<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY , 1997.
REGISTRATION NO. 333-.....
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM SB-2
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
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OBJECTIVE COMMUNICATIONS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE
(STATE OR OTHER JURISDICTION OF
INCORPORATION OR ORGANIZATION)
4825
(PRIMARY STANDARD INSTITUTIONAL
CLASSIFICATION CODE NUMBER)
54-1707962
(I.R.S. EMPLOYER
IDENTIFICATION NO.)
OBJECTIVE COMMUNICATIONS, INC.
14100 PARK MEADOW DRIVE
CHANTILLY, VIRGINIA 20151
(703) 227-3000
(ADDRESS, INCLUDING ZIP CODE, AND
TELEPHONE NUMBER, INCLUDING AREA CODE, OF
PRINCIPAL EXECUTIVE OFFICES AND PRINCIPAL
PLACE OF BUSINESS)
STEVEN A. ROGERS
14100 PARK MEADOW DRIVE
CHANTILLY, VIRGINIA 20151
(703) 227-3040
(NAME, ADDRESS, INCLUDING ZIP CODE, AND
TELEPHONE NUMBER, INCLUDING AREA CODE, OF
AGENT FOR SERVICE)
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Copy to:
ELLEN C. GRADY, ESQ.
SHAW, PITTMAN, POTTS & TROWBRIDGE
1501 FARM CREDIT DRIVE
MCLEAN, VIRGINIA 22102
(703) 790-7900
THOMAS E. CONSTANCE, ESQ.
SHARI K. KROUNER, ESQ.
KRAMER, LEVIN, NAFTALIS & FRANKEL
919 THIRD AVENUE
NEW YORK, NEW YORK 10022
(212) 715-9100
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: AS SOON AS
POSSIBLE AFTER THE EFFECTIVE DATE OF THIS REGISTRATION STATEMENT.
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, as amended, 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 of 1933, as amended, 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 of 1933, as amended, 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
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<CAPTION>
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PROPOSED MAXIMUM
AGGREGATE AMOUNT OF
TITLE OF EACH CLASS OF AMOUNT TO BE PROPOSED MAXIMUM OFFERING REGISTRATION
SECURITIES TO BE REGISTERED REGISTERED OFFERING PRICE PRICE(1) FEE
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<S> <C> <C> <C> <C>
Common Stock, $.01 par value................. 2,070,000(2) $6.00 per share $ 12,420,000 $ 3,763.64
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Underwriter's Options........................ 180,000 $0.00l per option $ 180 $ 0.05
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Common Stock, par value $.01 per share,
issuable upon exercise of the Underwriter's
Options.................................... 180,000 $7.20 per share $ 1,296,000 $ 392.73
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Common Stock, par value $.01 per share,
issuable upon exercise of the Bridge
Warrants (3)............................... 500,000 $3.30 per share $ 1,650,000 $ 500.00
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Common Stock, par value $.01 per share,
issuable upon exercise of the Series A
Warrants (3)............................... 100,000 $4.00 per share $ 400,000 $ 121.21
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Common Stock, par value $.01 per share,
issuable upon conversion of the Series A
Convertible Preferred Stock (4)............ 500,000 $4.00 per share $ 2,000,000 $ 606.06
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Total........................................ -- -- $ 17,766,180 $ 5,383.69
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</TABLE>
(1) Estimated solely for purposes of calculating the registration fee pursuant
to Rule 457 under the Securities Act.
(2) Includes shares that the Underwriter has the option to purchase to cover
over-allotments, if any.
(3) Represents warrants for the purchase of shares of Common Stock issued to
investors in October, November and December 1996 and January 1997.
(4) Represents shares of Common Stock issuable upon automatic conversion of the
Series A Convertible Preferred Stock at the time of the closing of this
Offering, which shares of Series A Convertible Preferred Stock were issued
to investors in December 1996 and January 1997.
