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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 28, 2000
REGISTRATION NO. 333-38422
--------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
AMENDMENT NO. 1 TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
STORAGE COMPUTER CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 02-0450593
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
11 RIVERSIDE STREET, NASHUA, NEW HAMPSHIRE 03062-1373
(603) 880-3005
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
THEODORE J. GOODLANDER, CHIEF EXECUTIVE OFFICER
STORAGE COMPUTER CORPORATION
11 RIVERSIDE STREET
NASHUA, NH 03062
(603) 880-3005
(NAME AND ADDRESS, INCLUDING ZIP CODE AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
copies to:
WILLIAM E. KELLY, ESQ.
PEABODY & ARNOLD LLP
50 ROWES WHARF
BOSTON, MA 02110
Approximate date of commencement of proposed sale to public: From time
to time after the effective date of this Registration Statement.
If the only securities being registered on this form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [__]
If any of the securities being registered on this Form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, other than securities offered only in connection with
dividend or interest reinvestment plans, check the following box: [X]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [__]
If this Form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. [__]
If delivery of the Prospectus is expected to be made pursuant to Rule
434, please check the following box. [__]
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CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
----------------------------- ---------------------- ------------------------ ------------------------ ------------------------
TITLE OF EACH CLASS PROPOSED MAXIMUM PROPOSED MAXIMUM
OF SECURITIES TO BE AMOUNT TO BE OFFERING PRICE AGGREGATE OFFERING AMOUNT OF REGISTRATION
REGISTERED REGISTERED PER SHARE (1) PRICE FEE
============================= ====================== ======================== ======================== ========================
<S> <C> <C> <C> <C>
Common Stock, $0.001 par 3,320,000 shares
value per share (2)(3) $6.375 $21,165,000 $5,587.56
----------------------------- ---------------------- ------------------------ ------------------------ ------------------------
</TABLE>
(1) The price of $6.375, the average of the high and low prices ($6.50 and
$6.25, respectively) of our Common Stock on the American Stock Exchange
on May 30, 2000, is set forth solely for the purpose of computing the
registration fee in accordance with Rule 457(c) under the Securities
Act of 1933 as amended.
(2) The shares of Common Stock covered by this Registration Statement
include shares issuable to selling stockholders upon conversion of
shares of our Series A 8% Convertible Preferred Stock (the "Preferred
Shares") held by the selling stockholders and in payment of dividends
on the Preferred Shares. The rate at which the Preferred Shares may be
converted into Common Stock and the rate at which dividends payable in
cash on the Preferred Shares may be paid in shares of Common Stock
varies based on the prevailing market price for our Common Stock and
the length of time the Preferred Shares are outstanding before
conversion. For purposes of this Registration Statement, we have
assumed that the Preferred Shares will remain outstanding for a period
of three years (the maximum period before the Preferred Shares are
subject to mandatory conversion into Common Stock), that all dividends
on the Preferred Shares will be paid in shares of Common Stock, and
that the effective price at which the Preferred Shares and dividends
will convert to common shares will be $2.00.
(3) This Registration Statement shall also cover any additional shares of
Common Stock which become issuable in connection with the shares of
Common Stock registered for sale hereby as a result of any stock
dividend, stock split, recapitalization or other similar transaction
effected without the receipt of consideration which results in an
increase in the number of the Registrant's outstanding shares of Common
Stock.
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 THAT SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE
SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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SUBJECT TO COMPLETION, DATED [______________], 2000
The information in this prospectus is not complete and may be changed.
The selling stockholders may not sell the Common Stock covered by this
prospectus until the registration statement filed with the Securities and
Exchange Commission is effective. This prospectus is not an offer to sell the
Common Stock and it is not soliciting an offer to buy the Common Stock in any
state where the offer or sale is not permitted.
PRELIMINARY PROSPECTUS
3,320,000 SHARES
STORAGE COMPUTER CORPORATION
COMMON STOCK
This prospectus relates to the public offering, which is not being
underwritten, of 3,320,000 shares of our Common Stock by current stockholders
identified in this prospectus. The shares are issuable to the selling
stockholders upon conversion of shares of our Series A 8% Convertible Preferred
Stock (the "Preferred Shares") held by the selling stockholders, in payment of
dividends on the Preferred Shares, and upon exercise of Common Stock purchase
rights under Warrants held by the selling stockholders. For purposes of this
Registration Statement, we have assumed that the Preferred Shares will remain
outstanding for a period of three years (the maximum period before the Preferred
Shares are subject to mandatory conversion into Common Stock), that all
dividends on the Preferred Shares will be paid in shares of Common Stock, and
that the effective price at which the Preferred Shares and dividends will
convert to common shares will be $2.00. The actual number of common shares into
which the Preferred Shares held by the selling stockholders were convertible on
May 31, 2000 was 972,108 shares.
The Preferred Shares and Warrants were issued by us to the selling
stockholders pursuant to securities purchase agreements between us and the
selling stockholders, dated April 19, 2000 and May 1, 2000. We are filing the
registration statement of which this prospectus is a part pursuant to a
contractual obligation incurred at the time we issued and sold the Preferred
Shares and Warrants to the selling stockholders. On May 1, 2000, Preferred
Shares and a Warrant were sold by us to Theodore J. Goodlander, our Chief
Executive Officer, on the same terms as Preferred Shares and Warrants were sold
to the selling stockholders, but since Mr. Goodlander has elected not to
exercise his contractual registration rights at this time, he is not one of the
selling stockholders and the shares of Common Stock issuable to him in
connection with his Preferred Shares and Warrant are not included in the shares
covered by this prospectus.
The prices at which the selling stockholders may sell shares will be
determined by the prevailing market price for the shares or in negotiated
transactions. We will not receive any of the proceeds from the sale of the
shares by the selling stockholders. We have agreed to indemnify the selling
stockholders and certain other persons against liabilities under the Securities
Act to the extent permitted by law, but we will not be paying any underwriting
commissions or discounts in the offering of shares by the selling stockholders.
Our Common Stock is traded on the American Stock Exchange under the
symbol "SOS." On May 30, 2000, the average of the high and low prices for our
Common Stock was $6.375 per share.
Please see "Where You Can Find More Information" on page 5 for
additional information about us on file with the United States Securities and
Exchange Commission.
THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK. PLEASE CONSIDER
CAREFULLY THE RISK FACTORS BEGINNING AT PAGE 6 IN THIS PROSPECTUS.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED THAT
THIS PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
The date of this Prospectus is [__________], 2000
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TABLE OF CONTENTS
PAGE
THE COMPANY...............................................................5
WHERE YOU CAN FIND MORE INFORMATION.......................................5
RISK FACTORS..............................................................6
USE OF PROCEEDS..........................................................12
DIVIDEND POLICY..........................................................12
SELLING STOCKHOLDERS.....................................................12
DESCRIPTION OF CAPITAL STOCK.............................................13
PLAN OF DISTRIBUTION.....................................................15
LEGAL MATTERS............................................................16
EXPERTS..................................................................16
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THE COMPANY
Storage Computer Corporation develops and manufactures software-driven
multi-host storage solutions used to drive core business applications. We solve
our customers' business problems through our StorageSuite(TM) product line and
OmniRAID(TM) and OmniFORCE(TM) storage software. Based on an open systems,
standards-based architecture, these solutions support highly interactive
applications, many different servers accessing the same data, and multiple users
accessing data from different locations. We pioneered the RAID 7(R) technology
incorporated in our "Virtual Storage Architecture", which forms the basis for
our "StorageSuite" product family. Based upon this performance-optimized
architecture, the "StorageSuite" family combines intelligent controller, disk
drive, and memory technology with patented memory mapping techniques and a
powerful real-time operating system to deliver high-performance and data
protection across the mix of applications found in today's open system
environments.
