the entry of a final
judgment or decree by a court of competent jurisdiction and the expiration of
time to appeal or the denial of the last right of appeal) that such
indemnification may not be enforced in such case notwithstanding the fact that
the express provisions of this Section 7 provide for indemnification in such
case, or (ii) contribution under the Act may be required on the part of any
indemnified party, then each indemnifying party shall contribute to the amount
paid as a result of such losses, claims, damages, expenses or liabilities (or
actions in respect thereof) (A) in such proportion as is appropriate to reflect
the relative benefits received by each of the contributing parties, on the one
hand, and the party to be indemnified on the other hand, from the offering of
the Firm Securities and the Option Securities or (B) if the allocation provided
by clause (A) above is not permitted by applicable law, in such proportion as is
appropriate to reflect not only the relative benefits referred to in clause (i)
above but also the relative fault of each of the contributing parties, on the
one hand, and the party to be indemnified, on the other hand, in connection with
the statements or omissions that resulted in such losses, claims, damages,
expenses or liabilities, as well as any other relevant equitable considerations.
In any case where the Company is the contributing party and the Underwriters
37
<PAGE>
are the indemnified party, the relative benefits received by the Company on the
one hand, and the Underwriters, on the other, shall be deemed to be in the same
proportion as the total net proceeds from the offering of the Firm Securities
and the Option Securities (before deducting expenses) bear to the total
underwriting discounts received by the Underwriters hereunder, in each case as
set forth in the table on the Cover Page of the Prospectus. Relative fault shall
be determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission or alleged omission to state
a material fact relates to information supplied by the Company, or by the
Underwriters, and the parties' relative intent, knowledge, access to information
and opportunity to correct or prevent such untrue statement or omission. The
amount paid or payable by an indemnified party as a result of the losses,
claims, damages, expenses or liabilities (or actions in respect thereof)
referred to above in this subsection (d) shall be deemed to include any legal or
other expenses reasonably incurred by such indemnified party in connection with
investigating or defending any such action or claim. Notwithstanding the
provisions of this subsection (d), the Underwriters shall not be required to
contribute any amount in excess of the underwriting discount applicable to the
Firm Securities and the Option Securities purchased by the Underwriters
hereunder. No person guilty of fraudulent misrepresentation (within the meaning
of Section 11(f) of the Act) shall be entitled to contribution from any person
who was not guilty of such fraudulent misrepresentation. For purposes of this
Section 7, each person, if any, who controls the Company within the meaning of
the Act, each officer of the Company who has signed the Registration Statement,
and each director of the Company shall have the same rights to contribution as
the Company, subject in each case to this subsection (d). Any party entitled to
contribution will, promptly after receipt of notice of commencement of any
action, suit or proceeding against such party in respect to which a claim for
contribution may be made against another party or parties under this subsection
(d), notify such party or parties from whom contribution may be sought, but the
omission so to notify such party or parties shall not relieve the party or
parties from whom contribution may be sought from any obligation it or they may
have hereunder or otherwise than under this subsection (d), or to the extent
that such party or parties were not adversely affected by such omission. The
contribution agreement set forth above shall be in addition to any liabilities
which any indemnifying party may have at common law or otherwise.
8. Representations and Agreements to Survive Delivery. All
representations, warranties and agreements contained in this Agreement or
contained in certificates of officers of the Company submitted pursuant hereto,
shall be deemed to be representations, warranties and agreements at the Closing
Date and the Option Closing Date, as the case may be, and such representations,
warranties and agreements of the Company and the indemnity agreements contained
in Section 7 hereof, shall remain operative and in full force and effect
regardless of any investigation made by or on behalf of any Underwriter, the
Company, any controlling person of any Underwriter or the Company, and shall
survive termination of this Agreement or the issuance and delivery of the
Securities to the Underwriters and the Representative, as the case may be.
9. Effective Date. This Agreement shall become effective at 10:00 a.m.,
New York City time, on the next full business day following the date hereof, or
at such earlier time after the Registration Statement becomes effective as the
Representative, in its discretion, shall release the Securities for sale to the
public; provided, however, that the provisions of Sections 5, 7 and
38
<PAGE>
10 of this Agreement shall at all times be effective. For purposes of this
Section 9, the Securities to be purchased hereunder shall be deemed to have been
so released upon the earlier of dispatch by the Representative of telegrams to
securities dealers releasing such securities for offering or the release by the
Representative for publication of the first newspaper advertisement which is
subsequently published relating to the Securities.
10. Termination.
a. Subject to Section 10(b) hereof, the Underwriter shall have the
right to terminate this Agreement: (i) if any domestic or international event or
act or occurrence has materially adversely disrupted, or in the Underwriter's
opinion will in the immediate future materially adversely disrupt, the financial
markets; or (ii) if any material adverse change in the financial markets shall
have occurred; or (iii) if trading generally shall have been suspended or
materially limited on or by, as the case may be, any of the New York Stock
Exchange, the American Stock Exchange, the NASD, the Boston Stock Exchange, the
Commission or any governmental authority having jurisdiction over such matters;
or (iv) if trading of any of the securities of the Company shall have been
suspended, or if any of the securities of the Company shall have been delisted,
on any exchange or in any over-the-counter market; or (v) if the United States
shall have become involved in a war or major hostilities, or if there shall have
been an escalation in an existing war or major hostilities, or a national
emergency shall have been declared in the United States; or (vi) if a banking
moratorium shall have been declared by any state or federal authority; or (vii)
if a moratorium in foreign exchange trading shall have been declared; or (viii)
if the Company shall have sustained a material or substantial loss by fire,
flood, accident, hurricane, earthquake, theft, sabotage or other calamity or
malicious act which, whether or not such loss shall have been insured, will, in
the Underwriter's opinion, make it inadvisable to proceed with the delivery of
the Securities; or (ix) if there shall have been such a material adverse change
in the conditions or prospects of the Company, or if there shall have been such
a material adverse change in the general market, political or economic
conditions, in the United States or elsewhere, as in the Underwriter's judgment
would make it inadvisable to proceed with the offering, sale and/or delivery of
the Securities; or (x) if Glenn A. Norem shall no longer serve the Company in
his present capacities.
b. If this Agreement is terminated by the Representative in
accordance with the provisions of Section 10(a) the Company shall promptly
reimburse and indemnify the Representative for all of its actual out-of-pocket
expenses, including the fees and disbursements of counsel for the Underwriters
(less amounts previously paid pursuant to Section 5(c) above); provided,
however, that the Representative will refund to the Company any unaccounted-for
portion of any amounts already advanced by the Company to the Representative
pursuant to Section 5(c) hereof. Notwithstanding any contrary provision
contained in this Agreement, if this Agreement shall not be carried out within
the time specified herein, or any extension thereof granted by the
Representative, by reason of any failure on the part of the Company to perform
any undertaking or satisfy any condition of this Agreement by it to be performed
or satisfied (including, without limitation, pursuant to Section 6 or Section
12) then, the Company shall promptly reimburse and indemnify the Representative
for all of its actual out-of-pocket expenses, including the fees and
disbursements of counsel for the Underwriters (less amounts previously paid
pursuant to Section 5(c) above); provided, however, that the Representative will
refund to
39
<PAGE>
the Company any unaccounted-for portion of any amounts already advanced by the
Company to the Representative pursuant to Section 5(c) hereof. In addition, the
Company shall remain liable for all Blue Sky counsel fees and disbursements,
expenses and filing fees. Notwithstanding any contrary provision contained in
this Agreement, any election hereunder or any termination of this Agreement
(including, without limitation, pursuant to Sections 6, 10, 11 and 12 hereof),
and whether or not this Agreement is otherwise carried out, the provisions of
Section 5 and Section 7 shall not be in any way affected by such election or
termination or failure to carry out the terms of this Agreement or any part
hereof.
11. Substitution of the Underwriters. If one or more of the Underwriters
shall fail (otherwise than for a reason sufficient to justify the termination of
this Agreement under the provisions of Section 6, Section 10 or Section 12
hereof) to purchase the Securities which it or they are obligated to purchase on
such date under this Agreement (the "Defaulted Securities"), the Representative
shall have the right, within 24 hours thereafter, to make arrangement for one or
more of the non-defaulting Underwriters, or any other underwriters, to purchase
all, but not less than all, of the Defaulted Securities in such amounts as may
be agreed upon and upon the terms herein set forth; if, however, the
Representative shall not have completed such arrangements within such 24-hour
period, then:
(a) if the number of Defaulted Securities does not exceed 10% of
the total number of Firm Securities to be purchased on such date, the
non-defaulting Underwriters shall be obligated to purchase the full
amount thereof in the proportions that their respective underwriting
obligations hereunder bear to the underwriting obligations of all
non-defaulting Underwriters, or
(b) if the number of Defaulted Securities exceeds 10% of the total
number of Firm Securities, this Agreement shall terminate without
liability on the part of any non-defaulting Underwriters (or, if such
default shall occur with respect to any Option Securities to be
purchased on an Option Closing Date, the Underwriters may at the
Representative's option, by notice from the Representative to the
Company, terminate the Underwriters' obligation to purchase Option
Securities from the Company on such date).
No action taken pursuant to this Section 11 shall relieve any defaulting
Underwriter from liability in respect of any default by such Underwriter under
this Agreement.
In the event of any such default which does not result in a termination
of this Agreement, the Representative shall have the right to postpone the
Closing Date for a period not exceeding seven (7) days in order to effect any
required changes in the Registration Statement or Prospectus or in any other
documents or arrangements.
12. Default by the Company. If the Company shall fail at the Closing
Date or at any Option Closing Date, as applicable, to sell and deliver the
number of Securities which it is obligated to sell hereunder on such date, then
this Agreement shall terminate (or, if such default shall occur with respect to
any Option Securities to be purchased on an Option Closing Date, the
Underwriters may at the Representative's option, by notice from the
Representative to the Company, terminate the Underwriters' obligation to
purchase Option Securities from the
40
<PAGE>
Company on such date) without any liability on the part of any non-defaulting
party other than pursuant to Section 5, Section 7 and Section 10 hereof. No
action taken pursuant to this Section 12 shall relieve the Company from
liability, if any, in respect of such default.
13. Notices. All notices and communications hereunder, except as herein
otherwise specifically provided, shall be in writing and shall be deemed to have
been duly given if mailed or transmitted by any standard form of
telecommunication. Notices to the Underwriters shall be directed to the
Representative at National Securities Corporation, 1001 Fourth Avenue, Suite
2200, Seattle, Washington 98154, Attention: Steven A. Rothstein, Chairman, with
a copy to Orrick, Herrington & Sutcliffe LLP, 666 Fifth Avenue, New York, New
York 10103, Attention: Lawrence B. Fisher, Esq. Notices to the Company shall be
directed to the Company at 2665 Villa Creek Drive, Suite 200, Dallas, Texas
75234, Attention: Glenn A. Norem, Chief Executive Officer, with a copy to the
Stoppelman Law Firm, P.C., 1749 Old Meadow Road, Suite 610, McClean, Virginia
22102, Attention: John S. Stoppelman, Esq.
14. Parties. This Agreement shall inure solely to the benefit of and
shall be binding upon, the Underwriters, the Company and the controlling
persons, directors and officers referred to in Section 7 hereof, and their
respective successors, legal representatives and assigns, and no other person
shall have or be construed to have any legal or equitable right, remedy or claim
under or in respect of or by virtue of this Agreement or any provisions herein
contained. No purchaser of Securities from any Underwriter shall be deemed to be
a successor by reason merely of such purchase.
15. Construction. This Agreement shall be governed by and construed and
enforced in accordance with the laws of the State of New York without giving
effect to the choice of law or conflict of laws principles.
16. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original, and all of which
taken together shall be deemed to be one and the same instrument.
17. Entire Agreement; Amendments. This Agreement, the Warrant Agreement
and the Representative's Warrant Agreement constitute the entire agreement of
the parties hereto and supersede all prior written or oral agreements,
understandings and negotiations with respect to the subject matter hereof. This
Agreement may not be amended except in a writing, signed by the Representative
and the Company.
41
<PAGE>
If the foregoing correctly sets forth the understanding between the
Underwriters and the Company, please so indicate in the space provided below for
that purpose, whereupon this letter shall constitute a binding agreement among
us.
Very truly yours,
MULTIMEDIA ACCESS CORPORATION
By:
---------------------------
Glenn A. Norem
Chief Executive Officer
Confirmed and accepted as of
the date first above written.
NATIONAL SECURITIES CORPORATION
For itself and as Representative
of the several Underwriters named
in Schedule A hereto.
By:
---------------------------
Steven A. Rothstein
Chairman
<PAGE>
SCHEDULE A
----------
<TABLE>
<CAPTION>
Number of
Redeemable
Number of Shares Warrants to be
Name of Underwriters to be Purchased Purchased
- -------------------- --------------- ---------------
<S> <C> <C>
National Securities Corporation..............
Network 1 Financial Securitie, Inc...........
Total........................................ 1,800,000 1,800,000
========= =========
</TABLE>
43
DRAFT
10/25/96
[Form of Warrant Agreement - Subject to Additional Internal and Client Review]
==========================================================================
MULTIMEDIA ACCESS CORPORATION
AND
CONTINENTAL STOCK TRANSFER & TRUST COMPANY
----------
WARRANT AGREEMENT
Dated as of ___________, 1996
==========================================================================
NY1-161301.2
8789-10-MZ1-10/29/96
<PAGE>
AGREEMENT, dated this ____ day of ____________, 1996, by and
among MULTIMEDIA ACCESS CORPORATION, a Delaware corporation (the "Company") and
CONTINENTAL STOCK TRANSFER & TRUST COMPANY, as Warrant Agent (the "Warrant
Agent").
W I T N E S S E T H:
WHEREAS, in connection with (i) the offering to the public
(the "Public Offering") of up to 1,800,000 shares of Common Stock (as defined in
Section 1) and 1,800,000 redeemable common stock purchase warrants (the
"Warrants"), each Warrant entitling the holder thereof to purchase one
additional share of Common Stock, (ii) the over-allotment option granted to
National Securities Corporation, as representative of the several underwriters
of the Public Offering (the "Representative") to purchase up to an additional
270,000 shares of Common Stock and/or 270,000 Warrants (the "Over-allotment
Option"), and (iii) the sale to the Representative or its designees of warrants
(the "Representative's Warrants") to purchase up to 180,000 shares of Common
Stock and/or 180,000 Warrants, the Company will issue up to 2,250,000 Warrants
(subject to increase as provided herein and in the Representative's Warrant
Agreement); and
WHEREAS, the Company desires to provide for the issuance of
certificates representing the Warrants; and
WHEREAS, the Company desires the Warrant Agent to act on
behalf of the Company, and the Warrant Agent is willing to so act, in connection
with the issuance, registration, transfer, exchange and redemption of the
Warrants, the issuance of certificates representing the Warrants, the exercise
of the Warrants and the rights of the holders thereof.
NOW, THEREFORE, in consideration of the premises and the
mutual agreements hereinafter set forth and for the purpose of defining the
terms and provisions of the Warrants
NY1-161301.1
8789-10-MZ1-10/29/96
<PAGE>
and the certificates representing the Warrants and the respective rights and
obligations thereunder of the Company, the Representative, the holders of
certificates representing the Warrants and the Warrant Agent, the parties hereto
agree as follows:
SECTION 1. Definitions. As used herein, the following terms
shall have the following meanings, unless the context shall otherwise require:
(a) "Act" shall mean the Securities Act of 1933, as
amended.
(b) "Common Stock" shall mean the authorized stock
of the Company of any class, whether now or hereafter authorized, which has the
right to participate in the voting and in the distribution of earnings and
assets of the Company without limit as to amount or percentage which at the date
hereof consists of 20,000,000 shares of Common Stock, $.0001 par value per
share.
(c) "Commission" shall mean the Securities and
Exchange Commission.
(d) "Corporate Office" shall mean the office of the
Warrant Agent (or its successor) at which at any particular time its business in
New York, New York, shall be administered, which office is located on the date
hereof at 2 Broadway, 19th Floor, New York, New York 10004.
(e) "Exchange Act" shall mean the Securities
Exchange Act of 1934, as amended.
(f) "Exercise Date" shall mean, subject to the
provisions of Section 5(b) hereof, as to any Warrant, the date on which the
Warrant Agent shall have received both (i) the Warrant Certificate representing
such Warrant, with the exercise form thereon duly executed by the Registered
Holder thereof or his attorney duly authorized in writing, and (ii) payment in
cash or by official bank or certified check made payable to the Warrant Agent
for the account
NY1-161301.1 8789-10-MZ1-10/29/96 2
z
<PAGE>
of the Company, of the amount in lawful money of the United States of America
equal to the applicable Purchase Price (as hereinafter defined) in available
funds.
(g) "Initial Warrant Exercise Date" shall mean
_____________ __, 1997 [6 months from the effective date of the Registration
Statement].
(h) "Initial Warrant Redemption Date" shall mean
_______________ __, 1998 [18 months from the effective date of the Registration
Statement].
(i) "NASD" z shall mean the National Association of
Securities Dealers, Inc.
(j) "Nasdaq" shall mean the Nasdaq Stock Market.
(k) "Purchase Price" shall mean, subject to
modification and adjustment as provided in Section 8, $[____] [120% of the
initial public offering price of the Common Stock] and further subject to the
Company's right, in its sole discretion, to decrease the Purchase Price for a
period of not less than 30 days on not less than 30 days' prior written notice
to the Registered Holders and the Representative.