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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 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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<PAGE> 2
EXPLANATORY NOTE
This Registration Statement covers the registration of (i) 1,800,000 shares
of Common Stock to be offered by the Company, plus 270,000 shares issuable upon
exercise of the Over-Allotment Option, (ii) 500,000 shares of Common Stock (the
"Bridge Warrant Shares") issuable upon exercise of warrants (the "Bridge
Warrants") issued by the Company in October and November 1996, (iii) 500,000
shares of Common Stock (the "Series A Shares") issuable upon conversion of the
500,000 shares of Series A Convertible Preferred Stock issued by the Company in
December 1996 and January 1997 in a private placement of equity to Applewood
Associates, L.P. ("Applewood") and Acorn Technology Partners, L.P. ("Acorn"),
(iv) 100,000 shares of Common Stock (the "Series A Warrant Shares") issuable
upon exercise of the warrants (the "Series A Warrants") issued by the Company in
December 1996 and January 1997 in a private placement of equity to Applewood and
Acorn, (v) the Underwriter's Options to purchase 180,000 shares of Common Stock
to be issued by the Company to the Underwriter in connection with the Offering,
and (vi) 180,000 shares of Common Stock issuable upon exercise of the
Underwriter's Options (the "Underwriter's Option Shares"). The Bridge Warrant
Shares, the Series A Shares, the Series A Warrant Shares and the Underwriter's
Option Shares are offered by certain holders of such securities (the "Selling
Securityholders") and not for the account of the Company. Following the
Prospectus included in this Registration Statement are certain pages of the
Prospectus relating to the securities being offered by the Selling
Securityholders, including alternate front and back cover pages, an alternate
"The Offering" section of the "Prospectus Summary," and sections entitled
"Concurrent Sales By Company" and "Selling Stockholders." All other sections of
the Prospectus for the Offering, other than "Underwriting," are to be used in
the Prospectus relating to the Selling Securityholders. All references in the
Prospectus to the "Offering" will be changed to the "Company Offering" in the
Prospectus relating to the Selling Securityholders. In addition,
cross-references in the Prospectus included in this Registration Statement shall
be adjusted in the Prospectus for the Selling Securityholders to refer to the
appropriate alternate Prospectus pages.
<PAGE> 3
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF 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.
PROSPECTUS SUBJECT TO COMPLETION DATED , 1997
OBJECTIVE COMMUNICATIONS, INC.
1,800,000 SHARES
COMMON STOCK
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Objective Communications, Inc. (the "Company") hereby offers (the
"Offering") 1,800,000 shares of common stock, par value $.01 per share (the
"Common Stock"). Prior to the Offering, there has been no public market for the
Common Stock. The Company has applied for quotation of the Common Stock on the
Nasdaq SmallCap Market (the "Nasdaq SmallCap Market") under the symbol OCOM, and
for listing on the Philadelphia Stock Exchange ("PHL") and the Boston Stock
Exchange ("BSE") under the symbol OBC. It is currently estimated that the
initial public offering price will be between $5.00 and $6.00 per share. The
initial public offering price of the Common Stock will be determined by
negotiations between the Company and the Underwriter. See "Underwriting" for
information relating to the factors to be considered in determining the initial
public offering price.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF
THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
THE SECURITIES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK AND IMMEDIATE AND
SUBSTANTIAL DILUTION AND SHOULD BE PURCHASED ONLY BY PERSONS WHO CAN
AFFORD TO SUSTAIN A TOTAL LOSS OF THEIR INVESTMENT. PROSPECTIVE
PURCHASERS SHOULD CONSIDER CAREFULLY THE MATTERS SET FORTH
UNDER "RISK FACTORS" BEGINNING ON PAGE 8 OF THIS
PROSPECTUS.
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UNDERWRITING
PRICE TO PUBLIC DISCOUNTS AND COMMISSIONS (1) PROCEEDS TO COMPANY (2)
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<S> <C> <C> <C>
Per Share........................... $ $ $
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Total (3)........................... $ $ $
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</TABLE>
(1) Does not reflect additional compensation to be received by the Underwriter
including (i) a non-accountable expense allowance equal to 3% of the gross
proceeds of the Offering (of which $40,000 has been paid), (ii) options
entitling the Underwriter to purchase from the Company, for a period of five
years from the date of this Prospectus, up to 180,000 shares of Common Stock
at an exercise price equal to 120% of the initial public offering price (the
"Underwriter's Options") and (iii) an $80,000 consulting fee (exclusive of
any accountable out-of-pocket expenses), payable to the Underwriter on the
consummation of the Offering, representing payment under a two-year
consulting agreement pursuant to which the Underwriter will render
non-exclusive advisory services to the Company. The Company has also agreed
to indemnify the Underwriter against certain liabilities under the
Securities Act of 1933, as amended (the "Securities Act"). See
"Underwriting."
(2) Before deducting expenses payable by the Company (including the
Underwriter's non-accountable expense allowance) estimated at $1,832,000
($2,025,050 if the Underwriter's Over-Allotment Option, as defined below, is
exercised in full). See "Use of Proceeds."
(3) The Company has granted to the Underwriter an option exercisable within 45
days after the closing date of the Offering to purchase up to 270,000
additional shares of Common Stock on the same terms and conditions as set
forth above solely to cover over-allotments (the "Over-Allotment Option").
If the Over-Allotment Option is exercised in full, the total Price to
Public, total Underwriting Discounts and Commissions, and total Proceeds to
Company will be $ , $ and $ , respectively. See "Underwriting."
The Common Stock offered hereby is offered subject to prior sale, when, as if
delivered to and accepted by the Underwriter, and subject to approval of certain
legal matters by their counsel and to certain other conditions. The Underwriter
reserves the right to withdraw, cancel or modify such offer and to reject any
order, in whole or part. It is expected that delivery of the certificates
representing the shares of Common Stock will be made at the offices of Barington
Capital Group, L.P., 888 Seventh Avenue, New York, New York 10019, on or about
, 1997.