The Company was organized as a Delaware corporation in 1991. Our
principal executive offices and manufacturing facilities are located at 11
Riverside Street, Nashua, New Hampshire Telephone: (603) 880-3005.
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and special reports, proxy statements and
other information with the Securities and Exchange Commission ("SEC"). You may
read and copy any document we file with the SEC at the SEC's public reference
facilities located at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549,
as well as at the SEC's regional offices at 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661, or 7 World Trade Center, Suite 1300, New York, New York
10048. You may also obtain copies of our filed documents directly from the SEC
at prescribed rates by writing to the Public Reference Section of the SEC, 450
Fifth Street, N.W., Washington, D.C. 20549. Please call the SEC at
1-800-SEC-0330 for further information on the public reference rooms. Our SEC
filings are also available to the public on the SEC's Website at
"http://www.sec.gov."
The SEC allows us to "incorporate by reference" the information we file
with them, which means that we can disclose important information to you by
referring you to those documents. The information incorporated by reference is
considered to be part of this prospectus. Information in this prospectus
supersedes information incorporated by reference which we filed with the SEC
prior to the date of this prospectus, while information that we file later with
the SEC will automatically update and supersede the information contained in
this prospectus. We incorporate by reference the documents listed below and any
future filings we will make with the SEC under Sections 13(a), 13(c), 14 or
15(d) of the Securities Exchange Act of 1934:
1. Our Annual Report on Form 10-K/A for the fiscal year ended December
31, 1999;
2. Our Quarterly Report on Form 10-Q for the quarterly period ended March
31, 2000;
3. The description of our Common Stock contained in our Registration
Statement on Form 8-A filed February 5, 1995; and
4. The description of our Series A 8% Convertible Preferred Stock,
contained in the Certificate of Designation filed as Exhibit 3.3 to
our Annual Report on Form 10-K/A for the fiscal year ended December
31, 1999.
You may request a copy of these filings, at no cost to you, by writing or
telephoning us at the following address or number:
Storage Computer Corporation
Attention: Peter N. Hood, Chief Financial Officer
11 Riverside Street
Nashua, New Hampshire 03062-1373
Telephone: (603) 880-3005
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You should rely only on the information provided in this prospectus or
incorporated by reference. We have authorized no one to provide you with
different information. You should not assume that the information in this
prospectus is accurate as of any date other than the date on the front of this
document.
RISK FACTORS
You should carefully consider the following risk factors, together with
the other information contained in this prospectus, including information
incorporated by reference, before purchasing our Common Stock. Because an
investment in our Common Stock involves a high degree of risk, you should be
aware that you could lose all or part of your investment.
FACTORS BEYOND OUR CONTROL COULD CAUSE OUR QUARTERLY RESULTS TO FLUCTUATE.
Our quarterly operating results have varied widely in the past. As a
result, we believe that period-to-period comparisons of our results of
operations are not necessarily meaningful and should not be relied upon as
indicators of future performance. Many of the factors that could cause our
quarterly operating results to fluctuate significantly in the future are beyond
our control and include the following:
- the level of competition in our target product markets;
- the size, timing and cancellation of significant orders;
- product configuration and mix;
- market acceptance of new products and product enhancements;
- new product announcements or introductions by us or our
competitors;
- deferrals of customer orders in anticipation of new products
or product enhancements;
- changes in pricing by us or our competitors;
- our ability to timely develop, introduce and market new
products and enhancements;
- supply constraints;
- technological changes in our target product markets;
- the levels of expenditure on research and development and
expansion of our sales and marketing programs;
- seasonality; and
- general economic trends.
In addition, sales for any future quarter may vary and accordingly be
inconsistent with our plans. We generally operate with limited order backlog
because our products are typically shipped shortly after orders are received. As
a result, product sales in any quarter are generally dependent on orders booked
and shipped in that quarter. Product sales are also difficult to forecast
because the storage server market is rapidly evolving and our sales cycle varies
substantially from customer to customer.
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Due to all of the foregoing factors, it is possible that in one or more
future quarters our results may fall below the expectations of public market
analysts and investors. In such event, the trading price of our Common Stock
would likely decrease.
OUR GROSS MARGINS MAY VARY BASED ON THE CONFIGURATION OF OUR PRODUCTS.
We derive a significant portion of our sales from the resale of disk
drives as components of our storage servers, and the resale market for hard disk
drives is highly competitive and subject to intense pricing pressures. Our sales
of disk drives generate lower gross margin percentages than those of our storage
server products. As a result, as we sell more highly configured systems with
greater disk drive content, overall gross margin percentages will be negatively
affected.
Our gross margins have been and may continue to be affected by a
variety of other factors, including:
- competition;
- direct versus indirect sales;
- the mix and average selling prices of products, including
software licensing;
- new product introductions and enhancements; and
- the cost of components and manufacturing labor.
A SIGNIFICANT PERCENTAGE OF OUR EXPENSES ARE FIXED WHICH COULD AFFECT OUR NET
INCOME.
Our expense levels are based in part on our expectations as to future
sales and a significant percentage of our expenses are fixed. As a result, if
sales levels are below expectations, net income may be disproportionately
affected.
OUR FUTURE FINANCIAL PERFORMANCE DEPENDS ON GROWTH IN THE STORAGE SERVER MARKET
AND ANY LACK OF GROWTH WILL HAVE A MATERIAL ADVERSE EFFECT ON OUR OPERATING
RESULTS.
Our future financial performance will depend in large part on continued
growth in the storage server market and on emerging standards in this market. We
cannot assure you that the market for storage servers will continue to grow or
that emerging standards in the storage server market will not adversely affect
the growth of UNIX and Windows NT server markets.
IF WE FAIL TO MANAGE OUR EXPANDING BUSINESS EFFECTIVELY OUR OPERATING RESULTS
COULD BE MATERIALLY ADVERSELY AFFECTED.
Our future operating results depend to a large extent on management's
ability to successfully manage expansion and growth, including our expanding
international operations, forecasting revenues, addressing new markets,
controlling expenses, implementing infrastructure and systems and managing our
assets. In addition, an unexpected decline in the growth rate of revenues
without a corresponding and timely reduction in expense growth or a failure to
manage other aspects of growth could materially adversely affect our operating
results.
WE DEPEND ON ATTRACTING AND RETAINING QUALIFIED TECHNICAL AND SALES PERSONNEL.
Our continued success depends, in part, on our ability to identify,
attract, motivate and retain qualified technical and sales personnel. Because
our future success is dependent on our ability to continue to enhance and
introduce new products, we are particularly dependent on our ability to
identify, attract, motivate and retain qualified
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engineers with the requisite education, backgrounds and industry experience.
Competition for qualified engineers, is intense. The loss of the services of a
significant number of our engineers or sales people could be disruptive to our
development efforts or business relationships and could materially adversely
affect our operating results.
WE RELY UPON A LIMITED NUMBER OF SUPPLIERS AND ANY DISRUPTION OR TERMINATION OF
THESE SUPPLY ARRANGEMENTS COULD DELAY SHIPMENT OF OUR PRODUCTS AND COULD
MATERIALLY ADVERSELY AFFECT OUR OPERATING RESULTS.