(l) "Redemption Date" shall mean the date (which may
not occur before the Initial Warrant Redemption Date) fixed for the redemption
of the Warrants in accordance with the terms hereof.
(m) "Redemption Price" shall mean the price at which
the Company may, at its option, redeem the Warrants, in accordance with the
terms hereof, which price shall be $0.10 per Warrant, subject to adjustment from
time to time pursuant to the provisions of Section 9 hereof.
NY1-161301.1
8789-10-MZ1-10/29/96
3
<PAGE>
(n) "Registered Holder" shall mean the person in
whose name any certificate representing the Warrants shall be registered on the
books maintained by the Warrant Agent pursuant to Section 6.
(o) "Registration Statement" shall mean the
registration statement on Form SB-2, as amended and supplemented from time to
time, relating to the Public Offering and filed with the Commission.
(p) "Transfer Agent" shall mean Continental Stock
Transfer & Trust Company, or its authorized successor.
(q) "Underwriting Agreement" shall mean the
underwriting agreement dated ______________ __, 1996 [the date of the
Prospectus] between the Company and the several underwriters listed therein
relating to the purchase for resale to the public of the 1,800,000 shares of
Common Stock and 1,800,000 Warrants.
(r) "Representative's Warrant Agreement" shall mean
the agreement dated as of _______________ __, 1996 [the date of the Prospectus]
between the Company and the Representative relating to and governing the terms
and provisions of the Representative's Warrants.
(s) "Warrant Certificate" shall mean a certificate
representing each of the Warrants substantially in the form annexed hereto as
Exhibit A.
(t) "Warrant Expiration Date" shall mean, unless the
Warrants are redeemed as provided in Section 9 hereof prior to such date, 5:30
p.m. (New York time), on ______________ __, 2001 [60 months after the date of
the Prospectus], or the Redemption Date as defined herein, whichever date is
earlier; provided that if such date shall in the State of New York be a holiday
or a day on which banks are authorized to close, then 5:30 p.m. (New York
NY1-161301.1
8789-10-MZ1-10/29/96
4
<PAGE>
time) on the next following day which, in the State of New York, is not a
holiday or a day on which banks are authorized to close. Upon five business
days' prior written notice to the Registered Holders, the Company shall have the
right to extend the Warrant Expiration Date.
SECTION 2. Warrants and Issuance of Warrant Certificates.
---------------------------------------------
(a) Each Warrant shall initially entitle the
Registered Holder of the Warrant Certificate representing such Warrant to
purchase at the Purchase Price therefor from the Initial Warrant Exercise Date
until the Warrant Expiration Date one share of Common Stock upon the exercise
thereof in accordance with the terms hereof, subject to modification and
adjustment as provided in Section 8.
(b) Upon execution of this Agreement, Warrant
Certificates representing the number of Warrants sold pursuant to the
Underwriting Agreement (subject to modification and adjustment as provided in
Section 8) shall be executed by the Company and delivered to the Warrant Agent.
(c) Upon exercise of the Representative's Warrants
as provided therein, Warrant Certificates representing all or a portion of
180,000 Warrants to purchase up to an aggregate of 180,000 shares of Common
Stock (subject to modification and adjustment as provided in Section 8 hereof
and in the Representative's Warrant Agreement) shall be countersigned, issued
and delivered by the Warrant Agent upon written order of the Company signed by
its Chairman of the Board, Chief Executive Officer, President or a Vice
President and by its Treasurer or an Assistant Treasurer or its Secretary or an
Assistant Secretary
(d) From time to time, up to the Warrant Expiration
Date or the Redemption Date, whichever date is earlier, the Warrant Agent shall
countersign and deliver Warrant Certificates in required denominations of one or
whole number multiples thereof to the
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person entitled thereto in connection with any transfer or exchange permitted
under this Agreement. Except as provided herein, no Warrant Certificates shall
be issued except (i) Warrant Certificates initially issued hereunder, those
issued pursuant to the exercise of the Over- allotment Option and those issued
on or after the Initial Warrant Exercise Date, upon the exercise of fewer than
all Warrants held by the exercising Registered Holder, (ii) Warrant Certificates
issued upon any transfer or exchange of Warrants, (iii) Warrant Certificates
issued in replacement of lost, stolen, destroyed or mutilated Warrant
Certificates pursuant to Section 7, (iv) Warrant Certificates issued pursuant to
the Representative's Warrant Agreement, and (v) at the option of the Company,
Warrant Certificates in such form as may be approved by its Board of Directors,
to reflect any adjustment or change in the Purchase Price, the number of shares
of Common Stock purchasable upon exercise of the Warrants or the Redemption
Price therefor made pursuant to Section 8 hereof.
SECTION 3. Form and Execution of Warrant Certificates.
------------------------------------------
(a) The Warrant Certificates shall be substantially
in the form annexed hereto as Exhibit A (the provisions of which are hereby
incorporated herein) and may have such letters, numbers or other marks of
identification or designation and such legends, summaries or endorsements
printed, lithographed or engraved thereon as the Company may deem appropriate
and as are not inconsistent with the provisions of this Agreement, or as may be
required to comply with any law or with any rule or regulation made pursuant
thereto or with any rule or regulation of any stock exchange on which the
Warrants may be listed, or to conform to usage. The Warrant Certificates shall
be dated the date of issuance thereof (whether upon initial issuance, transfer,
exchange or in lieu of mutilated, lost, stolen or destroyed Warrant
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Certificates) and issued in registered form. Warrants shall be numbered serially
with the letter W on the Warrants.
(b) Warrant Certificates shall be executed on behalf
of the Company by its Chairman of the Board, Chief Executive Officer, President
or any Vice President and by its Treasurer or an Assistant Treasurer or its
Secretary or an Assistant Secretary, by manual signatures or by facsimile
signatures printed thereon, and shall have imprinted thereon a facsimile of the
Company's seal. Warrant Certificates shall be manually countersigned by the
Warrant Agent and shall not be valid for any purpose unless so countersigned. In
case any officer of the Company who shall have signed any of the Warrant
Certificates shall cease to be such officer of the Company before the date of
issuance of the Warrant Certificates or before countersignature by the Warrant
Agent and issue and delivery thereof, such Warrant Certificates, nevertheless,
may be countersigned by the Warrant Agent, issued and delivered with the same
force and effect as though the person who signed such Warrant Certificates had
not ceased to be such officer of the Company. After countersignature by the
Warrant Agent, Warrant Certificates shall be delivered by the Warrant Agent to
the Registered Holder promptly and without further action by the Company, except
as otherwise provided by Section 4(a) hereof.
SECTION 4. Exercise.
--------
(a) Warrants in denominations of one or whole number
multiples thereof may be exercised by the Registered Holder thereof commencing
at any time on or after the Initial Warrant Exercise Date, but not after the
Warrant Expiration Date, upon the terms and subject to the conditions set forth
herein and in the applicable Warrant Certificate. A Warrant shall be deemed to
have been exercised immediately prior to the close of business on the Exercise
Date provided that the Warrant Certificate representing such Warrant, with the
exercise
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form thereon duly executed by the Registered Holder thereof or his attorney duly
authorized in writing, together with payment in cash or by check made payable to
the Warrant Agent for the account of the Company of an amount in lawful money of
the United States of America equal to the applicable purchase price, have been
received by the Warrant Agent. The person entitled to receive the securities
deliverable upon such exercise shall be treated for all purposes as the holder,
upon exercise thereof, as of the close of business on the Exercise Date. If
Warrants in denominations other than whole number multiples thereof shall be
exercised at one time by the same Registered Holder, the number of full shares
of Common Stock which shall be issuable upon exercise thereof shall be computed
on the basis of the aggregate number of full shares of Common Stock issuable
upon such exercise. As soon as practicable on or after the Exercise Date and in
any event within five business days after such date, if one or more Warrants
have been exercised, the Warrant Agent on behalf of the Company shall cause to
be issued to the person or persons entitled to receive the same a Common Stock
certificate or certificates for the shares of Common Stock deliverable upon such
exercise, and the Warrant Agent shall deliver the same to the person or persons
entitled thereto. Upon the exercise of any one or more Warrants, the Warrant
Agent shall promptly notify the Company in writing of such fact and of the
number of securities delivered upon such exercise and, subject to subsection (b)
below, shall cause all payments of an amount in cash or by check made payable to
the order of the Company, equal to the Purchase Price, to be deposited promptly
in the Company's bank account.
(b) The Company shall not be required to issue
fractional shares on the exercise of Warrants. Warrants may only be exercised in
such multiples as are required to permit the issuance by the Company of one or
more whole shares. If two or more Warrants shall be presented for exercise in
full at the same time by the same Registered Holder, the
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number of whole shares which shall be issuable upon such exercise thereof shall
be computed on the basis of the aggregate number of shares purchasable on
exercise of the Warrants so presented. If any fraction of a share would, except
for the provisions provided herein, be issuable on the exercise of any Warrant
(or specified portion thereof), the Company shall pay an amount in cash equal to
such fraction multiplied by the then current market value of a share of Common
Stock, determined as follows:
(1) If the Common Stock is listed, or admitted to unlisted
trading privileges on a national securities exchange, or is traded on Nasdaq,
the current market value of a share of Common Stock shall be the closing sale
price of the Common Stock at the end of the regular trading session on the last
business day prior to the date of exercise of the Warrants on whichever of such
exchanges or Nasdaq had the highest average daily trading volume for the Common
Stock on such day; or
(2) If the Common Stock is not listed or admitted to unlisted
trading privileges on any national securities exchange, or listed, quoted or
reported for trading on Nasdaq, but is traded in the over-the-counter market,
the current market value of a share of Common Stock shall be the average of the
last reported bid and asked prices of the Common Stock reported by the National
Quotation Bureau, Inc. on the last business day prior to the date of exercise of
the Warrants; or
(3) If the Common Stock is not listed, admitted to unlisted
trading privileges on any national securities exchange, or listed, quoted or
reported for trading on Nasdaq, and bid and asked prices of the Common Stock are
not reported by the National Quotation Bureau, Inc., the current market value of
a share of Common Stock shall be an amount, not less than the book value thereof
as of the end of the most recently completed fiscal quarter of the Company
ending
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prior to the date of exercise, determined by the members of the Board of
Directors of the Company exercising good faith and using customary valuation
methods.
SECTION 5. Reservation of Shares; Listing; Payment of Taxes;
-------------------------------------------------
etc.
----
(a) The Company covenants that it will at all times
reserve and keep available out of its authorized Common Stock, solely for the
purpose of issuance upon exercise of Warrants, such number of shares of Common
Stock as shall then be issuable upon the exercise of all outstanding Warrants.
The Company covenants that all shares of Common Stock which shall be issuable
upon exercise of the Warrants shall, at the time of delivery thereof, be duly
and validly issued and fully paid and nonassessable and free from all preemptive
or similar rights, taxes, liens and charges with respect to the issue thereof,
and that upon issuance such shares shall be listed on each securities exchange,
if any, on which the other shares of outstanding Common Stock of the Company are
then listed.
(b) The Company covenants that if any securities to
be reserved for the purpose of exercise of Warrants hereunder require
registration with, or approval of, any governmental authority under any federal
securities law before such securities may be validly issued or delivered upon
such exercise, then the Company will file a registration statement under the
federal securities laws or a post-effective amendment, use its best efforts to
cause the same to become effective and to keep such registration statement
current while any of the Warrants are outstanding and deliver a prospectus which
complies with Section 10(a)(3) of the Act, to the Registered Holder exercising
the Warrant (except, if in the opinion of counsel to the Company, such
registration is not required under the federal securities law or if the Company
receives a letter from the staff of the Commission stating that it would not
take any enforcement action if such registration is not effected). The Company
will use its best efforts to obtain appropriate
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approvals or registrations under state "blue sky" securities laws with respect
to any such securities. However, Warrants may not be exercised by, or shares of
Common Stock issued to, any Registered Holder in any state in which such
exercise would be unlawful.
(c) The Company shall pay all documentary, stamp or
similar taxes and other governmental charges that may be imposed with respect to
the issuance of Warrants, or the issuance or delivery of any shares of Common
Stock upon exercise of the Warrants; provided, however, that if shares of Common
Stock are to be delivered in a name other than the name of the Registered Holder
of the Warrant Certificate representing any Warrant being exercised, then no
such delivery shall be made unless the person requesting the same has paid to
the Warrant Agent the amount of transfer taxes or charges incident thereto, if
any.
(d) The Warrant Agent is hereby irrevocably
authorized as the Transfer Agent to requisition from time to time certificates
representing shares of Common Stock or other securities required upon exercise
of the Warrants, and the Company will comply with all such requisitions.
SECTION 6. Exchange and Registration of Transfer.
----------------------------------------
(a) Warrant Certificates may be exchanged for other
Warrant Certificates representing an equal aggregate number of Warrants of the
same class or may be transferred in whole or in part. Warrant Certificates to be
exchanged shall be surrendered to the Warrant Agent at its Corporate Office,
and, upon satisfaction of the terms and provisions hereof, the Company shall
execute and the Warrant Agent shall countersign, issue and deliver in exchange
therefor the Warrant Certificate or Certificates which the Registered Holder
making the exchange shall be entitled to receive.
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(b) The Warrant Agent shall keep, at its office,
books in which, subject to such reasonable regulations as it may prescribe, it
shall register Warrant Certificates and the transfer thereof in accordance with
customary practice. Upon due presentment for registration of transfer of any
Warrant Certificate at such office, the Company shall execute and the Warrant
Agent shall issue and deliver to the transferee or transferees a new Warrant
Certificate or Certificates representing an equal aggregate number of Warrants
of the same class.
(c) With respect to all Warrant Certificates
presented for registration of transfer, or for exchange or exercise, the
subscription or exercise form, as the case may be, on the reverse thereof shall
be duly endorsed or be accompanied by a written instrument or instruments of
transfer and subscription, in form satisfactory to the Company and the Warrant
Agent, duly executed by the Registered Holder thereof or his attorney-in-fact
duly authorized in writing.
(d) A service charge may be imposed by the Warrant
Agent for any exchange or registration of transfer of Warrant Certificates. In
addition, the Company may require payment by such Holder of a sum sufficient to
cover any tax or other governmental charge that may be imposed in connection
therewith.
(e) All Warrant Certificates surrendered for
exercise or for exchange in case of mutilated Warrant Certificates shall be
promptly canceled by the Warrant Agent and thereafter retained by the Warrant
Agent until termination of this Agreement.
(f) Prior to due presentment for registration of
transfer thereof, the Company and the Warrant Agent may deem and treat the
Registered Holder of any Warrant Certificate as the absolute owner thereof and
of each Warrant represented thereby (notwithstanding any notations of ownership
or writing thereon made by anyone other than a
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duly authorized officer of the Company or the Warrant Agent) for all purposes
and shall not be affected by any notice to the contrary.
SECTION 7. Loss or Mutilation. Upon receipt by the Company and
the Warrant Agent of evidence satisfactory to them of the ownership of and the
loss, theft, destruction or mutilation of any Warrant Certificate and (in the
case of loss, theft or destruction) of indemnity satisfactory to them, and (in
case of mutilation) upon surrender and cancellation thereof, the Company shall
execute and the Warrant Agent shall (in the absence of notice to the Company
and/or the Warrant Agent that a new Warrant Certificate has been acquired by a
bona fide purchaser) countersign and deliver to the Registered Holder in lieu
thereof a new Warrant Certificate of like tenor representing an equal aggregate
number of Warrants. Applicants for a substitute Warrant Certificate shall also
comply with such other reasonable regulations and pay such other reasonable
charges as the Warrant Agent may prescribe.
SECTION 8. Adjustment of Purchase Price and Number of Shares
of Common Stock Deliverable.
(a) Except as hereinafter provided, in the event the
Company shall, at any time or from time to time after the date hereof and prior
to the Warrant Expiration Date, issue or sell any shares of Common Stock for a
consideration per share less than the Purchase Price or issue any shares of
Common Stock as a stock dividend to the holders of Common Stock, or subdivide or
combine the outstanding shares of Common Stock into a greater or lesser number
of shares (any such issuance, subdivision or combination being herein called a
"Change of Shares"), then, and thereafter upon each further Change of Shares,
the Purchase Price for the Warrants (whether or not the same shall be issued and
outstanding) in effect immediately prior to such Change of Shares shall be
changed to a price (including any applicable fraction of a cent
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to the nearest cent) determined by dividing (i) the sum of (a) the total number
of shares of Common Stock outstanding immediately prior to such Change of
Shares, multiplied by the Purchase Price in effect immediately prior to such
Change of Shares and (b) the consideration, if any, received by the Company upon
such sale, issuance, subdivision or combination, by (ii) the total number of
shares of Common Stock outstanding immediately after such Change of Shares;
provided, however, that in no event shall the Purchase Price be adjusted
pursuant to this computation to an amount in excess of the Purchase Price in
effect immediately prior to such computation, except in the case of a
combination of outstanding shares of Common Stock.
For the purposes of any adjustment to be made in accordance
with this Section 8(a), the following provisions shall be applicable:
(A) In case of the issuance or sale of shares of
Common Stock (or of other securities deemed hereunder to involve the issuance or
sale of shares of Common Stock) for a consideration part or all of which shall
be cash, the amount of the cash portion of the consideration therefor deemed to
have been received by the Company shall be (i) the subscription price, if shares
of Common Stock are offered by the Company for subscription, or (ii) the public
offering price (before deducting therefrom any compensation paid or discount
allowed in the sale, underwriting or purchase thereof by underwriters or dealers
or others performing similar services, or any expenses incurred in connection
therewith), if such securities are sold to underwriters or dealers for public
offering without a subscription offering, or (iii) the gross amount of cash
actually received by the Company for such securities, in any other case.
