Rule 424(b)(1) Prospectus
Registration No. 333-45321
PROSPECTUS
6,715,385 SHARES
ACCENT COLOR SCIENCES, INC.
COMMON STOCK
This Prospectus relates to the offer and sale from time to
time of up to 6,715,385 shares (the "Shares") of common stock, no
par value per share ("Common Stock"), of Accent Color Sciences,
Inc., a Connecticut corporation (the "Company"), by the Selling
Stockholders named herein (the "Selling Stockholders"), or by
their respective pledgees, donees, transferees or other
successors in interest that receive such Shares as a gift,
partnership distribution or other non-sale related transfer. Of
the 6,715,385 Shares being offered hereby: (i) 6,300,000 Shares
are issuable upon conversion of or otherwise with respect to
4,500 shares of the Company's Series B Convertible Preferred
Stock, no par value per share ("Series B Stock"), held by the
Selling Stockholders; and (ii) 415,385 Shares are issuable upon
the exercise of certain warrants (the "Warrants") held by the
Selling Stockholders. The Series B Stock and the Warrants were
issued by the Company to the Selling Stockholders on January 9,
1998 in a private transaction ("the 1998 Private Placement").
The number of Shares indicated as being issuable upon
conversion of or otherwise with respect to the Series B Stock and
offered hereby represents an estimate of the number of shares of
Common Stock issuable upon conversion of or otherwise with
respect to the Series B Stock, based on 200% of the number of
shares of Common Stock issuable at a conversion price of $1.875
per share in accordance with Rule 416 ("Rule 416") of the
Securities Act of 1933, as amended (the "Securities Act") and in
certain other events described in the Certificate of
Designations, Preferences and Rights of the Series B Stock ("the
Certificate of Designation"). Pursuant to Rule 416, the number
of shares of Common Stock underlying the Series B Stock and
offered for sale hereby includes an indeterminate number of
shares as may be issued or issuable upon conversion of or
otherwise with respect to the Series B Stock by reason of the
floating rate conversion price mechanism and other adjustment
mechanisms described in the Certificate of Designation, or by
reason of any stock splits, stock dividends or similar
transactions involving the Common Stock, in order to prevent
dilution. Although the Company will receive the exercise price
of any Warrants which are exercised, the Company will not receive
any of the proceeds from the sale of the Shares by the Selling
Stockholders. The expenses of registration of the Shares which
may be offered hereby under the Securities Act will be paid by
the Company.
The Shares covered under the Registration Statement of which
this Prospectus is a part may be offered for sale from time to
time by or for the account of the Selling Stockholders, or their
pledgees, donees, transferees or other successors in interest, in
the open market, on the NASDAQ National Market or on one or more
exchanges on which the Shares are then listed, in privately
negotiated transactions, in an underwritten offering, in a
combination of such methods, or by any other legally available
means, at market prices prevailing at the time of such sale, at
prices related to such prevailing market prices, at negotiated
prices or at fixed prices. The Shares are intended to be sold
through one or more broker-dealers or directly to purchasers.
Such broker-dealers may receive compensation in the form of
discounts, concessions or commissions from the Selling
Stockholders, their successors in interest and/or the purchasers
of the Shares for whom such broker-dealers may act as agent or to
whom they may sell as principal, or both (which compensation as
to a particular broker-dealer may be in excess of customary
commissions). The Selling Stockholders, their successors in
interest and/or any broker-dealers acting in connection with the
sale of the Shares hereunder may be deemed to be underwriters
within the meaning of Section 2(11) of the Securities Act, and
any commissions or other compensation received by them and any
profits realized by them on the resale of the Shares as
principals may be deemed underwriting compensation under the
Securities Act. See "SELLING STOCKHOLDERS" and "PLAN OF
DISTRIBUTION."
The Common Stock of the Company is traded on the Nasdaq
National Market under the symbol "ACLR". On January 27, 1998,
the closing price of the Company's Common Stock as reported on
the Nasdaq National Market was $1.6875.
ANY INVESTMENT IN THE COMMON STOCK OFFERED HEREBY
INVOLVES A HIGH DEGREE OF RISK. SEE "RISK FACTORS" COMMENCING ON
PAGE 5 FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE
CONSIDERED BY PROSPECTIVE PURCHASERS OF THE COMMON STOCK OFFERED
HEREBY.
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 February 5, 1998
FORWARD-LOOKING STATEMENTS
Certain information contained herein and/or incorporated by
reference in this Prospectus includes "forward-looking
statements" within the meaning of the Private Securities
Litigation Reform Act of 1995, and is subject to the safe harbor
created by that Act. There are several important factors that
could cause actual results to differ materially from those
anticipated by the forward-looking statements contained in such
discussions. Additional information on the risk factors which
could affect the Company's financial results is included in this
Prospectus and in the Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 1996 and the other documents
incorporated by reference herein.
AVAILABLE INFORMATION
The Company is subject to the informational reporting
requirements of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), and in accordance therewith files reports,
proxy statements and other information with the Securities and
Exchange Commission (the "Commission"). Such reports, proxy
statements and other information can be inspected and copied at
the Public Reference Room of the Commission, 450 Fifth Street,
N.W., Washington, D.C. 20549, and at the Commission's regional
offices at 500 West Madison Street, Suite 1400, Chicago, Illinois
60661-2511; and copies of such material can be obtained from the
Public Reference Section of the Commission, Washington, D.C.
20549, at prescribed rates.
The Company has filed with the Commission a Registration
Statement on Form S-3, under the Securities Act, with respect to
the shares of Common Stock offered hereby. This Prospectus does
not contain all of the information set forth in the Registration
Statement and the exhibits thereto. For further information with
respect to the Company and the Common Stock offered hereby,
reference is made to the Registration Statement and the exhibits
filed therewith or incorporated by reference. Statements
contained in this Prospectus regarding the contents of any
contract or any other document referred to are necessarily
incomplete, and in each instance reference is made to the copy of
such contract or other document filed as an exhibit to the
Registration Statement or otherwise filed with the Commission,
each statement being qualified in all respects by such reference.
The Registration Statement may be inspected without charge at the
offices of the Commission at 450 Fifth Street, N.W., Washington,
D.C. 20549, and copies of all or any part thereof may be obtained
from such office upon the payment of the fees prescribed by the
Commission.
INFORMATION INCORPORATED BY REFERENCE
There are hereby incorporated by reference in this
Prospectus the following documents and information heretofore
filed with the Commission:
(1) The Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1996 filed pursuant to Section 13 of the
Exchange Act.
(2) The Company's Quarterly Reports on Form 10-Q for the fiscal
quarters ended March 31, 1997, June 30, 1997 and September 30,
1997 filed pursuant to Section 13 of the Exchange Act.
(3) The Company's Current Report on Form 8-K dated January 9,
1998 and filed with the Commission.
(4) The description of the Company's Common Stock contained in
the Company's Registration Statement on Form 8-A, which became
effective December 23, 1996, filed pursuant to Section 12(g) of
the Exchange Act, including any amendment or report filed for the
purpose of updating such description.