We rely upon a limited number of suppliers of several key components
utilized in the assembly of our products. We purchase our disk drives, computer
boards and microprocessors from a limited number of suppliers. Our reliance on a
limited number of suppliers involves several risks, including:
- a potential inability to obtain an adequate supply of required
components because we do not have long-term supply
commitments;
- price increases;
- timely delivery; and
- component quality.
Component quality is particularly significant with respect to our
suppliers of disk drives. In order to meet product performance requirements, we
must obtain disk drives of extremely high quality and capacity. In addition,
there are periodic supply and demand issues for disk drives, microprocessors and
for semiconductor memory components, which could result in component shortages,
selective supply allocations and increased prices of such components. We cannot
assure you that we will be able to obtain our full requirements of such
components in the future or that prices of such components will not increase. In
addition, problems with respect to yield and quality of such components and
timeliness of deliveries could occur. Disruption or termination of the supply of
these components could delay shipments of our products and could materially
adversely affect our operating results. Such delays could also damage
relationships with current and prospective customers.
WE DEPEND UPON OUR RESEARCH AND DEVELOPMENT EFFORTS TO DEVELOP AND INTRODUCE NEW
PRODUCTS AND ANY FAILURE TO DEVELOP AND INTRODUCE NEW PRODUCTS SUCCESSFULLY
COULD MATERIALLY ADVERSELY AFFECT OUR OPERATING RESULTS.
Our future growth depends upon the successful development and
introduction of new hardware and software products. We cannot assure you that
these or other new products will be introduced on a timely basis or attain
market acceptance. Due to the complexity of storage servers, and the difficulty
in gauging the engineering effort required to produce new products, new products
are subject to significant technical risks. We cannot assure you that new
products will be introduced on a timely basis or at all. In the past, we have
experienced delays in the shipments of our new products, resulting in delay or
loss of product sales. If new products are delayed or do not achieve market
acceptance, our operating results will be materially adversely affected. The
computer industry is changing both dramatically and rapidly. The development of
"open systems computing", the introduction of the Internet, new fibre
technologies and the increasing storage density in disk drive technologies, have
caused an increase in new product development and shorter time to bring the new
products to market. While we believe that our Virtual Storage Architecture and
StorageSuite products are advanced when compared to competitive products, and
compliment many other products utilized in total customer solutions, there can
be no assurance that this will continue in the future. The failure to remain
consistently ahead of competitive technologies would have a negative impact on
our operating results and financial condition.
WE ARE SUBJECT TO COMPETITION AND PRICING PRESSURES.
The information storage market is extremely competitive. Companies such
as EMC Corporation, IBM Corporation, Hitachi Data Systems, Storage Technology,
Sun Microsystems, and more than 100 other public and
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private companies provide disk arrays for a wide variety of computer systems,
workstations and PCs. Although we are currently unaware of any other vendor
offering an asynchronous transfer RAID 7 disk array, many of our competitors
benefit from greater market recognition and have greater financial, research and
development, production and marketing resources than ours. There can be no
assurance that we will be able to compete successfully against existing
companies or future entrants to the marketplace. Furthermore, reductions in the
price of competitive products, changes in discount levels or announcements by
our competitors of new generations of high-performance systems may adversely
affect sales of our products.
OUR PRODUCTS HAVE LIMITED MARKET ACCEPTANCE.
Our RAID 7 and proposed products are based on designs which have not
yet received widespread acceptance in the market for commercially available
storage systems. Prospective customers may require a longer evaluation period
for these products than for storage systems marketed by more established
companies. Our sales and marketing strategy contemplates sales of its storage
systems for both technical and commercial applications. There can be no
assurance that we will be able to penetrate either storage market, to any
significant extent, or in the time frames sufficient to assure its success. Our
failure to penetrate these storage markets on a timely basis would have a
materially adverse impact upon its operations and prospects. Large computer
users may be slow to adopt new products for use in their core applications,
particularly systems that entail significant capital investment. In addition,
our products could be subject to export controls imposed by the United States
Government, which could create delays in the sale of our systems in
international markets. Any significant delay in market acceptance of our
products could result in the marketing of our products at a time when their cost
and performance characteristics are not competitive.
UNDETECTED SOFTWARE ERRORS OR FAILURES FOUND IN NEW PRODUCTS MAY RESULT IN LOSS
OF OR DELAY IN MARKET ACCEPTANCE OF OUR PRODUCTS WHICH COULD MATERIALLY
ADVERSELY AFFECT OUR OPERATING RESULTS.
Our products may contain undetected software errors or failures when
first introduced or as new versions are released. Despite testing by us and by
current and potential customers, errors may not be found in new products after
commencement of commercial shipments, resulting in loss of or delay in market
acceptance, which could materially adversely affect our operating results.
THE MARKET PRICE FOR OUR COMMON STOCK HAS FLUCTUATED SIGNIFICANTLY IN THE PAST
AND WILL LIKELY CONTINUE TO DO SO IN THE FUTURE AND ANY BROAD MARKET
FLUCTUATIONS MAY MATERIALLY ADVERSELY AFFECT THE MARKET PRICE OF OUR COMMON
STOCK.
The market price for our Common Stock has been volatile in the past,
and several factors could cause the price to fluctuate substantially in the
future. These factors include:
- fluctuations in our operating results;
- fluctuations in the valuation of companies perceived by
investors to be comparable to us;
- a shortfall in revenues or earnings compared to securities
analysts' expectations;
- changes in analysts' recommendations or projections;
- announcements of new products, applications or product
enhancements by us or our competitors; and
- changes in our relationships with our suppliers or customers.
In addition, the stock market has experienced volatility that has
particularly affected the market prices of equity securities of many high
technology companies and that often has been unrelated to the operating results
of
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such companies. As a result, the market price of our Common Stock may fluctuate
significantly in the future and any broad market fluctuations may adversely
affect the market price of our Common Stock. Due to all of the foregoing, the
current market price of our Common Stock may not be indicative of future market
prices.
A LIMITED PUBLIC TRADING MARKET EXISTS FOR OUR COMMON STOCK.
Currently, a limited established public trading market exists for our
Common Stock. The sales of a substantial number of shares in the public market
could adversely affect the market price for our Common Stock.
COMPETITORS ARE FORMING BUSINESS ALLIANCES.
Many companies are forming business alliances with their competitors,
to be able to provide totally integrated storage solutions to their customers.
One result of these alliances is to effectively preclude competitive products
from being offered to the customers. Many of the relationships are exclusive and
our failure to develop similar relationships will effectively reduce the number
of qualified sales opportunities we will have for our products in the future. We
believe that we address this issue by our return to the reseller channel sales
model and effectively having the integrators and value added-resellers perform
the solution selling required. Our failure to open these sales channels will
have a negative effect on our operating results and financial condition.
WE REQUIRE NEAR FLAWLESS OPERATIONS.
Our products operate near the limits of electronic and physical
performance and are designed and manufactured with relatively small tolerances.
If flaws in design, production, assembly or testing were to occur by us or our
suppliers, we could experience a rate of failure in our products that would
result in substantial repair or replacement costs and potential damage to our
reputation. There can be no assurance that our efforts to monitor, develop and
implement appropriate test and manufacturing processes for its products will be
sufficient to permit us to avoid a rate of failure in its products that results
in substantial delays in shipment, significant repair or replacement costs and
potential damage to our reputation, any of which could have a material adverse
effect on our business, results of operations or financial condition.
WE HAVE SIGNIFICANT FOREIGN SALES.