(B) In case of the issuance or sale (otherwise than
as a dividend or other distribution on any stock of the Company, and otherwise
than on the exercise of options, rights
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or warrants or the conversion or exchange of convertible or exchangeable
securities) of shares of Common Stock (or of other securities deemed hereunder
to involve the issuance or sale of shares of Common Stock) for a consideration
part or all of which shall be other than cash, the amount of the consideration
therefor other than cash deemed to have been received by the Company shall be
the value of such consideration as determined in good faith by the Board of
Directors of the Company, using customary valuation methods and on the basis of
prevailing market values for similar property or services.
(C) Shares of Common Stock issuable by way of
dividend or other distribution on any stock of the Company shall be deemed to
have been issued immediately after the opening of business on the day following
the record date for the determination of shareholders entitled to receive such
dividend or other distribution and shall be deemed to have been issued without
consideration.
(D) The reclassification of securities of the
Company other than shares of Common Stock into securities including shares of
Common Stock shall be deemed to involve the issuance of such shares of Common
Stock for a consideration other than cash immediately prior to the close of
business on the date fixed for the determination of security holders entitled to
receive such shares, and the value of the consideration allocable to such shares
of Common Stock shall be determined as provided in subsection (B) of this
Section 8(a).
(E) The number of shares of Common Stock at any one
time outstanding shall be deemed to include the aggregate maximum number of
shares issuable (subject to readjustment upon the actual issuance thereof) upon
the exercise of options, rights or warrants and upon the conversion or exchange
of convertible or exchangeable securities.
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(b) Upon each adjustment of the Purchase Price
pursuant to this Section 8, the number of shares of Common Stock purchasable
upon the exercise of each Warrant shall be the number derived by multiplying the
number of shares of Common Stock purchasable immediately prior to such
adjustment by the Purchase Price in effect prior to such adjustment and dividing
the product so obtained by the applicable adjusted Purchase Price.
(c) In case the Company shall at any time after the
date hereof issue options, rights or warrants to subscribe for shares of Common
Stock, or issue any securities convertible into or exchangeable for shares of
Common Stock, for a consideration per share (determined as provided in Sections
8(a) and 8(b) and as provided below) less than the Purchase Price in effect
immediately prior to the issuance of such options, rights or warrants, or such
convertible or exchangeable securities, or without consideration (including the
issuance of any such securities by way of dividend or other distribution), the
Purchase Price for the Warrants (whether or not the same shall be issued and
outstanding) in effect immediately prior to the issuance of such options, rights
or warrants, or such convertible or exchangeable securities, as the case may be,
shall be reduced to a price determined by making the computation in accordance
with the provisions of Sections 8(a) and 8(b) hereof, provided that:
(A) The aggregate maximum number of shares of Common
Stock, as the case may be, issuable or that may become issuable under such
options, rights or warrants (assuming exercise in full even if not then
currently exercisable or currently exercisable in full) shall be deemed to be
issued and outstanding at the time such options, rights or warrants were issued,
for a consideration equal to the minimum purchase price per share provided for
in such options, rights or warrants at the time of issuance, plus the
consideration, if any, received by the Company for such options, rights or
warrants; provided, however, that upon the expiration
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or other termination of such options, rights or warrants, if any thereof shall
not have been exercised, the number of shares of Common Stock deemed to be
issued and outstanding pursuant to this subsection (A) (and for the purposes of
subsection (E) of Section 8(a) hereof) shall be reduced by the number of shares
as to which options, warrants and/or rights shall have expired, and such number
of shares shall no longer be deemed to be issued and outstanding, and the
Purchase Price then in effect shall forthwith be readjusted and thereafter be
the price that it would have been had adjustment been made on the basis of the
issuance only of the shares actually issued plus the shares remaining issuable
upon the exercise of those options, rights or warrants as to which the exercise
rights shall not have expired or terminated unexercised.
(B) The aggregate maximum number of shares of Common
Stock issuable or that may become issuable upon conversion or exchange of any
convertible or exchangeable securities (assuming conversion or exchange in full
even if not then currently convertible or exchangeable in full) shall be deemed
to be issued and outstanding at the time of issuance of such securities, for a
consideration equal to the consideration received by the Company for such
securities, plus the minimum consideration, if any, receivable by the Company
upon the conversion or exchange thereof; provided, however, that upon the
termination of the right to convert or exchange such convertible or exchangeable
securities (whether by reason of redemption or otherwise), the number of shares
of Common Stock deemed to be issued and outstanding pursuant to this subsection
(B) (and for the purposes of subsection (E) of Section 8(a) hereof) shall be
reduced by the number of shares as to which the conversion or exchange rights
shall have expired or terminated unexercised, and such number of shares shall no
longer be deemed to be issued and outstanding, and the Purchase Price then in
effect shall forthwith be readjusted and thereafter be the price that it would
have been had adjustment been made on
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the basis of the issuance only of the shares actually issued plus the shares
remaining issuable upon conversion or exchange of those convertible or
exchangeable securities as to which the conversion or exchange rights shall not
have expired or terminated unexercised.
(C) If any change shall occur in the price per share
provided for in any of the options, rights or warrants referred to in subsection
(A) of this Section 8(c), or in the price per share or ratio at which the
securities referred to in subsection (B) of this Section 8(c) are convertible or
exchangeable, such options, rights or warrants or conversion or exchange rights,
as the case may be, to the extent not theretofore exercised, shall be deemed to
have expired or terminated on the date when such price change became effective
in respect of shares not theretofore issued pursuant to the exercise or
conversion or exchange thereof, and the Company shall be deemed to have issued
upon such date new options, rights or warrants or convertible or exchangeable
securities.
(d) In case of any reclassification or change of
outstanding shares of Common Stock issuable upon exercise of the Warrants (other
than a change in par value, or from par value to no par value, or from no par
value to par value or as a result of a subdivision or combination), or in case
of any consolidation or merger of the Company with or into another corporation
(other than a merger with a subsidiary of the Company in which merger the
Company is the continuing corporation) and which does not result in any
reclassification or change of the then outstanding shares of Common Stock or
other capital stock issuable upon exercise of the Warrants (other than a change
in par value, or from par value to no par value, or from no par value to par
value or as a result of subdivision or combination) or in case of any sale or
conveyance to another corporation of the property of the Company as an entirety
or substantially as an entirety, then, as a condition of such reclassification,
change, consolidation,
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merger, sale or conveyance, the Company, or such successor or purchasing
corporation, as the case may be, shall make lawful and adequate provision
whereby the Registered Holder of each Warrant then outstanding shall have the
right thereafter to receive on exercise of such Warrant the kind and amount of
securities and property receivable upon such reclassification, change,
consolidation, merger, sale or conveyance by a holder of the number of
securities issuable upon exercise of such Warrant immediately prior to such
reclassification, change, consolidation, merger, sale or conveyance and shall
forthwith file at the Corporate Office of the Warrant Agent a statement signed
by its Chief Executive Officer, President or a Vice President and by its
Treasurer or an Assistant Treasurer or its Secretary or an Assistant Secretary
evidencing such provision. Such provisions shall include provision for
adjustments which shall be as nearly equivalent as may be practicable to the
adjustments provided for in Sections 8(a), (b) and (c). The above provisions of
this Section 8(d) shall similarly apply to successive reclassifications and
changes of shares of Common Stock and to successive consolidations, mergers,
sales or conveyances.
(e) Irrespective of any adjustments or changes in
the Purchase Price or the number of shares of Common Stock purchasable upon
exercise of the Warrants, the Warrant Certificates theretofore and thereafter
issued shall, unless the Company shall exercise its option to issue new Warrant
Certificates pursuant to Section 2(e) hereof, continue to express the Purchase
Price per share and the number of shares purchasable thereunder as the Purchase
Price per share and the number of shares purchasable thereunder were expressed
in the Warrant Certificates when the same were originally issued.
(f) After each adjustment of the Purchase Price
pursuant to this Section 8, the Company will promptly prepare a certificate
signed by the Chairman, Chief Executive
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Officer or President, and by the Treasurer or an Assistant Treasurer or the
Secretary or an Assistant Secretary, of the Company setting forth: (i) the
Purchase Price as so adjusted, (ii) the number of shares of Common Stock
purchasable upon exercise of each Warrant, after such adjustment, and (iii) a
brief statement of the facts accounting for such adjustment. The Company will
promptly file such certificate with the Warrant Agent and cause a brief summary
thereof to be sent by ordinary first class mail to each Registered Holder at his
last address as it shall appear on the registry books of the Warrant Agent. No
failure to mail such notice nor any defect therein or in the mailing thereof
shall affect the validity thereof except as to the holder to whom the Company
failed to mail such notice, or except as to the holder whose notice was
defective. The affidavit of an officer of the Warrant Agent or the Secretary or
an Assistant Secretary of the Company that such notice has been mailed shall, in
the absence of fraud, be prima facie evidence of the facts stated therein.
(g) No adjustment of the Purchase Price shall be
made as a result of or in connection with (A) the issuance or sale of shares of
Common Stock pursuant to options, warrants, stock purchase agreements and
convertible or exchangeable securities outstanding or in effect on the date
hereof and on the terms described in the final prospectus relating to the public
offering contemplated by the Underwriting Agreement; or (B) the issuance or sale
of shares of Common Stock if the amount of said adjustment shall be less than
$.10, provided, however, that in such case, any adjustment that would otherwise
be required then to be made shall be carried forward and shall be made at the
time of and together with the next subsequent adjustment that shall amount,
together with any adjustment so carried forward, to at least $.10. In addition,
Registered Holders shall not be entitled to cash dividends paid by the Company
prior to the exercise of any Warrant or Warrants held by them.
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SECTION 9. Redemption.
----------
(a) Commencing on the Initial Warrant Redemption
Date, the Company may, on 30 days' prior written notice, redeem the Warrants at
ten cents ($.0.10) per Warrant, provided, however, that before any such call for
redemption of Warrants can take place, the average closing bid price for the
Common Stock as reported by Nasdaq, if the Common Stock is then traded on the
Nasdaq Small Cap Market (or the average closing sale price, if the Common Stock
is then traded on Nasdaq/NM or on a national securities exchange) shall have
equalled or exceeded $[____] [250% of the exercise price of the Warrants] per
share for any twenty (20) trading days within a period of thirty (30)
consecutive trading days ending on the fifth trading day prior to the date on
which the notice contemplated by subsections (b) and (c) below is given (subject
to adjustment in the event of any stock splits or other similar events as
provided in Section 8 hereof).
(b) In case the Company shall exercise its right to
redeem all of the Warrants, it shall give or cause to be given notice to the
Registered Holders of the Warrants, by mailing to such Registered Holders a
notice of redemption, first class, postage prepaid, at their last address as
shall appear on the records of the Warrant Agent. Any notice mailed in the
manner provided herein shall be conclusively presumed to have been duly given
whether or not the Registered Holder receives such notice. Not less than five
(5) business days prior to the mailing to the Registered Holders of the Warrants
of the notice of redemption, the Company shall deliver or cause to be delivered
to the Representative a similar notice telephonically and confirmed in writing
together with a list of the Registered Holders (including their respective
addresses and number of Warrants beneficially owned) to whom such notice of
redemption has been or will be given.
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(c) The notice of redemption shall specify (i) the
redemption price, (ii) the Redemption Date, which shall in no event be less than
thirty (30) days after the date of mailing of such notice, (iii) the place where
the Warrant Certificate shall be delivered and the redemption price shall be
paid, and (iv) that the right to exercise the Warrant shall terminate at 5:30
p.m. (New York time) on the business day immediately preceding the date fixed
for redemption. No failure to mail such notice nor any defect therein or in the
mailing thereof shall affect the validity of the proceedings for such redemption
except as to a holder (a) to whom notice was not mailed or (b) whose notice was
defective. An affidavit of the Warrant Agent or the Secretary or Assistant
Secretary of the Company that notice of redemption has been mailed shall, in the
absence of fraud, be prima facie evidence of the facts stated therein.
(d) Any right to exercise a Warrant shall terminate
at 5:30 p.m. (New York time) on the business day immediately preceding the
Redemption Date. The redemption price payable to the Registered Holders shall be
mailed to such persons at their addresses of record.
(e) The Company shall indemnify the Representative
and each person, if any, who controls National within the meaning of Section 15
of the Act or Section 20(a) of the Exchange Act against all loss, claim, damage,
expense or liability (including all expenses reasonably incurred in
investigating, preparing or defending against any claim whatsoever) to which any
of them may become subject under the Act, the Exchange Act or otherwise, arising
from the registration statement or prospectus referred to in Section 5(b) hereof
to the same extent and with the same effect (including the provisions regarding
contribution) as the provisions pursuant to which the Company has agreed to
indemnify the Representative contained in Section 7 of the Underwriting
Agreement.
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<PAGE>
(f) Five business days prior to the Redemption Date,
the Company shall furnish to the Representative (i) an opinion of counsel to the
Company, dated such date and addressed to the Representative, and (ii) a "cold
comfort" letter dated such date addressed to the Representative, signed by the
independent public accountants who have issued a report on the Company's
financial statements included in such registration statement, in each case
covering substantially the same matters with respect to such registration
statement (and the prospectus included therein) and, in the case of such
accountants' letter, with respect to events subsequent to the date of such
financial statements, as are customarily covered in opinions of issuer's counsel
and in accountants' letters delivered to underwriters in underwritten public
offerings of securities.
SECTION 10. Concerning the Warrant Agent.
------------------------------
(a) The Warrant Agent acts hereunder as agent and in
a ministerial capacity for the Company and the Representative, and its duties
shall be determined solely by the provisions hereof. The Warrant Agent shall
not, by issuing and delivering Warrant Certificates or by any other act
hereunder, be deemed to make any representations as to the validity or value or
authorization of the Warrant Certificates or the Warrants represented thereby or
of any securities or other property delivered upon exercise of any Warrant or
whether any stock issued upon exercise of any Warrant is fully paid and
nonassessable.
(b) The Warrant Agent shall not at any time be under
any duty or responsibility to any holder of Warrant Certificates to make or
cause to be made any adjustment of the Purchase Price or the Redemption Price
provided in this Agreement, or to determine whether any fact exists which may
require any such adjustments, or with respect to the nature or extent of any
such adjustments, when made, or with respect to the method employed in
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<PAGE>
making the same. It shall not (i) be liable for any recital or statement of fact
contained herein or for any action taken, suffered or omitted by it in reliance
on any Warrant Certificate or other document or instrument believed by it in
good faith to be genuine and to have been signed or presented by the proper
party or parties, (ii) be responsible for any failure on the part of the Company
to comply with any of its covenants and obligations contained in this Agreement
or in any Warrant Certificate, or (iii) be liable for any act or omission in
connection with this Agreement except for its own negligence, bad faith or
willful misconduct.
(c) The Warrant Agent may at any time consult with
counsel satisfactory to it (who may be counsel for the Company or for National)
and shall incur no liability or responsibility for any action taken, suffered or
omitted by it in good faith in accordance with the opinion or advice of such
counsel
(d) Any notice, statement, instruction, request,
direction, order or demand of the Company shall be sufficiently evidenced by an
instrument signed by the Chairman of the Board of Directors, Chief Executive
Officer, President or any Vice President (unless other evidence in respect
thereof is herein specifically prescribed). The Warrant Agent shall not be
liable for any action taken, suffered or omitted by it in accordance with such
notice, statement, instruction, request, direction, order or demand reasonably
believed by it to be genuine.
(e) The Company agrees to pay the Warrant Agent
reasonable compensation for its services hereunder and to reimburse it for its
reasonable expenses hereunder; the Company further agrees to indemnify the
Warrant Agent and save it harmless from and against any and all losses, expenses
and liabilities, including judgments, costs and counsel fees, for anything done
or omitted by the Warrant Agent in the execution of its duties
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<PAGE>
and powers hereunder except losses, expenses and liabilities arising as a result
of the Warrant Agent's negligence, bad faith or willful misconduct.
(f) The Warrant Agent may resign its duties and be
discharged from all further duties and liabilities hereunder (except liabilities
arising as a result of the Warrant Agent's own gross negligence or willful
misconduct), after giving 30 days' prior written notice to the Company. At least
15 days prior to the date such resignation is to become effective, the Warrant
Agent shall cause a copy of such notice of resignation to be mailed to the
Registered Holder of each Warrant Certificate at the Company's expense. Upon
such resignation, or any inability of the Warrant Agent to act as such
hereunder, the Company shall appoint in writing a new warrant agent. If the
Company shall fail to make such appointment within a period of 15 days after it
has been notified in writing of such resignation by the resigning Warrant Agent,
then the Registered Holder of any Warrant Certificate may apply to any court of
competent jurisdiction for the appointment of a new warrant agent. Any new
warrant agent, whether appointed by the Company or by such a court, shall be a
bank or trust company having a capital and surplus, as shown by its last
published report to its stockholders, of not less than $10,000,000 or a stock
transfer company. After acceptance in writing of such appointment by the new
warrant agent is received by the Company, such new warrant agent shall be vested
with the same powers, rights, duties and responsibilities as if it had been
originally named herein as the Warrant Agent, without any further assurance,
conveyance, act or deed; but if for any reason it shall be necessary or
expedient to execute and deliver any further assurance, conveyance, act or deed,
the same shall be done at the expense of the Company and shall be legally and
validly executed and delivered by the resigning Warrant Agent. Not later than
the effective date of any such appointment the Company shall file notice thereof
with the resigning Warrant Agent and
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<PAGE>
shall forthwith cause a copy of such notice to be mailed to the Registered
Holder of each Warrant Certificate.