All documents filed by the Company pursuant to Section 13(a),
13(c), 14 or 15(d) of the Exchange Act after the date of this
Prospectus and prior to the termination of the offering of
securities contemplated hereby shall be deemed to be incorporated
by reference in this Prospectus or any Prospectus Supplement and
to be a part hereof from the date of filing of such documents.
Any statement contained in a document incorporated by reference
or deemed to be incorporated by reference in this Prospectus or
any Prospectus Supplement shall be deemed to be modified or
superseded for all purposes of this Prospectus or such Prospectus
Supplement to the extent that a statement contained herein,
therein or in any subsequently filed document that also is
incorporated or deemed to be incorporated by reference herein or
in such Prospectus Supplement modifies or supersedes such
statement. Any such statement so modified or superseded shall
not be deemed, except as so modified or superseded, to constitute
a part of this Prospectus or any Prospectus Supplement.
The Company will provide without charge to each person
to whom a copy of this Prospectus has been delivered, upon the
written or oral request of such person, a copy of any and all of
the documents referred to above that have been or may be
incorporated in this Prospectus by reference (other than exhibits
to such documents, unless such exhibits are specifically
incorporated by reference therein). Requests for such copies
should be directed to: the Company's Vice President and Chief
Financial Officer, Accent Color Sciences, Inc., 800 Connecticut
Boulevard, East Hartford, Connecticut, 06108. The Company's
telephone number at that location is (860) 610-4000.
The documents incorporated by reference herein contain
forward-looking statements that involve risks and uncertainties.
The Company's actual results may differ materially from the
results discussed in the forward-looking statements. Factors
that might cause such a difference include, but are not limited
to, those discussed in such documents and in "Risk Factors"
below.
No person is authorized to give any information or to
make any representations, other than those contained in this
Prospectus, in connection with the offering described herein,
and, if given or made, such information or representations must
not be relied upon as having been authorized by the Company. This
Prospectus does not constitute an offer to sell, or a
solicitation of an offer to buy, nor shall there be any sale of
these securities by any person in any jurisdiction in which it is
unlawful for such person to make such offer, solicitation or
sale. Neither the delivery of this Prospectus nor any sale made
hereunder shall under any circumstances create an implication
that the information contained herein is correct as of any time
subsequent to the date hereof.
THE COMPANY
Accent Color designs, manufactures and sells innovative,
high-speed, spot color printing systems ("Truecolor Systems") for
integration with digital, high-speed, black-on-white printers and
sells related consumables. Spot color printing involves the use
of color to enhance traditional black-on-white documents by
accenting critical information, such as a balance due on a
billing statement, or by printing graphics, such as a company
logo. Truecolor Systems are designed to print spot color in
high-speed, high-volume applications at a low incremental cost
per page without diminishing the speed or performance of the
high-speed, black-on-white host printer or affecting the end
user's existing operational methods and are capable of printing
up to 480 pages per minute, simultaneously utilizing up to eight
different colors, including custom colors, to print or highlight
fixed or variable data. Truecolor Systems combine the Company's
proprietary paper handling technology with patented ink jet
technology from Spectra, Inc. ("Spectra"). Under the agreement
with Spectra, the Company holds an exclusive right to supply
products which include Spectra printheads to print color on the
black-on-white output from specified high-speed printers from
Xerox, IBM, Oce and certain other manufacturers through the year
2002. The Company also holds a right to extend the agreement
with Spectra for an additional seven years.
The Company also sells consumables comprised of standard and
custom color wax-based inks, as well as spare parts used with
Truecolor Systems. The Company expects that consumables will
generate recurring revenue which the Company believes will
increase as the installed base and usage of Truecolor Systems
increase.
Accent Color was incorporated under the laws of Connecticut
in May 1993. The Company's principal executive offices are
located at 800 Connecticut Boulevard, East Hartford, Connecticut,
06108 and its telephone number at that address is (860) 610-4000.
RISK FACTORS
An investment in the shares of Common Stock offered hereby
involves a high degree of risk. In addition to the risks set
forth in the Company's Annual Report on Form 10-K for the year
ended December 31, 1996, and the Company's Quarterly Reports on
Form 10-Q for the quarters ended March 31, 1997, June 30, 1997
and September 30, 1997, the other documents incorporated herein
by reference and the other information in this Prospectus, the
following factors should be considered carefully in evaluating
the Company and its business before purchasing the Common Stock
offered hereby.
Immediate and Future Capital Requirements
The Company has ongoing working capital, capital equipment
and operations loss-funding requirements in order to continue to
operate and grow. As a result, the Company has and will likely
continue to seek equity or debt financing to fund operating
losses, future improvements and expansion of the Company's
research and manufacturing capabilities. There can be no
assurance that such financing will be available when needed, or
that, if available, it will be on satisfactory terms. The
failure to obtain financing would hinder the Company's ability to
make continued investments in capital equipment and expansion,
which could materially adversely affect results of operations.
Any such equity financing would result in dilution to the
then-existing stockholders of the Company.
Volatility of Stock Price
The Company's stock price has been, and in the future is
expected to be, volatile and to experience market fluctuation as
a result of a number of factors, including, but not limited to,
current and anticipated results of operations, future product
offerings by the Company or its competitors and factors unrelated
to the operating performance of the Company. The trading price
of the Company's Common Stock may also vary as a result of
changes in the business, operations, or financial results of the
Company, prospects of general market and economic conditions and
other factors.
Development Risks
Accent Color is a development stage company. The Company
has products in various stages of development, and minimal
revenue has been recognized from the sale of its products. The
Company has developed and plans to market new products and new
applications of technology and, accordingly, is subject to risks
associated with such ventures. The Company has delivered
prototype, pre-production and production Truecolor Systems and is
entering the pre-production phase for the enhanced version of
these systems. The probability of success of the Company must be
considered in light of the expenses and delays frequently
encountered in connection with the operation of a new business
and the development of practical production techniques for new
products.
The Company considers the enhancement of its present
products to be the Company's first development priority. Many of
these enhancements are contemplated in the Company's contract
with IBM, including the Company's plan to devote substantial
resources to improve its technology in the areas of printhead
width and print resolution. In addition, the Company's customers
have requested advanced paper handling functionality,
particularly duplex printing (the ability to print on both sides
of a page). There can be no assurance, however, that the Company
will be successful in developing enhancements for its products or
that these enhancements will prove to be desirable to end users
or that the Company will be able to obtain the necessary
components for contemplated product enhancements. Failure to
develop enhancements to its existing products, particularly the
enhancements contemplated by the agreement with IBM, could have a
material adverse effect on the market acceptance of the Company's
products. As a result, any such failures could have a material
adverse effect on the Company's business, financial condition and
results of operations. Further, the development of product
enhancements will likely render portions of the Company's
inventory obsolete, which could have a material adverse effect on
the Company's ability to sell such inventory profitably. For the
quarter ending December 31, 1997, the Company anticipates a
charge for obsolete inventory due to product transition of
approximately $1,000,000 to $1,400,000.
