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As filed with the Securities and Exchange Commission on April __, 1998
Registration No. 333-_______
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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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 30004
(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 Rosen Lipoff & Quentel
The Metlife Building
200 Park Avenue
New York, NY 10166
telephone: (212) 801-9200
telecopier: (212) 801-6400
Approximate date of commencement of proposed sale to the public:
As soon as practicable after this Registration Statement
becomes effective.
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, other than securities offered only in connection with dividend
or interest reinvestment plans, check the following box. /X/
(continued on following page)
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<PAGE>
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. / /
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
Proposed Maximum Proposed Maximum Amount of
Title of Each Class of Amount To Offering Price Aggregate Offering Registration Fee
Securities To Be Registered Be Registered (1) Per Unit (2) Price (2)
<S> <C> <C> <C> <C>
Common Stock, $.001 par value 830,989 shares $4.875 $4,051,072 $1,196
per share ("Common Stock"),
issuable upon the conversion
of 4% Convertible Debentures
(the "Debentures")
</TABLE>
(1) In the event of a stock split, stock dividend, or similar transaction
involving common stock, par value $.001 per share, of the Registrant
(the "Common Stock"), in order to prevent dilution, the number of
shares registered shall be automatically increased to cover the
additional shares of Common Stock in accordance with Rule 416(a) under
the Securities Act of 1933, as amended (the "Securities Act").
(2) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(c) under the Securities Act. Represents the
average of the high and low prices of the Common Stock as of April 27,
1998, as reported by the Nasdaq Small Cap Market tier of the NASDAQ
Stock Market.
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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 or until the Registration Statement shall become effective on
such date as the Commission, acting pursuant to said Section 8(a), may
determine.
<PAGE>
Information contained herein is subject to completion or amendment. A
Registration Statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time that the Registration Statement
becomes effective. This Prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any state in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such state.
Subject to Completion, Dated April __, 1998
THE NETWORK CONNECTION, INC.
830,989 Shares of Common Stock
This Prospectus relates to an offering (the "Offering") by The Network
Connection, Inc., a Georgia corporation (the "Company"), of up to 830,989 shares
of common stock, $.001 par value, of the Company (the "Common Stock"),
underlying the Company's 4% Convertible Debentures due March 11, 2003 (the
"Debentures"). See "PLAN OF DISTRIBUTION." The Company is registering the Common
Stock underlying the Debentures to provide the holders of such shares upon
conversion with freely tradeable shares of Common Stock. Each Debenture is
convertible at the option of the holder into shares of Common Stock, at a price
per share equal to the lesser of (i) $8.02 or (ii) 80% of the average closing
market price of the Common Stock during the 21 trading days prior to conversion;
but in no event can the conversion price be less than $3.00 per share. See "RISK
FACTORS" and "PLAN OF DISTRIBUTION."
The Debentures were issued pursuant to a Convertible Debenture Purchase
Agreement, dated March 11, 1998 (the "Purchase Agreement"), entered into between
the Company and a single institutional investor. The Common Stock underlying the
Debentures is being registered pursuant to the terms of a Registration Rights
Agreement entered into between the Company and the holder of the Debentures on
March 11, 1998 (the "Registration Agreement"). Pursuant to the Registration
Agreement, the Company is required to use its best efforts to maintain a
continuously effective Registration Statement, of which this Prospectus is a
part, with respect to the Common Stock underlying the Debentures for three years
after the Registration Statement is declared effective or such earlier date when
the Common Stock may be sold pursuant to Rule 144(k) under the Securities Act of
1933, as amended (the "Securities Act"). The Company will not receive any
proceeds from the resale by the holders of any of the Common Stock issuable upon
conversion of the Debentures.
The Company's publicly traded Common Stock is currently listed on the
automated quotation system of the Nasdaq SmallCap Market ("Nasdaq") under the
symbol "TNCX". On April 20, 1998, the last trade price for the Common Stock
reported on Nasdaq was $5.25 per share.
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.
SEE "RISK FACTORS" (COMMENCING ON PAGE 14).
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED
BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECU-
RITIES 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 April __, 1998
<PAGE>
No dealer, salesperson or other person is authorized to give any
information or to make any representation not contained in this Prospectus in
connection with the offering of securities made hereby and, if given or made,
such information must not be relied upon as having been authorized by the
Company. This Prospectus does not constitute an offer to exchange or sell, or a
solicitation of an offer to exchange or purchase, any securities in any
jurisdiction in which, or to any person to whom, it is unlawful to make such
offer or solicitation. Neither the delivery of this Prospectus nor any
distribution of securities made hereunder shall, under any circumstances, create
any implication that there has not been any change in the affairs of the Company
since the date hereof or that the information contained herein is correct as of
any time subsequent to its date.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the
Securities and 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
copies 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.