(g) Any corporation into which the Warrant Agent or
any new warrant agent may be converted or merged, any corporation resulting from
any consolidation to which the Warrant Agent or any new warrant agent shall be a
party, or any corporation succeeding to the corporate trust business of the
Warrant Agent or any new warrant agent shall be a successor warrant agent under
this Agreement without any further act, provided that such corporation is
eligible for appointment as successor to the Warrant Agent under the provisions
of the preceding paragraph. Any such successor warrant agent shall promptly
cause notice of its succession as warrant agent to be mailed to the Company and
to the Registered Holders of each Warrant Certificate.
(h) The Warrant Agent, its subsidiaries and
affiliates, and any of its or their officers or directors, may buy and hold or
sell Warrants or other securities of the Company and otherwise deal with the
Company in the same manner and to the same extent and with like effect as though
it were not Warrant Agent. Nothing herein shall preclude the Warrant Agent from
acting in any other capacity for the Company or for any other legal entity. (i)
The Warrant Agent shall retain for a period of two years from the date of
exercise any Warrant Certificate received by it upon such exercise. SECTION 11.
Modification of Agreement. The Warrant Agent and the Company may by supplemental
agreement make any changes or corrections in this Agreement
(i) that they shall deem appropriate to cure any
ambiguity or to correct any defective or inconsistent provision or manifest
mistake or error herein contained; or (ii) that they may deem necessary or
desirable and which shall not adversely
NY1-161301.1
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<PAGE>
affect the interests of the holders of Warrant Certificates; provided, however,
that this Agreement shall not otherwise be modified, supplemented or altered in
any respect except with the consent in writing of the Registered Holders
representing not less than 66-2/3% of the Warrants then outstanding; provided,
further, that no change in the number or nature of the securities purchasable
upon the exercise of any Warrant, or to increase the Purchase Price therefor or
to accelerate the Warrant Expiration Date, shall be made without the consent in
writing of the Registered Holder of the Warrant Certificate representing such
Warrant, other than such changes as are presently specifically prescribed by
this Agreement as originally executed. In addition, this Agreement may not be
modified, amended or supplemented without the prior written consent of National,
other than to cure any ambiguity or to correct any provision which is
inconsistent with any other provision of this Agreement or to make any such
change that is necessary or desirable and which shall not adversely affect the
interests of National and except as may be required by law.
SECTION 12. Notices.
-------
All notices, requests, consents and other communications
hereunder shall be in writing and shall be deemed to have been made when
delivered or mailed first-class registered or certified mail, postage prepaid,
as follows: if to the Registered Holder of a Warrant Certificate, at the address
of such holder as shown on the registry books maintained by the Warrant Agent;
if to the Company at 2665 Villa Creek Drive, Dallas, Texas 75234, Attention:
Glenn A. Norem, Chief Executive Officer, or at such other address as may have
been furnished to the Warrant Agent in writing by the Company; and if to the
Warrant Agent, at its Corporate Office. Copies of any notice delivered pursuant
to this Agreement shall also be delivered to National Securities Corporation,
1001 Fourth Avenue, Suite 2200, Seattle, Washington 98154-
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<PAGE>
1100, Attention: General Counsel, or at such other address as may have been
furnished to the Company and the Warrant Agent in writing.
SECTION 13. Governing Law.
-------------
This Agreement shall be governed by and construed in
accordance with the laws of the State of New York without giving effect to
conflicts of laws.
SECTION 14. Binding Effect.
--------------
This Agreement shall be binding upon and inure to the benefit
of the Company, National, the Warrant Agent and their respective successors and
assigns and the holders from time to time of Warrant Certificates or any of
them. Nothing in this Agreement is intended or shall be construed to confer upon
any other person any right, remedy or claim, in equity or at law, or to impose
upon any other person any duty, liability or obligation.
SECTION 15. Termination.
-----------
This Agreement shall terminate at the close of business on the
Expiration Date of all of the Warrants or such earlier date upon which all
Warrants have been exercised or redeemed, except that the Warrant Agent shall
account to the Company for cash held by it and the provisions of Section 10
hereof shall survive such termination.
SECTION 16. Counterparts.
------------
This Agreement may be executed in several counterparts, which
taken together shall constitute a single document.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed as of the date first above written.
[SEAL]
MULTIMEDIA ACCESS CORPORATION
By:
--------------------------------
Glenn A. Norem
Chief Executive Officer
Attest:
By:
--------------------------
Name:
Title:
CONTINENTAL STOCK TRANSFER & TRUST
COMPANY,
As Warrant Agent
By:
-------------------------------
Name:
Title:
<PAGE>
EXHIBIT A
---------
No. W VOID AFTER _________, 2001
WARRANTS
REDEEMABLE WARRANT CERTIFICATE TO
PURCHASE SHARES OF COMMON STOCK
MULTIMEDIA ACCESS CORPORATION
CUSIP_______
THIS CERTIFIES THAT, FOR VALUE RECEIVED
or registered assigns (the "Registered Holder") is the owner of the number of
Redeemable Warrants (the "Warrants") specified above. Each Warrant initially
entitles the Registered Holder to purchase, subject to the terms and conditions
set forth in this Certificate and the Warrant Agreement (as hereinafter
defined), one fully paid and nonassessable share of Common Stock, $.001 par
value, of Multimedia Access Corporation, a Delaware corporation (the "Company"),
at any time between , 1997 (the "Initial Warrant Exercise Date"), and the
Expiration Date (as hereinafter defined) upon the presentation and surrender of
this Warrant Certificate with the Subscription Form on the reverse hereof duly
executed, at the corporate office of Continental Stock Transfer & Trust Company,
as warrant agent, or its successor (the "Warrant Agent"), accompanied by payment
of $[_____] [120% of the initial public offering price of the Common Stock],
subject to adjustment (the "Purchase Price"), in lawful money of the United
States of America in cash or by check made payable to the Warrant Agent for the
account of the Company.
This Warrant Certificate and each Warrant represented hereby are
issued pursuant to and are subject in all respects to the terms and conditions
set forth in the Warrant Agreement (the "Warrant Agreement"), dated , 1996 [date
of the Prospectus], by and among the Company, National Securities Corporation
and the Warrant Agent.
In the event of certain contingencies provided for in the
Warrant Agreement, the Purchase Price and the number of shares of Common Stock
subject to purchase upon the exercise of each Warrant represented hereby are
subject to modification or adjustment.
Each Warrant represented hereby is exercisable at the option of
the Registered Holder, but no fractional interests will be issued. In the case
of the exercise of less than all the Warrants represented hereby, the Company
shall cancel this Warrant Certificate upon the
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<PAGE>
surrender hereof and shall execute and deliver a new Warrant Certificate or
Warrant Certificates of like tenor, which the Warrant Agent shall countersign,
for the balance of such Warrants.
The term "Expiration Date" shall mean 5:30 p.m. (New York time)
on ___________, 2001 [fifty-four (54) months after the Initial Warrant Exercise
Date]. If each such date shall in the State of New York be a holiday or a day on
which the banks are authorized to close, then the Expiration Date shall mean
5:30 p.m. (New York time) on the next following day which in the State of New
York is not a holiday or a day on which banks are authorized to close.
The Company shall not be obligated to deliver any securities
pursuant to the exercise of this Warrant unless a registration statement under
the Securities Act of 1933, as amended (the "Act"), with respect to such
securities is effective or an exemption thereunder is available. The Company has
covenanted and agreed that it will file a registration statement under the
Federal securities laws, use its best efforts to cause the same to become
effective, use its best efforts to keep such registration statement current, if
required under the Act, while any of the Warrants are outstanding, and deliver a
prospectus which complies with Section 10(a)(3) of the Act to the Registered
Holder exercising this Warrant. This Warrant shall not be exercisable by a
Registered Holder in any state where such exercise would be unlawful.
This Warrant Certificate is exchangeable, upon the surrender
hereof by the Registered Holder at the corporate office of the Warrant Agent,
for a new Warrant Certificate or Warrant Certificates of like tenor representing
an equal aggregate number of Warrants, each of such new Warrant Certificates to
represent such number of Warrants as shall be designated by such Registered
Holder at the time of such surrender. Upon due presentment and payment of any
tax or other charge imposed in connection therewith or incident thereto, for
registration of transfer of this Warrant Certificate at such office, a new
Warrant Certificate or Warrant Certificates representing an equal aggregate
number of Warrants will be issued to the transferee in exchange therefor,
subject to the limitations provided in the Warrant Agreement.
Prior to the exercise of any Warrant represented hereby, the
Registered Holder shall not be entitled to any rights of a stockholder of the
Company, including, without limitation, the right to vote or to receive
dividends or other distributions, and shall not be entitled to receive any
notice of any proceedings of the Company, except as provided in the Warrant
Agreement.
Subject to the provisions of the Warrant Agreement, this Warrant
may be redeemed at the option of the Company, at a redemption price of $0.01 per
Warrant, at any time commencing after ______________, 1998 [18 months after the
effective date of the Registration Statement], provided that the average closing
bid price for the Common Stock as reported by the Nasdaq Small Cap Market, if
the Common Stock is then traded on the Nasdaq Small Cap Market (or the average
closing sale price, if the Common Stock is then traded on the Nasdaq National
Market or a national securities exchange), shall have equalled or exceeded $ per
share [250% of the exercise price of the warrants] for any twenty (20) trading
days within a period of thirty (30) consecutive trading days ending on the fifth
trading day prior to the Notice of Redemption, as defined below (subject to
adjustment in the event of any stock splits or other similar events). Notice of
redemption (the "Notice of Redemption") shall be given not later than
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<PAGE>
the thirtieth day before the date fixed for redemption, all as provided in the
Warrant Agreement. On and after the date fixed for redemption, the Registered
Holder shall have no rights with respect to the Warrants except to receive the
$0.01 per Warrant upon surrender of this Warrant Certificate.
Under certain circumstances, National Securities Corp. shall
be entitled to receive an aggregate of five percent of the purchase price of the
Warrants represented hereby.
Prior to due presentment for registration of transfer hereof,
the Company and the Warrant Agent may deem and treat the Registered Holder as
the absolute owner hereof and of each Warrant represented hereby
(notwithstanding any notations of ownership or writing hereon made by anyone
other than a duly authorized officer of the Company or the Warrant Agent) for
all purposes and shall not be affected by any notice to the contrary, except as
provided in the Warrant Agreement.
This Warrant Certificate shall be governed by and construed in
accordance with the laws of the State of New York without giving effect to
conflicts of laws.
This Warrant Certificate is not valid unless countersigned by
the Warrant Agent.
IN WITNESS WHEREOF, the Company has caused this Warrant
Certificate to be duly executed, manually or in facsimile by two of its officers
thereunto duly authorized and a facsimile of its corporate seal to be imprinted
hereon.
Dated:
MULTIMEDIA ACCESS CORPORATION
[SEAL]
By:
-----------------------------------------------
Glenn A. Norem
Chief Executive Officer
By:
-----------------------------------------------
William S. Leftwich
Chief Financial Officer and Assistant Secretary
COUNTERSIGNED:
CONTINENTAL STOCK TRANSFER & TRUST COMPANY,
as Warrant Agent
By:
Authorized Officer
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<PAGE>
SUBSCRIPTION FORM
-----------------
To Be Executed by the Registered Holder
in Order to Exercise Warrants
The undersigned Registered Holder hereby irrevocably elects to
exercise _________ Warrants represented by this Warrant Certificate, and to
purchase the securities issuable upon the exercise of such Warrants, and
requests that certificates for such securities shall be issued in the name of
PLEASE INSERT SOCIAL SECURITY
OR OTHER IDENTIFYING NUMBER
--------------------------
--------------------------
--------------------------
--------------------------
(please print or type name and address)
and be delivered to
--------------------------
--------------------------
--------------------------
--------------------------
(please print or type name and address)
and if such number of Warrants shall not be all the Warrants evidenced by this
Warrant Certificate, that a new Warrant Certificate for the balance of such
Warrants be registered in the name of, and delivered to, the Registered Holder
at the address stated below.
IMPORTANT: PLEASE COMPLETE THE FOLLOWING
1. The exercise of this Warrant was solicited by National Securities
Corporation unless the following box is checked. |_|
2. The exercise of this Warrant was solicited by ______________. |_|
3. If the exercise of this Warrant was not solicited, please check
the following box. |_|
Dated: _____________________ X_________________________
_________________________
_________________________
Address
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<PAGE>
ASSIGNMENT
----------
To Be Executed by the Registered Holder
in Order to Assign Warrants
FOR VALUE RECEIVED, _________________, hereby sells, assigns and
transfers unto
PLEASE INSERT SOCIAL SECURITY OR
OTHER IDENTIFYING NUMBER\
------------------------
------------------------
------------------------
------------------------
(please print or type name and address)
________________________of the Warrants represented by this Warrant Certificate,
and hereby irrevocably constitutes and appoints_________________________________
Attorney to transfer this Warrant Certificate on the books of the Company, with
full power of substitution in the premises.
Dated: ____________________ X _______________________
Signature Guaranteed
_______________________
THE SIGNATURE TO THE ASSIGNMENT OR THE SUBSCRIPTION FORM MUST CORRESPOND TO THE
NAME AS WRITTEN UPON THE FACE OF THIS WARRANT CERTIFICATE IN EVERY PARTICULAR,
WITHOUT ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATSOEVER AND MUST BE
GUARANTEED BY AN ELIGIBLE GUARANTOR INSTITUTION (BANKS, STOCKBROKERS, SAVINGS
AND LOAN ASSOCIATIONS AND CREDIT UNIONS WITH MEMBERSHIP IN AN APPROVED SIGNATURE
GUARANTEE MEDALLION PROGRAM), PURSUANT TO S.E.C. RULE 17Ad-15.
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OHS DRAFT
10/25/96
[FORM OF REPRESENTATIVE'S WARRANT AGREEMENT]
[SUBJECT TO ADDITIONAL INTERNAL AND CLIENT REVIEW]
---------------------------------------------------------------------------
MULTIMEDIA ACCESS CORPORATION
AND
NATIONAL SECURITIES CORPORATION
----------
REPRESENTATIVE'S
WARRANT AGREEMENT
Dated as of ________, 1996
--------------------------------------------------------------------------
NY1-161299.2
<PAGE>
REPRESENTATIVE'S WARRANT AGREEMENT dated as of _______, 1996
between MULTIMEDIA ACCESS CORPORATION, a Delaware corporation (the "Company"),
and NATIONAL SECURITIES CORPORATION (hereinafter referred to variously as the
"Holder" or the "Representative").
W I T N E S S E T H:
WHEREAS, the Company proposes to issue to the Representative
warrants ("Warrants") to purchase up to an aggregate of 180,000 shares of Common
Stock, $0.0001 par value, of the Company and/or 180,000 redeemable common stock
purchase warrants of the Company ("Redeemable Warrants"), each Redeemable
Warrant to purchase one additional share of Common Stock; and
WHEREAS, the Representative has agreed pursuant to the
underwriting agreement (the "Underwriting Agreement") dated as of the date
hereof between the Company and the several Underwriters listed therein to act as
the Representative in connection with the Company's proposed public offering of
up to 1,800,000 shares of Common Stock and 1,800,000 Redeemable Warrants (the
"Public Warrants") at a public offering price of $[___] per share of Common
Stock and $[___] per Public Warrant (the "Public Offering"); and
WHEREAS, the Warrants to be issued pursuant to this Agreement
will be issued on the Closing Date (as such term is defined in the Underwriting
Agreement) by the Company to the Representative in consideration for, and as
part of the Representative's compensation in connection with, the Representative
acting as the Representative pursuant to the Underwriting Agreement;
NY1-161299.2
<PAGE>
NOW, THEREFORE, in consideration of the premises, the payment
by the Representative to the Company of an aggregate eighteen dollars ($18.00),
the agreements herein set forth and other good and valuable consideration,
hereby acknowledged, the parties hereto agree as follows:
1. Grant. The Representative (or its designees) is hereby
granted the right to purchase, at any time from _______, 1997 [one year from the
effective date of the Registration Statement], until 5:30 P.M., New York time,
on _______, 2001 [five years from the effective date of the Registration
Statement], up to an aggregate of 180,000 shares of Common Stock and/or 180,000
Redeemable Warrants at an initial exercise price (subject to adjustment as
provided in Section 8 hereof) of $[____] per share of Common Stock [120% of the
initial public offering price] and $[___] per Redeemable Warrant [120% of the
initial public offering price], subject to the terms and conditions of this
Agreement. One Redeemable Warrant is exercisable to purchase one additional
share of Common Stock at an initial exercise price of $[___] (140% of the
initial public offering price per share) from _______, 1997 [one year from the
effective date of the Registration Statement] until 5:30 p.m. New York time on
_____, 2001 [five years from the effective date of the Registration Statement],
at which time the Redeemable Warrants shall expire. Except as set forth herein,
the shares of Common Stock and the Redeemable Warrants issuable upon exercise of
the Warrants are in all respects identical to the shares of Common Stock and the
Public Warrants being purchased by the Underwriters for resale to the public
pursuant to the terms and provisions of the Underwriting Agreement. The shares
of Common Stock and the Redeemable Warrants issuable upon exercise of the
Warrants are sometimes hereinafter referred to collectively as the "Securities."
