As filed with the Securities and Exchange Commission on June ___,1996
Registration No. _________
__________
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
___________
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
___________
THE NETWORK CONNECTION, INC.
(Exact Name of Registrant as Specified in its Charter)
Georgia
(State or Other Jurisdiction of Incorporation or Organization)
3571
(Primary Standard Industrial Classification Code Numbers)
58-1712432
(I.R.S. Employer Identification Number)
1324 Union Hill Road
Alpharetta, Georgia 30201
(770)-751-0889
(Address, Including Zip Code, and Telephone Number,
including Area Code, of Registrant's Principal Executive Offices)
WILBUR RINER
Chairman and Chief Executive Officer
1324 Union Hill Road
Alpharetta, Georgia 30201
(770)-751-0889
(Name, Address, Including Zip Code, and Telephone Number, Including Area Code,
of Agent for Service)
Copies to:
PETER W. ROTHBERG, ESQ.
Greenberg, Traurig, Hoffman, Lipoff, Rosen & Quentel
153 East 53rd Street
35th Floor
New York, NY 10022
telephone: (212) 801-9200
telecopier: (212) 223-7161
Approximate date of commencement of proposed sale to the public:
As soon as practicable after this Registration Statement becomes effective.
<PAGE>
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box.
--
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box.
--
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering.
--
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering.
--
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box.
--
<PAGE>
<TABLE><CAPTION>
CALCULATION OF REGISTRATION FEE
Proposed Maximum Proposed Maximum Amount of
Title of Each Class of Amount To Offering Price Aggregate Offering Registration
Securities To Be Registered Be Registered Per Unit(1) Price (1) Fee
--------------------------- ------------- ----------- --------- ---
<S> <C> <C> <C> <C>
Common Stock, $.001 par 300,000 $10.25 $3,075,000 $1,060
value per share ("Common
Stock")
Common Stock, $.001 par 50,000 $15.00 $750,000 $259
value per share, issuable
upon exercise of Common
Stock Purchase Warrant (the
"Warrant")
Total Registration Fee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,319
</TABLE>
_______________________________
(1) Estimated solely for the purpose of calculating the registration fee.
Pursuant to Rule 416, there are also being registered hereby such
additional indeterminate number of shares of such Common Stock as may become
issuable by reason of stock splits, stock dividends, and similar adjustments as
set forth in the provisions of the Warrant.
_____________________
The Registrant hereby amends this Registration Statement on such date or dates
as may be necessary to delay its effective date until the Registrant shall file
a further amendment which specifically states that this Registration Statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933, as amended, or until the Registration Statement shall
become effective on such date as the Commission, acting pursuant to said
Section 8(a), may determine.
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THE NETWORK CONNECTION, INC.
350,000 Shares of Common Stock,
$.001 par value per Share ("Common Stock")
_________________________
This Prospectus relates to an offering (the "Offering") of 350,000 shares
of Common Stock of The Network Connection, Inc. (the "Company"), being sold by
certain shareholders of the Company (collectively, the "Selling
Securityholders"), 50,000 of which shares are underlying an outstanding warrant
(the "Goodbody Warrant") issued to Goodbody International & Company
("Goodbody").
The Goodbody Warrant entitles Goodbody to purchase 50,000 shares of Common
Stock for $15.00 per share, until 5:00 p.m. Eastern Standard Time on March 15,
1999. The exercise price of the Goodbody Warrant is subject to adjustment
pursuant to the anti-dilution provisions thereof. The Company will only receive
proceeds from the exercise of the Goodbody Warrant (an aggregate of $750,000),
but will not receive any proceeds from the resale of the shares acquired upon
exercise of the Goodbody Warrant or from the sale of any shares by the Selling
Securityholders.
The 350,000 shares of Common Stock being offered by the Selling
Securityholders may be offered by the Selling Securityholders from time to time
in transactions on the Nasdaq SmallCap Market. Such shares may also be offered
in negotiated transactions, at fixed prices which may be changed, at market
prices prevailing at the time of sale or at negotiated prices. The Selling
Securityholders may effect such transactions by selling such shares in
negotiated transactions, on the applicable Nasdaq market or through broker-
dealers, and such broker-dealers may receive compensation in the form of
discounts, concessions or commissions from Selling Securityholders and/or the
purchasers of such shares for whom such broker-dealers may act as agents or to
whom they sell as principal, or both (which compensation as to a particular
broker-dealer might be in excess of customary commissions). Alternatively, the
Selling Securityholders may from time to time offer such Shares through
underwriters, dealers or agents, who may receive compensation in the form of
underwriting discounts, concessions or commissions from the Selling
Securityholders and/or the purchasers of securities for whom they act as agents.
The Company will not receive any of the proceeds from the sale of the shares of
Common Stock being offered by the Selling Securityholders. See "Selling
Securityholders", "Plan of Distribution" and "Use of Proceeds".
The Company's publicly traded Common Stock and warrants are currently
listed separately on the automated quotation system of the Nasdaq SmallCap Mar-
ket ("Nasdaq") under the symbols "TNCX" and "TNCXW", respectively. The Common
Stock and warrants are also separately listed on the Boston Stock Exchange under
the symbols "NWC" and "NWCW," respectively. On June 18, 1996, the last trade
prices for the Common Stock and warrants reported on Nasdaq were $14.50 per
share and $11.125 per warrant, respectively.
THE SECURITIES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK.
THE COMPANY HAS EXPERIENCED SEVERE CASH FLOW SHORTAGES FROM
TIME TO TIME. THERE IS NO ASSURANCE THAT THE COMPANY WILL
NOT EXPERIENCE SEVERE CASH FLOW SHORTAGES IN THE FUTURE.
THERE IS ALSO NO ASSURANCE THAT THE COMPANY WILL RECEIVE ANY
PROCEEDS FROM THE OFFERING.
SEE "RISK FACTORS" (COMMENCING ON PAGE 18).
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
<PAGE>
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). Reports, proxy
statements and other information filed by the Company may be inspected and
copied at the public reference facilities maintained by the Commission at Room
1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the Commission's
Regional Offices located at Citicorp Center, 500 West Madison Street, Suite
1400, Chicago, Illinois 60661 and 7 World Trade Center, 13th Floor, New York,
New York 10048. Copies of such materials can be obtained upon written request
from the Public Reference Section of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549, at prescribed rates.
The Company has filed with the Commission a registration statement on Form
S-3 (herein, together with all amendments and exhibits, referred to as the
"Registration Statement") under the Securities Act of 1933, as amended (the
"Securities Act"). This Prospectus does not contain all of the information set
forth in the Registration Statement, certain parts of which have been omitted in
accordance with the rules and regulations of the Commission. For further
information, reference is hereby made to the Registration Statement. Each
statement made in this Prospectus concerning a document filed as part of the
Registration Statement is qualified in its entirety by reference to such
document for a complete statement of its provisions. Copies of the Registration
Statement may be inspected, without charge, at the offices of the Commission, or
obtained at prescribed rates from the Public Reference Section of the
Commission, at the address set forth above. The Registration Statement may also
be obtained through the Commission's Internet address at "http: //www.sec.gov."
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INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed with the Commission (File No. 1-13760)
pursuant to the Exchange Act are incorporated herein by reference:
1. The Company's Annual Report on Form 10-KSB for the fiscal year ended
December 31, 1995;
2. The Company's Quarterly Report on Form 10-QSB for the fiscal quarter
ended March 31, 1996;
3. The Company's definitive proxy Material prepared in accordance with
Schedule 14A with respect to the Company's 1996 Annual Meeting of
Stockholders;
4. All other reports filed by the Company pursuant to Section 13(a) or
15(d) of the Exchange Act since December 31, 1995; and
5. The description of the Common Stock contained in the Company's
Registration Statement on Form 8-A, filed May 9, 1995.
6. The Company's Current Reports on Form 8-K filed on March 15, 1996,
March 19, 1996, and June 21, 1996.
All other documents filed by the Company pursuant to Sections 13(a), 13(c),
14 or 15(d) of the Exchange Act subsequent to the date of this Prospectus and
prior to the termination of the offering of the Shares shall be deemed
incorporated by reference in this Prospectus and to be a part hereof from the
date of filing of such documents. Any statement contained in a document
incorporated or deemed to be incorporated herein by reference, or contained in
this Prospectus, shall be deemed to be modified or superseded for purposes of
this Prospectus to the extent that a statement contained herein or in any other
subsequently filed document which also is or is deemed to be incorporated by
reference herein modifies or supersedes such statement. Any such statement so
modified shall not be deemed to constitute a part of this Prospectus except as
so modified, and any statement so superseded shall not be deemed to constitute a
part of this Prospectus.
The Company will provide without charge to each person, including any
beneficial owner of the Common Stock, to whom a copy of this Prospectus is
delivered, upon the written or oral request of any such person, a copy of any or
all of the documents which are incorporated herein by reference into such
documents). Requests for such copies should be directed to Bryan Carr, Chief
Financial Officer, 1324 Union Hill Road, Alpharetta, Georgia 30201; telephone
number (770) 751-0889.
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<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and consolidated financial statements (including the notes thereto)
incorporated by reference in this Prospectus. Unless the context otherwise
requires, references herein to the "Company" includes its consolidated
subsidiaries, and references to a year refers to a fiscal year of the Company.
THE COMPANY
General
The Network Connection, Inc., a Georgia corporation (the "Company"),
designs, manufactures and distributes computer networking products, including
high performance superservers and workstations, which provide users with video
on demand applications and support and full motion digital video, imaging and
other multimedia processes. The Company's networking products are used in
connection with employee training, academic, telecommunications and other
industry applications. Video on demand permits new ways to employ video as an
instructional and communications medium over existing computer networks. Each
user is given the ability to call-up video content as needed, without affecting
any other network participant's requirements on the system, and without
requiring any other system participant simultaneously to view the same content.
The Company was originally incorporated in 1986 to distribute computer
network products as a value added distributor ("VAD") of such products. Although
its principal business continued as a VAD, in 1987 the Company made a strategic
shift in its business operations by moving away from the distribution of
products manufactured by others and to seek to become principally a manufacturer
of its own superserver and workstation products. This shift resulted from
changing trends in the computer industry, which included increased profit margin
pressures on VADs due to the perception that VADs were offering simple
commodities rather than value added products for sale to their customers.
The Company's products are sold under the name TRIUMPH, and are based upon
non-proprietary PC hardware standards and utilize standard major components and
subsystems in order to provide flexibility and reliability. The Company's
products are designed to be compatible with industry standard network operating
systems, such as Novell NetWare, Microsoft LAN Manager, Windows NT, OS2, UNIX
(SCO, SVR4, MPX) and new network operating systems as they become available,
such as Univel. Product design allows compatibility with most applications
running in such network environments, and enables TRIUMPH superserver systems to
operate efficiently as servers and work stations for groups of interconnected
PCs arranged in LANs and WANs. The Company currently distributes its
superservers and work stations in the United States principally through its own
internal sales force.
Background and Industry
During the 1980s, personal computers played an increasingly significant
role in the workplace. The need of PC users to share files, applications and
peripherals, such as printers, has resulted in the widespread proliferation of
LANs. Each LAN requires a network operating system to function. This need is
being filled by such products as Novell NetWare, Microsoft LAN Manager, SCO UNIX
and Banyan VINES, among others. Each LAN also requires a computer to manage its
operations. In simple LANs, a dedicated personal computer acts as the LAN's
"server." Larger LANs have employed high-end PCs, such as the Compaq SystemPro,
to act as servers.
The number, size and complexity of LANs have increased dramatically in
recent years. New LANs are being developed that support a greater number of
users than in the past, and groups of smaller LANs are being
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replaced by single, larger LANs. In addition, multiple LANs are being
internetworked to form WANs. More sophisticated tasks, such as document and
image processing, employee training, academic teaching, medical diagnostic
services and multimedia publishing and broadcasting editing are increasingly
being implemented on LANs. Some applications, such as groupware (e.g., Lotus'
Notes and electronic mail), are implemented only on networks. In addition,
companies such as Oracle Systems Corporation, Informix Corporation, Sybase, Inc.
and Gupta Technologies Inc. have recently introduced network versions of
sophisticated database management applications that have traditionally been run
on mainframes or minicomputers.
Large organizations with multiple sites are creating enterprise-wide
networks to more fully integrate their various geographic locations. In this
regard, enterprises are interconnecting their multiple LANs, WANs, digital
satellite communication channels, mainframes, minicomputers and other computing
resources to facilitate communication and information sharing within the
organization. Innovations such as multi- protocol routing, LAN-to-mainframe
gateway software and network management products are facilitating such
interconnectivity. The Company believes that these communication functions will
increasingly be executed on network servers.
As organizations migrate toward enterprise networking, superservers that
perform more complex and business-critical tasks will be required. Although PCs
have adequately addressed simple file serving, even high-end PCs do not have the
required performance and input/output ("I/O") capability to meet the needs of
large and complex networks efficiently. In addition, as business-critical
applications and communication functions are increasingly implemented on the
network, network servers need to offer the availability, scalability and
upgradability that are characteristic of mainframes and minicomputers.