FORWARD-LOOKING STATEMENTS
This Prospectus contains certain forward-looking statements (within the
meaning of Section 27 of the Securities Act of 1933, as amended (the "Securities
Act") and Section 21 of the Securities Exchange Act of 1934, as amended (the
"Exchange Act")) that are subject to certain risks and uncertainties that could
cause actual results to differ materially from those set forth in such
forward-looking statements. Such risks and uncertainties include, but are not
limited to, the failure to execute definitive agreements with additional
customers on favorable terms or at all, the failure of the Company to receive
sufficient financing to perform under any new contracts or to perform sufficient
research and development, the impact of competition and downward pricing
pressures, the effect of changing economic conditions and conditions in the
specific industries the Company has targeted, the impact of any changes in
domestic and foreign regulatory environments or the Company's inability to
obtain requisite government approvals, risks in technology development, the
risks involved in currency fluctuations, and the other risks and uncertainties
detailed herein.
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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, 1997;
2. All other reports filed by the Company pursuant to Section 13(a) or
15(d) of the Exchange Act since December 31, 1997;
3. The description of the Common Stock contained in the Company's
Registration Statement on Form 8-A, filed May 9, 1995; and
4. The Company's Current Reports on Form 8-K filed on March 17, 1998 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 Common Stock 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 Debentures and 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 30004;
telephone number (770) 751-0889.
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PROSPECTUS SUMMARY
The following summary is qualified in its entirety by, and should be
read in conjunction with, 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
Glossary
Superserver - a network computer designed to provide local area
networks with the performance, availability, scalability and upgradability
characteristic of mainframes and minicomputers, as well as the compatibility of
a PC; superservers reduce the input/output bottlenecks and performance
degradation typically associated with PC-based servers attempting to perform
multiple tasks concurrently using a single microprocessor.
Compatibility - also called openness; supports industry-standard
network operating systems, applications and application development tools, and
network connectivity products; non-proprietary.
Local Area Network or LAN - a network or connected group of computers
or workstations located within the confines of a single physical structure or
related group of structures, all the members of which group are in close
proximity to each other.
Performance - a level of compute power, data I/O and communication
capability comparable to that provided by mainframes and minicomputers; meets
the requirements of large numbers of users running compute and I/O-intensive
applications and high-speed communications functions.
Availability - providing the reliability, data integrity and
recoverability features required for business-critical applications; providing
reliability features that increase the mean-time between failures and promote
the continuing operation of the superserver after failure; offering data
integrity features that protect against data loss or corruption during system
operation; and incorporating recoverability features to facilitate recovery when
a stoppage does occur.
Scalability - also called expandability; the ability to maintain rapid
response time to each client as the number of concurrent clients or applications
increases; supported in the field through the incorporation of an additional
central processing unit subsystem, main memory chips, mass storage and other
subsystems, such as network interface cards; scalability extends the
superserver's useful life and protects the end user's initial investment.
Upgradability - the ability to replace subsystems and disk drives
economically, within superserver product generations, with higher performance
products that either are available today or become available in the future,
without requiring alteration of the superserver's network operating system,
application software or other hardware.
Wide Area Network or WAN - a network of computers or workstations the
individual members of which are geographically dispersed and generally
interconnected through the facilities of a common carrier telecommunications
system.
3
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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, entertainment
and other industry applications. Video on demand permits new ways to employ
video as an instructional, entertaining 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 by seeking 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, 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 and UNIX
(SCO, SVR4, MPX), as well as new network operating systems as they become
available. 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 and strategic resellers.
The Company maintains its principal executive offices at 1324 Union
Hill Road, Alpharetta, Georgia 30004, and its telephone number is (770)
751-0889.
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 Microsoft Windows NT, 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 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 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 Centura Software have
recently introduced network versions of sophisticated database management
applications that have traditionally been run on mainframes or minicomputers.
4
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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 continue to 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
Windows NT, Novell NetWare, Microsoft LAN Manager, SCO UNIX and Banyan VINES,
and with new network operating systems as they become available. 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.
5
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* 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
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 is 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. See "Turnkey Packaging" below.
* Turnkey Packaging
Sales of the Company's TRIUMPH superservers are made increasingly as "turnkey"
systems. This sales trend is expected to continue, and even to accelerate, as
video/multimedia superserver equipment become more and more of a commodity. 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,
(iii) "InnView," an in-room interactive entertainment system for the hotel
hospitality market and (iv) "CruiseView," an in-room interactive entertainment
system for the cruise ship market. These systems support live-feed,
closed-circuit and satellite based digital television programs in addition to
personal interactive entertainment and video/audio on demand, shopping,
multi-player games, gambling, shore excursion/ event booking, karaoke and
Internet access all simultaneously, independently and with full user control via
a wireless television remote control in each room or touch screen display at
each seat. In addition, attendant interactive training can be provided at the
same time.