Limited History of Product Manufacturing
To date, the Company has manufactured only limited
quantities of Truecolor Systems. To be profitable, the Company's
products must be manufactured in sufficient quantities and at
acceptable costs. To date, manufacturing costs have exceeded
average selling price. Future production in sufficient
quantities may pose technical and financial challenges for the
Company. The Company has limited manufacturing history, and no
assurance can be given that the Company will be able to make a
successful transition to high-volume production. The failure to
make a successful transition and to manufacture at a cost
sufficiently below its selling price could have a material
adverse effect on the business, financial condition and results
of operations of the Company.
Limited Operating History; History of Losses; Uncertainty of
Future Financial Results;
The Company was formed in May 1993 and is a development
stage company with a limited operating history. The Company
incurred net losses of $45,000, $1,154,000, $4,217,000,
$13,739,000 and $13,106,000 for the period from inception to
December 31, 1993, the years ended December 31, 1994, 1995 and
1996 and the nine-month period ended September 30, 1997,
respectively. These losses were primarily due to the substantial
research and development costs associated with the development of
Truecolor Systems, all of which costs were expensed as incurred.
Through September 30, 1997, $1,285,000 of revenue had been
recognized from the sale of the Company's products. As a result
of these losses, as of September 30, 1997, the Company had an
accumulated deficit of $32,260,000 and total shareholders' equity
of $8,368,000. It is expected that quarterly net losses will
continue through at least the 2nd quarter of 1998. There can be
no assurance that the Company will be profitable thereafter or
that profitability, if achieved, will be sustained. In order to
support the anticipated growth of its business, the Company
expects to expand its manufacturing, marketing and sales
capabilities, technical and other customer support functions, and
research and product development activities. The anticipated
increase in the Company's operating expenses caused by any
expansion could have a material adverse effect on the Company's
operating results if revenue does not increase at an equal or
greater rate. Also, the Company's expenses for these and other
activities are based in significant part on its expectations
regarding future revenue and are fixed to a large extent in the
short term. The Company may be unable to adjust spending in a
timely manner to compensate for any unexpected revenue
shortfalls.
Uncertainty of Market Development; Acceptance of Accent Color's
Products
The digital, high-speed printing market has traditionally
relied mainly on black-on-white print. There can be no assurance
that a market for high-speed, variable data color printing will
develop or achieve significant growth. The failure of such
market to develop or achieve significant growth would have a
material adverse effect on the Company's business, financial
condition and results of operations.
The Company's products are currently designed for the
digital, high-speed production printing and production publishing
market segments. There can be no assurance that the Company will
be successful in developing or marketing its existing or future
products or that, if any such products achieve market acceptance,
such acceptance will be sustained. The Company also plans to
further enhance its products and is investing substantial capital
and other resources in the development of such enhancements. The
Company plans to devote substantial resources to improve
technology in the areas of ink jet printhead width. There can be
no assurance that the Company's Truecolor Systems or enhancements
will be a preferable alternative to existing products or that
they will not be rendered obsolete or noncompetitive by products
offered by other companies. Any quality, durability or
reliability problems with the Company's products, regardless of
materiality, or any other actual or perceived problems with any
Company products, could have a material adverse effect on market
acceptance of such products. There can be no assurance that such
problems or perceived problems will not arise or that, even in
the absence of such problems, the Company's products will achieve
market acceptance. A failure of any of the Company's products to
achieve market acceptance for any reason could have a material
adverse effect on the Company's business, financial condition and
results of operations. In addition, the announcement by the
Company or its OEM customers or competitors of new products and
technologies could cause customers to defer purchases of the
Company's existing products, which could have a material adverse
effect on the Company's business, financial condition and results
of operations.
Dependence on a Limited Number of Customers; Revenue
Concentration
The Company anticipates that sales of its Truecolor Systems
and consumables to a limited number of customers will account for
substantially all of the Company's revenue. As of September 30,
1997, the Company had contracts with two customers, International
Business Machines Corporation ("IBM") and Groupe SET ("SET"), and
was in contract discussions with Oce Printing Systems USA, Inc.
("Oce"). Generally, the Company's customers provide non-binding
forecasts of future orders. There can be no assurance that these
customers will purchase a significant volume of the Company's
products. A substantial difference between forecast orders and
actual orders by any one of its customers, or the failure of its
customers to purchase a significant volume of the Company's
products, could have a material adverse effect on the business,
financial condition and results of operations of the Company.
There can be no assurance that the Company's OEM customers,
including IBM and SET, or other companies will not compete with
the Company in the future.
Dependence on Third Party Marketing, Distribution and Support
A significant element of the Company's marketing strategy is
to form alliances with third parties for the marketing and
distribution of its products. To this end, the Company is a
party to multi-year agreements with IBM (the "IBM Agreement") and
Groupe Set and is in contract discussions with Oce, for the
marketing, distribution and support of the Company's products.
The Company's contract with IBM is for an initial term of three
years with IBM having the right to terminate its contract in
certain circumstances, such as a material breach of the contract
by Accent Color or the Company's bankruptcy or insolvency. There
can be no assurance that (i) the Company will be successful in
maintaining such alliances or forming and maintaining other
alliances, (ii) the Company will be able to satisfy its
contractual obligations with its OEM customers or (iii) the
Company's OEM customers will devote adequate resources to market
and distribute the Company's products successfully. Any
disruption in the Company's relationships with IBM or SET, or any
future customer of the Company, may have a material adverse
effect on the Company's business, financial condition or results
of operations.
As a result of its relationships with its OEM customers, the
Company's ability to interact with end users of Truecolor Systems
and observe their experience with the Company's products may be
limited. The Company also does not have control over the
marketing, distribution and support efforts of its OEM customers.
This may result in a delay by the Company in the recognition and
correction of any problems experienced by the OEM customers or
the end users. Failure of the Company to respond to customer and
end-user preferences or experience with its products, or a
failure by the Company's OEM customers to market and support the
Company's products successfully, could have a material adverse
effect on the business, financial condition and results of
operations of the Company. In addition, the Company's OEM
customers will control the timing of the introduction of the
Company's products, including its existing products.
Consequently, the timing of the introduction of the Company's
products may be delayed for reasons unrelated to the Company and
its products, such as delays in the introduction of products
offered by the OEM customers with which the Company's products
are integrated. Delays in the introduction of the Company's
products could have a significant adverse effect on the Company's
business, financial condition and results of operations.
Further, third-party distribution provides the Company with less
information regarding the amount of inventory that is in the
process of distribution. This lack of information may reduce the
Company's ability to predict fluctuations in revenue resulting
from a surplus or a shortage in its distribution channels and
contribute to volatility in the Company's financial results, cash
flow and inventory.
Dependence on Spectra
The Company is dependent on Spectra, a wholly owned
subsidiary of Markem, Inc., as its sole source supplier of ink
jet printheads and the hot melt, wax-based inks used by Truecolor
Systems. Spectra has agreed to supply the Company with ink jet
printheads and wax-based inks under a supply agreement, subject
to a number of conditions. The Company's reliance on Spectra
involves several risks, including a potential inability to obtain
an adequate supply of required printheads or inks, and reduced
control over the quality, pricing and timing of delivery of these
items. Because the production of printheads is specialized and
requires long lead times, there can be no assurance that delays
or shortages of printheads will not occur. To date, Spectra has
only produced a limited number of ink jet printheads.