One of the developing distribution functions that is increasingly being
demanded for LAN processing is video display and information distribution. Video
technology requires amounts of information (e.g., data per second) to be
available and distributed which is in excess of that required by other
applications, such as word processing, even when that information is
technologically compressed. Available hard disk storage and network bandwidth is
consumed by video information at far faster rates than by other types of
processed data. Furthermore, to meet the demands of current applications video
information also must be provided continuously and smoothly to multiple users
simultaneously. Thus, the current challenge for manufacturers and distributors
of superservers is to create a cost effective, standardized product to satisfy
the demands of a marketplace for video/multimedia network equipment and software
that Management of the Company expects will experience rapid growth in the next
three years.
The Company believes that mainframes and minicomputers are too costly a
means for satisfactory service of this emerging market, and their proprietary
architectures are generally incompatible with the PC networks which are
increasingly used for information processing in today's more decentralized
business environment. Thus, as networks increase in size and complexity and as
business-critical applications and communication functions are increasingly
implemented on networks, a need is emerging for servers both designed
specifically for the demands of this new enterprise, and video/multimedia,
networking environment, and made available as a cost-effective means for
distributing the required information.
The Network Connection Solution
In 1987, the Company first introduced the initial entry of its TRIUMPH
family of superservers, which is designed to provide the compatibility,
performance, availability, scalability and upgradability necessary for
sophisticated networks. The Company believes that its superservers contain the
following features.
- Compatibility
The TRIUMPH family is based upon PC hardware standards and is designed to
be compatible with industry standard network operating systems, such as Novell
NetWare, Microsoft LAN Manager, SCO UNIX and Banyan
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VINES, and with new network operating systems as they become available, such as
Windows NT and Univel UnixWare. In addition, the Company's products are designed
to be compatible with applications designed to run in such network environments.
TRIUMPH superserver use of common PC "interfaces" (e.g., products utilized to
increase system functionality in terms of system power and/or special or
additional features availability), such as the Small Computer System Interface
("SCSI"), and its employment of Peripheral Component Interconnect ("PCI") and
Extended Industry Standard Architecture ("EISA"), also enables the Company's
products to connect with hardware produced by third-party vendors. The TRIUMPH
superserver also provides for ease of support of a wide range of network
connectivity standards.
- Performance
The TRIUMPH architecture consists of independent subsystems interfaced by a
high-speed multiprocessor connection system. This architecture is designed to
reduce the I/O bottlenecks and performance degradation typically associated with
PC- based servers attempting to perform multiple tasks concurrently with a
single microprocessor. The TRIUMPH open systems architecture and RAID
("redundant array of independent disks") technology incorporates the fault
tolerance and high throughput necessary to provide simultaneous services, such
as video-on-demand, LAN-based video training, and database/file imaging and
printing. In addition, as the TRIUMPH superservers can provide video/multimedia
systems encompassing voice or sound, pictorial and graphic, live or recorded,
and touch technologies, the Company believes that easy access to information in
a "user friendly" environment is made available. In this respect, the TRIUMPH
architecture is designed to provide features found in mainframes and
minicomputers at a significantly lower cost. A single TRIUMPH superserver may
often be used to replace multiple high-end PCs acting as LAN servers. Returning
these high- end PCs to the desktop to perform other tasks reduces the effective
cost of the TRIUMPH superserver.
- Availability
The TRIUMPH architecture is designed to permit systems to be configured to
provide the high level of availability required for business-critical
applications through reliability, data integrity and recoverability features.
Reliability features available for certain TRIUMPH models include power supply
and other key module redundancy to promote continued system operation, cooling
system redundancy to protect against premature component failure and disk
mirroring and automatic disk backup by providing an ability to replace hard
disks during system operation without interruption. The TRIUMPH data integrity
features minimize the potential for data loss during system operation and, in
addition to the disk backup features described above, include data parity
checking to enhance data integrity. Recoverability features facilitate recovery
when a stoppage does occur and include subsystems which permit remote
diagnostics subsystems for TRIUMPH superservers running Novell NetWare and
Microsoft NT Advanced Server.
- Scalability
The TRIUMPH platform is configurable to meet the less demanding
requirements of simpler LAN applications and may subsequently be scaled up in
the field as the user enlarges its network or implements more sophisticated
applications. An additional Intelligent I/O Processor subsystem, an additional
Central Processing Unit ("CPU") subsystem, components such as memory chips and
disk drives, and PCI/EISA- compatible subsystems such as network interface
cards, may be added.
- Upgradability
The TRIUMPH superserver subsystems and disk drives may be replaced
economically in the field with higher performance products that either are
available today or, presumably become available in the future, without requiring
alteration of the network operating system, application software or other
hardware.
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Product Strategy
The Company is implementing certain technology, product, distribution and
manufacturing strategies to effectuate the Network Connection Solution.
Technology and Product Strategy
- Support Popular Network Operating Systems
The Company intends to support new releases of popular network operating
systems that it currently supports as they become available. The Company also
intends to support additional network operating systems as their popularity
increases. The TRIUMPH superserver open architecture and compatibility features
permit ease of support. In addition, Windows NT takes advantage of the TRIUMPH
superserver shared memory architecture, as does SCO UNIX (and presumably as will
other multi-processing network operating systems as they become available).
- Develop Higher Performance Superservers While Maintaining
Compatibility
The Company's principal technological challenge with respect to the
development of its TRIUMPH family of superservers was to simultaneously deliver
high performance and compatibility with existing PC hardware and software
standards. The Company intends to continue improving the performance of its
superservers while maintaining compatibility with popular network operating
systems and hardware interfaces.
- Offer Broad Product Line
The scalability of TRIUMPH superservers increases the desirability of these
products from the perspective of a user who currently has a simple LAN that is
anticipated to grow or to support new, more sophisticated applications. As a
result, the Company believes that it is important to offer a base configuration
product at a relatively low price point to induce these users to purchase the
next level TRIUMPH superserver in anticipation of scaling up as network demands
increase (e.g., video/multimedia). On the other hand, users with sophisticated
applications or complex LANs typically require superservers configured with
faster microprocessors and other higher performance subsystems (e.g., video and
other multimedia accessibility). Therefore, the Company also offers higher
performance TRIUMPH superservers at higher price points. In 1995, the Company
introduced, hardware, software and services packaged as complete value added
system solutions for the travel and transportation commercial markets.
- Turnkey Packaging
Sales of the Company's TRIUMPH superservers are made increasingly as
"turnkey" systems. The Company sells its products as a complete solution to a
customer's needs, rather than as only a "finger in the dike" or a niche filler.
In 1995, the Company introduced, hardware, software and services packaged as
complete value added system solutions for the travel and transportation
commercial markets: (i) "AirView" an in-flight interactive entertainment and
cabin management system mounted in individual airline seats, (ii) "TrainView" an
in-transit interactive entertainment and railcar management system mounted in
individual railcar seats and (iii) "InnView" an in-room interactive
entertainment system for the hotel hospitality market. This sales trend is
expected to continue, and even to accelerate, as video/multimedia superserver
equipment become more and more of a commodity.
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Distribution Strategy
- Leverage Existing Distribution Channels
The Company intends to continue to direct and operate its internal sales
force primarily from its Georgia headquarters as its principal means of product
distribution sales. However, in the future it plans to increase the number of
such sales personnel and augment the scope of their responsibilities to include
opening remote sales offices and the new, strategic channels of distribution
outlined below.
- Create International Distribution
The Company believes that foreign countries offer significant potential
markets for its products due to increasing worldwide demand for complex
networking solutions. Although the Company does not currently distribute
significant numbers of its products in foreign countries, it is developing
relationships with master distributors outside the United States. The Company
recently entered into distribution agreements with South African and South
Korean distributors of computer equipment, and is currently negotiating for
distribution of its products with companies in India, Japan, Singapore,
Australia, Sweden, France, Germany, and the United Kingdom. The Company is not
assured of success in its international distribution efforts; however, those
efforts will be intensified. Management believes that foreign purchasers are
more receptive than domestic purchasers to new "United States" technologies, for
fear of being left behind. At the same time international customers have grown
accustomed to higher relative prices for new American technologies.
- Establish Relationships with Independent Vendors
The Company is developing relationships with independent vendors that
encourage their customers to purchase the Company's systems in conjunction with
their products on the basis that overall system performance and value will be
enhanced. During 1995, the Company established relationships in key vertical
markets with: Siemens A.G. ("Siemens"), a worldwide provider of rail engines,
coaches and support; Allied Signal Avionics Inc. ("Allied Signal"), a worldwide
provider of avionics equipment and support for commercial, private and
government aircraft; The Lightspan Partnership, a publisher of interactive video
educational software for grades K-6; and Interactivo, a provider of interactive
in-room video entertainment systems for the hospitality market. The Company
intends to leverage these and other similar relationships to enhance its ability
to target application specific end users.
Manufacturing Strategy
- Subsystem Manufacturing
The Company believes that one of its significant strengths is its hardware
architecture development expertise. Accordingly, the Company devotes a portion
of its resources to product development (e.g., the entire salary of James Riner
is allocated to research and development). Nevertheless, the Company does not at
this time subcontract the manufacture, assembly and test function of printed
circuit boards or the assembly of mechanical components. The Company does
subcontract the manufacture of cabinets for its products. In the future, as
production levels and product sales increase, the Company may subcontract to
third parties, such as Allied Signal and Siemens, the manufacture, assembly and
test functions that it currently performs for particular product offerings.
- Subcontract Higher Level Manufacturing
Based upon successful teaming relationships with respect to the development
and sale of its AirView and TrainView products, the Company has plans to develop
manufacturing relationships with Allied Signal for AirView and Siemens for
TrainView in order to permit performance of higher level system manufacturing,
integration and
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test functions for its current generation of products. Such arrangements, if
effected, would enable the Company to manufacture its next generation
superservers (if developed) in its existing facility, thereby avoiding the need
to provide for additional manufacturing capacity, if required.
Technology
The Company believes that the TRIUMPH architecture allows its products to
provide the performance and availability advantages of a mainframe without
sacrificing compatibility with PC hardware and software standards. This
architecture consists of independent subsystems interfaced by the Company's
high-speed system Bus. These subsystems include: the Company's proprietary
TRIUMPH RAID Accelerated Controller ("TRAC"), an Intel Pentium-based Intelligent
Input/Output Processor subsystem; the Intel Pentium-based CPU subsystem; the
PCI/EISA Bus subsystem; and the main memory subsystem. These subsystems operate
independently and thus reduce the I/O bottlenecks and performance degradation
typically associated with PC-based servers attempting to perform multiple tasks
concurrently using a single microprocessor.
Network Operating System Compatibility Features. Network operating systems
are designed to work with architectures that incorporate industry standard
connection features. When a server design features an architecture that does not
incorporate such industry standards, the server manufacturer must modify the
network operating systems utilized in order for it to work with its nonstandard
architecture. Generally, the time, expense and knowledge necessary to complete
these modifications limit the number of network operating systems supported by
these proprietary servers and restrict their ability to respond quickly to new
NOS releases. The TRIUMPH superserver open architecture is compatible with the
basic I/O system that allows computer hardware to connect to a network operating
system. This enables the TRIUMPH superserver to support any network operating
systems with the relatively simple addition of drivers specific to that network
operating system. TRIUMPH superservers are, therefore, compatible with leading
network operating systems such as Windows NT, Novell NetWare, Microsoft LAN
Manager, SCO UNIX and Banyan VINES. The Company's products are also designed to
be compatible with new network operating systems as they become available, such
as Univel UnixWare.
Application Compatibility Features. The TRIUMPH superserver open
architecture permits applications written for use with the network operating
systems supported by the Company to run unmodified. TRIUMPH superservers,
therefore, support applications that require both network operating systems and
basic I/O system compatibility.
Hardware Interface Protocols. Each TRIUMPH subsystem provides hardware
compatibility by supporting industry standard interfaces with simple software
drivers. The TRAC subsystem offers SCSI compatibility, the CPU subsystem offers
Intel compatibility and the Bus subsystem offers PCI/EISA compatibility. SCSI
peripherals, network interface cards or other subsystems designed by third
parties that incorporate technological advances in any of these standards-based
product areas may be added easily to TRIUMPH superservers.
Intelligent I/0 Processor Subsystem. The TRAC subsystem includes an Intel
386DX processor, which is dedicated to managing mass storage and consequently
relieves the main CPU of that task and improves overall system performance. With
the TRAC, data is accessed from the disk drives and is more easily and
economically (in terms of band width usage) available to the CPU and main
memory. Each TRAC contains two SCSI channels, each of which is capable of
supporting up to seven fast SCSI disk drives or other SCSI peripherals,
including third-party disk arrays, tape backup units, printers and CD-ROM
drives. Up to two TRACs can be configured in a TRIUMPH superserver, allowing a
maximum of 35 SCSI peripherals per system.
The TRAC also incorporates RAID technology at the output and input levels
to help protect the system from data loss. This technology, which is commonly
referred to as data striping and disk mirroring, also improves system
performance by reducing data transfer and access times from disk drives.