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Sales and Distribution
The Company 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 distributes 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
internationally is through trade show attendance, holding end-user seminars to
demonstrate Company products, internal 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 plans to
continue and to accelerate these marketing efforts.
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. The Company
would assist these partner-vendors by determining the configuration of the
Company's products that will deliver optimal performance along with the
partner-vendor's products.
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. At December
31, 1997, the Company had remote sales offices internationally in Singapore and
the United Kingdom.
The purchase price for the Company's "turn-key" packaged systems for
the travel related entertainment market is relatively high depending upon
various factors such as the size and type of airplane, train, hotel or ship, and
the requested system features. The high system purchase price is anticipated to
result in a relatively extensive sales cycle, which will include the evaluation
of the Company's technology, a test installation of the system and negotiation
of related agreements. The sales cycle is also dependent upon a number of
factors beyond the Company's control, such as the financial condition, safety
and maintenance concerns, regulatory issues and purchasing patterns of
particular operators, and the respective industry generally. As a result, this
can result in extremely cyclical buying patterns for the Company's travel
related entertainment products.
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. and Dell
Corporation. 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.
8
<PAGE>
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 and UNYSIS, Inc.
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 the
price or product features of their mainframes or minicomputers. The Company
competes in the market for complex LANs with other manufacturers of
superservers, including Sun, Silicon Graphics, Ncube, NetFrame and Tricord. The
Company competes in the market for "turn-key" systems for travel related
entertainment with other manufacturers of complete systems, including Rockwell
Collins Passenger Systems, BE Aeorspace, Sony Transcom, Matsushita, Interactive
Flight Technologies, Allin-Seavision and Trans Digital. The Company believes
that it competes favorably with other manufacturers of superservers and
"turn-key" systems with respect to the compatibility, performance, availability,
scalability, upgradability and technical support required for sophisticated
network computing available with the Company's products. In addition, components
of the Company's products are smaller, weigh considerably less and consume much
less power than those of several competitors. Because these factors affect
operating costs for the operator, they may be critical factors for customers.
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 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.
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.
More sales efforts in 1997 and 1998 have been focused on larger system
sales into niche markets of the Company's "turn-key" packaged solutions, AirView
and CruiseView, which have longer sales cycles. Sales of such products will
contribute to sales backlog for revenues derived from multiple roll-out
deliveries over 12 to 36 months. The Company has been awarded sales to the
following programs: (i) Fairlines, a French commercial airline, for the
purchase, installation, maintenance and content management of AirView on ten
Fairlines MD81 aircraft, of which eight complete systems had been shipped as of
December 31, 1997; and (ii) Star Cruises, an Asian cruise line, for the
purchase, installation and maintenance of CruiseView on two cruise ships to be
installed in August of 1998 and mid-1999, respectively. The Company has not yet
received any firm orders for TrainView systems. The Company currently has
responded to major requests for proposal and is in various stages of negotiation
for CruiseView, InnView, AirView and TrainView systems with multi-
9
<PAGE>
year deliveries from some of the world's largest travel related companies. There
can be no assurance, however, that the Company will successfully negotiate
definitive agreements for the purchase of these systems.
In 1997, three customers accounted for an aggregate of 79% (38% from
Fairlines, 30% from Conhan, Ltd. and 11% from the United States government,
respectively) of the Company's revenues. The Company's products are often used
with other products in large complex projects with long delivery cycles. The
Company believes that its sales to the United States government, as well as to
state governments and their agencies that 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 products have been recently included as the required design
specifications identified in federal government request for proposals
distributed to potential vendors.
Airview
In an Agreement dated as of June 19, 1997, the Company entered into
an AirView Purchase Agreement (the "AirView Agreement") with Fairlines, a
French corporation engaged in the start-up operation of a commercial
airlines, for the purchase of 10 AirView systems for installation on 10
Fairlines aircraft. It is estimated by the Company that in the event that all
10 AirView systems are sold to Fairlines under the terms of the AirView
Agreement, the Company will generate over $10 million in gross revenues.
Delivery of all AirView systems under the terms of the agreement is expected
to be completed by December 31, 1998. The costs of purchase from the Company
include the cost of training Fairlines employees for system use, and the cost
of system installation, which installation will be provided by Hollingsead
International and its subsidiaries ("Hollingsead") on behalf of the Company
under a separate agreement with the Company. The Company has developed a
manufacturing relationship with Hollingsead for AirView in connection with
the Fairlines program in order to permit performance of higher level system
manufacturing, integration and test functions to meet the regulatory
requirements of the Federal Aviation Administration ("FAA"). Such
arrangements enable the Company to manufacture its other products in its
existing facility, thereby avoiding the need to provide for specialized
manufacturing processes and additional capacity to meet the needs of the
Fairlines program.