BARINGTON CAPITAL GROUP, L.P.
The date of this Prospectus is , 1997.
<PAGE> 4
[Color photographs of the EVS-50, a
VidPhone(R) terminal and the VidModem(TM).]
IN CONNECTION WITH THE OFFERING, THE UNDERWRITER MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK
OFFERED HEREBY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON NASDAQ SMALLCAP MARKET, THE PHL,
THE BSE OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY
TIME.
The Company intends to furnish to its stockholders annual reports
containing financial statements audited by independent accountants, and such
other periodic reports as the Company may deem appropriate or as may be required
by law.
Objective Communications(R) and VidPhone(R) are registered trademarks of
the Company. This Prospectus also contains trademarks and trade names of other
companies.
2
<PAGE> 5
Unless otherwise indicated, the information contained in this Prospectus
assumes that the Over-Allotment Option is not exercised. Except as otherwise
indicated, all share information and per share amounts set forth in this
Prospectus have been adjusted to reflect a one-for-two reverse stock split (the
"Recapitalization"), effective on December 5, 1996. A glossary of certain terms
used in this Prospectus is provided beginning on page 35. This Prospectus
contains forward-looking statements that involve risks and uncertainties. The
Company's actual results may differ significantly from the results discussed in
such forward-looking statements. Factors that might cause such differences
include, but are not limited to, those discussed under the heading "Risk
Factors." The shares offered hereby involve a high degree of risk.
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and Financial Statements, including the notes thereto, appearing
elsewhere in this Prospectus and should be read in conjunction with that
information and those Financial Statements and notes. Prospective investors are
urged to read this Prospectus in its entirety.
THE COMPANY
Objective Communications, Inc. (the "Company") has developed a proprietary
video communications system, the VidPhone(R) system, which is an integrated
hardware and software system that provides high-quality, low-cost video
distribution and stereo audio transmission using the existing unshielded
telephone wiring. The VidPhone(R) enables video conferencing, data and file
sharing, full-motion broadcasting and retrieval of stored data directly to or
from a desktop personal computer (the "desktop") or conference room system. The
Company believes that the VidPhone(R) system offers greater functionality and
compatibility with existing infrastructure at a lower price than most
high-quality video conferencing equipment on the market today. The Company
believes that it offers the only video distribution system that combines all
three major video applications, video conferencing, video broadcast and video
retrieval, in a single cost-effective, turn-key solution.
INDUSTRY BACKGROUND
According to a 1996 report by Frost and Sullivan, the U.S. video
conferencing market generated revenues of $2.94 billion in 1995 and revenues are
projected to grow to over $34.76 billion by the year 2002, which would represent
a compound annual growth rate of 42.3% over such period. The video conferencing
market currently consists of two segments: services and systems. Video
conferencing services include transport services, which provide Integrated
Services Digital Network ("ISDN") line service for teleconference parties;
multi-point bridging services, which coordinate calls among various parties at
multiple locations; and public room services, which provide video conferencing
services equipment to the public for a per-hour or per-day charge. The video
conferencing systems currently available include permanently-installed and
portable boardroom systems, and desktop systems. According to a November 1996
article in PCWeek, the desktop segment of the video conferencing market, which
the Company services, is expected to grow from 300,000 units shipped in 1996 to
6,000,000 shipped by 2000. The Company's VidPhone(R) system targets not only the
video conferencing market, but also the market for video broadcast and retrieval
at the desktop and in the boardroom.
PRODUCTS
The VidPhone(R) system enables an existing Private Branch Exchange ("PBX")
or Centrex system to transmit live television broadcasts, conduct two-way or
multi-party video conferences, and distribute stored video material to the
desktop. The Company believes that these applications can be used for meetings,
training programs and retrieval of real-time financial market information and
other news.
The Company's VidPhone(R) system uses a core technology developed by the
Company called the VidModem(TM) (patent pending). The VidModem(TM) enables the
VidPhone(R) to transmit and receive full-motion
3
<PAGE> 6
laser disc-quality video, compact disc-quality stereo audio and high-speed data
to and from each user. VidModem(TM) requires only a single, unshielded twisted
pair ("UTP"). VidModem(TM) technology utilizes the same single UTP wire that
serves existing telephone systems and, as a result, does not require a customer
to install new wiring or infrastructure. The VidModem(TM) is compatible with
most digital and analog telephony systems sold by the leading PBX and telephone
vendors and also functions on the newest ISDN telephone systems. The Company's
proprietary VidPhone(R) system provides the user with a client/server
architecture that can create a video network using an existing PBX or Centrex
system. VidPhone(R) is also compatible with a customer's existing standard
telephone system, and all VidPhone(R) system functions, video retrieval,
broadcast and conferencing, can be performed while a user simultaneously engages
in a telephone conversation over the same UTP wire. This minimizes a customer's
need for new communications or transport infrastructure. The Company believes
that these features of the Company's VidPhone(R) system will make it attractive
to potential customers because it is cost-effective, functional and easily
installed.