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Central Processing Unit Subsystem. The CPU subsystem runs the NOS and
applications in client-server environments. The CPU, which offers complete Intel
486 compatibility, incorporates either an Intel 486DX2/66 processor or a Pentium
120. Each subsystem may be upgraded with a CPU that incorporates a
microprocessor operating at a higher clock speed.
Availability Features. The TRIUMPH superserver's architecture is designed
to permit systems to be configured to provide the high level of availability
required for business- critical applications through reliability, data integrity
and recoverability features. Reliability features available for certain TRIUMPH
models include power supply and other key module redundancy to promote continued
system operation, cooling system redundancy to protect against premature
component failure and disk mirroring and automatic disk backup through duplexing
and hot sparing supported at the hardware level. The TRIUMPH superserver data
integrity features minimize the potential for data loss during system operation
and, in addition to the disk backup features described above, include data
parity checking to enhance data integrity. Recoverability features facilitate
recovery when a stoppage does occur and include systems providing a remote
diagnostics subsystem for TRIUMPH superservers running Novell NetWare.
Products
The current TRIUMPH(R) product line consists of: the Cheetah Enterprise
Video File Server, the M2(R) Enterprise File Server, the TNX(R) Large
Workgroup File Server, the T4000 Small Workgroup File Server, the T300 and
T5000 high end network work stations, and the TNX/C Video File Encoder.
The following lists the basic features of each model in the Company's
current generation of TRIUMPH products:
VIDEO SERVERS
Cheetah(TM) Enterprise Video File Server. The Cheetah(TM) or MV2 has the
same capabilities as the M2(R) Enterprise File Server (see below), except that
it contains certain configuration enhancements that allow for the support of
video applications across entire networks. It is designed to serve up to 300
simultaneous video users per single system and can be rack mounted to achieve up
to 212 gigabytes of disk storage. The Cheetah(TM) sells for between $70,000 to
$300,000 per system, depending upon functions and configurations required.
Cheetah(TM) Large Workgroup Video File Server. The video capable version
of the TNX is very similar to Cheetah(TM) described above, but with reduced
work station service capacity and reduced disk storage capabilities. This
product sells for between $25,000 to $50,000 per system, depending upon
functions and configurations required.
FILE SERVERS
M2(R) Enterprise File Server. The Company's top-level non-video file
server, it is designed to serve over 200 work stations. The M2 may contain
either a single CPU or multiple CPUs (up to 6), although it typically contains
four processors and has a disk storage capacity of up to 50 gigabytes. This
system contains an enhanced cooling system and RAID 5 and multiple power
supplies for support of its large disk hard drive capacity. The M2 sells for
between $30,000 and $150,000 per system, depending upon functions and
configurations required.
TNX(R) Large Workgroup File Server. The Company's mid-level file server,
it is designed to serve between 40-100 work stations. The TNX may contain either
a single CPU or multiple CPUs. While it may contain up to 6 processors, it
typically will have between 2-3 processors. The TNX has a disk capacity of
between 6-8 gigabytes.
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This system may or may not contain disk redundancy features depending upon the
needs of the particular customer. The TNX sells for between $8,000 and $30,000
per system, depending upon functions and configurations required.
T4000 Small Workgroup File Server. The Company's entry level file server,
it is designed as a "commodity" product to serve 10-20 work stations. It
contains a single CPU processor and has a small disk capacity (between 2-3
gigabytes). This system may or may not contain disk redundancy features
depending upon the needs of the particular customer. The T4000 sells for between
$4,000 and $10,000 per system, depending upon functions and configurations
required.
WORK STATIONS
T3000. An entry level network work station, includes the capability of
providing normal office automation, graphics and word processing. The T3000
sells for between $900 and $4,000, depending upon functions and configuration
required.
T5000. A high end, engineering work station, with single or multiple
processor configurations, designed for a range of desktop applications;
including - computer aided design, graphics, mathematical applications and
computer modeling. The T5000 sells for between $3,000 and $10,000, depending
upon functions and configurations required.
OTHER PRODUCTS
TNX-C Encoder. The TNX-C is a real-time, networked Motion Pictures Export
Group (MPEG)encoder impression station. It converts analog video data to digital
files when conjoined with either of the Company's video file servers. All
encoded files are compressed and able to run throughout an associated network at
30 frames per second and near broadcast quality. It sells for $49,000.
"TURN-KEY" PACKAGED SOLUTIONS
AirView. An in-flight interactive entertainment and cabin management
system mounted in individual airline seats.
TrainView. An in-transit interactive entertainment and railcar management
system mounted in individual railcar seats.
InnView. An in-room interactive entertainment system for the hotel
hospitality market.
End Users
The Company's products are sold to end users in a wide range of industries.
Customers that have purchased the Company's products are financial institutions,
health care companies, academic institutions, communications/broadcasting
companies, governmental agencies and other bureaucracies, entertainment
providers and end-users operating in various other industries.
In January 1995, the Company began offering its interactive video-on-demand
("VOD") systems to commercial airlines ("AirView"), rail companies ("TrainView")
and related aircraft and railcar manufacturers, and hotels ("InnView"). The
systems are designed to deliver VHS-quality video material to travelers using
120 seat back
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displays, or to 120 hotel rooms, and include a file server with disk drives that
can store up to 200 hours of video content. Only one order for AirView,
delivered to the United States Air Force, 417th Squadron, has been received to
date. The Company has not yet received any firm orders for TrainView systems.
The Company currently has responded to major requests for proposal for AirView
and TrainView systems with multi-year deliveries from some of the world's
largest airlines and rail companies.
In 1995 the only two customers of the Company accounting for greater than
10% of total sales were the United States government (encompassed by aggregated
sales to several federal agencies and United States government controlled
bureaucracies) and Conhan Ltd., accounting for approximately 14% and 19.2%,
respectively, of the Company's total sales during that period. The Company
believes that its sales to the United States government, as well as to state
governments and their agencies which make purchases in accordance with federal
Government Services Administration ("GSA") guidelines, will continue to grow.
The Company is on the GSA list of qualified vendors and descriptions of the
Company's superserver products have been recently included as the required
design specifications identified in federal government request for proposals
distributed to potential vendors.
Backlog
The Company does not have significant backlog because it is able to
manufacture and deliver products generally within only 45 days of order receipt
and it has no long-term contracts to supply products to customers (but rather
manufactures and sells products on the basis of individual purchase orders as
and when received). The Company cannot determine when customer orders will be
received, and to date all of the Company's customers have ordered products on an
as-needed basis. As a result, backlog at the beginning of a quarter may not
represent a significant percentage of the products anticipated to be sold in
that quarter. Quarterly revenues and operating results, therefore, depend on the
volume and timing of bookings received during the quarter, which are difficult
to forecast. As a result, the Company's Management does not consider order
backlog at this time a significant indicator of the Company's future revenues.
However, as significant orders under long-term contracts, if any, are placed for
the Company's "turn-key" packaged systems, backlog will become a significant
indicator of future revenues.
Sales and Distribution
The Company currently distributes its products principally through the
efforts of its internal direct sales force and to a much lesser extent through
independent sales representatives. In the future the Company intends to offer
its products through an augmented internal sales force. The Company also
anticipates that it will be able to distribute its superserver products through
a select group of network-oriented resellers, including VADs and system
integrators, OEMs and international distributors. Currently, the Company's
principal means of conducting its sales effort is through trade show attendance,
holding end-user seminars to demonstrate Company products, and a limited amount
of customer on site demonstrations of product use (solely for superserver
products), print advertising in trade publications and telemarketing. The
Company will continue and accelerate these marketing efforts. (See "Distribution
Strategy")
Video on demand permits new ways to employ video as an instructional and
communications medium over existing computer networks. Each user is given the
ability to call-up video content as needed, without affecting any other network
participant's requirements on the system, and without requiring any other system
participant simultaneously to view the same content.
The Company is also attempting to develop relationships with software and
other product vendor "partners" capable of encouraging their customers to
purchase the Company's systems in conjunction with their own products on the
basis that overall system or product performance will be enhanced (see
"Distribution Strategy"). The Company would assist these partner-vendors by
determining the configuration of the TRIUMPH superserver that will deliver
optimal performance along with the partner-vendor's products.
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The Company's marketing efforts focus on holding end-user seminars and
attending trade shows (including international trade shows) as the primary
method to create market awareness of the Company and its products. The Company
also invested approximately $400,000 to build and operate at customer locations
three product demonstration projects and also to expand its demonstration
capabilities at its corporate offices. See "MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS ."
Customer Support
The Company believes that customer service and support is a significant
competitive factor in the network server market which will become increasingly
important as LANs become more complex and as more enterprises implement
business-critical applications on their networks. The Company supports its
customers by providing rapid problem resolution both during and after the
installation process. The Company maintains a small technical support
organization that assists customers in troubleshooting problems and providing
replacement parts. The Company provides a toll-free hotline to help diagnose and
correct system interruptions as they occur at customer sites and its support
staff is available seven days a week.
The Company warrants all of its TRIUMPH superservers against defects in
materials and workmanship for one year (three years for disk drives). During the
warranty period the Company will repair or replace, within four days, any
TRIUMPH server component(s) which the Company identifies as containing defects
which do not prevent the continued use of the server. For defects that do
prevent the continued use of the server, the Company will attempt to repair or
replace the identified defective component within 24-hours. The Company's
product warranties do not materially differ from those generally available in
the industry.
To date, the Company has not experienced significant claims under such
warranties, and its ability to meet the full demands of having a significant
number of units sold to customers who require such service has not been tested.
The Company has contracted with a hardware manufacturer to provide nationwide
customer support services for the Company's products, which customer services
are paid for by the Company on the basis of a fee for service schedule. The
Company also passes through to end users the warranties that it receives from
vendors on any separate hardware, software or component parts that it sells
independently of full systems.
Manufacturing
The Company currently manufactures all of its TRIUMPH products in the
United States at its Atlanta, Georgia metropolitan area facility.
The Company obtains electronic components for its TRIUMPH products
"off-the-shelf" from a number of wholesalers and performs at its own facility
the assembly and test of the printed circuit boards and mechanical components
incorporated into its products. The only significant subcontracted manufacturing
work performed for the Company is the manufacture of cabinets for its file
servers. The Company has established a comprehensive testing and qualification
program with the goal of ensuring that all subassemblies meet the Company's
specifications and standards before final assembly and testing.
Diagnostic tests, assembly, burn-in, final configuration and final quality
assurance tests currently are completed at the Company's manufacturing facility.
The Company employs statistical process controls at its manufacturing facility.
The Company has also implemented quality control policies that are reviewed and
accepted by the Company's major customers. The Company believes that this
procedure helps ensure a high-quality product.
The Company has elected to assemble into its products principally off the
shelf component parts available from multiple sources. The Company believes that
this practice helps to ensure better quality control and pricing,
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by allowing the Company to select the best manufactured and best performing
components available on the market (rather than a proprietary product that may
fall behind the "curve" in terms of either such characteristic) and to purchase
such components from marketplace sources that offer the best prices at the time
that the particular components are needed for production (rather than to have
prices dictated by the limited sources able to provide a proprietary component).
The Company obtains component parts on a purchase order basis and does not have
long-term contracts with any of its suppliers. To date, the Company has not
experienced interruptions in the supply of such component parts, and believes
that numerous qualified suppliers are available. The inability of any of its
current suppliers, except as identified below, to provide component parts to the
Company would not adversely affect the Company's operations. Alternate sources
could be readily established.
Competition
The Company faces substantial competition from the manufacturers of several
different types of products used as network servers. The Company expects
competition to intensify as more firms enter the market and compete for market
share. In addition, companies currently in the server market will continue to
change product offerings in order to capture further market share. Many of these
companies have substantially greater financial resources, research and
development staffs, manufacturing, marketing and distribution facilities than
the Company. The Company also expects its competitors to continue to improve
their network-oriented distribution channels.
With respect to base configuration TRIUMPH superservers for simple LANs,
the Company competes with manufacturers of high-end PCs used as network servers.
Competitors offering products in this market include International Business
Machines Corporation ("IBM"), Compaq Computer, Inc., Dell Corporation, Tricord
Corporation ("Tricord") and Network Netframe Systems, Inc. ("Net Frame"). In
addition, NetFrame offers superservers that compete in this market. One of the
principal competitive factors in the market for simple LANs is price, and the
economies of scale available to high-end PC manufacturers may permit them to
offer their products at a lower price. The Company expects its competitors to
continue to improve the performance, availability, scalability and upgradability
features of their products. The Company expects all of its competitors in the
simple LAN market to improve the distribution channels for their products used
as servers.
With respect to more fully configured TRIUMPH superservers for larger and
more complex LANs and more sophisticated or business-critical applications, the
Company competes indirectly with manufacturers of mainframes and minicomputers.