Accordingly, there can be no assurance that Spectra will be able
to provide a stable source of supply of these components. As the
Company increases the production of Truecolor Systems, it will
become more reliant upon Spectra's ability to manufacture and
deliver ink jet printheads as required. Any interruption in the
Company's ability to obtain Spectra printheads could have a
material adverse effect on the Company's business, financial
condition and results of operations. Further, the Company and
Spectra are devoting substantial resources to improve technology
in the areas of ink jet printhead width. There can be no
assurance that, if such improvements are made, Spectra will be
able to produce printheads embodying such improvements for the
Company in sufficient quantities at an acceptable price, or at
all. Any inability to incorporate such improvements or produce
printheads embodying them could have a material adverse effect on
the Company's business, financial condition and results of
operations.
Spectra, itself, is also reliant upon licenses granted to it
by third parties. The Spectra agreement allows the Company, in
certain instances, to utilize Spectra's technology to either
manufacture wax-based inks or ink jet printheads itself or
arrange for their manufacture by third parties utilizing such
technology. There can be no assurance, however, that, if
necessary, the Company would be able to manufacture ink jet
printheads and wax-based inks itself or negotiate with third
parties for the timely manufacture of ink jet printheads or
supply of wax-based inks on acceptable terms or at all.
Furthermore, the use of Spectra's technology may require the
consent of certain other licensors to Spectra, and there is no
assurance that the Company will be able to obtain any such
consents on acceptable terms or at all.
Spectra has granted the Company the exclusive right to
supply products including Spectra printheads in the worldwide
market for printing color on the output from specified
high-speed, black-on-white printers manufactured or marketed by
Xerox, IBM, Oce and certain other manufacturers through December
31, 2002 with the Company holding an option to renew the contract
for an additional seven years. To maintain such exclusive
rights, the Company is required to purchase a minimum number of
ink jet printheads each year, to continue to purchase its
wax-based ink requirements from Spectra and to make certain
payments. There can be no assurance that the Company will be
able to meet the minimum purchase requirements or make these
payments. The Company's agreement with Spectra required
quarterly payments of $250,000 through 1997 to maintain the
exclusivity rights. These specified payments, together with
similar payments from other Spectra customers (which vary in
amount from customer to customer), are used by Spectra to fund
ink jet printhead development, the results of which are available
to participating customers. In addition, the Company has a
development arrangement with Spectra that requires the Company to
make additional payments to support developing a wider printhead
manufacturing capability. Any disruption in the Company's
relationship with Spectra, or in Spectra's relationship with its
licensors, may have a material adverse effect on the Company's
business, financial condition and results of operations.
Dependence on Major Subcontractors and Suppliers
The Company relies on subcontractors and suppliers to
manufacture, subassemble and perform certain testing of some
modules and parts of Truecolor Systems. Currently, the Company's
ink jet printheads are manufactured solely by Spectra. The
Company currently performs the final assembly and testing of
various Truecolor System components and of each complete
Truecolor System. The Company plans to outsource the manufacture
of major components and complete final assembly and testing of
Truecolor Systems in house. The inability to develop
relationships with, or the loss of, subcontractors or suppliers,
or the failure of its subcontractors or suppliers to meet the
Company's price, quality, quantity and delivery requirements,
could have a material adverse effect on the Company's business,
financial condition and results of operations.
Significant Fluctuations in Quarterly Results
The Company's quarterly operating results are likely to vary
significantly in the future based upon a number of factors,
including the volume, timing, delivery and acceptance of customer
orders, the introduction and market acceptance of new products
offered by the Company and its OEM customers or competitors,
changes in the pricing policies of the Company or its OEM
customers or competitors, the level of product and price
competition, the relative proportion of printer and consumables
sales, the timely availability of sufficient volume of sole
source components, fluctuations in research and development
expenditures, the availability of financing arrangements for
certain of the Company's customers, general economic conditions,
as well as other factors. Additionally, because the purchase of
a printing system and peripherals involves a significant capital
commitment, the sales cycle for the Company's products is
susceptible to delays and lengthy acceptance procedures
associated with large capital expenditures. Historically, there
has existed seasonality in the purchase of major equipment such
as the Company's Truecolor Systems, with many companies
experiencing higher sales in the fourth calendar quarter. The
Company expects such seasonality to apply to the purchase of its
systems. Furthermore, due to the Company's high average sales
price and low unit volume, a delay in the sale of, or the
recognition of revenue from the sale of a few units could have a
material adverse effect on the results of operations for a fiscal
quarter.
Quarterly revenue and operating results depend primarily on
the volume, timing, shipping and acceptance of orders during the
quarter, which are difficult to forecast due to the length of the
sales cycle. As of September 30, 1997, the Company has
recognized $1,285,000 of revenue from the sale of its products.
Through September 30, 1997, the Company had shipped 15 production
versions of its Truecolor Systems. Consequently, the Company has
minimal experience with the rate of customer and end-user
acceptance of its products or the volume or nature of warranty
claims relating to its products. The Company's policy is to
recognize revenue upon customer acceptance, which generally
occurs at the end of the warranty period. Thereafter, once the
Company gains sufficient experience regarding customer acceptance
of, and warranty claims regarding, its products, the Company
intends to recognize revenue upon shipment of the products. As a
result, the Company expects a difference between the timing of
shipments and the recognition of related revenue, which may be
substantial and inconsistent. There can be no assurance that the
timing of revenue recognition will not result in significant
fluctuations in the Company's quarterly operating results. A
significant portion of the Company's operating expenses is
relatively fixed in the short term, and planned expenditures are
based on sales forecasts. Sales forecasts by the Company's
customers are generally not binding. If revenue levels are below
expectations, operating results may be disproportionately
affected because only a small portion of the Company's expenses
vary with revenue in the short term, which could have a material
adverse effect on the Company's business, financial condition and
results of operations. There can be no assurance that the
Company will experience or sustain any revenue growth or
profitability.
Potential Need for Additional Funding for Operating and Capital
Requirements
The Company's currently anticipated levels of revenue and
cash flow are subject to many uncertainties and cannot be
assured. Further, the Company's business plan may change, or
unforeseen events may occur, requiring the Company to raise
additional funds. The amount of funds required by the Company
will depend on many factors, including the extent and timing of
the sale of Truecolor Systems, the timing and cost associated
with the expansion of the Company's manufacturing, development
and engineering, sales and marketing and customer support
capabilities and the Company's operating results. There can be
no assurance that, if and when needed, additional financing will
be available, or available on acceptable terms. The inability to
obtain additional financing or generate sufficient cash from
operations could require the Company to reduce or eliminate
expenditures for research and development, production or
marketing of its products, or otherwise to curtail or discontinue
its operations, which could have a material adverse effect on the
Company's business, financial condition and results of
operations.
Product Warranty; Limit on Prices for Spare Parts
The Company warrants its Truecolor Systems to be free of
defects in workmanship and materials for 90 days from
installation at the location of the end user. Furthermore, under
the IBM Agreement, the Company has agreed to provide spare parts
for its products to IBM at prices which will yield a monthly
parts cost per Truecolor System not to exceed a specified amount.