The VidPhone(R) system is composed of four basic components: the Enterprise
Video Switch ("EVS"), VidModem(TM) configured VidPhones(R), remote VidPhones(R)
and proprietary software. The EVS can accommodate a variety of interfaces,
including multiple VidModem(TM) cards, Asynchronous Transfer Mode ("ATM")
switches, ISDN lines and multi-point conference bridges. The VidPhone(R) system
supports one-way and two-way multimedia communications. The VidPhone(R) provides
its own internal data communications network and does not rely on a Local Area
Network ("LAN") to operate. The VidPhone(R) is completely compatible with LAN
installations, however, and also can provide complementary services to corporate
or enterprise networks ("intranets").
The Company also has developed three software applications for use with the
VidPhone(R). Objective View(TM) is the Company's primary software platform that
provides a graphical user interface for the VidPhone(R). TeleDraw(TM) is a
full-featured software package that permits collaborative drawing, annotation
and editing of drawings or pictures from remote locations. TeleShare(TM) allows
participants in different locations to share spreadsheet or word processing
applications.
The Company believes that the VidPhone(R) system eliminates the
cost/quality trade-off faced by potential users of video applications. The
Company currently expects that the VidPhone(R) system will cost under $5,000. In
the current market, video applications systems with high-resolution and
realistic video images can cost a purchaser in excess of $15,000 for a
fully-equipped unit that operates at only one location within a facility.
Although such systems can operate on low-capacity ISDN lines, Bell
Communications Research ("Bellcore") studies show that, without adding costly,
high-capacity lines to its existing infrastructure, the user cannot receive the
best video quality for business applications from a boardroom system. As an
alternative, desktop systems generally cost under $10,000 per unit, but provide
video images that are low resolution and unrealistic. Thus, the Company believes
that the affordable video application products currently available fail to
provide the primary objective of video conferencing, which is to see and hear
the other conferees clearly and easily. Additionally, many video conferencing
units available today are incompatible with units at other locations because
they use proprietary protocols rather than the international standard. The
VidPhone(R) system is compatible with the international protocol for use with
existing ISDN and other lines and functions on a proprietary protocol for ATM
switches until an international protocol for ATM is developed.
STRATEGY
The Company believes that the VidPhone(R) system offers users a
cost-effective video conferencing product without sacrificing image resolution.
The high cost of high-resolution video conferencing equipment with which the
VidPhone(R) system will compete, the capital costs and wiring requirements
associated with the installation of such systems, and the lack of video
broadcast and retrieval applications in the workplace, are expected to present
the Company with a competitive advantage as it markets the VidPhone(R) system
and its related software applications to customers in the desktop and boardroom
video market.
The Company's objective is to gain a leading position in the desktop video
applications industry by marketing the VidPhone(R) system through large business
telephone system providers which sell, install and
4
<PAGE> 7
support PBX systems, such as the Regional Bell Operating Companies ("RBOCs"),
long distance exchange companies ("LEXCs"), PBX manufacturers and PBX resellers.
These providers have direct access to end-users to which the VidPhone(R) system
can be easily introduced. The Company anticipates that such PBX system
manufacturers will be interested in establishing marketing relationships with
the Company, because of the ease with which the VidPhone(R) system can be
marketed and sold to existing customers as an upgrade to an existing telephony
system. The Company currently is discussing a test marketing arrangement for the
VidPhone(R) with leading PBX manufacturers and resellers and also is discussing
the establishment of joint marketing relationships. As a part of these test
marketing arrangements, the Company has installed VidPhone(R) equipment in the
facilities of various PBX manufacturers, LEXCs and at an end-user customer
location. The Company has not yet established any joint venture relationships
and there can be no assurance that it will be successful in its efforts to
develop such relationships or that, if established, such arrangements will be
profitable. See "Risk Factors -- Limited Marketing Experience; Need for
Additional Personnel."
HISTORY
The Company was incorporated in Delaware on October 5, 1993 by Steven A.
Rogers, its founder, President and Chief Executive Officer. Prior to founding
the Company, Mr. Rogers had founded two other telecommunications companies, and
members of the Company's technical and marketing teams have extensive
backgrounds in the telecommunications industry. The Company's ten-member board
of directors is comprised of seven senior executives in the telecommunications
industry, two investor representatives and Mr. Rogers. The Company's executive
offices and engineering lab are located at 14100 Park Meadow Drive, Chantilly,
Virginia 20151. Its telephone number is (703) 227-3000.
5
<PAGE> 8
THE OFFERING
Common Stock Offered by the
Company....................... 1,800,000 shares of Common Stock
Common Stock Outstanding
Immediately Prior to the
Offering (1).................. 2,561,844 shares of Common Stock
Common Stock to be Outstanding
Following the Offering
(1)(2)........................ 4,361,844 shares of Common Stock
Risk Factors.................... The shares of Common Stock offered hereby
involve a high degree of risk and should be
purchased only by persons who can afford to
sustain a total loss of their investment.