In addition, certain manufacturers promote their mainframes and minicomputers as
being appropriate for use as network servers. Competitors offering products in
this market include IBM, Digital Equipment Corporation, Hewlett-Packard
Corporation, National Cash Register Corporation, UNYSIS, Inc. and Sequent
Corporation. The Company believes that the positive competitive factors in this
market include the Company's ability to provide server products with performance
and availability characteristic of mainframes and minicomputers, at a
significantly reduced cost, as well as with the compatibility to support current
and future networking solutions built around industry standard hardware and
software. The Company's operating results could, however, be adversely affected
if one or more of these competitors elects to compete more aggressively with
respect to price or product features of their mainframes or minicomputers. The
Company competes in the market for complex LANs with other manufacturers of
superservers, including NetFrame, Tricord and Parallan, Inc. ("Parallan"). The
Company believes that it competes favorably with other manufacturers of
superservers with respect to the compatibility, performance, availability,
scalability, upgradability and technical support required for sophisticated
network computing.
There can be no assurance that alternative technologies will not be
developed in the future that will be capable of providing certain services now
performed by network servers. The development of such technologies could reduce
the need for network servers and adversely affect the Company's operating
results.
As many of the Company's competitors are more established, benefit from
greater market recognition and have greater financial, technological, production
and marketing resources than the Company, establishing and
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maintaining the Company's competitive position will require continued investment
by the Company in research and development and sales and marketing. There can be
no assurance that the Company will have sufficient resources to make such
investments or that the Company will be able to make the necessary technological
advances. In addition, if more manufacturers of PCs, mainframes or minicomputers
were to develop and market their own superserver class of products, the
Company's operating results could be adversely affected.
Research and Development
The market for the Company's products is characterized by rapid
technological change and evolving industry standards, and it is highly
competitive with respect to timely product innovation. The introduction of
products embodying new technology and the emergence of new industry standards
can render existing products obsolete and unmarketable. The Company believes
that its future success will depend upon its ability to develop, manufacture and
market new products and enhancements to existing products on a cost-effective
and timely basis. The Company introduced in 1995, hardware, software and
services packaged as complete value added system solutions for the travel and
transportation commercial markets: (i) "AirView" an in-flight interactive
entertainment and cabin management system mounted in individual airline seats,
(ii) "TrainView" an in-transit interactive entertainment and railcar management
system mounted in individual railcar seats and (iii) "InnView" an in-room
interactive entertainment system for the hotel hospitality market.
If the Company is unable for technological or other reasons to develop
products in a timely manner in response to changes in the industry, or if
products or product enhancements that the Company develops do not achieve market
acceptance, the Company's business will be materially and adversely affected.
The Company has in the past experienced delays in introducing certain of its
products and enhancements, and there can be no assurance that it will not
encounter technical or other difficulties that could in the future delay the
introduction of new products or enhancements. Such delays in the past have
generally resulted from the Company's need to obtain a requisite component from
a third-party vendor whose own development process has been delayed (e.g., 9
month delay in Microsoft's development in 1992 of Microsoft Windows NT(TM), the
operating software system used in the Company's superserver products).
The Company performs all of its research and development activities at its
headquarters in Alpharetta, Georgia. During 1994 and 1995, research and
development expenses totaled $62,269 and $88,015, respectively. The Company
intends to continue to invest in research and development. Approximately 4
employees, including James Riner, who is Vice President - Research and
Development and Engineering, currently are engaged in research and development
activities.
Intellectual Property
The Company currently holds no patents, but has a patent application
pending with respect to its AirView product and technology. The Company
currently holds federal trademarks, for the marks "TNX", "TRIUMPH", "THE NETWORK
CONNECTION", "M2", "M2V" and "T.R.A.C.", and has trademark application pending
for the marks "CHEETAH", "QUAD-CHEETAH","CHEETAH WORKGROUP", "EDUVIEW",
"AIRVIEW", "TRAINVIEW", "OSHAVIEW" and "INNVIEW". The Company also relies on a
combination of trade secret and other intellectual property law, nondisclosure
agreements with all of its employees and other protective measures, to establish
and protect its proprietary rights in its products. The Company believes that
because of the rapid pace of technological change in the networking industry,
legal protection of its proprietary information is less significant to the
Company's competitive position than factors such as the Company's strategy, the
knowledge, ability and experience of the Company's personnel, new product
development, market recognition and ongoing product maintenance and support.
Without legal protection, however, it may be possible for third parties to copy
aspects of the Company's products or technology or to obtain and use information
that the Company regards as proprietary. In addition, the laws of some foreign
countries do not protect proprietary rights in products and technology to the
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same extent as do the laws of the United States. Although the Company continues
to implement protective measures and intends to defend its proprietary rights
vigorously, there can be no assurance that these efforts will be successful.
The failure or inability of the Company to effectively protect its proprietary
information could have an adverse effect on the Company's business.
There can be no assurance that third parties will not assert intellectual
property infringement claims against the Company. Although no claims or
litigation related to any such matter are currently pending against the
Company, there can be no assurance that none will be initiated, that the
Company would prevail in any such litigation seeking damages or an injunction
against the sale of the Company's products, or that the Company would be able
to obtain any necessary licenses on reasonable terms if at all.
The Company maintains its principal executive offices at 1324 Union Hill
Road, Alpharetta, Georgia 30201, and its telephone number is (770) 751-0889.
The following summary financial information for the years 1994 and 1995
have been derived from the audited financial statements of the Company, and the
summary financial information for the quarters ended March 31, 1995 and 1996 is
unaudited.
<TABLE><CAPTION>
SUMMARY FINANCIAL INFORMATION
Year Ended December 31 Quarter Ended March 31
---------------------- ----------------------
(Unaudited)
-----------
1994 1995 1995 1996
------- ------- ------ ------
<S> <C> <C> <C> <C>
Net Sales . . . . . . . . . . . . . . . . . . $4,796,878 $3,846,189 $1,051,988 $571,398
Cost of sales . . . . . . . . . . . . . . . . 3,225,036 2,425,278 686,945 380,387
---------- ---------- -------- --------
Gross Profit . . . . . . . . . . . . . . . . 1,571,842 1,420,911 365,043 191,011
Selling, general, and administrative expense 2,310,640 2,437,402 359,102 802,550
Income from operations . . . . . . . . . . . (738,798) (1,016,391) 5,941 (611,539)
Interest expense . . . . . . . . . . . . . . 76,025 134,530 27,825 31,373
Other expense (income) . . . . . . . . . . . (117) (54,443) 0 (10,909)
----- -------- -------- --------
Income (loss) before income taxes . . . . . . (814,706) (1,096,478) ($21,884) ($632,003)
Taxes on income (benefit) . . . . . . . . . . --- --- --- ---
---------- ---------- ---------- ----------
Net income (loss) . . . . . . . . . . . . . ($814,706) ($1,096,478) ($ 21,884) ($632,003)
========== ============ ========== ==========
</TABLE>
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The Offering
Securities Offered: - 350,000 shares of Common Stock being offered by
the Selling Securityholders, 50,000 of which
shares are issuable upon exercise of the Goodbody
Warrant at $15.00 per share.
Common Stock Outstanding
before the Offering(1) - 2,913,810 shares of Common Stock
Common Stock Outstanding
after the Offering if the
Goodbody Warrant is
exercised(2) - 2,963,810 shares of Common Stock
Risk Factors: - The shares offered hereby involve a high degree of
risk. See "RISK FACTORS."
Use of Proceeds: - See "Use of Proceeds." Net proceeds from the
exercise of the Goodbody Warrant will be used for
working capital and general corporate purposes,
including expansion of the Company's marketing
programs.
Nasdaq Symbol: Common Stock
------------
TNCX
Boston Stock Exchange Symbol: Common Stock
------------
NCW
__________________________
(1) Does not include (i) a maximum of 1,063,550 shares of Common Stock
issuable upon exercise of outstanding warrants initially issued as
components of units sold in connection with a May 1995 public offering of
the Company's securities, (ii) a maximum of 175,000 shares of Common
Stock issuable upon exercise of certain Representative's Warrants and the
warrants underlying such Representative's Warrants; (iii) a maximum of
294,269 shares of Common Stock issuable upon exercise of outstanding
options granted under the Company's employee and non-management director
stock option plans at prices ranging from $2.60 per share to $7.13 per
share; and (iv) 50,000 shares of Common Stock issuable upon exercise of
the Goodbody Warrant.
(2) Assumes issuance of 50,000 shares of Common Stock upon exercise of the
Goodbody Warrant. Does not include (i) issuance of any of the 1,063,550
shares of Common Stock issuable upon exercise of the warrants initially
issued as components of units sold in connection with a May 1995 public
offering of the Company's securities; (ii) issuance of any of the 175,000
shares of Common Stock issuable upon exercise of certain Representatives'
Warrants and the warrants underlying the Representatives' Warrants; and
(iii) issuance of any of the 294,269 shares of Common Stock issuable upon
exercise of options granted under the Company's employee and non-
management director stock option plans.
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RISK FACTORS
An investment in the Common Stock offered hereby involves a high degree
of risk and should not be made by persons who cannot afford the loss of their
entire investment. In analyzing an investment in the Common Stock offered
hereby, prospective investors should carefully consider, along with the other
matters referred to herein, the following factors:
Development Stage Business
The Company was organized in 1986. Although it has had prior operating
history as a VAD for products manufactured by others, the Company's current
business as a designer, manufacturer and distributor of its own products did not
become its principal business until 1991. As a result, the Company may
experience many of the problems, delays and expenses encountered by any business
in its developmental stage, some of which are beyond the Company's control.
These include, but are not limited to, substantial delays and expenses related
to testing and development of new products, production and marketing problems in
connection with existing products, lack of market acceptance of such products,
and other unforeseen difficulties.
History of Losses; and Uncertainty of Profitability
For the three fiscal years ended December 31, 1995 the Company incurred
accumulated losses of ($2,201,757), with such losses increasing from ($290,573)
in fiscal 1993 to ($1,096,478) in fiscal 1995 ($480,000 of the loss reported for
the year ended December 31, 1994 resulted from non-recurring charges incurred in
connection with a financing transaction with a principal stockholder and amorti-
zation of $30,000 of loan origination fees from the financing transaction).
During the quarter ended March 31, 1996, the Company incurred a net loss equal
to ($632,003). As it expands its marketing efforts for existing products and
develops additional future products, the Company may incur significant
additional losses. There is no assurance that the Company will be able to
achieve or sustain significant periods of profitability in the future.
Need for Additional Financing
Although management believes that it currently has sufficient working
capital to satisfy its working capital requirements through the end of the first
quarter of its 1997 fiscal year ending March 31, 1997, it is possible that
additional cash liquidity may be required to finance anticipated growth in the
Company's accounts receivable and inventories. Although the Company has not
commenced negotiations with a commercial lender for further financing, it is
very likely that the Company will seek to obtain another revolving credit
agreement to supply additional financing which may be necessary to support
future growth. Should it be successful in obtaining such financing, the Company
will in all likelihood, secure borrowings with the granting of security
interests in substantially all of its assets in addition to its operating
facility (which is already subject to a mortgage with an institutional lender
due in 2009). In the event that the Company should require additional
financing, there can be no assurance that such financing will be available on
commercially reasonable terms, or that additional outstanding publicly-traded
warrants will be exercised. If future financing is not available when needed,
the Company may be forced to curtail or discontinue operations. In such event,
the stockholders, including investors in the Common Stock offered hereby, may
lose, or experience a substantial reduction in, the value of their investment in
the Company.
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Dependence on Growth of Market for Superservers
Currently, PCs are the dominant server platform for LANs and WANs. The
market for superservers, similar to those produced and distributed by the
Company is not PC-based. The superserver market is new and developing,
currently comprises only a small portion of the worldwide server market, and
represents the high-end (e.g., in terms of cost) and high performance segment of
the overall computer network server market. To date, the superserver market is
primarily motivated by cost considerations. The current low penetration of
superservers in the overall server market may be attributed to the fact that the
vast majority of existing computer networks are small in size and have
relatively simple file, application and print sharing needs that do not require
a superserver and the costs attendant to their purchase. Although the Company
has not conducted its own market studies, the Company believes that its future
success will depend in part upon the continued growth of the portion of the
market for networking servers and workstations consisting of more complex and
higher performance network equipment capable of interfacing with increasingly
sophisticated applications, where the benefits of a superserver may more fully
be realized. Businesses and government agencies with sophisticated computing
requirements have traditionally relied on mainframes and minicomputers to
perform these functions. The Company's future success is dependent, in part,
upon the development of new sophisticated application software products for LANs
and WANs, and on the willingness of mainframe and minicomputer users to migrate
such applications to superserver controlled networks. Enterprises that have
traditionally relied on mainframes and minicomputers to implement
business-critical applications may be reluctant to implement such applications
on networks, which traditionally have not offered the performance and
availability characteristic of mainframes and minicomputers. Accordingly, there
can be no assurance that these applications will be developed or that end users
will implement these applications on LANs and WANs.
Dependence on Market Acceptance of the Products
The future of the Company is largely dependent upon the success of the
current and future generations of the Company's superservers and other
multimedia computer products. These products are relatively new and have not
been marketed extensively. It is, therefore, not possible to predict when, if
at all, they will achieve the market acceptance anticipated by the Company.
Such acceptance is necessary for the Company to achieve profitable operations.