There can be no assurance that the Company will not experience
warranty claims or parts failure rates in excess of those which
it has assumed in pricing its products and spare parts. Any such
excess warranty claims or spare parts failure rates could have a
material adverse effect on the Company's business, financial
condition or results of operations. The Company currently has
minimal experience with the volume or nature of warranty claims
relating to its products.
Dependence on a Single Product Line
The Company anticipates that it will derive substantially
all of its revenue in the foreseeable future from sales of
Truecolor Systems, related consumables and spare parts. If the
Company is unable to generate sufficient sales of Truecolor
Systems due to market conditions, manufacturing difficulties or
other reasons, it may not be able to continue its business.
Similarly, if purchasers of Truecolor Systems were to purchase
wax-based ink or spare parts from suppliers other than the
Company, the Company's business, results of operations and
financial condition could be materially adversely affected.
Dependence on a single product line makes the Company
particularly vulnerable to the successful introduction of
competitive products.
Rapid Technological Change Requires Ongoing Product Development
Efforts
The high-speed printer industry is characterized by evolving
technology and changing market requirements. The Company's
future success will depend on a number of factors, including its
ability to continue to develop and manufacture new products and
to enhance existing products. Consequently, the Company
considers the enhancement of its products to be a development
priority. Certain enhancements of its existing products are
required by the Company's contract with IBM. Additionally, in a
new and evolving market, customer preferences can change rapidly
and new technology could render existing technology and product
inventory obsolete. Failure by the Company to respond adequately
to changes in its target market, to develop or acquire new
technology or to successfully conform to market preferences could
have a material adverse effect on the business, financial
condition and results of operations of the Company. The failure
by the Company to anticipate or respond adequately to competitive
and technological changes could have a material adverse effect on
the business, financial condition and results of operations of
the Company.
Risk of Delisting from Nasdaq Stock Market
The Company's stock is currently traded on the Nasdaq
National Market. There are no assurances, however, that the
Company's Common Stock will continue to be included in such
market, or that an active market for such stock will exist. The
failure to meet the listing requirements for the National Market
could result in the Company's Common Stock alternatively either
being listed on the Nasdaq Small Capitalization Market if the
Company could meet the initial listing criteria for that market
or deletion from the Nasdaq Stock Market ("NASDAQ") altogether if
the Company failed to meet the National or Small Capitalization
Market listing criteria. If the Common Stock is delisted from
trading on NASDAQ, 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. (the "NASD") and consequently an
investor will likely find it more difficult to dispose of, or to
obtain accurate quotations as to the price of the Common Stock.
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. Regulations promulgated by the Commission generally
define a penny stock to be an 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 or a national securities exchange 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 Common Stock is not quoted on NASDAQ, or
if the Company does not meet the other exceptions to the penny
stock regulations cited above, trading in the Common Stock would
be covered by Rule 15g-9 promulgated under the Exchange Act for
non-NASDAQ and non-national securities 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.
If the Common Stock becomes subject to the regulations
applicable to penny stocks, the market liquidity for the Common
Stock could be adversely affected. In such event, the
regulations on penny stocks could limit the ability of
broker/dealers to sell the Common Stock and thus the ability of
purchasers of the Common Stock to sell their securities in the
secondary market.
Limited Protection of Proprietary Technology and Risks of
Third-party Claims
The Company's ability to compete effectively will depend, in
part, on the ability of the Company to maintain the proprietary
nature of its technology. The Company relies, in part, on
proprietary technology, know-how and trade secrets related to
certain aspects of its principal products and operations but
there can be no assurance that others, including the Company's
OEM customers, may not independently develop the same or similar
technology or otherwise obtain access to the Company's
proprietary technology. To protect its rights in these areas,
the Company generally requires its OEM customers, suppliers,
employees and independent contractors to enter into nondisclosure
agreements. There can be no assurance, however, that these
agreements will provide meaningful protection for the Company's
trade secrets, know-how or other proprietary information. If the
Company is unable to maintain the proprietary nature of its
products through nondisclosure agreements or other protection,
its business could be materially adversely affected. The U.S.
Patent and Trademark Office (the "Patent Office") has granted
patent number 5,602,624 related to the Company's color printing
apparatus. In addition, the Patent Office has filed a Notice of
Allowance with respect to another patent application filed by the
Company relating to the paper path and the placement of print on
a page. Furthermore, the Company has filed additional
applications for patents related to certain enhancements of the
Truecolor Systems. There can be no assurance, however, as to the
degree of protection offered by the Notice of Allowance, or as to
the likelihood that pending patent applications will be issued.
There can be no assurance that potential competitors, many of
which may have substantially greater resources than the Company
and may have made substantial investments in competing
technologies, do not currently have or will not obtain patents
that will prevent, limit or interfere with the Company's ability
to make, use or sell its products or will not intentionally
infringe on the Company's patents if and when issued. Moreover,
no assurance can be given that Accent Color's technology does not
conflict with existing enforceable patents. Although patents may
be issued to Accent Color as a result of patent applications it
has filed, Accent Color's technology may fall within the scope of
existing enforceable patents. There can be no assurance that the
steps taken by the Company to protect its proprietary rights will
be adequate to prevent misappropriation of its technology or
independent development by others of similar technology. In
addition, the laws of some foreign countries do not protect the
Company's proprietary rights to the same extent as do the laws of
the U.S. There can be no assurance that these protections will be
adequate.
The Company has an exclusive right, under an agreement with
Spectra, to supply products including Spectra's ink jet
printheads in the worldwide market for printing color on the
output from specified high-speed, black-on-white printers
marketed by Xerox, IBM, Oce and certain other parties through
December 31, 2002. The Company also has an option to renew this
agreement for an additional seven year term. To the extent that
wax-based inks and ink jet printheads purchased from Spectra are
covered under patents or licenses, the Company relies on
Spectra's rights under such patents and licenses and Spectra's
willingness and ability to enforce its patents and maintain its
licenses. There can be no assurance that Spectra will be willing
or able to enforce its patents and maintain its licenses and any
such unwillingness or inability could have a material adverse
effect on the Company's business, financial condition and results
of operations.
Although the Company believes that its products and
technology do not infringe any existing proprietary rights of
others, there can be no assurance that third parties will not
assert such claims against the Company in the future or that such
future claims will not be successful. The Company could incur
substantial costs and diversion of management resources with
respect to the defense of any claims relating to proprietary
rights, which could have a material adverse effect on the
Company's business, financial condition and results of
operations. Furthermore, parties making such claims could secure
a judgment awarding substantial damages, as well as injunctive or
other equitable relief, which could effectively block the
Company's ability to make, use, sell, distribute or market its
products and services in the U.S. or abroad. Such a judgment
could have a material adverse effect on the Company's business,
financial condition and results of operations. In the event a
claim relating to proprietary technology or information is
asserted against the Company, the Company may seek licenses to
such intellectual property. There can be no assurance, however,
that such a license could be obtained on commercially reasonable
terms, if at all, or that the terms of any offered licenses will
be acceptable to the Company. The failure to obtain the
necessary licenses or other rights could preclude the sale,
manufacture or distribution of the Company's products and,
therefore, could have a material adverse effect on the Company's
business, financial condition and results of operations. The
cost of responding to any such claim may be material, whether or
not the assertion of such claim is valid.