Approximately, 50%, 46% and 56% of our revenues during our fiscal years
ended December 31, 1997, 1998 and 1999, respectively, were derived from sales
made outside of the United States. Our profitability and financial condition are
materially dependent on the success of our foreign sales efforts. In general,
our foreign sales are subject to certain inherent risks, including unexpected
changes in regulatory and other legal requirements, tariffs and other trade
barriers, longer accounts receivable payment cycles and the possibility of
increased difficulty in collection of accounts receivable, difficulty in the
management of foreign operations, potentially adverse tax consequences including
restrictions on the repatriation of earnings, and the burdens of compliance with
a wide variety of foreign laws. Currency transaction gains or losses on
conversion to United States dollars from foreign sales denominated in foreign
currencies may also contribute to fluctuations in our results of operations.
There can be no assurance that these factors will not have an adverse impact on
our future foreign sales and, consequently, on our operating results. We do not
presently engage in the hedging of foreign currencies or similar activities.
WE HAVE ISSUED PREFERRED STOCK.
We have issued 60,000 shares of Preferred Stock and may issue up to an
aggregate total of 1,000,000 shares of Preferred Stock in the future without
further shareholder approval and upon such terms and conditions, and having such
rights, privileges and preferences, as our Board of Directors may determine. The
rights of the holders of the Common Stock will be subject to, and may be
adversely affected by, the rights of the holders of any shares of Preferred
Stock that may be issued in the future. The issuance of Preferred Stock could
have the effect of making it more difficult for a third party to acquire us, or
of discouraging a third party from acquiring, a majority of our outstanding
voting stock.
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CONVERSION OF PREFERRED STOCK COULD HAVE A DILUTIVE IMPACT.
The conversion of the Preferred Stock could have a dilutive impact on
the percentage of ownership of the current holders of the Common Stock. The
shares of Common Stock issuable upon conversion of the Preferred Stock could
represent greater than 20% the total number of outstanding shares of Common
Stock. Because holders of Preferred Stock will have the opportunity to convert
the Preferred Stock into Common Stock at less than market rates each conversion
will result in a dilution of the ownership interests of the current holders of
Common Stock. If the conversion price were to be reduced to $2.00 per share as a
result of declines in the market value of the Common Stock (and assuming
conversion of all 90,000 shares of authorized Preferred Stock at that price),
the holders of Preferred Stock would receive 4,500,000 shares of Common Stock
(representing approximately 28% of the number of shares of Common Stock issued
and outstanding following such conversion); such number of shares of Common
Stock could be further increased (resulting in greater dilution of the current
holders of Common Stock) upon exercise of Warrants associated with the Preferred
Stock or as a result of issuance of Common Stock in payment of dividends on
Preferred Stock.
Because the amount of Common Stock issuable to the holders of the
Preferred Stock is based on a formula that is tied to the market price of the
Common Stock just prior to the date on which the Preferred Stock is converted
into shares of Common Stock, conversion of the Preferred Stock could result in
significant dilution of the per share value of Common Stock held by current
investors. The perceived risk of dilution may cause holders of Preferred Stock
who convert their Preferred Stock and immediately sell the shares of Common
Stock issued upon such conversion, which would be likely to contribute to a
downward movement in the market price of the Common Stock. Significant downward
pressure on the trading price of the Common Stock resulting from such sales
could encourage shareholders to engage in short sales, which would further
contribute to a decline in the market price for the Common Stock. Each holder of
Preferred Stock has agreed with the Company that, so long as it holds Preferred
Stock, it will not enter into any put option or short sale of Common Stock and
it will not use the Common Stock acquired through conversion of its shares of
Preferred Stock to settle any put option or short position which may have been
entered into prior to its investment in the Preferred Stock.
The terms of the Preferred Stock provide that the conversion price
shall never be greater than $8.6625 (110% of the market price of the Common
Stock at the time the Preferred Stock was first issued) but could be less, based
on the average trading price of the Common Stock just prior to the time of
conversion. The lower the average trading price of shares of Common Stock just
prior to the conversion date, the greater the number of shares of Common Stock
that can be issued upon conversion of the Preferred Stock, and the greater the
risk of dilution caused by this issuance.
Furthermore, the longer the Preferred Stock is outstanding prior to
conversion, the greater the discount from the prevailing market price at which
the Preferred Stock can be converted into shares of Common Stock. If the
Preferred Stock is converted prior to October 17, 2000, the conversion price
will be the lower of $8.6625 or 82.5% of the market price of the Common Stock
just prior to the conversion date; if the Preferred Stock is converted on or
after October 17, 2000 but prior to January 16, 2001, the conversion price will
be the lower of $8.6625 or 78.5% of the market price of the Common Stock just
prior to the conversion date; if the Preferred Stock is converted on or after
January 16, 2001 but prior to April 15, 2001, the conversion price will be the
lower of $8.6625 or 75% of the market price of the Common Stock just prior to
the conversion date; and if the Preferred Stock is converted after April 15,
2001, the conversion price will be the lower of $8.6625 or 65% of the market
price of the Common Stock just prior to the conversion date.
The following table sets forth (i) the effective conversion price at
the time of the various reductions in the percentage of the prevailing market
price at which the Preferred Stock may be converted into shares of Common Stock
(assuming, at the date of each such reduction, that the prevailing market price
for the Common Stock is equal to, 25% less than, 50% less than, and 75% less
than the closing market price of the Common Stock on July 13, 2000), (ii) the
number of shares of Common Stock issuable upon conversion of all of the
Preferred Stock at such conversion price (assuming the Company does not issue
any shares of Common Stock in payment of dividends on the Preferred Stock), and
(iii) the percentage of the total number of shares of Common Stock issued and
outstanding that would be represented by the shares of Common Stock issuable at
such conversion price.
<PAGE> 12
SHARES OF COMMON STOCK ISSUABLE UPON CONVERSION OF PREFERRED STOCK
(ASSUMING 0%, 25%, 50% AND 75% REDUCTIONS IN MARKET PRICE FOR COMMON STOCK)
Conversion Prior to 10/17/00
-----------------------------------------------
NUMBER OF PERCENTAGE
SHARES OF OWNERSHIP
COMMON OF CONVERTED
MARKET CONVERSION STOCK PREFERRED
PRICE PRICE ISSUABLE STOCK
------ ---------- --------- ------------
$15.25 $8.6625 692,641 5.77%
$11.4375 $8.6625 692,641 5.77%
$7.625 $6.2906 953,800 7.96%
$3.8125 $3.1453 1,907,601 15.91%
Conversion from 10/17/00 to 1/15/01
-----------------------------------------------
NUMBER OF PERCENTAGE
SHARES OF OWNERSHIP
COMMON OF CONVERTED
MARKET CONVERSION STOCK PREFERRED
PRICE PRICE ISSUABLE STOCK
------ ---------- ---------- ------------
$15.25 $8.6625 692,641 5.77%
$11.4375 $8.6625 692,641 5.77%
$7.625 $5.9856 1,002,402 8.36%
$3.8125 $2.9928 2,004,803 16.72%
Conversion from 1/16/01 to 4/15/01
-----------------------------------------------
NUMBER OF PERCENTAGE
SHARES OF OWNERSHIP
COMMON OF CONVERTED
MARKET CONVERSION STOCK PREFERRED
PRICE PRICE ISSUABLE STOCK
------ ---------- ---------- ------------
$15.25 $8.6625 692,641 5.77%
$11.4375 $8.55781 699,454 5.83%
$7.625 $5.7188 1,049,180 8.75%
$3.8125 $2.8594 2,098,361 17.50%
Conversion after 4/16/01
-----------------------------------------------
NUMBER OF PERCENTAGE
SHARES OF OWNERSHIP
COMMON OF CONVERTED
MARKET CONVERSION STOCK PREFERRED
PRICE PRICE ISSUABLE STOCK
------ ---------- ---------- ------------
$15.25 $8.6625 692,641 5.77%
$11.4375 $7.4344 807,062 6.73%
$7.625 $4.9563 1,210,593 10.01%
$3.8125 $2.4713 2,421,125 20.19%
NO MAXIMUM NUMBER OF SHARES OF COMMON STOCK ISSUED UPON CONVERSION.