The installation and use of AirView on any particular aircraft requires
prior certification and approvals from the FAA and certification and approvals
from aeronautical agencies of foreign governments. Because the installation of
AirView is considered a major modification to an aircraft, the Company must
apply for and be granted an STC ("Supplemental Type Certificate") from the FAA.
This is a multi-step process involving required interim approvals. A separate
STC will be required with respect to each aircraft type on which AirView will be
installed. Once an STC is issued with respect to an aircraft type, the unit may
be installed on other aircraft of the same type with the same configuration
provided each installation is performed in a manner as specified by the aircraft
specific STC. To date, the Company has obtained an STC for Fairlines MD-81
aircraft.
The process of obtaining an STC is highly technical. The Company has
also entered into agreements with Hollingsead to assist the Company in the
application and approval process. Hollingsead is an FAA designated engineering
representative experienced in in-flight entertainment systems and has the
authority to approve, subject to final FAA review, certain aspects of the
Company's STC applications. Because of the manpower and experience required to
perform installations, and due to the inherent relationship between installation
and the STC application and compliance process, the Company anticipates that
future installations of all Airview systems, if any, will be performed by an
experienced third-party subcontractor such as Hollingsead.
In addition, the Company or its subcontractor must obtain from the FAA
a Parts Manufacturer Approval ("PMA") with respect to the components of AirView
to be installed on each specific aircraft type for which an STC is granted.
There can be no assurance that the Company will be issued the STC's and PMA's
for
10
<PAGE>
which it applies or that if such approvals are granted, that they will be
granted within a reasonable time frame or within the amount budgeted by the
Company for such approvals. Federal law grants to the FAA the authority to
reexamine at any time the basis upon which certification and approval of AirView
may be granted and, if appropriate, to amend or revoke such certifications and
approvals, subject to certain appeal rights.
The Company may also be required to obtain certification and approval
of AirView from the aeronautical authorities of foreign countries. In many
cases, through technical working agreements between the FAA and the foreign
aeronautical authorities, such authorities will accept the FAA issuance of the
STC as approval, although certain countries' authorities reserve the right to
independently review the data and the compliance criteria which support the
issuance of the STC and to reach an independent determination on whether to
approve the equipment for installation and operation. There can be no assurance
that necessary foreign government approvals will be obtained, or if obtained,
within a reasonable time frame or within the amount budgeted by the Company for
this aspect of the project.
Cruiseview
In an Agreement dated as of February 13, 1998, the Company entered into
a CruiseView Purchase Agreement (the "CruiseView Agreement") with Continuous
Network Advisors ("CNA"), on behalf of Star Cruises Management Limited ("Star"),
an Ilse of Man corporation engaged in the operation of a commercial cruise line,
for the purchase of 2 CruiseView systems for installation on 2 Star cruise
vessels. It is estimated by the Company that in the event that both CruiseView
systems are sold to Star under the terms of the CruiseView Agreement, the
Company will generate over $5 million in gross revenues. Delivery of both
CruiseView systems under the terms of the agreement is expected to be completed
by September 30, 1999. The costs of purchase from the Company include the cost
of training Star employees for system use and the cost of system installation.
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.
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, the
primary 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 1997 and 1996, research and
development expenses totaled $277,527 and $160,276, respectively. The Company
intends to continue to invest in research and development.
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SUMMARY FINANCIAL DATA
The following table presents summary financial data of the Company, as of
December 31, 1997, for the years ended December 31, 1996 and 1997. The following
summary financial information for the years 1996 and 1997 have been derived from
the audited financial statements of the Company, incorporated by reference, and
should be read in conjunction with such financial statements.
Consolidated Statement of Operations Data:
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------
1996 1997
----------- -----------
<S> <C> <C>
Net Sales........................................ $ 4,092,023 $ 7,848,444
Cost of sales.................................... 3,050,596 5,044,258
----------- -----------
Gross Profit..................................... 1,041,427 2,804,186
Selling, general, and administrative expense..... 4,016,351 4,604,588
Income from operations .......................... (3,195,200) (2,077,929)
Interest expense................................. (99,026) (61,737)
Other expense (income)........................... 41,327 114,038
----------- -----------
Operating loss................................... (3,195,200) (2,077,929)
----------- -----------
Net loss......................................... $(3,252,899) $(2,025,628)
----------- -----------
----------- -----------
</TABLE>
<TABLE>
<CAPTION>
Consolidated Balance Sheet Data:
December 31,
---------------------------------
1996 1997
----------- -----------
<S> <C> <C>
Total Current Assets............................. $4,541,303 $10,310,796
Total Assets..................................... 6,792,599 13,239,233
Total Current Liabilities........................ 1,777,829 4,804,501
Long term debt................................... 250,600 259,106
Stockholders' equity............................. 4,756,353 8,174,404
</TABLE>
12
<PAGE>
The Offering
<TABLE>
<S> <C>
Securities Offered: - 830,989 shares of Common Stock issuable upon conversion of the
Company's 4% Convertible Debentures. See "PLAN OF DISTRIBUTION."