See "Risk Factors" and "Dilution."
Use of Proceeds................. The net proceeds of the Offering will be used
by the Company: (i) to fund product
development efforts; (ii) to repay debt;
(iii) to fund sales and marketing efforts;
(iv) for capital expenditures; (v) for
facilities expansion and (vi) for working
capital and general corporate purposes. See
"Use of Proceeds."
Proposed Nasdaq SmallCap Market
Trading Symbol (3)............ OCOM
Proposed PHL Symbol (3)......... OBC
Proposed BSE Symbol (3)......... OBC
- ---------------
(1) Includes 500,000 shares of Common Stock issuable upon the automatic
conversion of the 500,000 outstanding shares of the Company's Series A
Convertible Preferred Stock, par value $.01 per share (the "Series A
Preferred Stock"), at the time of the closing of the Offering. Does not
include (i) 500,000 shares of Common Stock issuable upon exercise of
warrants (the "Bridge Warrants"), issued by the Company to purchasers of its
10% Senior Secured Promissory Notes (the "Bridge Notes"), in connection with
a debt financing consummated prior to the Offering (the "Bridge Financing");
(ii) 496,686 shares issuable upon exercise of other outstanding warrants to
purchase shares of Common Stock; (iii) 343,000 shares of Common Stock
reserved for issuance upon exercise of outstanding options granted to
executive officers, key employees and consultants under the Company's 1994
Stock Option Plan (the "1994 Plan"), and 190,000 shares of Common Stock
reserved for issuance upon exercise of non-qualified options granted to
certain directors of the Company; and (iv) 450,000 shares reserved for
issuance under the Company's 1996 Stock Incentive Plan (the "1996 Plan").
See "Management -- Directors' Non-Qualified Options," "-- 1994 Stock Option
Plan," "-- 1996 Stock Incentive Plan," "Certain Transactions" and
"Description of Securities."
(2) Does not include (i) up to 270,000 shares of Common Stock issuable upon
exercise of the Over-Allotment Option, and (ii) 180,000 shares of Common
Stock issuable upon exercise of the Underwriter's Options. See
"Underwriting."
(3) There is currently no market for the Common Stock and there can be no
assurance that a market for the Common Stock will develop after the
Offering. The Company has applied for quotation of the Common Stock on the
Nasdaq SmallCap Market and for listing of the Common Stock on the PHL and
the BSE. There can be no assurance, however, that such applications for
quotation or listing will be approved, or if approved, will be maintained.
See "Risk Factors -- Absence of Public Market; Negotiated Offering Price."
6
<PAGE> 9
SUMMARY FINANCIAL INFORMATION
The summary financial data set forth below under the caption "Selected
Statements of Operations Data" for the years ended December 31, 1995 and 1996,
and under the caption "Selected Balance Sheet Data" at December 31, 1996, are
derived from the financial statements of the Company, included elsewhere in this
Prospectus, audited by Coopers & Lybrand L.L.P., independent accountants. The
data set forth below should be read in conjunction with the Financial Statements
and notes thereto included elsewhere in this Prospectus and "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
---------------------------
1996 1995
--------- ---------
(IN THOUSANDS, EXCEPT PER
SHARE
DATA AND SHARE AMOUNTS)
<S> <C> <C>
SELECTED STATEMENTS OF OPERATIONS DATA:
Revenues................................................................... $ 81 $ 225
Operating expenses:
Research and development............................................... 1,107 1,232
General and administrative............................................. 1,041 827
Depreciation........................................................... 159 60
Other.................................................................. 64 152
--------- ---------
Total operating expenses.......................................... 2,371 2,271
Interest expense (1)....................................................... 990 --
Net loss (1)............................................................... $ (3,280) $ (2,046)
Net loss per common share.................................................. $(0.87) $(0.57)
Weighted average common shares and common share equivalents outstanding
(2)...................................................................... 3,758,938 3,612,963
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1996
---------------------------------------
PRO PRO FORMA,
ACTUAL FORMA (3) AS ADJUSTED (4)
------- --------- ---------------
(IN THOUSANDS)
<S> <C> <C> <C>
SELECTED BALANCE SHEET DATA:
Cash................................................................ $ 623 $ 1,553 $ 7,057
Working capital (deficit)........................................... (1,916) (986) 7,082
Total assets........................................................ 1,681 2,611 7,901
Total current liabilities........................................... 3,168 3,168 604
Total long-term liabilities......................................... 26 26 26
Series A Convertible Preferred Stock (5)............................ 848 1,778 --
Deficit accumulated during development stage........................ (5,751) (5,751) 5,965
Stockholders' equity (deficit)...................................... (2,361) (2,361) 7,271
</TABLE>
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(1) Includes in 1996 a one-time, non-cash interest expense of $907,789 incurred
in connection with the issuance of certain warrants. See Note 6 of Notes to
Financial Statements.