There is no minimum average trading price that fixes the maximum number
of shares of Common Stock that can be issued upon the conversion of Preferred
Stock. The terms of the Preferred Stock,
<PAGE> 13
however, provide that, should the market price for Common Stock decline to less
than $4.00 per share, the Preferred Stock may not be converted for a period of
30 days or until the market price exceeds $4.00 (if earlier). Similarly, should
the market price for Common Stock decline to less than $2.00 per share, the
Preferred Stock may not be converted for a 30-day period or until the market
price exceeds $2.00 (if earlier).
<PAGE> 14
THE OWNERSHIP AND CONTROL OF THE COMPANY IS CONCENTRATED.
At May 30, 2000 our executive officers and directors beneficially owned
approximately 40.67% of the outstanding shares of our Common Stock. Theodore J.
Goodlander, our CEO, directly owns approximately 33.36% of the outstanding
shares of our Common Stock and 10,000 shares of our Series A 8% Convertible
Preferred Stock, which were convertible on May 30, 2000 into 194,421 shares of
Common Stock. If Mr. Goodlander were to convert his shares of Series A 8%
Convertible Preferred Stock into shares of Common Stock at the conversion rate
in effect on May 30, 2000, he would own approximately 34.43% of the then
outstanding shares of our Common Stock. In addition, trusts established for the
benefit of Mr. Goodlander's children own approximately 27.44% of the outstanding
shares of Common Stock. Although Mr. Goodlander does not exercise any voting
control over such shares, the trustees may vote with Mr. Goodlander and
effectively control the management and affairs of the Company. Thus, any new
shareholders probably will own a number of shares of Common Stock which will be
insufficient to permit them to influence or control the management or policies
of the Company.
WE HAVE ADDITIONAL FINANCING REQUIREMENTS.
We believe that we have sufficient liquidity to undertake certain
designated activities and fund operations through December 31, 2000. However,
our long-term continued operations depend upon cash flows from operations, if
any, and the availability of additional equity or debt financing. In light of
our current cash and working capital positions, it is uncertain that we would be
able to generate sufficient cash flows from operations to sustain and continue
to fund growth and expansion without an additional equity or debt offering in
the future. There can be no assurances that we could successfully complete a
debt or equity offering in the future, on terms satisfactory to us, if at all.
THERE IS LIMITED LIABILITY OF DIRECTORS AND OFFICERS.
We, in our Certificate of Incorporation and By-laws, as amended and
restated, have adopted certain provisions of Delaware General Corporation Laws
("DGCL"), which afford our directors and officers limited liability and/or
indemnification in certain circumstances. The availability of these protections
may, in some cases, affect our response to unsolicited attempts by third parties
to take over or otherwise gain control of the Company.
THERE IS LIMITED SENIOR EXECUTIVE STAFF.
Our senior executive management is composed solely of a small core
group of individuals. Our executive management function is highly concentrated
among a limited number of key managers. Accordingly, the departure of one or
more of such executive managers could have an adverse affect on our
technological advancements or results of operations. Although we take
appropriate steps to compensate our executive management, there can be no
assurances that we will be able to attract or retain qualified senior management
personnel.
OUR BUSINESS MAY SUFFER IF WE CANNOT PROTECT OUR INTELLECTUAL PROPERTY.
We generally rely upon patent, copyright, trademark and trade secret
laws and contract rights in the United States and in other countries to
establish and maintain our proprietary rights in our technology and products.
However, there can be no assurance that any of our proprietary rights will not
be challenged, invalidated or circumvented. In addition, the laws of certain
countries do not protect our proprietary rights to the same extent, as do the
laws of the United States. Therefore, there can be no assurance that we will be
able to adequately protect our proprietary technology against unauthorized
third-party copying or use, which could adversely affect our competitive
position. Further, there can be no assurance that we will be able to obtain
licenses to any technology that we may require to conduct our business or that,
if obtainable, such technology can be licensed at a reasonable cost.
We are aggressively pursuing the enforcement of our intellectual
property rights after an extensive patent review conducted in 1999.
Subsequently, we retained a major law firm to enforce these rights against
infringing parties, which our management believes to be extensive. Despite our
legal representatives' efforts, there can be no assurance or predictability as
to any amount of recovery, if any, or the length of time it will take us to
recover any
-11-
<PAGE> 15
royalties or license fees which may be recoverable. Despite our efforts to
protect our intellectual property rights, unauthorized use may still occur,
particularly in foreign countries.
CHANGES IN LAWS, REGULATIONS, OR OTHER CONDITIONS COULD ADVERSELY AFFECT OUR
CONDITION.
Our business, results of operations and financial condition could be
adversely affected if any laws, regulations or standards, both foreign and
domestic, relating to us or our products were newly implemented or changed.
LITIGATION THAT WE MAY BECOME INVOLVED IN MAY ADVERSELY AFFECT US.
Both in the ordinary course of business and in our efforts to enforce
our intellectual property rights against infringing parties, we may become
involved in litigation, administrative proceedings and governmental proceedings.
Such matters can be time-consuming, divert management's attention and resources
and cause us to incur significant expenses. Furthermore, there can be no
assurance that the results of any of these actions will not have a material
adverse effect on our business, results of operations or financial condition.
USE OF PROCEEDS
We will not receive any proceeds from the sale of the shares being
offered by the selling stockholders; nor will such proceeds be available for our
use or benefit.
OUR DIVIDEND POLICY
We have never paid cash dividends on our Common Stock. We currently
anticipate retaining all available funds, if any, to finance internal growth and
product development. Payment of dividends in the future will depend upon our
earnings and financial condition and such other factors as the directors may
consider or deem appropriate at the time.
SELLING STOCKHOLDERS
We are registering 3,320,000 shares of Common Stock covered by this
prospectus on behalf of the selling stockholders named in the table below. All
of these shares are issuable to the selling stockholders upon conversion of
shares of our Series A 8% Convertible Preferred Stock (the "Preferred Shares")
held by the selling stockholders, in payment of dividends on the Preferred
Shares, and upon exercise of Common Stock purchase rights under Warrants held by
the selling stockholders. The Preferred Shares and Warrants were issued by us to
the selling stockholders pursuant to securities purchase agreements between us
and the selling stockholders, dated April 19, 2000 and May 1, 2000. We have
registered these shares of Common Stock to permit the selling stockholders to
resell the shares when they deem appropriate.
The following table sets forth the name of each of the selling
stockholders, the number of shares owned by each of the selling stockholders,
the number of shares that may be offered under this prospectus, and the number
of shares of our Common Stock owned by each of the selling stockholders after
this offering is completed. Except as set forth in the table below, none of the
selling stockholders has had a material relationship with us within the past
three years other than as a result of the ownership of our securities. The
number of shares in the column "Number of Shares Being Offered" represent all of
the shares that each selling stockholder may offer under this prospectus. We do
not know how long the selling stockholders will hold the shares before selling
them and we currently have no agreements, arrangements or understandings with
any of the selling stockholders regarding the sale of any of the shares. The
shares offered by this prospectus may be offered from time to time by the
selling stockholders named below.