Common Stock Outstanding before - 4,154,943 shares of Common Stock
the Offering:(1)
Common Stock Outstanding after the Offering - 4,985,932 shares of Common Stock
if all Debentures are converted:(1)(2)
Risk Factors: - The shares of Common Stock offered hereby involve a high degree
of risk. See "RISK FACTORS."
Use of Proceeds: - The Company will not receive any proceeds from the resale by the
holders of any of the Common Stock issuable upon conversion of
the Debentures. See "USE OF PROCEEDS."
Nasdaq Symbol: - The Common Stock is traded on the automated quotation system of
Common Stock the Nasdaq Small Cap Market under the symbol "TNCX."
</TABLE>
- --------------------------
(1) Does not include a maximum of 746,328 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 $13.26 per share.
(2) Assumes issuance of 830,989 shares of Common Stock upon conversion
of the Debentures.
13
<PAGE>
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:
Early Stage of 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 has and may
continue to experience many of the problems, delays and expenses encountered by
any business in the early stage of its development, 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 two fiscal years ended December 31, 1997, the Company incurred
accumulated losses of ($5,278,527), with such losses decreasing from
($3,252,899) in fiscal 1996 to ($2,025,628) in fiscal 1997. The Company
anticipates that it will incur operating losses through 1998, and may incur
additional losses thereafter. 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
It is possible that cash liquidity may be required to finance
anticipated growth in the Company's accounts receivable and inventories. The
Company has been in discussions with a commercial lender for further financing,
and 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. 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.
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
14
<PAGE>
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 Allin Communications and Interactive Flight
Technologies, have recently announced operating and financial difficulties.
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, Dell and other major computer manufacturers for a majority of its
revenues.
15
<PAGE>
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
the fiscal year ended 1997, three customers accounted for approximately 79%, but
no other customer accounted for more than 10%, of the Company's revenues. The
loss of any of these major customers could have a material adverse effect on the
Company's operations if the Company does not replace such customer on a timely
basis.
Risk Associated With International Sales
The Company currently derives a significant portion of its revenues
from international operations. For the fiscal year ended 1997, international
sales accounted for approximately 76% of the Company's revenues. International
sales are subject to a variety of risks, including difficulties in establishing
and managing international distribution channels, obtaining export licensing,
servicing and supporting overseas products and in translating product interfaces
into foreign languages. International operations are subject to difficulties in
collecting accounts receivable and as a result could affect the timing of
revenue recognition and bad debt reserves. Other factors that can adversely
affect international operations include difficulties in staffing and managing
personnel, enforcing intellectual property rights, fluctuations in the value of
foreign currencies and currency exchange rates, changes in import export duties
and quotas, introduction of tariff or non-tariff barriers and regulatory,
economic or political changes in international markets.
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.
16
<PAGE>
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.
Dependence on Key Personnel
The professional and general development of the Company largely depends
upon the efforts of key management, engineering and selling and marketing
personnel, many of whom would be difficult to replace. The Company does not have
employment agreements with its employees other than its principal executive
officers. The loss of the services of any of the key personnel 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 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 Bylaws 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.
17
<PAGE>
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 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.
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 would 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
18
<PAGE>
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 Common Stock 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 contain 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
Placement"). 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.
19
<PAGE>
USE OF PROCEEDS
The Company will not receive any proceeds from the resale by the
holders of any of the Common Stock issuable upon conversion of the Debentures.
Expenses expected to be incurred by the Company in connection with this Offering
are estimated at approximately $50,000.00.
PLAN OF DISTRIBUTION AND SELLING STOCKHOLDER
The Company has registered 830,989 shares of Common Stock issuable upon
conversion of the Debentures under the Securities Act (the "Shares"). Such
Shares will be distributed when and as such Debentures are converted by the
holders. No Debentures have been converted as of the date indicated on the cover
of this Prospectus. The Company is currently engaged in the process of
converting the Debentures into shares of Convertible Preferred Stock having
identical financial and other terms as the Debentures.
On March 11, 1998, the Company raised gross proceeds of $2.2 million in
a private placement to a single institutional investor, KA Investments LDC (the
"Investor"), of five-year convertible debt securities (the "Debentures")
pursuant to the terms of a Convertible Debenture Purchase Agreement, dated March
11, 1998, by and between the Company and the Investor (the "Purchase
Agreement"). Each Debenture was sold for $50,000.00, will accrue interest at a
rate of 4% per annum, and is convertible at the option of the holder into shares
of the Company's Common Stock at a price per share equal to the lesser of (i)
$8.02 or (ii) 80% of the average closing market price of the Company's Common
Stock during the 21 trading days prior to conversion, but in no event less than
$3.00 per share (as adjusted for stock splits). Pursuant to the Registration
Agreement, the Company is obligated to file with the Securities and Exchange
Commission, within 45 days of the issuance of the Debentures, a registration
statement with respect to the resale of the Common Stock issuable upon
conversion of the Debentures. The Company has agreed to use its best efforts to
keep the Registration Statement of which this Prospectus is a part effective for
a period of three (3) years after the Registration Statement is declared
effective or such earlier date when the Common Stock may be sold pursuant to
Rule 144(k) under the Securities Act.