(2) See Notes 2 and 7 of Notes to Financial Statements.
(3) Pro forma to give effect to (i) the issuance and sale in January 1997 by the
Company of 250,000 shares of Series A Preferred Stock and Series A Warrants
to purchase 50,000 shares of Common Stock at an exercise price of $4.00 per
share and the receipt of $930,000 in net proceeds therefrom and (ii) the
consummation of the warrant exchange transaction with certain existing
investors in the Company, which was completed in January 1997. See "Certain
Transactions," "Description of Securities" and Note 7 of Notes to Financial
Statements.
(4) Pro forma, as adjusted to give effect to (i) the issuance of 500,000 shares
of Common Stock upon the automatic conversion, at the time of the closing of
the Offering, of the Series A Preferred Stock; (ii) the sale by the Company
of the 1,800,000 shares of Common Stock offered hereby at an assumed initial
public offering price of $5.50 per share and receipt of the net proceeds
therefrom; and (iii) the application of a portion of the net proceeds of the
Offering to repay certain outstanding indebtedness, as set forth under "Use
of Proceeds," and the write-off of the debt issuance costs associated with
the indebtedness to be repaid. See "Use of Proceeds."
(5) The Company issued and sold to an investor 250,000 shares of Series A
Preferred Stock in December 1996. Pursuant to an irrevocable subscription
made in December 1996, the Company issued and sold to another investor an
additional 250,000 shares of Series A Preferred Stock in January 1997. See
Note 7 of Notes to Financial Statements.
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RISK FACTORS
The shares of Common Stock offered hereby involve substantial risks and
should be purchased only by persons who can afford to sustain the loss of their
entire investment. The following risk factors, in addition to the other
information and financial data set forth elsewhere in this Prospectus, should be
considered carefully in evaluating the Company and its business before making an
investment in the Common Stock. The risks described below and elsewhere in this
Prospectus are not intended to be an exhaustive list of the general or specific
risks involved, but merely identify certain risks that are now foreseen by the
Company. It must be recognized that other risks, not now foreseen, might become
significant in the future and that the risks which are now foreseen might affect
the Company to a greater extent than is now foreseen or in a manner not now
contemplated. Each prospective investor should carefully consider all
information contained in this Prospectus and should give particular
consideration to the following risk factors before deciding to purchase the
Common Stock offered hereby.
DEVELOPMENT STAGE ENTERPRISE; LOSSES SINCE INCEPTION; ACCUMULATED DEFICIT;
EXPECTATION OF CONTINUING LOSSES
The Company is a development stage company incorporated in October 1993 and
has a limited operating history. The Company's operations to date have related
primarily to technical development activities and the introduction of its
proprietary video conferencing, broadcast and retrieval system, the VidPhone(R)
system, and related products in the video applications field. The Company is
currently conducting product and market testing relating to the Company's
principal product, the VidPhone(R) system. See "Business -- Products and
Technology." The VidPhone(R) system has not been marketed actively to any
customers and technical information regarding the VidPhone(R) is distributed
only upon execution of a confidentiality agreement. Accordingly, the Company's
business and its growth may be subject to expenses, delays and risks inherent in
the establishment of a new business enterprise, including limited capital,
delays in product development, cost overruns and uncertain market acceptance.
There can be no assurance that the Company will succeed in addressing any or all
of these risks and the failure to do so would have a material adverse effect on
the Company's business, financial condition and operating results.
The Company recorded an accumulated deficit of $5,750,910 through December
31, 1996 and expects to incur a loss for the foreseeable future. A significant
portion of the $495,660 in revenues earned by the Company from its inception
through December 31, 1996 were generated by consulting services provided by the
Company. The remainder of the Company's revenues were generated by sales of
VidPhone(R) remote terminals, which are ISDN enabled VidPhone(R) units that are
used for beta testing purposes. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations," "Business -- Products and
Technology" and Note 1 of Notes to Financial Statements.
DEPENDENCE ON EMERGING MARKET FOR VIDEO APPLICATIONS TECHNOLOGY
The market for the Company's products is at an early stage of development,
is rapidly evolving and is characterized by an increasing number of market
entrants who have introduced or are developing competing products and services.
As is typical for a new and rapidly evolving industry, demand for and market
acceptance of recently introduced products and services are subject to a high
level of uncertainty. While the number of businesses utilizing video
applications has grown, it is not known whether this market will continue to
develop such that sufficient demand for the Company's products and services will
emerge and become sustainable. The Company expects that substantially all of its
future revenues will be derived from sales of the VidPhone(R) system and related
software sales and customer service to businesses or governmental organizations;
however, to date, the Company has not derived any revenue from sales of the
VidPhone(R) system. Further, corporations or government agencies that have
already invested substantial resources in other video conferencing systems may
be resistant to or slow to adopt a new suite of products. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations." If
the market for video applications fails to develop or develops more slowly than
expected, or if the Company's products do not achieve acceptance by a
significant number of businesses and government organizations, the Company's
business, financial condition and operating results will be materially and
adversely affected.