-12-
<PAGE> 16
Unless otherwise indicated, each person has sole investment and voting
power with respect to the shares listed in the table, subject to community
property laws, where applicable. For purposes of this table, a person or group
of persons is deemed to have "beneficial ownership" of any shares which such
person has the right to acquire within 60 days. Percentage ownership is based on
11,989,434 shares of our Common Stock outstanding on May 30, 2000. For purposes
of computing the percentage of outstanding shares held by each person or group
of persons named below, any security which such person or group of persons has
the right to acquire within 60 days is deemed to be outstanding for the purpose
of computing the percentage ownership for such person or persons, but is not
deemed to be outstanding for the purpose of computing the percentage ownership
any other person or persons. The rate at which the Preferred Shares may be
converted into Common Stock and the rate at which dividends payable in cash on
the Preferred Shares may be paid in shares of Common Stock vary based on the
prevailing market price for our Common Stock and the length of time the
Preferred Shares are outstanding before conversion. For purposes of the table
below, we have assumed that the Preferred Shares will remain
outstanding for a period of three years (the maximum period before the Preferred
Shares are subject to mandatory conversion into Common Stock), that all
dividends on the Preferred Shares will be paid in shares of Common Stock, and
that the effective price at which the Preferred Shares and dividends will
convert to common shares will be $8.6625. The actual number of common shares
into which the Preferred Shares held by the selling stockholders were
convertible on July 26, 2000 was 935,729 shares.
<TABLE>
<CAPTION>
SHARES SHARES
BENEFICIALLY OWNED BENEFICIALLY OWNED
PRIOR TO OFFERING NUMBER OF AFTER OFFERING (1)
---------------------- SHARES BEING -----------------------
NAME OF SELLING STOCKHOLDER NUMBER PERCENT OFFERED NUMBER PERCENT
---------------------------------------------- --------- ------- ------------ -------- -------
<S> <C> <C> <C> <C> <C>
The Shaar Fund Ltd.
c/o Levinson Capital Management 561,437 4.47% 561,437 0 *
2 World Trade Center, Suite 1830
New York, NY 10048
The Theodore Jay Goodlander II Trust (2) 1,009,646 8.29% 187,146 822,500 6.36%
c/o Paige A. Boer, Trustee
1875 Commonwealth Avenue
Boston, MA 02135
John Hasenbank
3738 Drake 101,573 * 93,573 8,000 *
Houston, TX 77005
John O'Brien (3)
36 Ranger Road 240,323 1.99% 93,573 146,750 1.13%
Hollis, NH 03049
========= ========= =======
TOTAL 1,912,979 14.80% 935,729 977,250 7.56%
</TABLE>
-------------------------------------
(1) Assumes sale of all of the shares offered by this Prospectus.
(2) Theodore Jay Goodlander II, the beneficiary of this trust, is the adult son
of Theodore J. Goodlander, our CEO, and Paige A. Boer, the trustee, is Theodore
J. Goodlander's niece. Theodore J. Goodlander exercises no control over the
voting or disposition of any shares held by this trust.
(3) Includes 140,200 shares issuable to Mr. O'Brien under stock options that
are currently exercisable or will become exercisable before August 1, 2000.
* Represents beneficial ownership of less than 1%.
DESCRIPTION OF CAPITAL STOCK
Authorized Capital Stock
Our authorized capital stock consists of 25,000,000 shares of Common
Stock, par value $0.001, and 1,000,000 shares of preferred stock, par value
$0.001. Of our authorized preferred stock, 90,000 shares have been
-13-
<PAGE> 17
designated Series A 8% Convertible Preferred Stock and 910,000 shares remain
undesignated. As of May 30, 2000, there were outstanding 11,989,434 shares of
Common Stock held of record by approximately 600 shareholders. As of May 30,
2000, there were outstanding 60,000 shares of Series A 8% Convertible Preferred
Stock held of record by 5 shareholders, which shares were convertible at May 30,
2000 into 1,166,529 shares of Common Stock. The Company has outstanding stock
options to purchase 1,318,870 shares of Common Stock and warrants and other
convertible securities outstanding to purchase 414,000 shares of Common Stock.
The following summary of certain provisions of the Common Stock and
preferred stock is not intended to be complete and is qualified by reference to
the provisions of applicable law and our amended and restated certificate of
incorporation (as amended) and our amended and restated by-laws.
Common Stock
Holders of Common Stock are entitled to one vote for each share held.
Subject to preferences that may be applicable to any Preferred Stock outstanding
at the time, the holders of the outstanding shares of Common Stock are entitled
to receive dividends out of assets legally available therefore at such times and
in such amount as the Board may from time to time determine. The Common Stock is
not entitled to preemptive rights and is not subject to redemption. Upon
liquidation, dissolution or winding-up of the Company, the assets legally
available for distribution to stockholders are distributable ratably among the
holders of the Common Stock and any participating Preferred Stock outstanding at
that time after payment of liquidation preferences, if any, on any outstanding
Preferred Stock and payment of other claims of creditors. Each outstanding share
of Common Stock is validly issued, fully paid and nonassessable.
-14-
<PAGE> 18
Series A 8% Convertible Preferred Stock
We have issued 60,000 shares of our Series A 8% Convertible Preferred
Stock. The shares of Series A 8% Convertible Preferred Stock rank senior to all
other shares of our capital stock, including shares of our Common Stock. Upon
liquidation, dissolution or winding-up of the Company or the commencement of
certain bankruptcy proceedings involving the Company, the holders of our Series
A 8% Convertible Preferred Stock are entitled to receive an amount equal to $130
per share, plus accrued and unpaid dividends, before any payments or
distributions of our assets to other shareholders. The holders of our Series A
8% Convertible Preferred Stock have the right to require us to treat certain
changes in the control of the Company as a liquidation pursuant to which we will
be required to distribute to them the same preferential amount they would
receive upon a liquidation, dissolution or winding up of the Company. Each share
of Series A 8% Convertible Preferred Stock has a stated value of $100 and is
entitled to receive dividends at the rate of $8 per year, payable semi-annually.
We have the option of paying dividends in cash or through the issuance of shares
of our Common Stock to the holders of Series A 8% Convertible Preferred Stock.
Subject to certain restrictions, the holders of our Series A 8% Convertible
Preferred Stock have the right to convert their shares of Series A 8%
Convertible Preferred Stock into Common Stock at a conversion price equal to the
lesser of (i) $8.6625 per share (110% of the market price of our Common Stock on
April 19, 2000) or (ii) a discount (beginning at 17.5% and increasing over time
to 35%) below the market price of our Common Stock on the date of conversion. We
are required to convert any shares of our Series A 8% Convertible Preferred
Stock remaining outstanding on April 19, 2003 into shares of Common Stock. No
conversion may occur if and to the extent that the issuance of shares of Common
Stock upon such conversion (i) would result in the holder thereof becoming
subject to certain reporting and other obligations under the Securities and
Exchange Act of 1934, as amended, or (ii) in excess of the number of shares we
are permitted under the rules of the American Stock Exchange to issue without
the approval of our shareholders, unless such approval has been obtained. If we
are prohibited from effecting a conversion, we will be required to redeem the
shares that we are unable to convert at a price of $125 per share plus accrued
and unpaid dividends. We have the right to redeem our Series A 8% Convertible
Preferred Stock at any time before April 19, 2003 at a price of $125 per share
plus accrued and unpaid dividends, so long as on the date of redemption the
market price of our Common Stock is less than $8.6625 per share (110% of the
market price of our Common Stock on April 19, 2000). The holders of our Series A
8% Convertible Preferred Stock generally do not have voting rights, although the
consent of the holders of 90% of the then-outstanding Series A shares is
required for certain fundamental changes in the rights, preferences or priority
of our Series A 8% Convertible Preferred Stock.