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<PAGE>
2. Warrant Certificates. The warrant certificates (the
"Warrant Certificates") delivered and to be delivered pursuant to this Agreement
shall be in the form set forth in Exhibit A, attached hereto and made a part
hereof, with such appropriate insertions, omissions, substitutions, and other
variations as required or permitted by this Agreement.
3. Exercise of Warrant.
Section 3.1 Method of Exercise. The Warrants initially are
exercisable at an aggregate initial exercise price (subject to adjustment as
provided in Section 8 hereof) per share of Common Stock and Redeemable Warrant
set forth in Section 6 hereof payable by certified or official bank check in New
York Clearing House funds, subject to adjustment as provided in Section 8
hereof. Upon surrender of a Warrant Certificate with the annexed Form of
Election to Purchase duly executed, together with payment of the Exercise Price
(as hereinafter defined) for the shares of Common Stock and/or Redeemable
Warrants purchased at the Company's principal executive offices in Dallas, Texas
(presently located at 2665 Villa Creek Drive, Suite 200, Dallas, Texas 75234)
the registered holder of a Warrant Certificate ("Holder" or "Holders") shall be
entitled to receive a certificate or certificates for the shares of Common Stock
so purchased and a certificate or certificates for the Redeemable Warrants so
purchased. The purchase rights represented by each Warrant Certificate are
exercisable at the option of the Holder thereof, in whole or in part (but not as
to fractional shares of the Common Stock and Redeemable Warrants underlying the
Warrants). In the event the Company redeems all of the Public Warrants (other
than the Redeemable Warrants underlying the Warrants), then the Warrants may
only be exercised if such exercise is accompanied by the simultaneous exercise
of the Redeemable Warrant(s) underlying the Warrants being so exercised.
Warrants may be exercised to purchase all or part of the shares of Common Stock
together with an equal or
NY1-161299.2
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<PAGE>
unequal number of the Redeemable Warrants represented thereby. In the case of
the purchase of less than all the shares of Common Stock and/or Redeemable
Warrants purchasable under any Warrant Certificate, the Company shall cancel
said Warrant Certificate upon the surrender thereof and shall execute and
deliver a new Warrant Certificate of like tenor for the balance of the shares of
Common Stock and/or Redeemable Warrants purchasable thereunder.
Section 3.2 Exercise by Surrender of Warrant. In addition to
the method of payment set forth in Section 3.1 and in lieu of any cash payment
required thereunder, the Holder(s) of the Warrants shall have the right at any
time and from time to time to exercise the Warrants in full or in part by
surrendering the Warrant Certificate in the manner specified in Section 3.1
hereof. The number of shares of Common Stock to be issued pursuant to this
Section 3.2 shall be equal to the difference between (a) the number of shares of
Common Stock in respect of which the Warrants are exercised and (b) a fraction,
the numerator of which shall be the number of shares of Common Stock in respect
of which the Warrants are exercised multiplied by the Exercise Price and the
denominator of which shall be the Market Price (as defined in Section 3.3
hereof) of the Common Stock. The number of Redeemable Warrants to be issued
pursuant to this Section 3.2 shall be equal to the difference between (a) the
number of Redeemable Warrants in respect of which the Warrants are exercised and
(b) a fraction, the numerator of which shall be the number of Redeemable
Warrants in respect of which the Warrants are exercised multiplied by the
Exercise Price and the denominator of which shall be the Market Price (as
defined in Section 3.3 hereof) of the Redeemable Warrants. Solely for the
purposes of this paragraph, Market Price shall be calculated either (i) on the
date which the form of election attached hereto is deemed to have been sent to
the Company pursuant to Section 14
NY1-161299.2
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<PAGE>
hereof ("Notice Date") or (ii) as the average of the Market Prices for each of
the five trading days preceding the Notice Date, whichever of (i) or (ii) is
greater.
Section 3.3 Definition of Market Price. As used herein, the
phrase "Market Price" at any date shall be deemed to be (i) when referring to
the Common Stock, the last reported sale price, or, in case no such reported
sale takes place on such day, the average of the last reported sale prices for
the last three (3) trading days, in either case as officially reported by the
principal securities exchange on which the Common Stock is listed or admitted to
trading or by the Nasdaq National Market ("Nasdaq/NM"), or, if the Common Stock
is not listed or admitted to trading on any national securities exchange or
quoted by the National Association of Securities Dealers Automated Quotation
System ("Nasdaq"), the average closing bid price as furnished by the National
Association of Securities Dealers, Inc. ("NASD") through Nasdaq or similar
organization if Nasdaq is no longer reporting such information, or if the Common
Stock is not quoted on Nasdaq, as determined in good faith (using customary
valuation methods) by resolution of the members of the Board of Directors of the
Company, based on the best information available to it or (ii) when referring to
a Redeemable Warrant, the last reported sales price, or, in the case no such
reported sale takes place on such day, the average of the last reported sale
prices for the last three (3) trading days, in either case as officially
reported by the principal securities exchange on which the Redeemable Warrants
are listed or admitted to trading or by Nasdaq/NM, or, if the Redeemable
Warrants are not listed or admitted to trading on any national securities
exchange or quoted by Nasdaq, the average closing bid price as furnished by the
NASD through Nasdaq or similar organization if Nasdaq is no longer reporting
such information, or if the Redeemable Warrants are not quoted on Nasdaq or are
no longer
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outstanding, the Market Price of a Redeemable Warrant shall equal the difference
between the Market Price of the Common Stock and the Exercise Price of the
Redeemable Warrant.
4. Issuance of Certificates. Upon the exercise of the
Warrants, the issuance of certificates for shares of Common Stock and/or
Redeemable Warrants and/or other securities, properties or rights underlying
such Warrants and, upon the exercise of the Redeemable Warrants, the issuance of
certificates for shares of Common Stock and/or other securities, properties or
rights underlying such Redeemable Warrants shall be made forthwith (and in any
event within five (5) business days thereafter) without charge to the Holder
thereof including, without limitation, any tax which may be payable in respect
of the issuance thereof, and such certificates shall (subject to the provisions
of Sections 5 and 7 hereof) be issued in the name of, or in such names as may be
directed by, the Holder thereof; provided, however, that the Company shall not
be required to pay any tax which may be payable in respect of any transfer
involved in the issuance and delivery of any such certificates in a name other
than that of the Holder, and the Company shall not be required to issue or
deliver such certificates unless or until the person or persons requesting the
issuance thereof shall have paid to the Company the amount of such tax or shall
have established to the satisfaction of the Company that such tax has been paid.
The Warrant Certificates and the certificates representing the
shares of Common Stock and the Redeemable Warrants underlying the Warrants and
the shares of Common Stock underlying the Redeemable Warrants (and/or other
securities, properties or rights issuable upon the exercise of the Warrants or
the Redeemable Warrants) shall be executed on behalf of the Company by the
manual or facsimile signature of the then Chairman or Vice Chairman of the Board
of Directors or President or Vice President of the Company. Warrant Certificates
shall
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be dated the date of execution by the Company upon initial issuance, division,
exchange, substitution or transfer. Certificates representing the shares of
Common Stock and Redeemable Warrants, and the shares of Common Stock underlying
each Redeemable Warrant (and/or other securities, properties or rights issuable
upon exercise of the Warrants) shall be dated as of the Notice Date (regardless
of when executed or delivered) and dividend bearing securities so issued shall
accrue dividends from the Notice Date.
5. Restriction On Transfer of Warrants. The Holder of a
Warrant Certificate, by its acceptance thereof, covenants and agrees that the
Warrants are being acquired as an investment and not with a view to the
distribution thereof; that the Warrants may not be sold, transferred, assigned,
hypothecated or otherwise disposed of, in whole or in part, for a period of one
(1) year from the date hereof, except to officers of the Representative.
6. Exercise Price.
Section 6.1 Initial and Adjusted Exercise Price. Except as
otherwise provided in Section 8 hereof, the initial exercise price of each
Warrant shall be $[___] per share of Common Stock [120% of the initial public
offering price per share of Common Stock] and $[___] per Redeemable Warrant
[120% of the initial public offering price per Public Warrant]. The adjusted
exercise price shall be the price which shall result from time to time from any
and all adjustments of the initial exercise price in accordance with the
provisions of Section 8 hereof. Any transfer of a Warrant shall constitute an
automatic transfer and assignment of the registration rights set forth in
Section 7 hereof with respect to the Securities or other securities, properties
or rights underlying the Warrants.
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Section 6.2 Exercise Price. The term "Exercise Price" herein
shall mean the initial exercise price or the adjusted exercise price, depending
upon the context or unless otherwise specified.
7. Registration Rights.
Section 7.1 Registration Under the Securities Act of 1933. The
Warrants, the shares of Common Stock and any other securities issuable upon
exercise of the Warrants have not been registered under the Securities Act of
1933 as amended (the "Act"). Upon exercise, in whole or in part, of the
Warrants, certificates representing the Shares underlying the Warrants and any
of the other securities issuable upon exercise of the Warrants (collectively,
the "Warrant Securities") shall bear the following legend: The securities
represented by this certificate have not been registered under the Securities
Act of 1933, as amended ("Act"), and may not be offered or sold except pursuant
to (i) an effective registration statement under the Act, (ii) to the extent
applicable, Rule 144 under the Act (or any similar rule under such Act relating
to the disposition of securities), or (iii) an opinion of counsel, if such
opinion shall be reasonably satisfactory to counsel to the issuer, that an
exemption from registration under such Act is available.
Section 7.2 Piggyback Registration. If, at any time commencing
after the date hereof and expiring seven (7) years thereafter, the Company
proposes to register any of its securities under the Act (other than pursuant to
Form S-4, Form S-8 or a comparable registration statement) it will give written
notice by registered mail, at least thirty (30) days prior to the filing of each
such registration statement, to the Representative and to all other Holders of
the Warrants and/or the Warrant Securities of its intention to do so. If the
Representative or other Holders of the Warrants and/or Warrant Securities notify
the Company within twenty (20) business days after receipt of any such notice of
its or their desire to include any such
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securities in such proposed registration statement, the Company shall afford the
Representative and such Holders of the Warrants and/or Warrant Securities the
opportunity to have any such Warrant Securities registered under such
registration statement.
Notwithstanding the provisions of this Section 7.2, the
Company shall have the right at any time after it shall have given written
notice pursuant to this Section 7.2 (irrespective of whether a written request
for inclusion of any such securities shall have been made) to elect not to file
any such proposed registration statement, or to withdraw the same after the
filing but prior to the effective date thereof.
Section 7.3 Demand Registration.
(a) At any time commencing after the date hereof and expiring
five (5) years thereafter, the Holders of the Warrants and/or Warrant Securities
representing a "Majority" (as hereinafter defined) of such securities (assuming
the exercise of all of the Warrants) shall have the right (which right is in
addition to the registration rights under Section 7.2 hereof), exercisable by
written notice to the Company, to have the Company prepare and file with the
Securities and Exchange Commission (the "Commission"), on one occasion, a
registration statement and such other documents, including a prospectus, as may
be necessary in the opinion of both counsel for the Company and counsel for the
Representative and Holders, in order to comply with the provisions of the Act,
so as to permit a public offering and sale of their respective Warrant
Securities for nine (9) consecutive months by such Holders and any other Holders
of the Warrants and/or Warrant Securities who notify the Company within ten (10)
days after receiving notice from the Company of such request.
(b) The Company covenants and agrees to give written notice of
any registration request under this Section 7.3 by any Holder or Holders to all
other registered Holders of the
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Warrants and the Warrant Securities within ten (10) days from the date of the
receipt of any such registration request.
(c) In addition to the registration rights under Section 7.2
and subsection (a) of this Section 7.3, at any time commencing after the date
hereof and expiring five (5) years thereafter, any Holder of Warrants and/or
Warrant Securities shall have the right, exercisable by written request to the
Company, to have the Company prepare and file, on one occasion, with the
Commission a registration statement so as to permit a public offering and sale
for nine (9) consecutive months by any such Holder of its Warrant Securities
provided, however, that the provisions of Section 7.4(b) hereof shall not apply
to any such registration request and registration and all costs incident thereto
shall be at the expense of the Holder or Holders making such request.
(d) Notwithstanding anything to the contrary contained herein,
if the Company shall not have filed a registration statement for the Warrant
Securities within the time period specified in Section 7.4(a) hereof pursuant to
the written notice specified in Section 7.3(a) of a Majority of the Holders of
the Warrants and/or Warrant Securities, the Company may, at its option, upon the
written notice of election of a Majority of the Holders of the Warrants and/or
Warrant Securities requesting such registration, repurchase (i) any and all
Warrant Securities of such Holders at the higher of the Market Price per share
of Common Stock and per Redeemable Warrant on (x) the date of the notice sent
pursuant to Section 7.3(a) or (y) the expiration of the period specified in
Section 7.4(a) and (ii) any and all Warrants of such Holders at such Market
Price less the Exercise Price of such Warrant. Such repurchase shall be in
immediately available funds and shall close within two (2) days after the later
of (i) the
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expiration of the period specified in Section 7.4(a) or (ii) the delivery of the
written notice of election specified in this Section 7.3(d).
Section 7.4 Covenants of the Company With Respect to
Registration. In connection with any registration under Section 7.2 or 7.3
hereof, the Company covenants and agrees as follows:
(a) The Company shall use its best efforts to file a
registration statement within thirty (30) days of receipt of any demand
therefor, shall use its best efforts to have any registration statements
declared effective at the earliest possible time, and shall furnish each Holder
desiring to sell Warrant Securities such number of prospectuses as shall
reasonably be requested.
(b) The Company shall pay all costs (excluding fees and
expenses of Holder(s)' counsel and any underwriting or selling commissions),
fees and expenses in connection with all registration statements filed pursuant
to Sections 7.2 and 7.3 hereof including, without limitation, the Company's
legal and accounting fees, printing expenses, blue sky fees and expenses. If the
Company shall fail to comply with Section 7.4(a), the Company shall, in addition
to any other equitable or other relief available to the Holder(s), be liable for
any and all incidental or special damages sustained by the Holder(s) requesting
registration of its or their Warrants and/or Warrant Securities.
(c) The Company will take all necessary action which may be
required in qualifying or registering the Warrant Securities included in a
registration statement for offering and sale under the securities or blue sky
laws of such states as reasonably are requested by the Holder(s), provided that
the Company shall not be obligated to execute or file any general
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consent to service of process or to qualify as a foreign corporation to do
business under the laws of any such jurisdiction.
(d) The Company shall indemnify the Holder(s) of the Warrant
Securities to be sold pursuant to any registration statement and each person, if
any, who controls such Holders within the meaning of Section 15 of the Act or
Section 20(a) of the Securities Exchange Act of 1934, as amended ("Exchange
Act"), against all loss, claim, damage, expense or liability (including all
expenses reasonably incurred in investigating, preparing or defending against
any claim whatsoever) to which any of them may become subject under the Act, the
Exchange Act or otherwise, arising from such registration statement but only to
the same extent and with the same effect as the provisions pursuant to which the
Company has agreed to indemnify each of the Underwriters contained in Section 7
of the Underwriting Agreement.
(e) The Holder(s) of the Warrant Securities to be sold
pursuant to a registration statement, and their successors and assigns, shall
severally, and not jointly, indemnify the Company, its officers and directors
and each person, if any, who controls the Company within the meaning of Section
15 of the Act or Section 20(a) of the Exchange Act, against all loss, claim,
damage, expense or liability (including all expenses reasonably incurred in
investigating, preparing or defending against any claim whatsoever) to which
they may become subject under the Act, the Exchange Act or otherwise, arising
from information furnished by or on behalf of such Holders, or their successors
or assigns, for specific inclusion in such registration statement to the same
extent and with the same effect as the provisions contained in Section 7 of the
Underwriting Agreement pursuant to which the Underwriters have agreed to
indemnify the Company.
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(f) Nothing contained in this Agreement shall be construed as
requiring the Holder(s) to exercise their Warrants prior to the initial filing
of any registration statement or the effectiveness thereof.
(g) The Company shall not permit the inclusion of any
securities other than the Warrant Securities to be included in any registration
statement filed pursuant to Section 7.3 hereof, or permit any other registration
statement to be or remain effective during the effectiveness of a registration
statement filed pursuant to Section 7.3 hereof, without the prior written
consent of the Holders of the Warrants and Warrant Securities representing a
Majority of such securities.
(h) The Company shall furnish to each Holder participating in
the offering and to each underwriter, if any, a signed counterpart, addressed to
such Holder or underwriter, of (i) an opinion of counsel to the Company, dated
the effective date of such registration statement (and, if such registration
includes an underwritten public offering, an opinion dated the date of the
closing under the underwriting agreement), and (ii) a "cold comfort" letter
dated the effective date of such registration statement (and, if such
registration includes an underwritten public offering, a letter dated the date
of the closing under the underwriting agreement) signed by the independent
public accountants who have issued a report on the Company's financial
statements included in such registration statement, in each case covering
substantially the same matters with respect to such registration statement (and
the prospectus included therein) and, in the case of such accountants' letter,
with respect to events subsequent to the date of such financial statements, as
are customarily covered in opinions of issuer's counsel and in accountants'
letters delivered to underwriters in underwritten public offerings of
securities.
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(i) The Company shall as soon as practicable after the
effective date of the registration statement, and in any event within 15 months
thereafter, make "generally available to its security holders" (within the
meaning of Rule 158 under the Act) an earnings statement (which need not be
audited) complying with Section 11(a) of the Act and covering a period of at
least 12 consecutive months beginning after the effective date of the
registration statement.