The Company is registering the Shares underlying the Debentures to
provide the holder of such Shares, upon conversion of the Debentures, with
freely tradable shares of Common Stock. Pursuant to the terms of a Registration
Agreement, dated March 11, 1998, by and between the Company and the Investor
(the "Registration Agreement"), this Registration Statement covers up to 20% of
the number of shares of Common Stock outstanding on March 11, 1998. The terms of
the Purchase Agreement require that the Company maintain a reserve of up to 20%
of the number of shares of Common Stock outstanding on the Original Issue Date
for issuance upon conversion. The terms of the Debentures permit the Company, at
its option, to pay the interest under the Debentures in shares of Common Stock
in lieu of cash under certain circumstances. However, the Company does not
intend to issue such number of shares of Common Stock in lieu of cash which,
when added to the number of shares of Common Stock into which principal of the
Debentures is convertible, would allow the aggregate number of such shares of
Common Stock to exceed 20% of the outstanding shares of Common Stock on March
11, 1998.
Each Debenture is convertible, in whole or in part, from time to time
upon a date (the "Conversion Date") which is the earlier to occur of (1) 105
days after March 11, 1998 or (2) the date that a registration statement with
respect to the resale of the Common Stock which may be acquired upon conversion
of the Debentures is declared effective by the Securities and Exchange
Commission, subject to the restriction that the Debenture holder shall be
entitled to convert up to 25% of the aggregate principal amount of the
Debentures on the Conversion Date, up to 50% of the aggregate principal amount
of the Debentures on the first month anniversary of the Conversion Date, up to
75% of the aggregate principal amount of the Debentures on the second month
anniversary of the Conversion Date, and the entire aggregate principal amount of
the Debentures on the third month anniversary of the Conversion Date.
20
<PAGE>
The Company will not receive any proceeds from the sale of the Common
Stock issuable upon conversion of the Debentures. The Company has agreed to pay
all of the expenses, estimated to be approximately $50,000.00, in connection
with this Offering, other than fees and disbursements of underwriters (including
any underwriting commissions and discounts) and their legal counsel and
accountants.
The Investor is the sole selling stockholder. The following table sets
forth certain information with respect to the Investor for whom the Company is
registering the Shares for resale to the public. The Company will not receive
any of the proceeds from the sale of the Shares by the Investor. Beneficial
ownership of the Shares by such selling stockholder after this Offering will
depend on the number of shares sold by the Investor. Assuming all of the Shares
being offered hereby are sold, the Investor will not beneficially own any Common
Stock in the Company, except as identified below.
<TABLE>
<CAPTION>
Shares of
Shares of Common Stock
Common Stock Registered for
Names and Address
of Beneficial Owner Percentage of Outstanding
Beneficially Offering with Common Stock Owned
Owned this Prospectus After Offering
------------ --------------- -------------------------
<S> <C> <C> <C>
KA Investments LDC....................... 535,280(1) 830,989(1)(2) -0-(3)
c/o Tamarchan Capital Management
1712 Hopkins Crossroads
Minnetonka, MN 55305
</TABLE>
- ----------------------
(1) Includes the number of shares of Common Stock currently
issuable upon conversion of the Debentures at a conversion
price of $4.11 (assuming conversion on April 27, 1998). The
Investor has agreed to restrict its ability to convert the
Debentures to the extent that the number of shares of Common
Stock held by it and its affiliates after such conversion
exceeds 4.999% of the then issued and outstanding shares of
Common Stock following such conversion.
(2) Includes the number of shares of Common Stock beneficially
owned. Also includes an indeterminate number of shares of
Common Stock that may become issuable to prevent dilution
resulting from stock splits, stock dividends and conversion
price or exercise price adjustments, which are included
pursuant to Rule 416 under the Securities Act of 1933, as
amended.
(3) Assumes sale of all Shares offered hereby.
21
<PAGE>
The Investor may, from time to time, sell all or a portion of the
Shares on the Nasdaq Small Cap Market in privately negotiated transactions or
otherwise, at fixed prices that may be changed, at market prices prevailing at
the time of sale, at prices related to such market prices or at negotiated
prices. The Shares may be sold by the Investor by one or more of the following
methods, without limitation: (a) block trades in which the broker or dealer so
engaged will attempt to sell the Shares as agent but may position and resell a
portion of the block as principal to facilitate the transaction, (b) purchases
by a broker or dealer as principal and resale by such broker or dealer for its
account pursuant to this Prospectus, (c) an exchange distribution in accordance
with the rules of such exchange, (d) ordinary brokerage transactions and
transactions in which the broker solicits purchasers, (e) privately negotiated
transactions, (f) short sales and (g) a combination of any such methods of sale.