Competition; Technological Change and Obsolescence
Technological competition from other and longer established computer
hardware manufacturers and software developers is significant and expected to
increase. The Company expects that hardware manufacturers and software
developers will continue to enter the market to provide and package integrated
information distribution solutions to the same computer network users that are
served by the Company. All such market participants will compete intensely to
maintain or improve their market shares and revenues. Most of the companies with
which the Company competes have substantially greater capital resources,
research and development staffs, marketing and distribution programs and
facilities, and many of them have substantially greater experience in the
production and marketing of products.
In the developing market for superservers and network workstations, it
can be expected that the Company will encounter a number of significant
long-term competitors including such major industry participants as IBM,
Microsoft Corporation, Novell, Inc. and Compaq Computers, Inc. Accordingly,
there is no assurance that the Company's products will gain sufficient market
acceptance to assure the Company's future success and long range profitability
in the face of competition with such significantly larger and better capitalized
companies. Many of the new and smaller companies which are active in the
network equipment industry, such as Parallan Computer and Tricord Systems, have
recently announced operating and financial difficulties.
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In addition, one or more of the Company's competitors may succeed in
developing technologies and products that are more effective than any of those
developed or being developed by the Company, rendering the Company's technology
and products obsolete or noncompetitive. In the event that the high end of the
network equipment market does not develop as anticipated, the Company will be
required to continue to compete with PC-based servers manufactured by IBM,
Compaq, Novell and other major computer manufacturers for a majority of its
revenues.
Customer Concentration
The Company typically sells significant amounts of equipment to a small
number of customers, the composition of which changes from year to year as
customer equipment needs vary. Therefore, at any one time, a large portion of
the Company's revenues may be derived from a limited number of customers.
During 1995, one customer accounted for approximately 19.2%, but no other
customer accounted for more than 10% of the Company's revenues. The loss of
this major customer could have a material adverse effect on the Company's
operations if the Company does not replace such customer on a timely basis.
Reliance on Outside Manufacturers and Suppliers
The Company assembles the products that it sells principally from
standardized components purchased from independent sources, and it is dependent
upon such outside vendors for all of the components and end-products it sells to
customers. There can be no assurance that these suppliers will be able to
provide adequately for the future equipment needs of the Company's customers.
In the event that any of its current suppliers should suffer quality control
problems or financial difficulties, the Company would be required to find
alternative sources, which could result in temporary business dislocations and a
decline in revenues.
Lack of Patent Protection; Possible Infringement
The Company's ability to compete with other companies will depend to a
great extent on maintaining the proprietary nature of its technologies. The
Company currently neither holds nor licenses patents for the technologies
included in its products. In addition, there can be no assurance that any
patents that may be applied for by the Company in the future will ultimately be
issued in its favor, or that any patent so issued, or any patent rights assigned
or licensed to the Company, will afford necessary protection or will be upheld
in the event of a challenge.
There is also no assurance that the Company's products will not infringe
the patents of third parties. Problems with patents could potentially increase
the cost of the Company's products, or delay or preclude new product development
and commercialization by the Company. If infringement claims against the
Company are deemed valid, the Company may seek licenses which might not be
available on acceptable terms or at all. Litigation could be costly and
time-consuming but may be necessary to protect the Company's future patent
and/or technology license positions, or to defend against infringement claims.
A successful challenge to the Company's technology could have a materially
adverse effect on the Company and its business prospects. There can be no
assurance that any application of the Company's technology will not infringe
upon the proprietary rights of others or that licenses required by the Company
from others will be available on commercially reasonable terms, if at all.
The Company relies heavily upon trade secrets and other unpatented
proprietary technology. No assurance exists that other persons will not
independently develop or acquire technology substantially equivalent to the
Company's, or that the Company will successfully protect its unpatented
technology and trade secrets from misappropriation by others.
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Dependence on Key Personnel
The professional and general development of the Company largely depends
upon the efforts of Wilbur Riner, Barbara Riner, James Riner, Bryan Carr and
Allan Regenbaum, the Company's Chief Executive Officer, President, Chief
Engineering Officer, Chief Financial Officer and Chief Marketing Officer,
respectively. Although the Company has entered into separate employment
agreements with each of Wilbur Riner, Barbara Riner, James Riner, Bryan Carr and
Allan Regenbaum, all of which expire on October 31, 1998, the loss of the
services of any one or more of these individuals could have a material adverse
effect on the Company's operations and prospects. The success of the Company's
future operations is further dependent upon the Company's ability to attract and
retain additional qualified personnel, particularly those with marketing
expertise.
Certain Provisions in the Articles of Incorporation and Bylaws
The Company's Articles of Incorporation and Bylaws contain certain
provisions that could have the effect of delaying or preventing a change of
control of the Company, which could limit stockholders' ability to dispose of
their Common Stock in such transactions. The Company's Articles of
Incorporation authorizes the Board of Directors to issue one or more series of
preferred stock and to establish the rights, privileges and preferences inherent
in ownership of such shares of preferred stock, without shareholder approval.
Shares of such preferred stock, if and when issued, could have voting or other
rights that adversely affect the voting power of the holders of Common Stock.
The Company's Articles of Incorporation and Bylaws were recently amended
by vote of the shareholders of the Company at the annual meeting of shareholders
held on June 7, 1996 to (1) classify the Board of Directors into three classes,
as nearly equal in number as possible, each of which, after an interim
arrangement, will serve for three years, with one class being elected each year;
(2) provide that directors may be removed only with cause and the approval of
the holders of at least 66.66% of the voting power of each class or series of
outstanding stock of the Company entitled to vote generally in the election of
directors; (3) provide that special meetings of stockholders may not be called
by stockholders unless pursuant to a written demand by the holders of at least
66.66% of the voting power of each class or series of outstanding stock of the
Company entitled to vote on the matter requiring the special meeting; (4) delete
the provisions from the Amended Articles which authorize stockholders to act in
lieu of holding a meeting upon the written consent of the holders of a majority
of the stock of the Company entitled to vote thereon; and (5) increase the
stockholder vote required to alter, amend or repeal the foregoing amendments
from a majority to 66.66% of the voting power of each class or series of
outstanding stock of the Company.
Such amendments to the Articles of Incorporation and By-laws of the
Company, together with certain other provisions therein, could have the effect
of discouraging a third party from making a tender offer or otherwise attempting
to obtain control of the Company even though such an attempt might be beneficial
to the Company and its stockholders. In addition, since the amendments are
designed to discourage accumulations of large blocks of the Company's stock by
purchasers whose objective is to have such stock repurchased by the Company at a
premium, adoption of the amendments could tend to reduce the temporary
fluctuations in the market price of the Company's stock which are caused by
accumulations of large blocks of the Company's stock. Accordingly, stockholders
could be deprived of certain opportunities to sell their stock at a temporarily
higher market price.
Georgia Anti-Takeover Law
The provisions of the Georgia Business Corporation Code relating to fair
price requirements with respect to the Common Stock and business combinations
with interested stockholders are applicable to the Company. Essentially, the
fair price provisions require any material transaction or series of transactions
of the Company with or for the benefit of an interested stockholder or an
affiliate thereof to be approved by all of the directors who are
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unaffiliated with the interested stockholder or by 2/3rds of such unaffiliated
directors and the holders of a majority of the shares of the Company entitled to
vote on such transaction or transactions, other than shares held by the
interested stockholder. The business combination provisions generally prohibit
the Company from entering into any material transaction with an interested
stockholder for a period of five years after the stockholder became an
interested stockholder. The provisions do not apply if the transaction was
approved prior to the time that the stockholder became an interested stockholder
or if the interested stockholder holds 90% or more of the Company's voting
stock. The fair price and business combination provisions of the Georgia
Business Corporation Code may render more difficult or discourage an attempt to
obtain control of the Company by means of a proxy contest, tender offer, merger
or otherwise, and thereby preserves the continuity of the Company's management.
In addition, in certain cases, these provisions may prevent the Company's
stockholders from realizing a premium upon the sale of their shares in any
tender offer or merger opposed by the Company's management.
No Dividends
Other than for certain distributions to stockholders under Subchapter S
of the Internal Revenue Code of 1986 made by the Company prior to December 31,
1994, the Company has never paid cash dividends on its capital stock and does
not anticipate paying cash dividends in the foreseeable future, but rather
intends instead to retain future earnings, if any, for reinvestment in its
business. In addition, any credit agreements which in the future may be entered
into by the Company with institutional lenders will in all likelihood contain
restrictions on the payment of dividends by the Company. Any future
determination to pay cash dividends will be at the discretion of the Board of
Directors and will be dependent upon the Company's financial condition, results
of operations, capital requirements and such other factors as the Board of
Directors deems relevant. Investors should, therefore, be aware that it is
highly unlikely that any cash dividends will be paid on the Common Stock in the
foreseeable future.
Adequacy of Insurance
Although the Company maintains insurance coverage that it believes to be
customary and generally consistent with industry practice, to the extent that
such coverage is inadequate and it incurs losses which are uninsured such losses
could have a materially adverse effect upon the Company and its capital
resources. The Company currently has in place a $2,000,000 umbrella general
liability insurance policy which includes coverage of product liability claims,
to protect it against product liability claims brought by customers in
connection with such customers' purchases of products sold by the Company. The
Company does not believe that its operations expose it to potentially
significant product liability claims, and it has not experienced any such claims
in the past.
Broad Discretion in Use of Proceeds
All of the net proceeds from the exercise of the Goodbody Warrant will be
applied to working capital and general corporate purposes. Accordingly, the
Company will have broad discretion in the application of such proceeds.
Exercise of Options and Warrants
The Company has reserved 700,000 shares of Common Stock for issuance to
employees, including officers and directors, and consultants pursuant to the
Company's 1994 Stock Option Plan. Options held by employees to acquire 294,269
of such shares, at option exercise prices of $2.60 through $7.13 per share, are
currently outstanding. Options granted under the Plan to acquire 32,360 shares
have been exercised.
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Possible Adverse Effects of Future Sales of Shares
All of the 1,300,000 shares of Common Stock outstanding prior to
consummation of the Company's 1995 initial public offering may be deemed
"restricted securities" as that term is defined in the Securities Act of 1933,
as amended (the "Act"), and may only be sold pursuant to a registration
statement under the Act, in compliance with Rule 144 under the Act, or pursuant
to another exemption therefrom. All directors, officers and other holders of
such 1,300,000 shares of Common Stock held prior to the 1995 initial public
offering (other than stockholders who in the aggregate held up to 11,500 shares
of Common Stock) agreed not to sell or otherwise dispose of any shares of Common
Stock in the public market (the "Lock-up Period") without the prior written
consent of the Representative of the underwriters of the Company's 1995 initial
public offering until May 11, 1997. In March 1996, Barron Chase Securities,
Inc., the Representative of the several underwriters of the Company's 1995
initial public offering, released as of May 11, 1996 the lock-up restriction for
all holders of the Company's Common Stock other than the members of the family
of Wilbur Riner, the Chairman of the Company. Barron Chase Securities, Inc.
agreed to release the Riner family members from their lock-up restrictions
solely to permit the exercise of an aggregate of approximately 58,000 options
granted under the 1994 Employee Stock Option Plan in March 1996 and an aggregate
of approximately 58,000 options granted under such plan in January 1997. All of
such 1,300,000 shares of Common Stock (other than the shares held by the Riner
family members) are eligible for sale in the public market subject to compliance
with the volume limitations and the holding period and other requirements of
Rule 144 promulgated under the Securities Act. Substantially all of the shares
subject to the Lock-up can currently be sold under Rule 144.
Possible Volatility of Stock
The market prices for securities of newly public companies have
historically been highly volatile. Future announcements concerning the Company
or its competitors, including operating results, technological innovations or
new commercial products, government regulations, or foreign and other
competition, could have a significant impact on the market price of the Common
Stock.
Nasdaq Eligibility and Maintenance; Possible Delisting of Securities from Nasdaq
System
In September 1991, the Securities and Exchange Commission (the
"Commission") approved new rules that established new criteria for initial and
continued listing of securities on Nasdaq. Under the new rules, for initial
listing, a company must have at least $4,000,000 in total assets, at least
$2,000,000 in stockholders equity, and a minimum bid price of $3.00 per share.
For continued listing, a company must maintain at least $2,000,000 in total
assets, at least $1,000,000 in stockholders equity, and a minimum bid price of
$1.00 per share.
The Company's Common Stock and warrants (the "listed securities") are
currently listed on Nasdaq. If at any time the Company's Common Stock and
warrants are not listed on Nasdaq, and no other exclusion from the definition of
a "penny stock" under the Securities and Exchange Act of 1934, as amended, were
available, transactions in the Securities could become subject to the penny
stock regulations which impose additional sales practice requirements on
broker-dealers who sell securities (see "Risk of Low-Priced Stocks", below).
Trading, if any, in the listed securities would thereafter be conducted
in the over-the-counter market on an electronic bulletin board established for
securities that do not meet the Nasdaq listing requirements or in what are
commonly referred to as the "pink sheets." As a result, an investor may find it
more difficult to dispose of, or to obtain accurate quotations as to the price
of, the Company's securities.