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DEVELOPMENT OF NEW PRODUCTS; INDUSTRY ACCEPTANCE
The Company's ability to design, develop, test, introduce and support new
products on a timely basis that meet changing customer needs and that respond to
technological developments and emerging industry standards is crucial to the
Company's success. The Company's products incorporate certain technical
standards, and current and future sales of the Company's products will be
dependent on industry acceptance of such standards. While the Company has
developed the VidPhone(R) system to be compatible with the standards currently
promulgated by leading industry participants and groups, widespread adoption of
a proprietary or closed standard could preclude market acceptance of the
Company's products. There can be no assurance that the Company will be
successful in developing and introducing its proposed products or new products
that meet changing customer needs and in responding to technological changes or
evolving industry standards in a timely manner, or at all. Furthermore, there
can be no assurance that the standards upon which the Company's products are or
will be based will be accepted by the industry or that products or technologies
developed by others will not render the Company's services noncompetitive or
obsolete. Because of the technological complexity of its products, the Company
may also experience delays from time to time in completing the development of
new products. The inability of the Company to respond to changing market
conditions, technological developments, evolving industry standards or changing
customer requirements, or the development of competing technology or products
that render the Company's services less desirable or obsolete would have a
material adverse effect on the Company's business, financial condition and
operating results. The Company is currently beta testing certain of its hardware
and software products, including the EVS-10 and the remote VidPhone(R), and
there can be no assurance that the results of such tests will be positive.
Adverse results from beta testing would have a material adverse effect on the
Company's business, financial condition and operating results. See
"Business -- Products and Technology."
UNCERTAIN PROTECTION OF INTELLECTUAL PROPERTY
The Company's future success and ability to compete will depend, in part,
on its proprietary technology. The patents of high-technology firms, including
those of the Company, are uncertain and involve complex legal and factual
questions for which important legal principles are largely unresolved. Part of
the Company's proprietary VidPhone(R) technology is covered by a pending U.S.
patent application which relates to a method and apparatus for transmitting
video information over telephone wires. The Company has received a notice of
allowance from the U.S. Patent and Trademark Office for this pending patent
application and the Company expects the patent to be issued in March 1997.
However, there can be no assurance that the patent will be issued or, if issued,
when the patent will be issued. An international patent application covering
this invention also has been filed under the Patent Cooperation Treaty ("PCT"),
and the Company has filed an application in Taiwan, which is not a party to the
PCT. The Company has received a favorable written opinion from the International
Preliminary Examining Authority for the international patent application,
suggesting that patent protection in many foreign countries may be available for
the invention. The application in Taiwan is still pending.
The Company has also filed a patent application covering the VidPhone(R)
system's networking and switching technology. The Company does not expect to
receive any notice from the U.S. Patent and Trademark Office concerning this
second patent application for at least one year or more.
The Company's success will depend in part on its ability to protect the
hardware and software products that it develops with patents, licenses and other
intellectual property rights. Toward that end, the Company intends to seek
patents and copyrights on certain of its inventions and proprietary processes.
The Company also has registered certain of its trademarks, such as Objective
Communications(R) and VidPhone(R). The process of seeking patent and trademark
protection can be long and expensive, and there can be no assurance that patents
and trademarks will issue from currently pending or future applications or that
any patents or trademarks that are issued will be of sufficient scope to provide
meaningful protection or any commercial advantage to the Company. The Company
may be subject to or may become involved in interference proceedings in the U.S.
Patent and Trademark Office to determine priority of invention, which could
result in significant cost to the Company, whether or not the results of such
proceedings are favorable to the Company. In the future, the Company may receive
communications alleging possible infringement of patents or other
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intellectual property rights of others, although it is not presently aware of
any basis for such claims. Litigation, which could result in substantial cost to
and diversion of effort by the Company, might be necessary to enforce patents or
other intellectual property rights owned by the Company or to determine the
scope and validity of other parties' proprietary rights. The failure to obtain
necessary patents, licenses or other rights or litigation arising from
infringement claims could have a material adverse effect on the Company.
A number of companies have developed technologies, filed patent
applications or received patents on various technologies that may be related to,
or competitive with, the Company's technologies. Many of these entities are
larger and have significantly greater resources than the Company. Some of the
technologies, applications or patents of these entities may conflict with the
Company's technologies, patents or patent applications. Such conflict could
limit the scope of the patents that the Company has obtained or may be able to
obtain, or result in denial of the Company's patent applications. In addition,
if patents that cover the technologies used by the Company are issued to other
companies, there can be no assurance that the Company would be able to license
these patents at a reasonable cost or be able to develop or obtain alternative,
non-infringing technology. Given the rapid development of technology in the
telecommunications industry, there also can be no assurance that the Company's
existing or future products do not or will not infringe upon the existing or
future proprietary rights of others. Any such infringement could have a material
adverse effect on the Company.