Undesignated Preferred Stock
Our Board of Directors is authorized to issue up to 910,000 shares of
preferred stock, in one or more series with such designations, preferences and
relative, participating, optional or other special rights, and qualifications,
limitations or restrictions thereof, as shall be stated and expressed in a Board
resolution or resolutions providing for the issue of such series without any
further vote or action by the stockholders. The Board may authorize the issuance
of such Preferred Stock with voting or conversion rights that could adversely
affect the voting power or other rights of the holders of the Common Stock.
Thus, the issuance of the currently-undesignated Preferred Stock may have the
effect of delaying, deferring or preventing a change in control of the Company.
PLAN OF DISTRIBUTION
Pursuant to the terms of this Prospectus, the selling shareholders are
offering from time to time, in whole or in part, an aggregate of 3,320,000
shares of Common Stock for resale hereunder for their own account at such prices
and on such terms as are available at the time of sale. The proceeds from any
sales of Common Stock by the selling stockholders will not be received by the
Company.
We will pay substantially all expenses incurred in the offering and
sale of the Common Stock to the public, other than commissions, concessions and
discounts of dealers or agents. These expenses (excluding such commissions and
discounts) are estimated to be approximately $45,000. For their shares, the
selling stockholders will receive the purchase price of the shares sold less any
agent's commissions, discounts and other related expenses. The selling
stockholders, directly or through agents, brokers or dealers, may sell the
shares of Common Stock described
-15-
<PAGE> 19
in this prospectus (1) on terms to be determined at the time of a sale, (2) in
transactions on the American Stock Exchange, (3) in privately negotiated
transactions or (4) in a combination of these methods of sale. The selling
stockholders may also sell the shares to or through brokers or dealers. These
brokers or dealers may receive compensation in the form of discounts,
concessions or commissions from the selling stockholder. We will not receive any
proceeds from the sale of the shares by the selling stockholders.
The selling stockholders and any persons who participate in the
distribution of the shares may be deemed to be underwriters within the meaning
of the Securities Act. Any discounts, commissions or concessions received by
these underwriters and any provided for the sale of the shares by them may be
considered underwriting discounts and commissions under the Securities Act. The
selling stockholder will be subject to the applicable provisions of the Exchange
Act and the rules and regulations of the Exchange Act, including Rules 10b-2,
10b-6 and 10b-7, which provisions may limit the timing of purchases and sales of
any of the Common Stock by the selling stockholders.
In order to comply with the securities laws of certain states, if
applicable, the shares may be sold in such jurisdictions only through registered
or licensed brokers or dealers. In addition, in certain states the shares may
not be sold unless they have been registered or qualified for sale or an
exemption from registration or qualification requirements is available and is
complied with.
LEGAL MATTERS
The legality of our shares of Common Stock offered by this prospectus
will be passed upon for us by Peabody & Arnold LLP, 50 Rowes Wharf, Boston,
Massachusetts 02110. William E. Kelly, a partner at Peabody & Arnold LLP, is our
Secretary.
EXPERTS
Our consolidated financial statements as of December 31, 1999 and
December 31, 1998, and for each of the two years in the period ended December
31, 1999, incorporated herein by reference, have been audited by BDO Seidman,
LLP, independent certified public accountants, as indicated in their report
with respect thereto, and are included herein in reliance upon the authority of
said firm as experts in accounting and auditing. Our consolidated financial
statements for the year ended December 31, 1997, incorporated herein by
reference, have been audited by Richard A. Eisner & Company, LLP, independent
certified public accountants, as indicated in their report with respect thereto,
and are included herein in reliance upon the authority of said firm as experts
in accounting and auditing.
WE HAVE AUTHORIZED NO ONE TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS
THAT ARE NOT CONTAINED IN THIS PROSPECTUS. YOU SHOULD RELY ONLY ON THE
INFORMATION INCORPORATED BY REFERENCE OR PROVIDED IN THIS PROSPECTUS. YOU MUST
NOT RELY ON ANY UNAUTHORIZED INFORMATION.
THIS PROSPECTUS DOES NOT OFFER TO SELL OR BUY ANY SHARES IN ANY JURISDICTION
WHERE IT IS UNLAWFUL. YOU SHOULD NOT ASSUME THAT THE INFORMATION IN THIS
PROSPECTUS IS ACCURATE AS OF ANY DATE OTHER THAN THE DATE ON THE FRONT OF THE
DOCUMENT.
-16-
<PAGE> 20
----------------------------
No dealer, sales representative or any
other person has been authorized to give
information or make any representation
not contained in this prospectus in
connection with the offer made by this 3,320,000 Shares
prospectus and, if given or made, such
information or representation must not
be relied upon as having been authorized
by the Company. This prospectus does not
constitute an offer to sell or a
solicitation of an offer to buy any
securities other than those specifically
offered hereby or of any securities
offered hereby in any jurisdiction to
any person to whom it is unlawful to
make an offer or solicitation in such
jurisdiction. Neither the delivery of
this prospectus nor any sale made Storage Computer Corporation
hereunder shall, under any Common Stock
circumstances, create an implication
that there has been no 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 the date hereof.
-----------------
PROSPECTUS
----------------
[Date]
----------------------------
-17-
<PAGE> 21
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCES AND DISTRIBUTION
The expenses relating to the registration of the Shares hereunder will be
borne by us. Such expenses are estimated to be as follows:
Securities and Exchange Commission Registration Fee $ 5,833.87
Legal Fees and Expenses $17,000.00
Accounting Fees and Expenses $ 7,500.00
Printing and Engraving $10,000.00
Transfer Agent and Registrar Fees $ 1,000.00
Miscellaneous $ 3,000.00
TOTAL EXPENSES $44,333.87
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law ("DGCL") permits
indemnification of officers and directors in certain circumstances. As permitted
by the DGCL effective in July 1986, we have included a provision in our
Certificate of Incorporation that, subject to certain limitations, eliminates
our ability and that of our stockholders to recover monetary damages from a
director of our Company for breach of fiduciary duty as a director.
Additionally, our By-Laws contain provisions that we must indemnify and make
advances to officers and directors, for all liabilities which they incur in
discharging claims made against them for their activities as a director or
officer of us that are incurred during their tenure with us, except claims
brought against an employee, officer or director, which are based upon acts of
the employee, officer or director, which were not performed in "good faith".
Limitation of Personal Liability of Directors. The DGCL provides that a
corporation's certificate of incorporation may include a provision limiting the
personal liability of a director to the corporation or its stockholders for
monetary damages for breach of fiduciary duty as a director. However, no such
provision can eliminate or limit the liability of a director for (i) any breach
of the director's duty of loyalty to the corporation or its stockholders, (ii)
acts or omissions not in good faith or which involve intentional misconduct or a
knowing violation of the law, (iii) violation of certain provisions of the DGCL
with respect to unlawful distributions to stockholders, (iv) any transaction
from which the director derived an improper personal benefit, or (v) any act or
omission prior to the adoption of such a provision in the certificate of
incorporation. Our Certificate of Incorporation contains a provision eliminating
the personal liability of its directors for monetary damages to the extent
permitted under Delaware law.