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<PAGE>
Risk of Low-Priced Stocks
If the Company's securities were delisted from Nasdaq, and no other
exclusion from the definition of a "penny stock" under applicable Securities and
Exchange Commission regulations were available, such securities could be subject
to the penny stock rules that impose additional sales practice requirements on
broker-dealers who sell such securities to persons other than established
customers and accredited investors (generally defined as investors with net
worth in excess of $1,000,000 or annual income exceeding $200,000, or $300,000
together with a spouse). For transactions covered by these rules, the
broker-dealer must make a special suitability determination for the purchase and
must have received the purchaser's written consent to the transaction prior to
sale. Consequently, delisting from Nasdaq, if it were to occur, could affect
the ability of broker-dealers to sell the Company's securities and the ability
of purchasers of the Subject Shares to sell their securities in the secondary
market, when the ability to make public sales became available.
Elimination of Liability for Directors
The Company's Articles of Incorporation contains provisions which
eliminate the personal liability of directors, both to the Company and to its
stockholders, for monetary damages resulting from breaches of certain of their
fiduciary duties as directors of the Company. As a result of such charter
provisions, the rights of Company shareholders to recover monetary damages from
directors of the Company for breaches of directors' fiduciary duties may be
significantly limited.
Possible Securities Law Violation.
The Company filed a Registration Statement on October 26, 1994 for the
registration of its sale of Common Stock in its initial public offering. In
February 1995, the Company consummated a private placement of 11,562 shares of
its Convertible Preferred Stock for an aggregate of $40,000 (the "Private Place-
ment"). The manner in which such offering was effected may have violated the
federal securities laws. The Company does not believe that it has violated the
federal securities laws in connection with the Private Placement, based upon the
facts known to the Company and its analysis of the applicable securities laws.
If in the future it is determined that the Private Placement was effected in
violation of the federal securities laws, the Company may have to rescind the
Private Placement and refund an aggregate of $40,000, plus interest from the
date of purchase, to purchasers of securities in that offering. There have been
no reserves set aside to refund any amounts which may be required by rescission.
In any event, the Company is of the view that any such potential claims would
not be material.
FOR ALL OF THE FOREGOING REASONS AND OTHERS SET FORTH IN THIS PROSPECTUS, THE
SECURITIES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK. ANY PERSON CONSIDERING
AN INVESTMENT IN THE SECURITIES OFFERED HEREBY SHOULD BE AWARE OF THESE AND
OTHER FACTORS SET FORTH IN THIS PROSPECTUS. THOSE SECURITIES SHOULD BE PURCHASED
ONLY BY PERSONS WHO CAN AFFORD A TOTAL LOSS OF THEIR INVESTMENT IN THE COMPANY.
USE OF PROCEEDS
The Company will not receive any proceeds from the sale of shares by the
Selling Securityholders, although the Company will receive approximately
$700,000 from the exercise of the Goodbody Warrant after deduction of the
expenses of this Offering. The Company intends to utilize the net proceeds of
the Offering for working capital and general corporate purposes, including the
expansion of its sales and marketing programs and the costs and
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<PAGE>
expenses of obtaining necessary regulatory approvals for its AirView and
TrainView products. To the extent that the Goodbody Warrant is only
partially exercised and the Company receives less than $700,000 of net proceeds
from the Offering, such net proceeds will still be added to working capital and
used for general corporate purposes, including expansion of its marketing
programs and the other purposes identified above. The Company will not receive
any proceeds from the resale of shares of Common Stock by the Selling
Securityholders.
SELLING SECURITYHOLDERS
The following table sets forth certain information as of the date of
this Prospectus with respect to the beneficial ownership of the Common Stock of
the Company by each Selling Securityholder and the number of shares to be sold
by the Selling Securityholders. Unless otherwise indicated, the owners have
sole voting and investment power with respect to their respective shares.
<TABLE><CAPTION>
(1) Amount
and Beneficial
Nature of Shares Ownership
Name of Beneficial Beneficial Being After Percent of Beneficial Ownership
------------------ ----- -------------------------------
Owner Ownership Offered Offering Before Offering After Offering
----- --------- ------- -------- ---------------- --------------
<S> <C> <C> <C> <C>
The Infinity Fund, L.P. 114,495 75,000 39,495 3.9% 1.4%
Robert T. Kirk 125,750(2) 87,500 38,250 4.3% 1.3%
Marie Lima 2,500 2,500 --- * ---
Michael R. Morriset 10,000 5,000 5,000 * *
Hi-Tel Group, Inc. 5,000 5,000 --- * ---
Strome Susskind 37,500 37,500 --- 1.3% ---
Hedgecap Fund, L.P.
Sawtooth Offshore 10,000 10,000 --- * ---
Limited
De Wind Partners, L.P. 50,000 50,000 --- 1.7% ---
Sawtooth Partners, L.P. 12,500 12,500 --- * ---
Irell & Manella Profit 15,000 15,000 --- * ---
Sharing Plan
_____________________________
* Less than 1%
(1) As used herein, the term beneficial ownership with respect to a security
is defined by Rule 13d-3 under the Securities Exchange Act of 1934, as amended,
as consisting of sole or shared voting power (including the power to vote or
direct the vote) and/or sole or shared investment power (including the power to
dispose or direct the disposition of) with respect to the security through any
contract, arrangement, understanding, relationship or otherwise, including a
right to acquire such power(s) during the next 60 days. Unless otherwise
noted, beneficial ownership consists of sole ownership, voting and investment
rights.
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<PAGE>
(2) Does not include shares of Common Stock, warrants, or shares underlying
the warrants that are held by the Company's principal market maker, Barron Chase
Securities, Inc. Mr. Kirk is the principal stockholder and Chief Executive
Officer of Barron Chase Securities, Inc.
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<PAGE>
PLAN OF DISTRIBUTION
Common Stock issuable upon exercise of the Goodbody Warrant shall be
distributed when and as such Goodbody Warrant is exercised. The Goodbody
Warrant has not been exercised, in whole or in part, as of the date indicated on
the cover of this Prospectus.
The shares of Common Stock offered hereby may, upon compliance with
applicable "Blue Sky" law, be sold from time to time to purchasers directly by
the Selling Securityholders or by pledgees, donees, transferees or other
successors in interest, or in negotiated transactions and on the applicable
Nasdaq market through brokers or dealers, or otherwise. Such broker-dealers may
receive compensation in the form of discounts, concessions or commissions from
the Selling Securityholders and/or the purchasers of the shares of Common Stock
for whom such broker-dealers may act as agents or to whom they sell as
principal, or both (which compensation as to a particular broker-dealer might be
in excess of customary commissions). In addition, any securities covered by
this Prospectus which qualify for sale pursuant to Rule 144 may be sold under
Rule 144 rather than pursuant to this Prospectus.
Alternatively, the Selling Securityholders may from time to time offer
the shares of Common Stock offered hereby through underwriters, dealers or
agents, who may receive compensation in the form of underwriting discounts,
concessions or commissions from the Selling Securityholders and/or the
purchasers of shares of Common Stock for whom they may act as agents.
The Selling Securityholders and any underwriters, dealers or agents that
participate in the distribution of shares of Common Stock offered hereby may be
deemed to be underwriters, and any profit on the sale of such shares of Common
Stock by them and any discounts, commissions or concessions received by any such
underwriters, dealers or agents might be deemed to be underwriting discounts and
commissions under the Securities Act. At the time a particular offer of shares
of Common Stock is made, to the extent required a post-effective amendment to
this Registration Statement will be filed with the Commission which will set
forth the aggregate amount of shares of Common Stock being offered and the terms
of the offering, including the name or names of any underwriters, dealers or
agents, and discounts, commissions and other items constituting compensation
form the Selling Securityholders and any discounts, commissions or concessions
allowed or reallowed or paid to dealers.
The shares of Common Stock offered hereby may be sold from time to time
in one or more transactions at market prices prevailing at the time of sale, at
a fixed offering price, which may be changed, at varying prices determined at
the time of sale or at negotiated prices. The Selling Securityholders will pay
the commissions and discounts of underwriters, dealers or agents, if any,
incurred in connection with the sale of the shares of Common Stock.
The Company will only receive proceeds from the exercise of the Goodbody
Warrant, but will not receive any proceeds from the resale of the shares of
Common Stock acquired upon exercise of the Goodbody Warrant or from the resale
of any other shares by the Selling Securityholders.
LEGAL MATTERS
The validity of the shares of Common Stock offered hereby and certain
other legal matters in connection with the Offering will be passed upon for the
Company by Greenberg, Traurig, Hoffman, Lipoff, Rosen & Quentel, New York, New
York.
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<PAGE>
EXPERTS
The balance sheet as of December 31, 1995 and the statement of
operations, shareholders' equity (deficit), and cash flows for the year then
ended, incorporated by reference in this prospectus from the Company's Annual
Report on Form 10-KSB, have been incorporated herein in reliance on the report
of Coopers & Lybrand L.L.P., independent accountants, given upon the authority
of that firm as experts in accounting and auditing.
The balance sheet as of December 31, 1994 and the statement of
operations, shareholders' equity (deficit), and cash flows for the year then
ended, incorporated by reference in this prospectus from the Company's Annual
Report on Form 10-KSB, have been incorporated herein in reliance on the report
of Ernst & Young LLP, independent accountants, given upon the authority of that
firm as experts in accounting and auditing.
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- --------------------------------------------------------------------------------
No person has been authorized to give any
information or to make any representation,
other than those contained in this 350,000 Shares of Common Stock,
Prospectus, in connection with the offering $.001 par value per share
described herein, and, if given or made,
such information or representations must
not be relied upon as having been
authorized by the Company. The delivery of
this Prospectus at any time does not imply
that there has not been any change in the
information set forth herein or in the
affairs of the Company since the date
hereof. This Prospectus does not
constitute an offer to sell or a
solicitation of an offer to buy any
security other than the securities offered
hereby, or an offer to sell or solicitation
of an offer to buy such securities in any
jurisdiction in which such offer or
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 such offer or
solicitation would be unlawful.
_____________________
THE NETWORK CONNECTION,INC.
TABLE OF CONTENTS
Page
----
Available Information . 2 _____________________________
Incorporation of Certain
Documents
By Reference . . . . 3 PROSPECTUS
Prospectus Summary . . 4
Risk Factors . . . . 18 _____________________________
Use of Proceeds . . . 24
Selling Securityholders
25
Plan of Distribution 27
Legal Matters . . . . 27
Experts . . . . . . . 28
,1996
----------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution.
- -----------------------------------------------------
The following table sets forth the various expenses (other than selling
commissions) which will be paid by the Registrant in connection with the
issuance and distribution of the securities being registered. With the exception
of the Registration fee and the NASD filing fee, all amounts shown are
estimates.
Registration fee . . . . . . . . . . . . . . . $ 1,319.00
Printing and engraving expenses . . . . . . . . 1,000.00*
Legal fees and expenses . . . . . . . . . . . . 25,000.00*
Accounting fees and expenses . . . . . . . . . 15,000.00*
Transfer Agent and Trustees fees and expenses . . 1,000.00*
Miscellaneous expenses . . . . . . . . . . . . 6,681.00*
Total . . . . . . . . . . . . . . . . . . . . $50,000.00*
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(*) Estimated
Item 15. Indemnification of Directors and Officers.
- ---------------------------------------------------
Article X of the Amended and Restated Certificate of Incorporation of The
Network Connection, Inc. (the "Registrant") eliminates the personal liability of
directors to the registrant or its stockholders for monetary damages for breach
of fiduciary duty as a director; provided, that such elimination of the personal
liability of a director to the registrant does not apply to any breach of the
director's duty of liability to the Registrant or its stockholders, including
but not limited to, any appropriation, in violation of his duties, of any
business opportunity of the registrant, (ii) acts or omissions which involve
intentional misconduct or a knowing violation of law, (iii) actions prohibited
under Section 14-2-832 of the Georgia Business Corporation Code (i.e.,
liabilities imposed upon directors who vote for or assent to the un lawful
payment of dividends, unlawful payment of dividends, unlawful repurchases or
redemption of stock, unlawful distribution of assets of the Registrant to the
stockholders without the prior payment or discharge of the Registrant's debts or
obligations, or unlawful making or guaranteeing of loans to directors), or (iv)
any transaction from which the director derived an improper personal benefit. In
addition, Article XI of the Registrant's Amended and restated Articles of
Incorporation provides that the Registrant shall indemnify its corporate
personnel, directors and officers to the fullest extent permitted by the Georgia
Business Corporation Code, as amended from time to time.
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Item 16. Exhibits
- -----------------
A. Exhibits.
Number Description of Exhibit
- ------------ ----------------------------
3.1 -- Second Amended and Restated Articles of Incorporation of the
Registrant.(2)
3.2 -- Amended and Restated By-laws of the Registrant.(2)
4.1 -- Specimen Certificate of Common Stock.(1)
4.2 -- Warrant to Purchase Common Stock of the Registrant.
5.1 -- Opinion of Greenberg, Traurig, Hoffman, Rosen, Lipoff & Quentel,
counsel to Registrant.
23.1 -- Consent of Coopers & Lybrand LLP
23.2 -- Consent of Ernst & Young LLP
23.3 -- Consent of Greenberg, Traurig, Hoffman, Rosen, Lipoff & Quentel,
(included in Exhibit 5.1.)