In effecting sales, brokers and dealers engaged by the Investor may arrange for
other brokers or dealers to participate. Brokers or dealers may receive
commissions or discounts from the Investor (or, if any such broker-dealer acts
as agent for the purchaser of such shares, from such purchaser) in amounts to be
negotiated which are not expected to exceed those customary in the types of
transactions involved. Broker-dealers may agree with the Investor to sell a
specified number of such Shares at a stipulated price per share, and, to the
extent such broker-dealer is unable to do so acting as agent for the Investor,
to purchase as principal any unsold Shares at the price required to fulfill the
broker-dealer commitment to the Investor. Broker-dealers who acquire Shares as
principal may thereafter resell such Shares from time to time in transactions
(which may involve block transactions and sales to and through other
broker-dealers, including transactions of the nature described above) in the
over-the-counter market or otherwise at prices and on terms then prevailing at
the time of sale, at prices then related to the then-current market price or in
negotiated transactions and, in connection with such resales, may pay to or
receive from the purchasers of such Shares commissions as described above. The
Investor may also sell the Shares in accordance with Rule 144 under the
Securities Act, rather than pursuant to this Prospectus.
The Investor and any broker-dealers or agents that participate with the
Investor in sales of the Shares may be deemed to be "underwriters" within the
meaning of the Securities Act in connection with such sales. In such event, any
commissions received by such broker-dealers or agents and any profit on the
resale of the Shares purchased by them may be deemed to be underwriting
commissions or discounts under the Securities Act.
From time to time the Investor may engage in short sales, short sales
against the box, puts and calls and other transactions in securities of the
Company or derivatives thereof, and may sell and deliver the Shares in
connection therewith or in settlement of securities loans. If the Investor
engages in such transactions, the Conversion Price may be affected. From time to
time the Investor may pledge its Shares pursuant to the margin provisions of its
customer agreements with its brokers. Upon a default by the Investor, the broker
may offer and sell the pledged Shares from time to time.
The Company is required to pay all fees and expenses incident to the
registration of the Shares, including fees and disbursements of counsel to the
Investor. The Company has agreed to indemnify the Investor against certain
losses, claims, damages and liabilities, including liabilities under the
Securities Act.
Under the Exchange Act, and the regulations thereto, any person engaged
in a distribution of the securities of the Company offered by this Prospectus
may not simultaneously engage in market-making activities with respect to such
securities of the Company during the applicable "cooling-off" period (two or
nine days) prior to the commencement of such distribution. In addition, and
without limiting the foregoing, the Investor will be subject to applicable
provisions of the Exchange Act and the rules and regulations thereunder,
including, without limitations Regulation M, in connection with transactions in
such securities, which provisions may limit the timing of purchases and sales of
such securities by the Investor.
22
<PAGE>
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 Rosen Lipoff & Quentel, New York, New York
("Greenberg Traurig"). Peter W. Rothberg, of counsel to Greenberg Traurig, owns
3,500 shares of the Company's Common Stock.
EXPERTS
The consolidated financial statements and financial statement schedules
incorporated in this Prospectus by references from the Company's Annual Report
on Form 10-KSB have been audited by Coopers & Lybrand LLP, independent auditors,
as stated in their report, which is incorporated by reference herein, and has
been so incorporated by reference in reliance upon such report given upon the
authority of said firm as experts in accounting and auditing.
23
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
No dealer, salesperson or other person is authorized to give any information or
to make any representation, other than those contained in this Prospectus, in
connection with the offering described herein, and, if given or made, such
information or representations must not be relied upon as having been authorized
by the Company. 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.
- ---------------------
TABLE OF CONTENTS
Page
----
Available Information..............................
Forward-Looking Statements.........................
Incorporation of Certain Documents By Reference....
Prospectus Summary.................................
Risk Factors.......................................
Use of Proceeds....................................
Plan of Distribution...............................
Legal Matters......................................
Experts............................................
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
830,989 Shares of Common Stock
THE NETWORK CONNECTION, INC.
-----------------------------
PROSPECTUS
-----------------------------
April __, 1998
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<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, all amounts shown are estimates.
<TABLE>
<S> <C>
Registration fee................................................ $1,317.64
Printing and engraving expenses................................. 5,000.00*
Legal fees and expenses......................................... 30,000.00*
Accounting fees and expenses.................................... 5,000.00*
Transfer Agent fees and expenses................................ 1,000.00*
Miscellaneous expenses.......................................... 7,682.36*
Total .......................................................... $50,000.00*
-----------
-----------
</TABLE>
- -------------------
(*) Estimated
Item 15. Indemnification of Directors and Officers.