(j) The Company shall deliver promptly to each Holder
participating in the offering requesting the correspondence and memoranda
described below and to the managing underwriters, copies of all correspondence
between the Commission and the Company, its counsel or auditors and all
memoranda relating to discussions with the Commission or its staff with respect
to the registration statement and permit each Holder and underwriter to do such
investigation, upon reasonable advance notice, with respect to information
contained in or omitted from the registration statement as it deems reasonably
necessary to comply with applicable securities laws or rules of the NASD. Such
investigation shall include access to books, records and properties and
opportunities to discuss the business of the Company with its officers and
independent auditors, all to such reasonable extent and at such reasonable times
and as often as any such Holder or underwriter shall reasonably request.
(k) The Company shall enter into an underwriting agreement
with the managing underwriters selected for such underwriting by Holders holding
a Majority of the Warrant Securities requested to be included in such
underwriting, which may be the Representative. Such agreement shall be
satisfactory in form and substance to the Company, each Holder and such managing
underwriter(s), and shall contain such representations, warranties and covenants
by the Company and such other terms as are customarily contained in agreements
of that type used by the managing underwriter(s). The Holders shall be parties
to any underwriting
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<PAGE>
agreement relating to an underwritten sale of their Warrant Securities and may,
at their option, require that any or all of the representations, warranties and
covenants of the Company to or for the benefit of such underwriter(s) shall also
be made to and for the benefit of such Holders. Such Holders shall not be
required to make any representations or warranties to or agreements with the
Company or the underwriter(s) except as they may relate to such Holders and
their intended methods of distribution.
(l) In addition to the Warrant Securities, upon the written
request therefor by any Holder(s), the Company shall include in the registration
statement any other securities of the Company held by such Holder(s) as of the
date of filing of such registration statement, including without limitation
restricted shares of Common Stock, options, warrants or any other securities
convertible into shares of Common Stock.
(m) For purposes of this Agreement, the term "Majority" in
reference to the Holders of Warrants or Warrant Securities, shall mean in excess
of fifty percent (50%) of the then outstanding Warrants or Warrant Securities
that (i) are not held by the Company, an affiliate, officer, creditor, employee
or agent thereof or any of their respective affiliates, members of their family,
persons acting as nominees or in conjunction therewith and (ii) have not been
resold to the public pursuant to a registration statement filed with the
Commission under the Act.
8. Adjustments to Exercise Price and Number of Securities.
Section 8.1 Subdivision and Combination. In case the Company
shall at any time subdivide or combine the outstanding shares of Common Stock,
the Exercise Price shall forthwith be proportionately decreased in the case of
subdivision or increased in the case of combination.
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Section 8.2 Stock Dividends and Distributions. In case the
Company shall pay a dividend in, or make a distribution of, shares of Common
Stock or of the Company's capital stock convertible into Common Stock, the
Exercise Price shall forthwith be proportionately decreased. An adjustment made
pursuant to this Section 8.2 shall be made as of the record date for the subject
stock dividend or distribution.
Section 8.3 Adjustment in Number of Securities. Upon each
adjustment of the Exercise Price pursuant to the provisions of this Section 8,
the number of Warrant Securities issuable upon the exercise at the adjusted
exercise price of each Warrant shall be adjusted to the nearest full amount by
multiplying a number equal to the Exercise Price in effect immediately prior to
such adjustment by the number of Warrant Securities issuable upon exercise of
the Warrants immediately prior to such adjustment and dividing the product so
obtained by the adjusted Exercise Price.
Section 8.4 Definition of Common Stock. For the purpose of
this Agreement, the term "Common Stock" shall mean (i) the class of stock
designated as Common Stock in the Certificate of Incorporation of the Company as
may be amended as of the date hereof, or (ii) any other class of stock resulting
from successive changes or reclassifications of such Common Stock consisting
solely of changes in par value, or from par value to no par value, or from no
par value to par value.
Section 8.5 Merger or Consolidation. In case of any
consolidation of the Company with, or merger of the Company with, or merger of
the Company into, another corporation (other than a consolidation or merger
which does not result in any reclassification or change of the outstanding
Common Stock), the corporation formed by such consolidation or merger shall
execute and deliver to the Holder a supplemental warrant agreement providing
that the
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holder of each Warrant then outstanding or to be outstanding shall have the
right thereafter (until the expiration of such Warrant) to receive, upon
exercise of such Warrant, the kind and amount of shares of stock and other
securities and property receivable upon such consolidation or merger, by a
holder of the number of securities of the Company for which such Warrant might
have been exercised immediately prior to such consolidation, merger, sale or
transfer. Such supplemental warrant agreement shall provide for adjustments
which shall be identical to the adjustments provided in Section 8. The above
provision of this subsection shall similarly apply to successive consolidations
or mergers.
Section 8.6 No Adjustment of Exercise Price in Certain Cases.
No adjustment of the Exercise Price shall be made:
(a) Upon the issuance or sale of the Warrants or the
Warrant Securities issuable upon the exercise of the Warrants;
(b) If the amount of said adjustment shall be less
than two cents (2(cent)) per Warrant Security, provided,
however, that in such case any adjustment that would otherwise
be required then to be made shall be carried forward and shall
be made at the time of and together with the next subsequent
adjustment which, together with any adjustment so carried
forward, shall amount to at least two cents (2(cent)) per
Warrant Security.
9. Exchange and Replacement of Warrant Certificates. Each
Warrant Certificate is exchangeable without expense, upon the surrender thereof
by the registered Holder at the principal executive office of the Company, for a
new Warrant Certificate of like tenor and date representing in the aggregate the
right to purchase the same number of Warrant
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Securities in such denominations as shall be designated by the Holder thereof at
the time of such surrender.
Upon receipt by the Company of evidence reasonably
satisfactory to it of the loss, theft, destruction or mutilation of any Warrant
Certificate, and, in case of loss, theft or destruction, of indemnity or
security reasonably satisfactory to it, and reimbursement to the Company of all
reasonable expenses incidental thereto, and upon surrender and cancellation of
the Warrants, if mutilated, the Company will make and deliver a new Warrant
Certificate of like tenor, in lieu thereof.
10. Elimination of Fractional Interests. The Company shall not
be required to issue certificates representing fractions of shares of Common
Stock or Redeemable Warrants upon the exercise of the Warrants, nor shall it be
required to issue scrip or pay cash in lieu of fractional interests, it being
the intent of the parties that all fractional interests shall be eliminated by
rounding any fraction up to the nearest whole number of shares of Common Stock
or Redeemable Warrants or other securities, properties or rights.
11. Reservation and Listing of Securities. The Company shall
at all times reserve and keep available out of its authorized shares of Common
Stock, solely for the purpose of issuance upon the exercise of the Warrants and
the Redeemable Warrants, such number of shares of Common Stock or other
securities, properties or rights as shall be issuable upon the exercise thereof.
The Company covenants and agrees that, upon exercise of the Warrants and payment
of the Exercise Price therefor, all shares of Common Stock, Redeemable Warrants
and other securities issuable upon such exercise shall be duly and validly
issued, fully paid, non-assessable and not subject to the preemptive rights of
any stockholder. The Company further covenants and agrees that upon exercise of
the Redeemable Warrants
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underlying the Warrants and payment of the respective Redeemable Warrant
exercise price therefor, all shares of Common Stock and other securities
issuable upon such exercises shall be duly and validly issued, fully paid,
non-assessable and not subject to the preemptive rights of any stockholder. As
long as the Warrants shall be outstanding, the Company shall use its best
efforts to cause all shares of Common Stock issuable upon the exercise of the
Warrants and Redeemable Warrants and all Redeemable Warrants underlying the
Warrants to be listed (subject to official notice of issuance) on all securities
exchanges on which the Common Stock or the Public Warrants issued to the public
in connection herewith may then be listed and/or quoted on Nasdaq/NM or Nasdaq.
12. Notices to Warrant Holders. Nothing contained in this
Agreement shall be construed as conferring upon the Holders the right to vote or
to consent or to receive notice as a stockholder in respect of any meetings of
stockholders for the election of directors or any other matter, or as having any
rights whatsoever as a stockholder of the Company. If, however, at any time
prior to the expiration of the Warrants and their exercise, any of the following
events shall occur:
(a) the Company shall take a record of the holders of
its shares of Common Stock for the purpose of entitling them
to receive a dividend or distribution payable otherwise than
in cash, or a cash dividend or distribution payable otherwise
than out of current or retained earnings or capital surplus
(in accordance with applicable law), as indicated by the
accounting treatment of such dividend or distribution on the
books of the Company; or
(b) the Company shall offer to all the holders of its
Common Stock any additional shares of capital stock of the
Company or securities convertible into
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or exchangeable for shares of capital stock of the Company,
or any option, right or warrant to subscribe therefor;
or
(c) a dissolution, liquidation or winding up of the
Company (other than in connection with a consolidation or
merger) or a sale of all or substantially all of its property,
assets and business as an entirety shall be proposed;
then, in any one or more of said events, the Company shall give written notice
of such event at least thirty (30) days prior to the date fixed as a record date
or the date of closing the transfer books for the determination of the
stockholders entitled to such dividend, distribution, convertible or
exchangeable securities or subscription rights, or entitled to vote on such
proposed dissolution, liquidation, winding up or sale. Such notice shall specify
such record date or the date of closing the transfer books, as the case may be.
Failure to give such notice or any defect therein shall not affect the validity
of any action taken in connection with the declaration or payment of any such
dividend, or the issuance of any convertible or exchangeable securities, or
subscription rights, options or warrants, or any proposed dissolution,
liquidation, winding up or sale.
13. Redeemable Warrants.
The form of the certificate representing Redeemable Warrants
(and the form of election to purchase shares of Common Stock upon the exercise
of Redeemable Warrants and the form of assignment printed on the reverse
thereof) shall be substantially as set forth in Exhibit "A" to the Warrant
Agreement dated as of the date hereof by and between the Company, and
Continental Stock Transfer & Trust Company, as warrant agent (the "Redeemable
Warrant Agreement"). Each Redeemable Warrant issuable upon exercise of the
Warrants shall evidence the right to initially purchase a fully paid and
non-assessable share of
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Common Stock at an initial purchase price of $[___] [120% of the initial public
offering price per share of Common Stock] from ______ 1997 [six months from the
effective date of the Registration Statement] until 5:30 p.m. New York time on
_________ 2001 [5 years from the effective date of the Registration Statement]
at which time the Redeemable Warrants, unless the exercise period has been
extended, shall expire. The exercise price of the Redeemable Warrants and the
number of shares of Common Stock issuable upon the exercise of the Redeemable
Warrants are subject to adjustment, whether or not the Warrants have been
exercised and the Redeemable Warrants have been issued, in the manner and upon
the occurrence of the events set forth in Section 8 of the Redeemable Warrant
Agreement, which is hereby incorporated herein by reference and made a part
hereof as if set forth in its entirety herein. Subject to the provisions of this
Agreement and upon issuance of the Redeemable Warrants underlying the Warrants,
each registered holder of such Redeemable Warrant shall have the right to
purchase from the Company (and the Company shall issue to such registered
holders) up to the number of fully paid and non-assessable shares of Common
Stock (subject to adjustment as provided herein and in the Redeemable Warrant
Agreement), free and clear of all preemptive rights of stockholders, provided
that such registered holder complies with the terms governing exercise of the
Redeemable Warrant set forth in the Redeemable Warrant Agreement, and pays the
applicable exercise price, determined in accordance with the terms of the
Redeemable Warrant Agreement. Upon exercise of the Redeemable Warrants, the
Company shall forthwith issue to the registered holder of any such Redeemable
Warrant in his name or in such name as may be directed by him, certificates for
the number of shares of Common Stock so purchased. Except as otherwise provided
in this Agreement, the Redeemable Warrants underlying the Warrants shall be
governed in all respects by the terms
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of the Redeemable Warrant Agreement. The Redeemable Warrants shall be
transferable in the manner provided in the Redeemable Warrant Agreement, and
upon any such transfer, a new Redeemable Warrant Certificate shall be issued
promptly to the transferee. The Company covenants to, and agrees with, the
Holder(s) that without the prior written consent of the Holder(s), which will
not be unreasonably withheld, the Redeemable Warrant Agreement will not be
modified, amended, canceled, altered or superseded, and that the Company will
send to each Holder, irrespective of whether or not the Warrants have been
exercised, any and all notices required by the Redeemable Warrant Agreement to
be sent to holders of Redeemable Warrants.
14. Notices.
All notices, requests, consents and other communications
hereunder shall be in writing and shall be deemed to have been duly made and
sent when delivered, or mailed by registered or certified mail, return receipt
requested:
(a) If to the registered Holder of the Warrants, to
the address of such Holder as shown on the books of the
Company; or
(b) If to the Company, to the address set forth in
Section 3 hereof or to such other address as the Company may
designate by notice to the Holders.
15. Supplements and Amendments. The Company and the
Representative may from time to time supplement or amend this Agreement without
the approval of any Holders of Warrant Certificates (other than the
Representative) in order to cure any ambiguity, to correct or supplement any
provision contained herein which may be defective or inconsistent with any
provisions herein, or to make any other provisions in regard to matters or
questions arising hereunder which the Company and the Representative may deem
necessary or desirable
NY1-161299.2
- 22 -
<PAGE>
and which the Company and the Representative deem shall not adversely affect the
interests of the Holders of Warrant Certificates.
16. Successors. All the covenants and provisions of this
Agreement shall be binding upon and inure to the benefit of the Company, the
Holders and their respective successors and assigns hereunder.
17. Termination. This Agreement shall terminate at the close
of business on _______, 2003. Notwithstanding the foregoing, the indemnification
provisions of Section 7 shall survive such termination until the close of
business on _______, 2009.
18. Governing Law; Submission to Jurisdiction. This Agreement
and each Warrant Certificate issued hereunder shall be deemed to be a contract
made under the laws of the State of New York and for all purposes shall be
construed in accordance with the laws of said State without giving effect to the
rules of said State governing the conflicts of laws.
The Company, the Representative and the Holders hereby agree
that any action, proceeding or claim against it arising out of, or relating in
any way to, this Agreement shall be brought and enforced in the courts of the
State of New York or of the United States of America for the Southern District
of New York, and irrevocably submits to such jurisdiction, which jurisdiction
shall be exclusive. The Company, the Representative and the Holders hereby
irrevocably waive any objection to such exclusive jurisdiction or inconvenient
forum. Any such process or summons to be served upon any of the Company, the
Representative and the Holders (at the option of the party bringing such action,
proceeding or claim) may be served by transmitting a copy thereof, by registered
or certified mail, return receipt requested, postage prepaid, addressed to it at
the address set forth in Section 14 hereof. Such mailing shall be deemed
personal service and shall be legal and binding upon the party so served in any
NY1-161299.2
- 23 -
<PAGE>
action, proceeding or claim. The Company, the Representative and the Holders
agree that the prevailing party(ies) in any such action or proceeding shall be
entitled to recover from the other party(ies) all of its/their reasonable legal
costs and expenses relating to such action or proceeding and/or incurred in
connection with the preparation therefor.
19. Entire Agreement; Modification. This Agreement (including
the Underwriting Agreement and the Redeemable Warrant Agreement to the extent
portions thereof are referred to herein) contains the entire understanding
between the parties hereto with respect to the subject matter hereof and may not
be modified or amended except by a writing duly signed by the party against whom
enforcement of the modification or amendment is sought.
20. Severability. If any provision of this Agreement shall be
held to be invalid or unenforceable, such invalidity or unenforceability shall
not affect any other provision of this Agreement.
21. Captions. The caption headings of the Sections of this
Agreement are for convenience of reference only and are not intended, nor should
they be construed as, a part of this Agreement and shall be given no substantive
effect.
22. Benefits of this Agreement. Nothing in this Agreement
shall be construed to give to any person or corporation other than the Company
and the Representative and any other registered Holder(s) of the Warrant
Certificates or Warrant Securities any legal or equitable right, remedy or claim
under this Agreement; and this Agreement shall be for the sole benefit of the
Company and the Representative and any other registered Holders of Warrant
Certificates or Warrant Securities.
NY1-161299.2
- 24 -
<PAGE>
23. Counterparts. This Agreement may be executed in any number
of counterparts and each of such counterparts shall for all purposes be deemed
to be an original, and such counterparts shall together constitute but one and
the same instrument.
NY1-161299.2
- 25 -
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed, as of the day and year first above written.
MULTIMEDIA ACCESS CORPORATION
By:
-----------------------------
Glenn A. Norem
Chief Executive Officer
Attest:
- -----------------------------
Name:
Title:
NATIONAL SECURITIES CORPORATION
By:
-----------------------------
Steven A. Rothstein
Chairman
<PAGE>
EXHIBIT A
[FORM OF WARRANT CERTIFICATE]
THE WARRANTS REPRESENTED BY THIS CERTIFICATE AND THE OTHER SECURITIES ISSUABLE
UPON EXERCISE THEREOF MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO (i) AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933, (ii) TO THE
EXTENT APPLICABLE, RULE 144 UNDER SUCH ACT (OR ANY SIMILAR RULE UNDER SUCH ACT
RELATING TO THE DISPOSITION OF SECURITIES), OR (iii) AN OPINION OF COUNSEL, IF
SUCH OPINION SHALL BE REASONABLY SATISFACTORY TO COUNSEL FOR THE ISSUER, THAT AN
EXEMPTION FROM REGISTRATION UNDER SUCH ACT IS AVAILABLE.