- ---------------
(1) Incorporated by reference and filed as Exhibits to Amendment No. 1 to
the Registrant's Registration Statement on Form SB-2 filed with the
Securities and Exchange Commission on March 24,1994 (File No. 33-85654).
(2) Incorporated by reference and filed as Exhibits to Report on Form 8-K
filed with the Securities and Exchange Commission on June 21, 1996 (file
No. 1-13760).
Item 17. Undertakings.
- ----------------------
1. The undersigned Registrant hereby undertakes:
(a) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(1) To include any prospectus required by Section 10(a)(3) of the
Securities Act;
(2) To reflect in the prospectus any facts or events arising after the
effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
registration statement; and
(3) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement;
(b) That, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof; and
(c) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the termination of
the offering.
2. The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Act, each filing of the Registrant's annual
report pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934
(and, where applicable, each filing of an employee benefit plan's annual report
pursuant to Section 15(d) of the Securities Exchange Act of 1934) that is
incorporated by reference in the registration statement shall be deemed to be a
new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
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<PAGE>
4. Insofar as indemnification for liabilities arising under the Act may
be permitted to directors, officers and controlling persons of the Registrant
pursuant to the foregoing provisions, or otherwise, the Registrant has been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the 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 of whether such indemnification by it is against
public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
5. The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4), or 497(h)
under the Securities Act shall be deemed to be part of this registration
statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act
of 1933, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has fully caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Alpharetta, State of Georgia, on the 24th day of
June, 1996.
THE NETWORK CONNECTION, INC.
By: /s/ Wilbur Riner
---------------------------
Wilbur Riner, Chairman
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below hereby constitutes and appoints Wilbur Riner and Bryan Carr his true and
lawful attorneys-in-fact, each acting alone, with full powers of substitution
and resubstitution, for him and in his name, place and stead, in any and all
capacities, to sign any or all amendments, including any post-effective
amendments, to this registration statement, and any registration statement filed
pursuant to Rule 462(b) of the Act prepared in connection therewith, and to file
the same, with exhibits thereto, and other documents in connection therewith,
with the Securities and Exchange Commission, hereby ratifying and confirming all
that said attorneys-in-fact or their substitutes, each acting alone, may
lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
/s/ Wilbur Riner Chairman, Chief Executive June 24, 1996
- ---------------------
Wilbur Riner Officer and Director
/s/ Bryan Carr Vice President and Chief June 24, 1996
- ---------------------
Bryan Carr Financial Officer and
Chief Accounting Officer
and Director
/s/ James Riner Vice President and June 24, 1996
- ---------------------
James Riner Director
_____________________ Director June __, 1996
Marc Doyle
/s/ James Newman Director June 24, 1996
- ---------------------
James Newman
II-4
</TABLE>
Exhibit 4.2
-----------
WARRANT TO PURCHASE
COMMON STOCK OF
THE NETWORK CONNECTION, INC.
50,000 Shares March 15, 1996
Alpharetta, Georgia
Void after 5:00 p.m. Eastern Standard Time on March 15, 1999.
This is to verify that, FOR VALUE RECEIVED, GOODBODY INTERNATIONAL, INC.,
or its registered assigns (hereinafter referred to as the "Holder") is entitled
to purchase, subject to the terms and conditions hereof, from THE NETWORK
CONNECTION, INC., a Georgia corporation (the "Company"), 50,000 shares of common
stock of the Company, par value $.01 per share (the "Common Stock"), pursuant to
the terms hereof until 5:00 p.m. Eastern Standard Time on March 15, 1999 (the
"Termination Date"), at an exercise price (the "Exercise Price") equal to $15.00
per share. The number of shares of Common Stock purchasable upon exercise of
this Warrant (the "Warrant") shall be subject to adjustment from time to time
upon the occurrence of certain events as set forth below. The shares of Common
Stock receivable upon exercise of this Warrant, as adjusted from time to time,
are sometimes referred to hereinafter as "Exercise Shares."
1. Exercise of Warrant; Issuance of Exercise Shares.
------------------------------------------------
a. This Warrant may be exercised as indicated in Section 1(b) below
until and including the Termination Date, upon surrender on any business day to
the Company at its principal office, presently located at the address of the
Company set forth in Paragraph 7 hereof (or such other office of the Company, if
any, as shall theretofore have been designated by the Company by written notice
to the Holder), together with: (x) (i) a completed and executed Notice of
Warrant Exercise in the form set forth in Appendix A hereto and made a part
hereof and (ii) payment of the full Exercise Price for the number of Exercise
Shares set forth in the Notice of Warrant Exercise, in lawful money of the
United States of America by certified check or cashier's check, made payable to
the order of the Company, or (y) by presentation and surrender of this Warrant
to the Company at its principal executive offices with a Cashless Exercise Form
annexed hereto duly executed (a "Cashless Exercise").
b. In the event of a Cashless Exercise for Exercise Shares, the Holder
shall exchange its Warrant for that number of shares of Common Stock determined
by multiplying the number of Exercise Shares by a fraction, the numerator of
which shall be the difference between the then current market price per share of
Common Stock and the Exercise Price, and the denominator of which
<PAGE>
shall be the then current market price per share of Common Stock. For purposes
of any computation under this Section 1b, the then current market price per
share of Common Stock at any date shall be deemed to be the average of the last
sales prices of the Common Stock on the ten trading days prior to the date of
the Cashless Exercise or, in case no such reported sales take place on such any
such day or days, the average of the last reported bid and asked prices of the
Common Stock on any such day or days, in either case on the principal national
securities exchange on which the Common Stock is admitted to trading or listed,
or if not listed or admitted to trading on any such exchange, the representative
closing bid price of the Common Stock as reported by NASDAQ, or other similar
organization if NASDAQ is no longer reporting such information, or if not so
available, the fair market price of the Common Stock as determined by the Board
of Directors.
c. Upon receipt of this Warrant, in the case of Section 1a.(x), with
the Notice of Warrant Exercise duly executed and accompanied by payment of the
aggregate Exercise Price for the Exercise Shares for which this Warrant is then
being exercised, or, in the case of Section 1a.(y), with the Cashless Exercise
Form duly executed, the Company shall cause to be issued certificates for the
total number of whole shares of Common Stock for which this Warrant is being
exercised, as the case may be (adjusted to reflect the effect of the
anti-dilution provisions contained in Section 5 of this Warrant, if any, in such
denominations as are requested for delivery to the Holder, and the Company shall
thereupon deliver such certificates to the Holder. The Holder shall be deemed to
be the holder of record of the shares of Common Stock issuable upon such
exercise, notwithstanding that the stock transfer books of the Company shall
then-be closed or that certificates representing such shares of Common Stock
shall not then be actually delivered to the Holder. If at the time this Warrant
is exercised, a Registration Statement is not in effect to register under the
Securities Act the Exercise Shares issuable upon exercise of this Warrant, the
Company may require the Holder to make such representations, and may place such
legends on certificates representing the Exercise Shares, as may be reasonably
required in the opinion of counsel to the Company to permit the Exercise Shares
to be issued without such registration.
d. In case the Holder shall exercise this Warrant with respect to
less than all of the Exercise Shares that may be purchased under this Warrant,
the Company shall execute a new warrant in the form of this Warrant for the
balance of such Exercise Shares, and deliver such new warrant to the
Warrantholder.
e. The Warrant and all rights and options hereunder shall expire on
the Termination Date and shall be wholly null and void to the extent this
Warrant is not exercised prior to the Termination Date.
-2-
<PAGE>
f. The Warrant shall be exercisable to acquire the Exercise Shares
at any time on or after September 15, 1996.
g. The Company agrees and covenants that all Exercise Shares
issuable upon the due exercise of this Warrant will, upon issuance in accordance
with the terms hereof, be duly authorized, validly issued, fully paid and non-
assessable and free and clear of all taxes (other than taxes which, pursuant to
Paragraph 2 hereof, the Company shall not be obligated to pay), liens, charges
and security interests created by the Company with respect to the issuance
thereof.
h. The Company agrees and covenants that at all times prior to the
Termination Date it will have authorized, and hold in reserve, at least the
number of Exercise Shares issuable upon the full exercise of this Warrant.
2. Payment of Taxes. The Company will pay all documentary stamp taxes,
----------------
if any, attributable to the initial issuance of Exercise Shares upon the
exercise of this Warrant; 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 issue of this Warrant or of any certificates for Exercise Shares in a
name other than that of the Holder upon the exercise of this Warrant, 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.
3. Rights of Holder. The Holder shall not, by virtue of anything
----------------
contained in this Warrant or otherwise (except upon exercise of this Warrant,
with respect to the Exercise Shares purchased thereby), be entitled to any right
whatsoever, either in law or equity, of a stockholder of the Company, including
without limitation, the right to receive dividends or to vote or to consent or
to receive notice as a stockholder in respect of the meetings of stockholders or
the election of directors of the Company or any other matter.
4. Registration of Transfers and Exchanges. This Warrant shall be
---------------------------------------
transferable, subject to the provisions of Paragraph 6 hereof, only upon the
books of the Company to be maintained by it for that purpose, upon surrender of
this Warrant to the Company at its principal office accompanied (if so required
by it) by a written instrument or instruments of transfer in form satisfactory
to the Company and duly executed by the Holder or by the duly appointed legal
representative thereof or by a duly authorized attorney and upon payment of any
necessary transfer tax or other governmental charge imposed upon such transfer.
In all cases of transfer by an attorney, the original power of attorney, duly
approved, or an official copy thereof, duly certified, shall be
-3-
<PAGE>
deposited and remain with the Company. In case of transfer by executors,
administrators, guardians or other legal representatives, duly authenticated
evidence of their authority shall be produced, and may be required to be
deposited and remain with the Company in its discretion. Upon any such
registration of transfer, a new Warrant shall be issued to the transferee named
in such instrument of transfer, and the surrendered Warrant shall be canceled by
the Company.
5. Adjustment of Warrant. The Exercise Price and the number and kind of
---------------------
securities issuable upon exercise of this Warrant shall be subject to adjustment
from time to time as set forth below:
a. If the Company shall at any time (i) pay a dividend or make a
distribution on the Common Stock in shares of its Common Stock, (ii) subdivide
its outstanding Common Stock or (iii) combine its outstanding Common Stock into
a smaller number of shares, the number of shares of Common Stock which may be
purchased upon exercise of this Warrant shall be adjusted so that the number of
shares thereafter purchasable upon exercise of this Warrant shall be equal to
the number of shares which the Holder would have been entitled to receive after
the happening of such event had the Warrant been exercised immediately prior to
such event. Any adjustment made pursuant to this subparagraph (a) shall become
effective retroactively to the record date in the case of a dividend and shall
become effective on the effective date, in the case of any subdivision or
combination.
b. If the Company shall issue by reorganization or reclassification
of its Common Stock other securities of the Company (including any such
reorganization or reclassification in connection with a consolidation or merger
of the Company with another corporation, provided the Company is the surviving
corporation), the Holder shall thereafter have the right to receive upon
exercise of this Warrant the kind and number of shares of stock or other
securities or property which he would have been entitled to receive upon the
happening of any such reorganization or reclassification, had this Warrant been
exercised immediately prior thereto; and, in any case, appropriate adjustment
(as determined by the Board of Directors) shall be made in the application of
the provisions herein set forth with respect to rights and interests thereafter
of the Holder, to the end that the provisions set forth herein (including the
specified changes in and other adjustments of the conversion rate) shall
thereafter be applicable, as near as reasonably practical, in relation to any
shares of stock or other securities or other property thereafter deliverable
upon the exercise of this Warrant. Any adjustment made pursuant to this
subparagraph (b) shall become effective retroactively to the effective date of
such reorganization or reclassification.
c. After any adjustment of the number or kind of shares
-4-
<PAGE>
or other securities or property issuable upon exercise of this Warrant pursuant
to the provisions of this Paragraph 5, the Exercise Price shall also be adjusted
so that the aggregate Exercise Price thereafter payable upon exercise of this
Warrant shall be equal to the aggregate Exercise Price which would have been
payable upon exercise of this Warrant immediately prior to such adjustment in
the number of kind of shares or other securities or other property issuable upon
exercise of this Warrant.
d. No adjustment in the number of shares of Common Stock issuable
upon exercise of this Warrant, or of the Exercise Price, shall be required to be
made unless such adjustment would require an increase or decrease of at least
one percent (1%); provided, however, that any adjustments which by reason of
-------- -------
this subparagraph are not required to be made shall be carried forward and taken
into account in any subsequent adjustment. All calculations under this
Paragraph 5 shall be made to the nearest cent or one-one hundredth of a share,
as the case may be, but in no event shall the Company be obligated to issue
fractional shares upon exercise of this Warrant, and any fractional shares
issuable upon exercise shall be rounded up to the next whole share.
e. Whenever any adjustment shall be made in the number or kind of
shares or other securities or property issuable upon exercise of this Warrant
pursuant to the provisions of this Paragraph 5, or in the Exercise Price, the
Company will forthwith cause a notice stating the adjustment to be mailed to the
Holder.
f. In case at any time:
(i) The Company shall declare any dividend upon its Common Stock
payable otherwise than in cash or in Common Stock of the Company; or
(ii) The Company shall offer for subscription to all of the
holders of its Common Stock any additional shares of stock of any class or any
other securities convertible into shares of stock or any rights to subscribe
thereto; or
(iii) There shall be any capital reorganization or
reclassification of the capital stock of the Company, or a sale of all or
substantially all of the assets of the Company, or a consolidation or merger of
the Company with another corporation, other than any transaction referred to in
subparagraph (b) above and other than a merger with a subsidiary 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
(iv) There shall be a voluntary or involuntary
-5-
<PAGE>
dissolution, liquidation or winding up of the Company;
then, in any one or more of said cases, the Company shall cause to be mailed to
the Holder, at the earliest practicable time (and, in any event, not less than
10 days before any record date or other date set for definitive action), written
notice of the date on which the books of the Company shall close or a record
shall be taken for such reorganization, reclassification, sale, consolidation,
merger, dissolution, liquidation or winding up shall take place, as the case may
be. Such notice shall also set forth such facts as shall indicate the effect of
such action (to the extent such effect may be known at the date of such notice)
on the Exercise Price and the kind and amount of the shares of stock and other
securities and property deliverable upon exercise of this Warrant. Such notice
shall also specify the date as of which the holders of the Common Stock of
record shall participate in said dividend, distribution or subscription rights
or shall be entitled to exchange their Common Stock for securities or other
property deliverable upon such reorganization, reclassification, sale,
consolidation, merger, dissolution, liquidation or winding up as the case may be
(on which date, in the event of voluntary or involuntary dissolution,
liquidation or winding up of the Company, the right to exercise this Warrant
shall terminate). Notwithstanding anything in this paragraph (f) to the
contrary, however, it is agreed that failure of the Company to give any such
notice of corporate action shall not invalidate such corporate action.