Potential for Dilution
As of January 27, 1998, 4,500 shares of the Series B Stock
were issued and outstanding. Each share of Series B Stock is
convertible into such number of shares of Common Stock as is
determined by dividing the stated value ($1,000) of each share of
Series B Stock (as such value is increased by an annual premium
of 6%) by the then current conversion price of the Series B Stock
(which is determined, generally, by reference to 85% of the
average of the closing market price of the Common Stock during
the five consecutive trading days immediately preceding the date
of determination). Based on a conversion price of $1.875 per
share for the stated value of the Series B Stock in accordance
with Rule 416, the Series B Stock would be convertible into
approximately 2,400,000 shares of Common Stock. The number of
shares issuable upon conversion may be less than or greater than
this number, depending upon: (a) the market price of the Common
Stock at the time of conversion, (b) the Company's ability to
maintain its NASDAQ listing; and (c) the Company's ability to
obtain Shareholder Approval for the issuance of Common Stock upon
the conversion of the Series B Stock and the exercise of the
Warrants. In the event of a decrease in the trading price of the
Common Stock, holders of the Common Stock could experience
commensurately greater dilution upon conversion of the Series B
Stock. The shares of Common Stock into which the Series B Stock
may be converted are being registered pursuant to this
Registration Statement. This Registration Statement also
pertains to an additional 1,500,000 shares issuable under the
terms of the Certificate of Designation in the event of certain
failures by the Company to comply with the various provisions
thereof.
Difficulties in Managing Rapid Growth
Since inception, the Company has experienced rapid growth,
which has placed a significant strain on the Company's (i)
administrative, operational and financial personnel, (ii)
management information systems, (iii) manufacturing operations
and (iv) other resources. The Company's future development plans
anticipate additional management, operating and financial
resources. For example, the Company intends to significantly
increase production capacity, create new marketing programs, hire
additional personnel and develop further enhancements to the
Company's products. There can be no assurance that the Company
will be able to successfully implement its business strategy,
that operations will generate sufficient cash flow, or that
adequate financing will be available on acceptable terms to fund
continuing growth, or that management will successfully manage
continued growth. The failure to manage growth effectively may
have a material adverse effect on the Company's business,
financial condition and results of operations.
Dependence on Key Personnel
The business of the Company is substantially dependent on
the capabilities and services of a number of key technical and
managerial personnel, including Richard J. Coburn, its Chairman,
and Norman L. Milliard, its President and Chief Executive
Officer. Mr. Coburn has an employment agreement with the Company
which has a term that expires at the end of 1998. Mr. Milliard
entered into a three-year contract with the Company at the end of
1994 which is automatically extended each year for one year
unless Mr. Milliard or the Company gives notice prior to the year
end. Both Mr. Coburn and Mr. Milliard may terminate the
employment relationship with the Company at any time with no
penalty other than the loss of future compensation. The loss of
the services of Messrs. Coburn or Milliard or other key personnel
could have a material adverse effect upon the business of the
Company. The Company has keyman life insurance on Messrs. Coburn
and Milliard in the amount of $1,000,000 each. There can be no
assurance, however, that the Company will continue such insurance
coverage or that such amount is sufficient. The Company's future
success will further depend on both its ability to retain key
personnel and its ability to attract qualified personnel.
Competition for qualified personnel is intense, and there can be
no assurance that the Company will be successful in hiring or
retaining them. The inability of the Company to retain key
personnel or attract qualified personnel may have a material
adverse effect on the Company's business, financial condition and
results of operations.
Competition
The Company expects to encounter varying degrees of
competition in the markets in which it competes. The Company
competes, in significant part, on the basis of advanced
proprietary technology in the areas of paper handling, ink jet
color printing and interface software which allows the Company's
products to print variable data, in multiple standard and custom
colors at high speeds.
Competition to supply color printing is fragmented. The
Xerox 4890 (a similar product is also marketed by Xerox as the
DocuTech 390HC) is a spot color printer which prints in black and
one color per job (out of a limited palette). It is capable of
printing 92 pages per minute but does not offer custom colors.
BESTE Bunch Systems markets a color offset press used as a
downstream add-on to an Oce or IBM high-speed, black-on-white
printer. While providing color logos and fixed data, it does not
offer variable data, requires longer time to set up, and is more
labor intensive. It also requires additional processes of
negative production and plate making. There are production full
process color printers available which have relatively high per
page print costs and operate at much lower speeds than those
required by typical production printing, making them impractical
for high-speed print jobs. However, many of the companies that
may compete with the Company in the future have longer operating
histories and significantly greater financial, technical, sales,
marketing and other resources, as well as greater name
recognition than the Company.
In addition to direct competition from other firms utilizing
high-speed color technologies, there exists potential direct
competition from firms improving technologies used in low-speed
to medium-speed color printers and indirect competition from
firms producing pre-printed forms.
Products or product improvements based on new technologies
could be introduced by other companies with little or no advance
notice. Manufacturers of high-speed, black-on-white printers may
also, in time, develop comparable or more effective color
capability within their own products which may render the
Company's products obsolete. There can be no assurance that the
Company will be able to compete against future competitors
successfully or that competitive pressures faced by the Company
will not have a material adverse effect upon its business,
financial condition and results of operations.
Risks Associated with International Operations
The Company intends to have its products marketed worldwide
and therefore may enter into contracts with foreign companies.
International sales are subject to certain inherent risks,
including unexpected changes in regulatory requirements, tariffs
and other trade barriers, fluctuations in exchange rates, credit
risks, government controls, political instability, longer payment
cycles, increased difficulties in collecting accounts receivable
and potentially adverse tax consequences. There can be no
assurance that these factors will not have a material adverse
effect on the Company's business, financial condition and results
of operations.
Dividends
The Company has not declared or paid dividends on its common
stock in the past and does not anticipate declaring or paying any
dividends in the foreseeable future.
Environmental Regulation
The Company is subject to regulation under various federal,
state and local laws relating to the environment and to employee
safety and health. These environmental regulations relate to the
generation, storage, transportation, disposal and emission of
various substances into the environment. The Company cannot
predict the environmental legislation or regulations that may be
enacted in the future or how existing or future laws or
regulations will be administered or interpreted. Compliance with
more stringent laws or regulations, as well as more vigorous
enforcement policies of the regulatory agencies or stricter
interpretation of existing laws, may require additional
expenditures by the Company, some or all of which may be
material.
Potential Adverse Impact of Anti-takeover Provisions on Market
Price of Shares
The Company's Restated Certificate of Incorporation contains
provisions that could discourage a proxy contest or make more
difficult the acquisition of a substantial block of the Company's
Common Stock. The Restated Certificate of Incorporation provides
for a classified Board of Directors, and members of the Board of
Directors may be removed only upon the affirmative vote of
holders of at least two-thirds of the shares of capital stock of
the Company issued and outstanding and entitled to vote. In
addition, the Board of Directors is authorized to issue shares of
Common Stock and Preferred Stock which, if issued, could dilute
and adversely affect various rights of the holders of shares of
Common Stock and, in addition, could be used to discourage an
unsolicited attempt to acquire control of the Company.