THE TRANSFER OR EXCHANGE OF THE WARRANTS REPRESENTED BY THIS
CERTIFICATE IS RESTRICTED IN ACCORDANCE WITH THE WARRANT
AGREEMENT REFERRED TO HEREIN.
EXERCISABLE ON OR BEFORE
5:30 P.M., NEW YORK TIME, __________, 2001
No. W- Warrants to Purchas
____ Shares of Common Stock and/or
____ Redeemable Warrants
WARRANT CERTIFICATE
This Warrant Certificate certifies that , or registered assigns,
is the registered holder of Warrants to purchase initially, at any time from
__________, 1997 [one year from the effective date of the Registration
Statement] until 5:30 p.m. New York time on ___________, 2001 [five years from
the effective date of the Registration Statement] ("Expiration Date"), up to
__________ fully-paid and non-assessable shares of common stock, $.0001 par
value ("Common Stock"), of MULTIMEDIA ACCESS CORPORATION, a Delaware corporation
(the "Company"), and/or _____ Redeemable Warrants of the Company (one Redeemable
Warrant entitling the owner to purchase one fully-paid and non-assessable share
of Common Stock) at the initial exercise price, subject to adjustment in certain
events (the "Exercise Price"), of $[____] [120% of the initial public offering
price] per share of Common Stock and $[____] [120% of the initial public
offering price] per Redeemable Warrant upon surrender of this Warrant
Certificate and payment of the Exercise Price at an office or agency of the
Company, but subject to the conditions set forth herein and in the
Representative's Warrant Agreement dated as of _______, 1996 between the Company
and
NY1-161299.2
A-1
<PAGE>
NATIONAL SECURITIES CORPORATION (the "Warrant Agreement"). Payment of the
Exercise Price shall be made by certified or official bank check in New York
Clearing House funds payable to the order of the Company or by surrender of this
Warrant Certificate.
No Warrant may be exercised after 5:30 p.m., New York time, on
the Expiration Date, at which time all Warrants evidenced hereby, unless
exercised prior thereto, shall thereafter be void.
The Warrants evidenced by this Warrant Certificate are part of a
duly authorized issue of Warrants issued pursuant to the Warrant Agreement,
which Warrant Agreement is hereby incorporated by reference in and made a part
of this instrument and is hereby referred to for a description of the rights,
limitation of rights, obligations, duties and immunities thereunder of the
Company and the holders (the words "holders" or "holder" meaning the registered
holders or registered holder) of the Warrants.
The Warrant Agreement provides that upon the occurrence of
certain events the Exercise Price and the type and/or number of the Company's
securities issuable thereupon may, subject to certain conditions, be adjusted.
In such event, the Company will, at the request of the holder, issue a new
Warrant Certificate evidencing the adjustment in the Exercise Price and the
number and/or type of securities issuable upon the exercise of the Warrants;
provided, however, that the failure of the Company to issue such new Warrant
Certificates shall not in any way change, alter, or otherwise impair, the rights
of the holder as set forth in the Warrant Agreement.
Upon due presentment for registration of transfer of this
Warrant Certificate at an office or agency of the Company, a new Warrant
Certificate or Warrant Certificates of like tenor and evidencing in the
aggregate a like number of Warrants shall be issued to the transferee(s) in
exchange for this Warrant Certificate, subject to the limitations provided
herein and in the Warrant Agreement, without any charge except for any tax or
other governmental charge imposed in connection with such transfer.
Upon the exercise of less than all of the Warrants evidenced by
this Certificate, the Company shall forthwith issue to the holder hereof a new
Warrant Certificate representing such number of unexercised Warrants.
The Company may deem and treat the registered holder(s) hereof
as the absolute owner(s) of this Warrant Certificate (notwithstanding any
notation of ownership or other writing hereon made by anyone), for the purpose
of any exercise hereof, and of any distribution to the holder(s) hereof, and for
all other purposes, and the Company shall not be affected by any notice to the
contrary.
All terms used in this Warrant Certificate which are defined in
the Warrant Agreement shall have the meanings assigned to them in the Warrant
Agreement.
NY1-161299.2
A-2
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant
Certificate to be duly executed under its corporate seal.
Dated as of ___________, 1996
MULTIMEDIA ACCESS CORPORATION
By:
----------------------------
Glenn A. Norem
Chief Executive Officer
<PAGE>
[FORM OF ELECTION TO PURCHASE PURSUANT TO SECTION 3.1]
The undersigned hereby irrevocably elects to exercise the right,
represented by this Warrant Certificate, to purchase:
|_| shares of Common Stock;
--------------------------
|_|
-------------------------- Redeemable Warrants;
|_| shares of Common Stock together with
-------------------------- an equal number of Redeemable Warrants; or
|_| shares of Common Stock together with
-------------------------- Redeemable Warrants.
and herewith tenders in payment for such securities a certified or official bank
check payable in New York Clearing House funds to the order of Multimedia Access
Corporation in the amount of $_______________________, all in accordance with
the terms of Section 3.1 of the Representative's Warrant Agreement dated as of
______________________, 1996 between Multimedia Access Corporation and National
Securities Corporation. The undersigned requests that a certificate for such
securities be registered in the name of whose address is and that such
Certificate be delivered to_____________________________________________________
___________________whose address is__________________________________________.
Dated:
Signature
----------------------------------------
(Signature must conform in all respects to name of
holder as specified on the face of the Warrant
Certificate.)
--------------------------------------------------
(Insert Social Security or Other Identifying
Number of Holder)
NY1-161299.2
A-4
<PAGE>
[FORM OF ELECTION TO PURCHASE PURSUANT TO SECTION 3.2]
The undersigned hereby irrevocably elects to exercise the right,
represented by this Warrant Certificate, to purchase:
|_| shares of Common Stock;
----------------------
|_| Redeemable Warrants;
----------------------
|_| shares of Common Stock together with an equal number
---------------------- of Redeemable Warrants; or
|_| shares of Common Stock together with
---------------------- Redeemable Warrants.
----------------------
and herewith tenders in payment for such securities ________ Warrants all in
accordance with the terms of Section 3.2 of the Representative's Warrant
Agreement dated as of __________________, 1996 between Multimedia Access
Corporation and National Securities Corporation. The undersigned requests that a
certificate for such securities be registered in the name of whose address is __
___________________________ and that such Certificate be delivered to __________
_____________________________whose address is _________________________________.
Dated:
Signature
--------------------------------------------
(Signature must conform in all respects to name of
holder as specified on the face of the Warrant
Certificate.)
------------------------------------------------------
(Insert Social Security or Other Identifying
Number of Holder)
NY1-161299.2
A-5
<PAGE>
[FORM OF ASSIGNMENT]
(To be executed by the registered holder if such holder
desires to transfer the Warrant Certificate.)
FOR VALUE RECEIVED ___________________________hereby sells, assigns and
transfers unto
________________________________________________________________________________
(Please print name and address of transferee)
this Warrant Certificate, together with all right, title and interest therein,
and does hereby irrevocably constitute and appoint Attorney, to transfer the
within Warrant Certificate on the books of the within-named Company, with full
power of substitution.
Dated: Signature:
---------------- --------------------------------------------
(Signature must conform in all respects to name of
holder as specified on the face of the Warrant
Certificate.)
-------------------------------------------------------
(Insert Social Security or Other Identifying
Number of Assignee)
NY1-161299.2
A-6
November 13, 1996
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Re: MULTIMEDIA ACCESS CORPORATION
REGISTRATION STATEMENT
Dear Sir/Madam:
We are corporate and securities counsel to Multimedia Access Corporation
(the "Company"), a Delaware corporation, in connection with the registration on
Form SB-2 of 2,547,244 shares of the Company's Common Stock (the "Common
Stock"), 2,547,244 Redeemable Common Stock Purchase Warrants (the "Public
Warrants"), the 2,547,244 shares of Common Stock underlying the Public Warrants.
We hereby advise that, in our opinion, the shares of Common Stock, the
Public Warrants and the shares of Common Stock underlying the Public Warrants
have been duly authorized by all necessary corporate acts of the Company, and
when issued, delivered and paid for by the Underwriter, pursuant to the
Underwriting Agreement, will be legally and validly issued, fully-paid and
non-assessable.
We consent to the use of our firm's name under the heading "Legal Matters"
in the Registration Statement, and any amendments thereto, filed with the
Securities and Exchange Commission in connection with the above-referenced
offering.
Very truly yours,
/s/ John S. Stoppleman
John S. Stoppleman
EXHIBIT 10(U)
PROMISSORY NOTE
$500,000.00 September 5, 1996
FOR VALUE RECEIVED, the undersigned MultiMedia Access Corporation ("Maker"),
a Delaware corporation, promises to pay to the order of Robert Rubin, an
individual, (with his successors and assigns referred to herein as "Payee"), at
the registered office of Maker in Delaware, or at such other place in Delaware
as Payee may from time to time designate, in lawful money of the United States
of America, the principal sum of Five Hundred Thousand and No/100 Dollars
($500,000.00), and any other amounts that may be outstanding pursuant to the
terms of this Unsecured Promissory Note (the "Note") together with interest on
the unpaid principal balance hereof from time to time outstanding, until
maturity, at the lesser of (i) eight percent (8%) per annum, or (ii) the Highest
Lawful Rate (as hereinafter defined). Any payments of principal or interest that
become past due shall bear interest at the lesser of (i) fifteen percent (15%)
per annum, or (ii) the Highest Lawful Rate. Interest on this Note shall be
computed on the basis of the number of actual days elapsed in a year consisting
of 365 days.
1. Payments. All principal and interest shall be due and payable on demand
ten (10) days subsequent the initial public offering of the Maker's securities
("IPO") or after 180 days from the date first written above.
2. Prepayments. Maker shall have the right to repay, in whole or in part,
the principal of this Note at any time without premium or penalty. Any
prepayment will first be applied to any accrued interest, and thereafter to
principal.
3. Time of Essence. Time is of the essence with respect to all of Maker's
obligations and agreements under this Note.
4. Events of Default and Remedies. If maker does not pay any interest or
principal when due under this Note, whether on the scheduled payment date or
otherwise, Payee or other holder of this Note may demand the unpaid balance of
and accrued interest on this Note.
5. No Waiver. No delay on the part of Payee or other holder of this Note in
the exercise of any power or right under this Note, shall operate as a waiver
hereof, nor shall a single or partial exercise of any power or right preclude
other or further exercise thereof or the exercise of any other power or right.
Enforcement by the holder of this Note for the payment hereof shall not
constitute an election by such holder of remedies so as to preclude the exercise
of any other remedy available to such holder.
6. Waiver. Except as otherwise set forth herein, Maker and all endorsers,
sureties, and guarantors hereof hereby jointly and severally waive all exemption
rights under any applicable law, and also waive presentment for payment, demand,
notice of nonpayment, valuation, appraisement, protest, demand, dishonor, notice
of protest, notice of intent to accelerate, notice of acceleration, and all
other notices, and without further notice hereby consent to renewals,
extensions, or partial payments either before or after maturity.
7. Cost of Collection. If this Note is placed in the hands of any attorney
for collection, or is collected by suit or through probate or bankruptcy
proceeding, Maker agrees to pay reasonable attorneys' fees and disbursements in
addition to other amounts due.
8. Severability. The invalidity, or unenforceability in particular
circumstances, of any provision of this Note shall not extend beyond such
provision or such circumstances and no other provision of this Note shall be
affected thereby.
9. Highest Lawful Rate. It is expressly stipulated and agreed to be the
intent of Maker and Payee at all times to comply with the applicable state law
governing the maximum rate or amount of interest payable on or in connection
with this Note (or applicable United States federal law to the extent that it
permits Payee to contract for, charge, take, reserve or receive a greater amount
of interest than under applicable state law). If the applicable law is ever
judicially interpreted so as to render usurious any
<PAGE>
amount called for under this Note or under any of the other documents evidencing
or relating to this Note or any part thereof (collectively, the "Agreements"),
or contracted for, charged, taken, reserved or received with respect to the
indebtedness evidenced by this Note which results in Maker having paid any
interest in excess of that permitted by law, then it is Maker's and Payee's
express intent that all excess amounts theretofore collected by Payee be
credited on the principal balance of this Note (or, if this Note has been or
would be thereby paid in full, refunded to Maker), and the provisions of this
Note and the other Agreements immediately be deemed reformed and the amounts
thereafter collectible hereunder and thereunder reduced, without the necessity
of the execution of any new document, so as to permit the recovery of the
fullest amount called for hereunder and thereunder, while complying in all
respects with the applicable law. The right to accelerate maturity of this Note
does not include the right to accelerate any interest which has not otherwise
accrued on the date of such acceleration, and Payee does not intend to collect
any unearned interest in the event of acceleration. All sums paid or agreed to
be paid to Payee for the use, forbearance or detention of the Loan shall, to the
extent permitted by applicable law, be amortized, prorated, allocated and spread
throughout the full term of the Loan until payment in full so that the rate or
amount of interest on account of the Loan does not exceed the applicable usury
ceiling. Notwithstanding any provision contained in this Note or in any of the
other Agreements that permits the compounding of interest, including without
limitation any provision by which any of the accrued interest is added to the
principal amount of this Note, the total amount of interest that Maker is
obligated to pay and Payee is entitled to receive with respect to this Note
shall not exceed the amount calculated on a simple (i.e., noncompounded)
interest basis at the Highest Lawful Rate on principal amounts actually advanced
to or for the account of Maker, including the initial principal amount of this
Note and any advances made pursuant to any of the Agreements (such as for the
payment of taxes, insurance premiums and the like).
10. Business Purposes. Maker hereby represents and warrants to the holder
of this Note that the loan evidenced hereby is a "contract under which credit is
extended for business, commercial investment, or other similar purpose," and is
not a loan for "personal, family, household, or agricultural use."
11. Warrant Coverage. Upon receipt of the proceeds of this Note by Maker,
Payee will receive from Glenn Norem, personally, a transfer of a warrant or
warrants to purchase a total of 50,000 shares of MultiMedia Access Corporation
common stock. The exercise price of said warrant(s) will be priced at $3.00 per
share and the warrant(s) will expire three years after their original date of
issue.
12. Notices. All notices or demands required or permitted hereunder shall be
in writing and shall be deemed given when actually delivered or on the third
business day following the day on which the same shall have been mailed by
registered or certified mail, postage prepaid, addressed as follows:
If to Maker: MultiMedia Access Corporation
Two Metro Square
2665 Villa Creed Drive
Suite 200
Dallas, TX 75234
Attn: William S. Leftwich
If to Payee: Robert Rubin
6060 Kings Gate Circle
Delray Beach, FL 33484
Either Maker or Payee may change its respective address or addressee by
giving notice of such change to the other party in the manner provided herein.
For this purpose only, unless and until such written notice is actually
received, the address and addressee specified for each party shall be deemed to
continue on effect for all purposes.
13. GOVERNING LAW. This Note shall be construed in accordance with and
governed by the laws of the State of Texas.
<PAGE>
14. Headings. The headings of the sections of this Note are inserted for
convenience only and shall not be deemed to constitute a part thereof.
IN WITNESS WHEREOF, the undersigned has executed this Note to be effective as
of the date first written above.
MAKER:
MultiMedia Access Corporation, a
Delaware Corporation
By: /s/ William S. Leftwich
----------------------------
William S. Leftwich
Chief Financial Officer
PROMISSORY NOTE
$100,000.00 November 15, 1996
FOR VALUE RECEIVED, the undersigned MultiMedia Access Corporation
("Maker"), a Delaware corporation, promises to pay to the order of M. Douglas
Adkins, an individual, (with his successors and assigns referred to herein as
"Payee"), at the registered office of Maker in Delaware, or at such other place
in Delaware as Payee may from time to time designate, in lawful money of the
United States of America, the principal sum of One Hundred Thousand and No/100
Dollars ($100,000.00), and any other amounts that may be outstanding pursuant to
the terms of this Unsecured Promissory Note (the "Note") together with interest
on the unpaid principal balance hereof from time to time outstanding, until
maturity, at the lesser of (i) eight percent (8%) per annum, or (ii) the Highest
Lawful Rate (as hereinafter defined). Any payments of principal or interest that
become past due shall bear interest at the lesser of (i) fifteen percent (15%)
per annum, or (ii) the Highest Lawful Rate. Interest on this Note shall be
computed on the basis of the number of actual days elapsed in a year consisting
of 365 days.
1. Payments. All principal and interest shall be due and payable on demand
ten (10) days subsequent the initial public offering of the Maker's securities
("IPO") or after 180 days from the date first written above.
2. Prepayments. Maker shall have the right to repay, in whole or in part,
the principal of this Note at any time without premium or penalty. Any
prepayment will first be applied to any accrued interest, and thereafter to
principal.
3. Time of Essence. Time is of the essence with respect to all of Maker's
obligations and agreements under this Note.
4. Events of Default and Remedies. If maker does not pay any interest or
principal when due under this Note, whether on the scheduled payment date or
otherwise, Payee or other holder of this Note may demand the unpaid balance of
and accrued interest on this Note.
5. No Waiver. No delay on the part of Payee or other holder of this Note in
the exercise of any power or right under this Note, shall operate as a waiver
hereof, nor shall a single or partial exercise of any power or right preclude
other or further exercise thereof or the exercise of any other power or right.
Enforcement by the holder of this Note for the payment hereof shall not
constitute an election by such holder of remedies so as to preclude the exercise
of any other remedy available to such holder.