Indemnification of Directors and Officers. Under the DGCL, a
corporation may not indemnify any director, officer, employee or agent made, or
threatened to be made party to any threatened, pending or completed proceeding,
unless such person acted in good faith and in a manner such person acted in good
faith and in a manner such person reasonably believed to be in or not opposed to
the best interests of the corporation, and, with respect to any criminal
proceeding, had no reasonable cause to believe that his or her conduct was
unlawful. Our By-Laws contain provisions which require us to indemnify such
persons to the full extent permitted by the DGCL.
The DGCL also establishes several mandatory rules for indemnification.
In the case of a proceeding by or in the right of the corporation to procure
judgment in its favor (e.g., a stockholder derivative suit), a corporation may
indemnify an officer,
-18-
<PAGE> 22
director, employee or agent if such person acted in good faith and in a manner
such person reasonably believed to be in or not opposed to the best interests of
the corporation, and, with respect to any criminal proceeding, had no reasonable
cause to believe that his or her conduct was unlawful. Our By-Laws contain
provisions which require us to indemnify such persons to the full extent
permitted by the DGCL.
The DGCL also establishes several mandatory rules for indemnification.
In the case of a proceeding by or in the right of the corporation to procure a
judgment in its favor (e.g., a stockholder derivative suit), a corporation may
indemnify an officer, director, employee or agent if such person acted in good
faith and in a manner such person reasonably believed to be in or not opposed to
the best interests of the corporation; provided, however, that no person
adjudged to be liable to the corporation may be indemnified unless, and only to
the extent that, the Delaware Court of Chancery or the court in which such
action or suit was brought determines upon application that, despite the
adjudication of liability but in view of all the circumstances of the case, such
person is fairly and reasonably entitled to indemnity for such expenses which
such court deems proper. A director, officer, employee or agent who is
successful, on the merits or otherwise, in defense of any proceeding subject to
the DGCL's indemnification provisions must be indemnified by the corporation for
reasonable expenses incurred therein, including attorney's fees.
The DGCL and our By-Laws state that a determination must be made that a
director or officer has met the required standard of conduct before the director
or officer may be indemnified. The determination may be made by (i) a majority
vote of a quorum of disinterested directors, (ii) independent legal counsel
(selected by the disinterested directors) or (iii) the stockholders.
The DGCL and our By-Laws require us to advance reasonable expenses to a
director or officer after such person provides an undertaking to repay the
corporation if it is determined that the required standard of conduct has not
been met. In addition, the our By-Laws permit us to advance expenses to other
employees and agents in a similar manner.
The indemnification and advancement of expenses described above under
the DGCL is not exclusive of any other rights to which those seeking
indemnification or advancement of expenses may be entitled under any by-law
agreement, vote of stockholders or disinterested directors or otherwise.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers or persons controlling us,
pursuant to the foregoing provisions, we have been informed that in the opinion
of the Securities Exchange and Commission, such indemnification is against
public policy as expressed in the Act and is therefore unenforceable.
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<PAGE> 23
ITEM 16. EXHIBITS
EXHIBIT NO. DESCRIPTION
4.1+ Instruments defining the rights of security holders
Reference is made to the description of our
Common Stock contained in our Registration
Statement on Form 8-A filed February 5, 1995
and to the description of our Series A 8%
Convertible Preferred Stock, contained in the
Certificate of Designation filed as Exhibit 3.3
to our Annual Report on Form 10-K/A for the
fiscal year ended December 31, 1999.
5.1+ Opinion of Peabody & Arnold LLP
23.1+ Consent of BDO Seidman, LLP
23.2+ Consent of Richard A. Eisner & Company, LLP
23.3+ Consent of Peabody & Arnold LLP
(Included in Exhibit 5.1 hereto)
24.1+ Power of Attorney
+Previously filed.
ITEM 17. UNDERTAKINGS
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:
(i) To include any prospectus required by section
10(a)(3) of the Securities Act of 1933.
(ii) To reflect in the prospectus any facts or events
arising after the effective date of the registration
statement (or the most recent post-effective amendment
thereof) which, individually or in the aggregate,
represent a fundamental change in the information set
forth in the registration statement. Notwithstanding the
foregoing, any increase or decrease in volume of
securities offered (if the total dollar value of
securities offered would not exceed that which was
registered) and any deviation from the low or high end of
the estimated maximum offering range may be reflected in
the form of prospectus filed with the Commission pursuant
to Rule 424(b) if, in the aggregate, the changes in volume
and price represent no more than a 20% change in the
maximum aggregate offering price set forth in the
"Calculation of Registration Fee" table in the effective
registration statement.
(iii) 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.
Provided, however, that paragraphs (1)(i) and (1)(ii) do not apply if the
information required to be included in a post-effective amendment by those
paragraphs is contained in periodic reports filed with or furnished to the
Commission by the registrant pursuant to section 13 or section 15(d) of the
Securities Exchange Act of 1934 that are incorporated by reference in the
registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to be
a new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
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<PAGE> 24
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at the
termination of the offering.
(4) That, for purposes of determining any liability under the
Securities Act of 1933, each filing of the registrant's annual report pursuant
to section 13(a) or section 15(d) of the 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.
(5) Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling persons
of the registrant pursuant to provisions described in Item 15, 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 whether such
indemnification by it is against public policy as expressed in the Securities
Act and will be governed by the final adjudication of such issue.
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<PAGE> 25
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
the registrant certifies that it has reasonable grounds to believe that it meets
all of the requirements for filing on Form S-3 and has duly caused this
registration statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Nashua, State of New Hampshire, on this 28th day
of July 2000.
STORAGE COMPUTER CORPORATION
By: /s/ Theodore J. Goodlander
---------------------------
Theodore J. Goodlander
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, as amended,
this registration statement has been signed below by the following persons in
their capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
<S> <C> <C>
/s/ Theodore J. Goodlander Chairman of the Board of Directors, July 28, 2000
------------------------------- Chief Executive Officer and Treasurer
Theodore J. Goodlander (Principal Executive Officer)
* President, Chief Operating Officer July 28, 2000
------------------------------- and Director
Edward A. Gardner
* Chief Financial Officer (Chief Financial July 28, 2000
------------------------------- and Accounting Officer)
Peter N. Hood
* Director July 28, 2000
-------------------------------
Roger E. Gauld
Director
-------------------------------
Steven S. Chen
*By: /s/ Theodore J. Goodlander
---------------------------
Theodore J. Goodlander,
attorney-in-fact
</TABLE>
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<PAGE> 26
INDEX TO EXHIBITS
EXHIBIT NO. DESCRIPTION
4.1+ Instruments defining the rights of security holders
Reference is made to the description of our
Common Stock contained in our Registration
Statement on Form 8-A filed February 5, 1995
and to the description of our Series A 8%
Convertible Preferred Stock, contained in the
Certificate of Designation filed as Exhibit 3.3
to our Annual Report on Form 10-K/A for the
fiscal year ended December 31, 1999.
5.1+ Opinion of Peabody & Arnold LLP
23.1+ Consent of BDO Seidman, LLP
23.2+ Consent of Richard A. Eisner & Company, LLP
23.3+ Consent of Peabody & Arnold LLP
(Included in Exhibit 5.1 hereto)
24.1+ Power of Attorney
+ Previously filed.
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