The Company is subject to the Connecticut Business
Corporation Act (the "Connecticut Act"), some provisions of which
prohibit a publicly held Connecticut corporation from engaging in
a "business combination" (including the issuance of equity
securities which have an aggregate market value of 5% or more of
the total market value of the outstanding shares of the Company)
with an "interested shareholder" (as defined in the Connecticut
Act) for a period of five years from the date of the
shareholder's purchase of stock unless approved in a prescribed
manner. The application of this statute could prevent a change
of control of the Company. Generally, approval is required by
the Board of Directors and by a majority of the non-employee
directors of the Company and by 80% of the outstanding voting
shares of the Company and two-thirds of the voting power of the
outstanding shares of the voting stock other than shares held by
the interested shareholder. There can be no assurance that these
provisions will not prevent the Company from entering into a
business combination that otherwise would be beneficial to the
Company. The Connecticut Act also requires that any action of
the stockholders of the Company taken by written consent without
a meeting must be unanimous.
Common Stock Eligible for Future Sale
Future sales of shares of Common Stock by existing
stockholders under Rule 144 of the Act or through the exercise of
outstanding registration rights, or the issuance of shares of
Common Stock upon conversion of the Series B Stock, exercise of
the Warrants, and/or exercise of options or other warrants to
purchase Common Stock could materially adversely affect the
market price of the Common Stock and could materially impair the
Company's future ability to raise capital through an offering of
equity securities. A substantial number of shares of Common
Stock are available for sale under Rule 144 in the public market
and no predictions can be made as to the effect, if any, that
market sales of such shares or the availability of such shares
for future sale will have on the market price of the Common Stock
prevailing from time to time.
SELLING STOCKHOLDERS
The Shares being offered for resale by the Selling
Stockholders were acquired in connection with the 1998 Private
Placement and consist of the shares of Common Stock issuable upon
the conversion of or otherwise with respect to the Series B Stock
and upon exercise of the Warrants. In connection with the 1998
Private Placement, the Company granted the Selling Stockholders
certain registration rights pursuant to which the Company agreed
to keep the Registration Statement, of which this Prospectus is a
part, effective until the date that all of such Shares have been
sold pursuant to the Registration Statement. The Company has
agreed to indemnify the Selling Stockholders and each of their
officers, directors, members, employees, partners, agents and
each person who controls any of the Selling Stockholders against
certain expenses, claims, losses, damages and liabilities (or
action, proceeding or inquiry by any regulatory or self-
regulatory organization in respect thereof). The Company has
agreed to pay its expenses of registering the Shares under the
Securities Act, including registration and filing fees, blue sky
expenses, printing expenses, accounting fees, administrative
expenses and its own counsel fees.
The following table sets forth the name of each Selling
Stockholder, the number of shares of Common Stock beneficially
owned by such Selling Stockholder as of January 28, 1998 and the
number of Shares being offered by each Selling Stockholder. The
Shares being offered hereby are being registered to permit public
secondary trading, and the Selling Stockholders may offer all or
part of the Shares for resale from time to time. However, such
Selling Stockholders are under no obligation to sell all or any
portion of such Shares nor are such Selling Stockholders
obligated to sell any Shares immediately under this Prospectus.
All information with respect to share ownership has been
furnished by the Selling Stockholders. Because the Selling
Stockholders may sell all or part of their Shares, no estimates
can be given as to the number of Shares that will be held by any
Selling Stockholder upon termination of any offering made hereby.
See "PLAN OF DISTRIBUTION."
In the case of the Shares underlying the Series B Stock, the
number of Shares owned and offered for sale hereby represents an
estimate of the number of shares of Common Stock issuable upon
conversion of or otherwise with respect to the Series B Stock,
based on 200% of the number of shares of Common Stock issuable at
a conversion price of $1.875 in accordance with Rule 416 and in
certain other events described in the Certificate of Designation.
Pursuant to Rule 416 under the Securities Act, Selling
Stockholders may also offer and sell Shares issued with respect
to the Series B Stock and/or the Warrants as a result of (i)
stock splits, stock dividends or similar transactions, (ii) the
effect of anti-dilution provisions contained in the Certificate
of Designation of the Series B Stock and in the Warrants and
(iii) by reason of changes in the conversion price of the Series
B Stock accordance with the terms thereof. This is not intended
to constitute a prediction as to the number of Shares into which
the Series B Stock will be converted and the Warrants will be
exercised.
Shares Share to Shares
Name of Beneficially be Sold Owned
Selling Owned Prior to in the After the
Stockholder the Offering (1) Offering Offering(1)(2)
RGC International
Investors, LDC 3,666,667 (3)(7) 3,666,667 0
Zanett
Lombardier, LTD. 2,845,333 (4)(7) 2,845,333 0
Bruno Guazzoni 88,000 (5)(7) 88,000 0
The Zanett Securities
Corporation 115,385 (6)(7) 115,385 0
(1) Except as set forth in footnote (7) below, beneficial
ownership is determined in accordance with Rule 13d-3 of the
Exchange Act. Shares of Common Stock subject to warrants
currently exercisable or exercisable within 60 days of
January 28, 1998 are deemed outstanding for computing the
percentage of the person holding such warrants but are not
deemed outstanding for computing the percentage of any other
person. The persons named in the table above have sole
voting and investment power with respect to all shares of
Common Stock shown as beneficially owned by them.
(2) Assumes all Shares offered hereby are sold in the Offering.
(3) Includes 166,667 shares of Common Stock issuable upon
exercise of Warrants.
(4) Includes 129,333 shares of Common Stock issuable upon
exercise of Warrants.
(5) Includes 4,000 shares of Common Stock issuable upon exercise
of Warrants.
(6) Includes 115,385 shares of Common Stock issuable upon
exercise of Warrants.
(7) In accordance with Rule 416, the number of shares of Common
Stock set forth in the table represents an estimate of the number
of shares of Common Stock to be offered by the Selling
Stockholders, based on 200% of the number of shares of Common
Stock that would have been issuable upon conversion of or
otherwise with respect to the Series B Stock at a conversion
price of $1.875 per share in accordance with Rule 416 (4,800,000
shares). In addition, the Registration Statement also covers up
to 1,500,000 shares that may become issuable upon certain events
described in the Certificate of Designation and 415,385 shares
that may become issuable upon the exercise of Warrants. The
actual number of shares of Common Stock issuable upon conversion
of the Series B Stock is determined by a formula based on the
market price at the time of conversion, is therefore subject to
adjustment and could be materially less or more than such
estimated number depending on factors which cannot be predicted
by the Company. Specifically, at any given time, the Series B
Stock is convertible into a number of shares of Common Stock
determined by dividing the sum of (a) the stated value of the
Series B Stock and (b) a premium amount equal to 6% (on an
annualized basis) of the stated value of the Series B Stock, by
the then applicable conversion price (calculated generally as 85%
of the average closing bid prices of the Common Stock for the
five (5) consecutive trading days immediately preceding the date
of determination) subject to certain restrictions and
adjustments. The Shares offered hereby, and included in the
Registration Statement of which this Prospectus is a part,
include such additional number of shares of Common Stock as may
be issued or issuable upon conversion of the Series B Stock by
reason of the floating rate conversion price mechanism or other
adjustment mechanisms described in the Certificate of Designation
for the Series B Stock, or by reason of any stock split, stock
dividend or similar transaction involving the Common Stock, in
order to prevent dilution, in accordance with Rule 416. Pursuant
to the terms of the Series B Stock and the Warrants, the shares
of Series B Stock and the Warrants are convertible or exercisable
by any holder only to the extent that the number of shares of
Common Stock thereby issuable, together with the number of shares
of Common Stock owned by such holder and its affiliates (but not
including shares of Common Stock underlying unconverted shares of
Series B Stock or unexercised portions of the Warrants) would not
exceed 4.99% of the then outstanding Common Stock as determined
in accordance with Section 13(d) of the Exchange Act.