Article XI of the Amended and Restated Articles 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, (i) 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 unlawful
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 XII 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.
II-1
<PAGE>
Item 16. Exhibits
<TABLE>
<CAPTION>
Exhibit
Number Description of Exhibit
- --------------------------------------------------------------------------------
<S> <C>
3.1 -- Amended and Restated Articles of Incorporation of the Registrant.(1)
3.2 -- Amended and Restated Bylaws of the Registrant.(1)
4.1 -- Specimen Certificate of Common Stock.(2)
5.1 -- Opinion of Greenberg Traurig Hoffman Rosen Lipoff & Quentel, counsel to Registrant.
24.1 -- Consent of Coopers & Lybrand LLP.
24.2 -- Consent of Greenberg Traurig Hoffman Rosen Lipoff & Quentel (included in Exhibit 5.1).
</TABLE>
- ---------------
(1) Incorporated by reference and filed as Exhibits to the Registrant's
Current Report on Form 8-K on June 21, 1996.
(2) 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).
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
II-2
<PAGE>
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.
3. Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling persons
of the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question of whether such
indemnification by it is against public policy as expressed in the Securities
Act and will be governed by the final adjudication of such issue.
4. The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act,
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, 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 28th day of
April, 1998.
THE NETWORK CONNECTION, INC.
By: /s/ Wilbur Riner
-------------------------
Wilbur Riner, Chairman
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.
<TABLE>
<CAPTION>
Signature Title Date
<S> <C> <C>
/s/ Wilbur Riner Chairman, Chief Executive April 28, 1998
- -------------------- Officer and Director
Wilbur Riner
/s/ Bryan Carr
- -------------------- Vice President-Finance, Chief April 28, 1998
Bryan Carr Financial and Chief
Accounting Officer and
Director
/s/ James Riner
- -------------------- Vice President-Engineering April 28, 1998
James Riner and Director
- -------------------- Director April __, 1998
Marc Doyle
- -------------------- Director April __, 1998
Arthur Bauer
</TABLE>
<PAGE>
EXHIBIT 5.1
[GREENBERG TRAURIG HOFFMAN LIPOFF ROSEN & QUENTEL LETTERHEAD]
April 29, 1998
The Network Connection, Inc.
1324 Union Hill Road
Alpharetta, GA 30004
Re: Registration Statement on Form S-3
Ladies and Gentlemen:
We have acted as counsel to The Network Connection, Inc., a Georgia
corporation (the "Company"), in connection with the preparation of a
Registration Statement on Form S-3 (the "Registration Statement") to be filed
under the Securities Act of 1933, as amended (the "Securities Act"), for the
registration of an aggregate of: 830,989 shares of the Company's common
stock, par value $.001 per share (the "Common Stock"), issuable upon
conversion of Convertible Debentures issued to an institutional investor
under the terms of a Convertible Debenture Purchase Agreement, dated March
11, 1998 (the "Debentures").
In connection with this opinion, we have examined copies of the
Registration Statement. 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, copies of the Company's Certificate of
Incorporation, By-Laws and minutes, and such other documents and records as
we have deemed relevant. In our examinations, we have assumed the genuineness
of all signatures, the authenticity of all documents submitted to us as
originals, and the conformity with the originals of all documents submitted
to us as copies. In addition, we have made such other examinations of law and
of fact as we have deemed appropriate in order to form a basis for the
opinion hereinafter expressed.
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;
(b) The Common Stock to be sold shall have been issued and delivered in
accordance with the terms of the Debentures against receipt of the
consideration stipulated therefor; and
(c) The Common Stock to be sold shall have been sold as contemplated in
the Registration Statement;
then upon the happening of each of the events set forth in paragraphs (a),
(b) and (c) above:
<PAGE>
The Common Stock being sold, upon execution and delivery of proper
certificates therefor, will have been duly authorized, validly issued and
outstanding, fully paid and non-assessable shares of Common Stock of the
Company.
The opinion set forth above is limited to the Georgia General Corporation
Law, as amended, and to the matters set forth 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.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement. In giving this opinion and consent, we do not thereby
intend any inference that we are acting within the category of persons whose
consent is required under Section 7 of the Securities Act, or the rules and
regulations of the Securities and Exchange Commission promulgated thereunder.
Very truly yours,
GREENBERG TRAURIG HOFFMAN
LIPOFF ROSEN & QUENTEL
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration statement
of The Network Connection, Inc. on Form S-3 of our report dated March 25,
1998, on our audits of the consolidated financial statements of The Network
Connection, Inc. as of December 31, 1997, and for the years ended December
31, 1997 and 1996, which report is included in the Company's Annual Report
on Form 10-KSB. We also consent to the references to our firm under the
captions "Experts" and "Selected Financial Data."
COOPERS & LYBRAND L.L.P.
Atlanta, Georgia
April 29, 1998