6. Restrictions on Transferability - Restrictive Legend. Neither this
----------------------------------------------------
Warrant nor the Exercise Shares shall be transferable except in accordance with
the provisions of this paragraph.
a. Restrictions on Transfer; Indemnification. Neither this Warrant
-----------------------------------------
nor any Exercise Shares may be offered for sale or sold, or otherwise
transferred or sold in any transaction which would constitute a sale thereof
within the meaning of the Securities Act of 1933, as amended (the "Act"), unless
(i) such security has been registered for sale under the Act and registered or
qualified under applicable state securities laws relating to the offer and sale
of securities, or (ii) exemptions from the registration requirements of the Act
and the registration or qualification requirements of all such state securities
laws are available and the Company shall have received an opinion of counsel
satisfactory to the Company that the proposed sale or other disposition of such
securities may be effected without registration under the Act and would not
result in any violation of any applicable state securities laws relating to the
registration or qualification of securities for sale.
The Holder agrees to indemnify and hold harmless the Company against
any loss, damage, claim or liability arising from the disposition of this
Warrant or any Exercise Shares held by the
-6-
<PAGE>
Holder or any interest therein in violation of the provisions of this Paragraph
6.
b. Restrictive Legends. Unless and until otherwise permitted by
-------------------
this Paragraph 6, this Warrant, each warrant issued to the Holder or to any
transferee or assignee of this Warrant, and each Certificate representing
Exercise Shares issued upon exercise of this Warrant or any warrant issued to
the Holder or to any transferee or assignee of this Warrant, or to any
transferee of the person to whom the Exercise Shares were issued, shall bear a
legend setting forth the requirements of paragraph (a) of this Paragraph 6,
together with such other legend or legends as may otherwise be deemed necessary
or appropriate by counsel to the Company.
c. Notice of Proposed Transfers. Prior to any transfer, offer to
----------------------------
transfer or attempted transfer of this Warrant or any Exercise Shares, the
Holder of such security shall give written notice to the Company of such
Holder's intention to effect such transfer. Each such notice (i) shall describe
the manner and circumstances of the proposed transfer in sufficient detail, and
shall contain an undertaking by the person giving such notice to furnish such
other information as may be required, to enable counsel satisfactory to the
Company to render the opinions referred to below, and (ii) shall designate the
counsel for the person giving such notice, such counsel to be satisfactory to
the Company. The person giving such notice shall submit a copy thereof to the
counsel designated in such notice, and the following provisions shall apply:
(i) If, in the opinion of such counsel, the proposed transfer of
this Warrant or Exercise Shares, as appropriate, may be effected without
registration of such security under the Act, the Company shall, as promptly as
practicable, so notify the holder of such security and such holder shall
thereupon be entitled to transfer such security in accordance with the terms of
the notice delivered by such holder to the Company. Each certificate evidencing
the securities thus to be transferred (and each certificate evidencing any
untransferred balance of the securities evidenced by such certificate) shall
bear the restrictive legends referred to in subparagraph (b) above, unless in
the opinion of such counsel such legends are not required in order to insure
compliance with the Act.
(ii) If, in the opinion of such counsel, the proposed transfer of
securities may not be effected without registration under the Act, the Company
shall, as promptly as practicable, so notify the holder thereof. However, the
Company shall have no obligation to register such securities under the Act.
The holder of the securities giving the notice under this subparagraph
(c) shall not be entitled to transfer any of the securities until receipt of
notice from the Company under paragraph
-7-
<PAGE>
(i) of this subparagraph (c) or registration of such securities under the Act
has become effective.
d. Removal of Legend. The Company shall, at the request of any
-----------------
registered holder of a Warrant or Exercise Share, exchange the certificate
representing such security for a certificate representing the same security not
bearing the restrictive legends required by subparagraph (b) if, in the opinion
of counsel satisfactory to the Company, such restrictive legends are no longer
necessary.
7. Notices. All notices required or permitted to be given hereunder
-------
shall be in writing and shall be deemed to have been (a) when received, if
delivered in person; (b) when sent, if sent by telecopier and confirmed within
forty-eight (48) hours by letter mailed or delivered to the party to be notified
at its address set forth herein; or (c) five (5) days following the mailing
thereof if mailed by certified first class mail, postage prepaid, return receipt
request, in any such case as follows:
If to the Company, to:
The Network Connection, Inc.
1324 Union Hill Road
Alpharetta, GA 30201
Attention: Wilbur Riner, Chairman
Telecopier: (770) 751-1884
If to the Holder, to:
Joseph Hale
__________________
____________________________
Telephone: (___) ___-____
Telecopier: (___) ___-____
8. Supplements and Amendments. The Company may from time to time
--------------------------
supplement or amend this Warrant without the approval of the Holder in order to
cure any ambiguity or to correct or supplement any provision contained herein
which may be defective or inconsistent with any other provision, or to make any
other provisions in regard to matters or questions herein arising hereunder
which the Company may deem necessary or desirable and which shall not materially
adversely affect the interest of the Holder.
9. Successors and Assigns. This Warrant shall inure to the benefit of
----------------------
and be binding on the respective successors, assigns and legal representatives
of the Holder and the Company.
10. Severability. If for any reason any provision, paragraph or term of
------------
this Warrant is held to be invalid or unenforceable, all
-8-
<PAGE>
other valid provisions herein shall remain in full force and effect and all
terms, provisions and paragraphs of this Warrant shall be deemed to be
severable.
11. Governing Law. This Warrant shall be governed by and construed in
-------------
accordance with the laws of the State of New York without regard to its conflict
of laws provisions.
12. Headings. Paragraph and subparagraph headings, used herein are
--------
included herein for convenience of reference only shall not affect the
construction of this Warrant nor constitute a part of this Warrant for any other
purpose.
IN WITNESS WHEREOF, the Company has caused this Warrant to be duly
executed as of the date and year first above written.
THE NETWORK CONNECTION, INC.
By:____________________________
Wilbur Riner, Chairman
-9-
<PAGE>
APPENDIX A
----------
NOTICE OF WARRANT EXERCISE
--------------------------
Pursuant to a Warrant issued by The Network Connection, Inc., a Delaware
corporation (the "Company"), to the undersigned dated as of March 15, 1996, the
undersigned hereby irrevocably elects to exercise its warrant to the extent of
purchasing _______________ shares of Common Stock (the "Exercise Shares") of the
Company as provided for therein.
The undersigned hereby represents and agrees that the Exercise Shares
purchased pursuant hereto are being purchased for investment and not with a view
to the distribution or resale thereof, and that the undersigned understands that
said Exercise Shares have not been registered under the Securities Act of 1933,
as amended.
Payment of the full purchase price of the Exercise Shares is enclosed
herewith, in the form of a check made payable to the Company.
The undersigned requests that a certificate for the Exercise Shares be
issued in the name of:
______________________________
______________________________
______________________________
(Please print name, address and social security number)
Date: _____________________________, _____
Address:_________________________________________
_________________________________________
_________________________________________
Signature:_______________________________________
-10-
<PAGE>
CASHLESS EXERCISE FORM
(To be executed upon exercise of warrant
pursuant to Section 1b)
The undersigned hereby irrevocably elects to Exchange its Warrant for
such shares of Common Stock pursuant to the Cashless Exercise provisions of the
within Warrant Certificate, as provided for in Section 1b of such Warrant
Certificate.
Please issue a certificate or certificates for such Common Stock in
the name of, and pay cash for fractional share to:
Name _______________________________
(Please Print Name, Address and Social
Security No.)
Signature___________________________
NOTE: The above signature should
correspond exactly with the
name on the first page of this
Warrant Certificate or with
the name of the assignee
appearing in the assignment
form below.
And if said number of shares shall not be all the shares purchasable under
the within Warrant Certificate, a new Warrant Certificate is to be issued in the
name of said undersigned for the balance remaining of the shares purchasable
thereunder rounded up to the next higher number of shares.
-11-
Exhibit 5.1
-----------
June 26, 1996
The Network Connection, Inc.
1324 Union Hill Road
Alpharetta, Georgia 30201
Re: Registration Statement on Form S-3
----------------------------------
Gentlemen:
We refer to the public offering of up to 350,000 shares of common stock,
$.001 par value (the "Common Stock") of The Network Connection, Inc., a Georgia
corporation (the "Company"), pursuant to the Registration Statement on Form S-3
to be filed with the Securities and Exchange Commission on June 26, 1996
(Registration No. 333-_______) (the "Registration Statement"), as subsequently
amended from time to time.
In furnishing our opinion, we have examined copies of said Registration
Statement under the Securities Act of 1993, as amended. We have conferred with
officers of the Company and have examined the originals or certified, conformed
or photostatic copies of such records of the Company, certificates of officers
of the Company, certificates of public officials and such other documents as we
have deemed relevant and necessary as the basis for the opinion set forth
herein. In all such examinations, we have assumed the genuineness of all
signatures, the authenticity of all documents submitted and reviewed by us as
originals or duplicate originals and the conformity to original documents of all
documents submitted to us as certified, photostatic or conformed copies, the
correctness and completeness of such certificates, the due authorization,
execution and delivery of all documents by persons, where due authorization,
execution and delivery are prerequisites to the effectiveness thereof, and the
absence of any impairment, legal or otherwise, effecting the performance by all
parties to such documents (other than the Company), which assumptions we have
not independently verified.
<PAGE>
Based upon and subject to the foregoing and such other matters of fact and
questions of law as we have deemed relevant in the circumstances, and in
reliance thereon, it is our opinion that, when and if:
(a) The Registration Statement shall have become effective, as the same
may hereafter be amended; and
(b) The Common Stock to be sold shall have been sold as contemplated in
the Prospectus forming part of the Registration Statement;
then upon the happening of each of the events set forth in paragraphs (a) and
(b), inclusive above:
The Common Stock being sold, upon execution and delivery of proper
certificates therefor, will be duly authorized, validly issued and
outstanding, fully paid and non-assessable shares of Common Stock of
the Company.
The undersigned hereby consent to the use of their name in the Registration
Statement and in the Prospectus forming a part of the Registration Statement.
This opinion is limited to the matters herein, and may not be relied upon
in any manner by any other person or used for any other purpose other than in
connection with the corporate authority for the issuance of Common Stock.
Very truly yours,
GREENBERG, TRAURIG, HOFFMAN,
LIPOFF, ROSEN & QUENTEL
By:
---------------------------------
Authorized Signatory
Exhibit 23.1
------------
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in this registration statement on
Form S-3 of our report dated March 29, 1996, on our audit of the financial
statements of The Network Connection, Inc. as of and for the year ended December
31, 1995. We also consent to the reference to our firm under the caption
"Experts."
COOPERS & LYBRAND L.L.P.
Atlanta, Georgia
June 25, 1996
Exhibit 23.2
[ERNST & YOUNG LETTERHEAD]
Consent of Ernst & Young LLP, Independent Auditors
We consent to the reference to our firm under the caption "Experts" in the
Registration Statement (Form S-3 No. 333- ) and related Prospectus of The
Network Connection, Inc. for the registration of 350,000 shares of its common
stock and to the incorporation by reference therein of our report dated March 9,
1995, with respect to the financial statements of The Network Connection, Inc.
included in its Annual Report (Form 10-K) for the year ended December 31, 1994,
filed with the Securities and Exchange Commission.
/s/ Ernst & Young LLP
Atlanta, Georgia
June 25, 1996