Accordingly, the number of Shares set forth in the table for a
Selling Stockholder may exceed the number of Shares that such
Selling Stockholder could own beneficially at any given time
through such Selling Stockholder's ownership of the Series B
Stock and the Warrants. In that regard, beneficial ownership of
such Selling Stockholder set forth in the table is not determined
in accordance with Rule 13d-3 under the Exchange Act.
USE OF PROCEEDS
All the Shares offered hereby are being offered for the
account of the Selling Stockholders. Accordingly the Company
will not receive any proceeds of any sales made hereunder, but
will receive the exercise price of any Warrants exercised by the
Selling Stockholders. Any proceeds received from the exercise of
Warrants will be used for working capital and general corporate
purposes.
PLAN OF DISTRIBUTION
The Shares may be sold or distributed from time to time by
the Selling Stockholders or by pledgees, donees or transferees
of, or successors in interest to, the Selling Stockholders,
directly to one or more purchasers (including pledgees) or
through brokers, dealers or underwriters who may act solely as
agents or may acquire Shares as principals, at market prices
prevailing at the time of sale, at prices related to such
prevailing market prices, at negotiated prices or at fixed
prices, which may be changed. The distribution of the Shares may
be effected in one or more of the following methods: (i)
ordinary brokers transactions, which may include long or short
sales, (ii) transactions involving cross or block trades or
otherwise on the NASDAQ National Market, (iii) purchases by
brokers, dealers or underwriters as principal and resale by such
purchasers for their own accounts pursuant to this Prospectus,
(iv) "at the market" to or through market makers or into an
existing market for the Common Stock, (v) in other ways not
involving market makers or established trading markets, including
direct sales to purchasers or sales effected through agents, (vi)
through transactions in options, swaps or other derivatives
(whether exchange listed or otherwise), or (vii) any combination
of the foregoing, or by any other legally available means. In
addition, the Selling Stockholders or their successors in
interest may enter into hedging transactions with broker-dealers
who may engage in short sales of shares of Common Stock in the
course of hedging the positions they assume with the Selling
Stockholders. The Selling Stockholders or their successors in
interest may also enter into option or other transactions with
broker-dealers that require that delivery by such broker-dealers
of the Shares, which Shares may be resold thereafter pursuant to
this Prospectus.
Brokers, dealers, underwriters or agents participating in
the distribution of the Shares may receive compensation in the
form of discounts, concessions or commission from the Selling
Stockholders and/or the purchasers of Shares for whom such broker-
dealers may act as agent or to whom they may sell as principal,
or both (which compensation as to a particular broker-dealer may
be in excess of customary commissions). The Selling Stockholders
and any broker-dealers acting in connection with the sale of the
Shares hereunder may be deemed to be underwriters within the
meaning of Section 2(11) of the Securities Act, and any
commissions received by them and any profit realized by them on
the resale of Shares as principals may be deemed underwriting
compensation under the Securities Act. Neither the Company nor
any Selling Stockholder can presently estimate the amount of such
compensation. The Company knows of no existing arrangements
between any Selling Stockholder and any other stockholder,
broker, dealer, underwriter or agent relating to the sale or
distribution of the Shares.
Each Selling Stockholder and any other persons participating
in a distribution of securities will be subject to applicable
provisions of the Exchange Act and the rules and regulations
thereunder, including, without limitation, Regulation M, which
may restrict certain activities of, and limit the timing of
purchases and sales of securities by, Selling Stockholders and
other persons participating in a distribution of securities.
Furthermore, under Regulation M, persons engaged in a
distribution of securities are prohibited from simultaneously
engaging in market making and certain other activities with
respect to such securities for a specified period of time prior
to the commencement of such distributions subject to specified
exceptions or exemptions. All of the foregoing may affect the
marketability of the securities offered hereby.
Any securities covered by this Prospectus that qualify for
sale pursuant to Rule 144 under the Securities Act may be sold
under that Rule rather than pursuant to this Prospectus.
There can be no assurance that the Selling Stockholders will
sell any or all of the shares of Common Stock offered by them
hereunder.
LEGAL MATTERS
Counsel for the Company, Murtha, Cullina, Richter and
Pinney, LLP, CityPlace I, 185 Asylum Street, Hartford,
Connecticut 06103-3469, has rendered an opinion to the effect
that the Common Stock offered for resale hereby is duly and
validly issued, fully paid and non-assessable. Willard F.
Pinney, Jr., a partner in such firm, is a stockholder of the
Company as well as Corporate Secretary and a Director.
EXPERTS
The financial statements incorporated in this Prospectus by
reference to the Annual Report on Form 10-K of Accent Color
Sciences, Inc. for the year ended December 31, 1996 have been so
incorporated in reliance on the report of Price Waterhouse LLP,
independent accountants, given on the authority of said firm as
experts in auditing and accounting.
NO DEALER, SALESPERSON OR 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 REPRESENTATIONS IN CONNECTION WITH THIS OFFERING
MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY
OR BY THE SELLING STOCKHOLDERS. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY
ANY OF THE SECURITIES OFFERED HEREBY BY ANYONE IN ANY
JURISDICTION IN WHICH SUCH OFFER SOLICITATION IS NOT AUTHORIZED
OR IN WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT
QUALIFIED TO DO SO OR TO ANY PERSON TO WHOM IT IS UNLAWFUL TO
MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE AN IMPLICATION THAT THE INFORMATION
CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE
OF THIS PROSPECTUS.
TABLE OF CONTENTS PAGE
Forward Looking Statements ........................ 2
Available Information ............................ 2
Information Incorporated ........................... 2
The Company ...................................... 3
Risk Factors ..................................... 5
Selling Stockholders ........................... 18
Use of Proceeds .................................. 21
Plan of Distribution ............................. 21
Legal Matters .................................... 22
Experts .......................................... 22
6,715,385
SHARES OF COMMON STOCK
No Par Value per Share
(Issuable upon the conversion of Series B Preferred Stock
& the exercise of Common Stock Warrants)
ACCENT COLOR SCIENCES, INC.