6. Waiver. Except as otherwise set forth herein, Maker and all endorsers,
sureties, and guarantors hereof hereby jointly and severally waive all exemption
rights under any applicable law, and also waive presentment for payment, demand,
notice of nonpayment, valuation, appraisement, protest, demand, dishonor, notice
of protest, notice of intent to accelerate, notice of acceleration, and all
other notices, and without further notice hereby consent to renewals,
extensions, or partial payments either before or after maturity.
<PAGE>
7. Cost of Collection. If this Note is placed in the hands of any attorney
for collection, or is collected by suit or through probate or bankruptcy
proceeding, Maker agrees to pay reasonable attorneys' fees and disbursements in
addition to other amounts due.
8. Severability. The invalidity, or unenforceability in particular
circumstances, of any provision of this Note shall not extend beyond such
provision or such circumstances and no other provision of this Note shall be
affected thereby.
9. Highest Lawful Rate. It is expressly stipulated and agreed to be the
intent of Maker and Payee at all times to comply with the applicable state law
governing the maximum rate or amount of interest payable on or in connection
with this Note (or applicable United States federal law to the extent that it
permits Payee to contract for, charge, take, reserve or receive a greater amount
of interest than under applicable state law). If the applicable law is ever
judicially interpreted so as to render usurious any amount called for under this
Note or under any of the other documents evidencing or relating to this Note or
any part thereof (collectively, the "Agreements"), or contracted for, charged,
taken, reserved or received with respect to the indebtedness evidenced by this
Note which results in Maker having paid any interest in excess of that permitted
by law, then it is Maker's and Payee's express intent that all excess amounts
theretofore collected by Payee be credited on the principal balance of this Note
(or, if this Note has been or would be thereby paid in full, refunded to Maker),
and the provisions of this Note and the other Agreements immediately be deemed
reformed and the amounts thereafter collectible hereunder and thereunder
reduced, without the necessity of the execution of any new document, so as to
permit the recovery of the fullest amount called for hereunder and thereunder,
while complying in all respects with the applicable law. The right to accelerate
maturity of this Note does not include the right to accelerate any interest
which has not otherwise accrued on the date of such acceleration, and Payee does
not intend to collect any unearned interest in the event of acceleration. All
sums paid or agreed to be paid to Payee for the use, forbearance or detention of
the Loan shall, to the extent permitted by applicable law, be amortized,
prorated, allocated and spread throughout the full term of the Loan until
payment in full so that the rate or amount of interest on account of the Loan
does not exceed the applicable usury ceiling. Notwithstanding any provision
contained in this Note or in any of the other Agreements that permits the
compounding of interest, including without limitation any provision by which any
of the accrued interest is added to the principal amount of this Note, the total
amount of interest that Maker is obligated to pay and Payee is entitled to
receive with respect to this Note shall not exceed the amount calculated on a
simple (i.e., noncompounded) interest basis at the Highest Lawful Rate on
principal amounts actually advanced to or for the account of Maker, including
the initial principal amount of this Note and any advances made pursuant to any
of the Agreements (such as for the payment of taxes, insurance premiums and the
like).
10. Business Purposes. Maker hereby represents and warrants to the holder
of this Note that the loan evidenced hereby is a "contract under which credit is
extended for business, commercial investment, or other similar purpose," and is
not a loan for "personal, family, household, or agricultural use."
<PAGE>
11. Warrant Coverage. Upon receipt of the proceeds of this Note by
Maker, Payee will receive from Glenn Norem, personally, a transfer of a warrant
or warrants to purchase a total of 10,000 shares of MultiMedia Access
Corporation common stock. The exercise price of said warrant(s) will be priced
at $3.00 per share and the warrant(s) will expire November 15, 1999.
12. Notices. All notices or demands required or permitted hereunder
shall be in writing and shall be deemed given when actually delivered or on the
third business day following the day on which the same shall have been mailed by
registered or certified mail, postage prepaid, addressed as follows:
If to Maker: MultiMedia Access Corporation
Two Metro Square
2665 Villa Creed Drive
Suite 200
Dallas, TX 75234
Attn: William S. Leftwich
If to Payee: M. Douglas Adkins
Gardere & Wynne, LLP
3000 Thanksgiving Tower
1601 Elm Street
Dallas, TX 75201
Either Maker or Payee may change its respective address or addressee by
giving notice of such change to the other party in the manner provided herein.
For this purpose only, unless and until such written notice is actually
received, the address and addressee specified for each party shall be deemed to
continue on effect for all purposes.
13. GOVERNING LAW. This Note shall be construed in accordance with and
governed by the laws of the State of Texas.
14. Headings. The headings of the sections of this Note are inserted for
convenience only and shall not be deemed to constitute a part thereof.
IN WITNESS WHEREOF, the undersigned has executed this Note to be
effective as of the date first written above.
MAKER:
MultiMedia Access Corporation, a
Delaware Corporation
By: /s/ William S. Leftwich
-----------------------------
William S. Leftwich
Chief Financial Officer
PROMISSORY NOTE
$200,000.00 November 15, 1996
FOR VALUE RECEIVED, the undersigned MultiMedia Access Corporation
("Maker"), a Delaware corporation, promises to pay to the order of H.T.
Ardinger, an individual, (with his successors and assigns referred to herein as
"Payee"), at the registered office of Maker in Delaware, or at such other place
in Delaware as Payee may from time to time designate, in lawful money of the
United States of America, the principal sum of Two Hundred Thousand and No/100
Dollars ($200,000.00), and any other amounts that may be outstanding pursuant to
the terms of this Unsecured Promissory Note (the "Note") together with interest
on the unpaid principal balance hereof from time to time outstanding, until
maturity, at the lesser of (i) eight percent (8%) per annum, or (ii) the Highest
Lawful Rate (as hereinafter defined). Any payments of principal or interest that
become past due shall bear interest at the lesser of (i) fifteen percent (15%)
per annum, or (ii) the Highest Lawful Rate. Interest on this Note shall be
computed on the basis of the number of actual days elapsed in a year consisting
of 365 days.
1. Payments. All principal and interest shall be due and payable on
demand ten (10) days subsequent the initial public offering of the Maker's
securities ("IPO") or after 180 days from the date first written above.
2. Prepayments. Maker shall have the right to repay, in whole or in
part, the principal of this Note at any time without premium or penalty. Any
prepayment will first be applied to any accrued interest, and thereafter to
principal.
3. Time of Essence. Time is of the essence with respect to all of
Maker's obligations and agreements under this Note.
4. Events of Default and Remedies. If maker does not pay any interest
or principal when due under this Note, whether on the scheduled payment date or
otherwise, Payee or other holder of this Note may demand the unpaid balance of
and accrued interest on this Note.
5. No Waiver. No delay on the part of Payee or other holder of this
Note in the exercise of any power or right under this Note, shall operate as a
waiver hereof, nor shall a single or partial exercise of any power or right
preclude other or further exercise thereof or the exercise of any other power or
right. Enforcement by the holder of this Note for the payment hereof shall not
constitute an election by such holder of remedies so as to preclude the exercise
of any other remedy available to such holder.
6. Waiver. Except as otherwise set forth herein, Maker and all
endorsers, sureties, and guarantors hereof hereby jointly and severally waive
all exemption rights under any applicable law, and also waive presentment for
payment, demand, notice of nonpayment, valuation, appraisement, protest, demand,
dishonor, notice of protest, notice of intent to accelerate, notice of
acceleration, and all other notices, and without further notice hereby consent
to renewals, extensions, or partial payments either before or after maturity.
<PAGE>
7. Cost of Collection. If this Note is placed in the hands of any
attorney for collection, or is collected by suit or through probate or
bankruptcy proceeding, Maker agrees to pay reasonable attorneys' fees and
disbursements in addition to other amounts due.
8. Severability. The invalidity, or unenforceability in particular
circumstances, of any provision of this Note shall not extend beyond such
provision or such circumstances and no other provision of this Note shall be
affected thereby.
9. Highest Lawful Rate. It is expressly stipulated and agreed to be the
intent of Maker and Payee at all times to comply with the applicable state law
governing the maximum rate or amount of interest payable on or in connection
with this Note (or applicable United States federal law to the extent that it
permits Payee to contract for, charge, take, reserve or receive a greater amount
of interest than under applicable state law). If the applicable law is ever
judicially interpreted so as to render usurious any amount called for under this
Note or under any of the other documents evidencing or relating to this Note or
any part thereof (collectively, the "Agreements"), or contracted for, charged,
taken, reserved or received with respect to the indebtedness evidenced by this
Note which results in Maker having paid any interest in excess of that permitted
by law, then it is Maker's and Payee's express intent that all excess amounts
theretofore collected by Payee be credited on the principal balance of this Note
(or, if this Note has been or would be thereby paid in full, refunded to Maker),
and the provisions of this Note and the other Agreements immediately be deemed
reformed and the amounts thereafter collectible hereunder and thereunder
reduced, without the necessity of the execution of any new document, so as to
permit the recovery of the fullest amount called for hereunder and thereunder,
while complying in all respects with the applicable law. The right to accelerate
maturity of this Note does not include the right to accelerate any interest
which has not otherwise accrued on the date of such acceleration, and Payee does
not intend to collect any unearned interest in the event of acceleration. All
sums paid or agreed to be paid to Payee for the use, forbearance or detention of
the Loan shall, to the extent permitted by applicable law, be amortized,
prorated, allocated and spread throughout the full term of the Loan until
payment in full so that the rate or amount of interest on account of the Loan
does not exceed the applicable usury ceiling. Notwithstanding any provision
contained in this Note or in any of the other Agreements that permits the
compounding of interest, including without limitation any provision by which any
of the accrued interest is added to the principal amount of this Note, the total
amount of interest that Maker is obligated to pay and Payee is entitled to
receive with respect to this Note shall not exceed the amount calculated on a
simple (i.e., noncompounded) interest basis at the Highest Lawful Rate on
principal amounts actually advanced to or for the account of Maker, including
the initial principal amount of this Note and any advances made pursuant to any
of the Agreements (such as for the payment of taxes, insurance premiums and the
like).
10. Business Purposes. Maker hereby represents and warrants to the
holder of this Note that the loan evidenced hereby is a "contract under which
credit is extended for business, commercial investment, or other similar
purpose," and is not a loan for "personal, family, household, or agricultural
use."
<PAGE>
11. Warrant Coverage. Upon receipt of the proceeds of this Note by
Maker, Payee will receive from Glenn Norem, personally, a transfer of a warrant
or warrants to purchase a total of 20,000 shares of MultiMedia Access
Corporation common stock. The exercise price of said warrant(s) will be priced
at $3.00 per share and the warrant(s) will expire November 15, 1999.
12. Notices. All notices or demands required or permitted hereunder
shall be in writing and shall be deemed given when actually delivered or on the
third business day following the day on which the same shall have been mailed by
registered or certified mail, postage prepaid, addressed as follows:
If to Maker: MultiMedia Access Corporation
Two Metro Square
2665 Villa Creed Drive
Suite 200
Dallas, TX 75234
Attn: William S. Leftwich
If to Payee: H. T. Ardinger
9040 Governors Row
Dallas, TX 75247
Either Maker or Payee may change its respective address or addressee by
giving notice of such change to the other party in the manner provided herein.
For this purpose only, unless and until such written notice is actually
received, the address and addressee specified for each party shall be deemed to
continue on effect for all purposes.
13. GOVERNING LAW. This Note shall be construed in accordance with and
governed by the laws of the State of Texas.
14. Headings. The headings of the sections of this Note are inserted
for convenience only and shall not be deemed to constitute a part thereof.
IN WITNESS WHEREOF, the undersigned has executed this Note to be
effective as of the date first written above.
MAKER:
MultiMedia Access Corporation, a
Delaware Corporation
By: /s/ William S. Leftwich
-----------------------------
William S. Leftwich
Chief Financial Officer
EXHIBIT 11
MULTIMEDIA ACCESS CORPORATION AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
STATEMENT RE: COMPUTATION OF LOSS PER SHARE
<TABLE>
<CAPTION>
FOR THE NINE MONTHS
YEAR ENDED DECEMBER 31, ENDED SEPTEMBER 30,
------------------------------- -------------------------------
1994 1995 1995 1996
--------------- --------------- --------------- ---------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
LOSS PER SHARE DATA:
Net loss as reported in the financial statements .. $(2,717,421) $(5,414,878) $(3,509,510) $(3,081,082)
=============== =============== =============== ===============
Weighted average number of common shares
outstanding ....................................... 3,018,610 3,528,536 3,341,116 4,774,326
Common and common equivalent shares issued in the twelve month period preceding
the filing date of the initial public offering as required by SAB No.
83:
Common stock ..................................... 822,080 696,406 822,080 191,599
Incentive stock options .......................... 372,182 372,182 372,182 372,182
Non-qualified stock options ...................... 54,830 54,830 54,830 54,830
Warrants ......................................... 890,230 890,230 890,230 890,230
--------------- --------------- --------------- ---------------
Weighted average number of common and common
equivalent shares outstanding as reported in the
financial statements ............................. 5,157,932 5,542,184 5,480,438 6,283,167
=============== =============== =============== ===============
Loss per share as reported in the financial
statements........................................ $ (0.53) $ (0.98) $ (0.64) $ (0.49)
=============== =============== =============== ===============
SUPPLEMENTAL LOSS PER SHARE DATA:
Net loss as reported in the financial statements . $(5,414,878) $(3,081,082)
Interest saved on debt to be retired:
$222,548 of 15% secured debt ..................... 33,382 25,087
$347,250 of 8% convertible debt .................. 27,780 20,835
$35,000 of non-interest debt at 12/31/95 ......... -- --
$120,000 of non-interest debt at 6/30/96 ......... -- --
--------------- ---------------
$850,000 of 8% debt at 9/30/96 ................... -- 10,905
--------------- ---------------
Adjusted net loss $(5,353,716) $(3,024,305)
=============== ===============
Weighted average number of common and common
equivalent shares outstanding as reported in the
financial statements ............................. 5,542,184 6,283,167
Shares necessary to pay off debt:
Total proceeds to retire debt of $604,798 at
December 31, 1995 and $1,539,798 at September 30,
1996 divided by the offering price of $5.50 per
share ........................................... 109,963 279,963
Adjusted weighted average number of shares ........
--------------- ---------------
outstanding ...................................... 5,652,147 6,563,130
=============== ===============
Supplemental loss per share ....................... $ (0.95) $ (0.46)
=============== ===============
</TABLE>
HOFFMAN, MORRSION & FITZGERALD, P.C.
Certified Public Accountants and Consultants
October 7, 1996
U.S. Securities and Exchange Commission
450 5th Street, NW
Washington, DC 20549
Re: MULTIMEDIA ACCESS CORPORATION
FILE # 33-9935
Dear Sir/Madam:
We were previously the principal accountant for MultiMedia Access Corporation
(the "Company") and under the date March 17, 1995, except for note 12 as to
which the date is May 8, 1995, reported on the consolidated financial statement
of the Company and its subsidiaries for the year ended December 31, 1994. On
November 3, 1995, our appointment as principal accountant was terminated. We
have read the Company's statements included under the caption "Experts" in
amendment number 1 to the above referenced registration statement on Form SB-2
as filed with the Commission on October 7, 1996, and we agree with such
statements.
Very truly yours,
/s/ Hoffman, Morrison & Fitzgerald, P.C.
HOFFMAN, MORRISON & FITZGERALD, P.C.
Certified Public Accountants and Consultants
November 12, 1996
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Re: MULTIMEDIA ACCESS CORPORATION
REGISTRATION STATEMENT
Dear Sir/Madam:
We are corporate and securities counsel to Multimedia Access Corporation
(the "Company"), a Delaware corporation, in connection with the registration on
Form SB-2 of 2,547,244 shares of the Company's Common Stock (the "Common
Stock"), 2,547,244 Redeemable Common Stock Purchase Warrants (the "Public
Warrants"), the 2,547,244 shares of Common Stock underlying the Public Warrants.
We hereby advise that, in our opinion, the shares of Common Stock, the
Public Warrants and the shares of Common Stock underlying the Public Warrants
have been duly authorized by all necessary corporate acts of the Company, and
when issued, delivered and paid for by the Underwriter, pursuant to the
Underwriting Agreement, will be legally and validly issued, fully-paid and
non-assessable.
We consent to the use of our firm's name under the heading "Legal Matters"
in the Registration Statement, and any amendments thereto, filed with the
Securities and Exchange Commission in connection with the above-referenced
offering.
Very truly yours,
/s/ John S. Stoppleman
John S. Stoppleman
E:\MAC\SECLGOP.WPF
EXHIBIT 23B
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to
the use of our report dated April 5, 1996 in the Registration Statement No.
333-09935 (Form SB-2) and related Prospectus of MultiMedia Access Corporation
for the registration of 1,800,000 shares of its common stock and 1,800,000
redeemable common stock purchase warrants.
Dallas, TX
November 15, 1996 ERNST & YOUNG LLP
EXHIBIT 23C
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to
the use of our report dated March 17, 1995, except for note 12, as to which the
date is May 8, 1995 in the Registration Statement No. 333-09935 (Form SB-2) and
related Prospectus of MultiMedia Access Corporation for the registration of
1,800,000 shares of its common stock and 1,800,000 redeemable common stock
purchase warrants.
Vienna, VA HOFFMAN, MORRISON & FITZGERALD, P.C.
November 15, 1996 (formerly Hoffman, Dykes & Fitzgerald, P.C.)