LIMITED MARKETING EXPERIENCE; NEED FOR ADDITIONAL PERSONNEL
The Company currently has only three full-time sales and marketing
employees and will have to develop its marketing and sales force to establish
distribution channels to resellers, collaborators, licensees and others. The
Company's ability to build its customer base and achieve market acceptance will
depend on its ability to establish an effective internal sales organization and
establish strategic marketing relationships with third-party distributors. There
can be no assurance, however, that the Company will be able to create awareness
of, and demand for, its products through its marketing efforts. The failure by
the Company to develop its marketing capabilities, internally or through
distributors and value-added resellers, would have a material adverse effect on
the Company's business. Further, there can be no assurance that the development
of such marketing capabilities will lead to increased sales of the Company's
products and services or proposed products and services. In the event that the
Company is able to enter into satisfactory distribution arrangements with third
parties, it is anticipated that the Company will be largely dependent upon such
third party's marketing efforts for the foreseeable future. While the Company
believes that such third-party distribution arrangements will enable it to lower
its marketing costs and expenses, the Company's revenues under such arrangements
will be lower than they would be if the Company directly marketed the
VidPhone(R) system. See "Business -- Marketing and Sales."
The success of the Company also will be dependent upon its ability to hire,
train and retain additional qualified marketing and sales personnel. The Company
will compete with other companies with greater financial and other resources for
such qualified personnel. There can be no assurance that the Company will be
able to hire additional personnel to support the Company's marketing and sales
efforts. See "Management."
RISKS ASSOCIATED WITH RAPID GROWTH AND WITH THE COMPANY'S BUSINESS PLAN AND
STRATEGY
The Company has limited experience, financial resources and personnel.
Accordingly, execution of the Company's business plan and strategy could place
significant strain on its management, administrative, operational, financial and
other resources. There can be no assurance that the Company will be able to
implement its strategy or manage its operations successfully. The inability of
the Company to manage its growth would have a material adverse effect on the
Company. See "Business -- Strategy."
The Company has formulated its business plan and strategy based upon
certain assumptions regarding the size of the video communications market, the
Company's anticipated share of this market, and the estimated price and
acceptance of the Company's products. These assumptions are based on estimates
of the Company's management. There can be no assurance that the Company's
assumptions regarding market size, potential market share attainable by the
Company, the price at which the Company will be able to sell its
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products or market acceptance of the Company's products will prove to be
correct. Any future success of the Company will depend upon many factors,
including technological advances and product obsolescence; levels of
competition, including the entry into the market of additional competitors and
increased success by existing competitors; changes in general economic
conditions; increases in operating costs including costs of production,
supplies, personnel or equipment; changes in requirements and regulations
promulgated by the Federal Communications Commission (the "FCC") or other
applicable United States Federal and state regulatory authorities; and reduced
margins caused by competitive pressures and other factors.
FLUCTUATIONS IN OPERATING RESULTS
The Company's operating results may vary significantly from quarter to
quarter or year to year, depending on factors such as the timing of product
development, the timing of increased research and development, the timing of
sales and marketing expenses, the timing and size of orders and the introduction
of new products by the Company. Consequently, revenues or profits may vary
significantly from quarter to quarter or year to year, and revenues or profits
in any period will not necessarily be predictive of results in subsequent
periods. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
LIMITED OPERATING HISTORY; DEPENDENCE ON MARKET FOR NEW PRODUCTS
To date, the Company has not generated substantial revenues from the sale
of its products and services. The Company's business strategy is to increase
revenues through sales of its products, particularly the VidPhone(R) system.
Accordingly, in the future, the Company plans to devote substantially all of its
efforts to production, sales and support of the VidPhone(R) system. The
Company's inability to obtain orders for its products, particularly the
VidPhone(R) system, would have a material adverse effect on the Company's
business, financial condition and results of operations. The Company currently
is working on a limited number of customer orders. There can be no assurance
that the Company will be successful in its efforts to market and sell its
products. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
GOVERNMENT REGULATION
The Company's products will be required to conform with certain guidelines
and regulations promulgated by the FCC relating to radio frequency equipment and
to terminal equipment that is connected to the public, switched telephone
network. The Company will be required to verify that the radio frequency
equipment complies with the appropriate FCC technical standards. For certain
uses of products, the Company will need to obtain equipment registration from
the FCC prior to connection to the public, switched telephone network. Although
the Company has designed its initial line of products to conform with all
applicable guidelines and regulations, there can be no assurance that the
Company's products will actually meet such requirements, nor that the Company
will be able to obtain and maintain in effect all necessary FCC or other
governmental approvals required to permit the Company to market its products.
Additionally, there can be no assurance that future governmental regulations
would not adversely affect the Company's products or technology.
DEPENDENCE ON THIRD PARTIES FOR MANUFACTURING
The Company intends to outsource the manufacture of the components used in
the assembly of the VidPhone(R) system. The Company has no current arrangements
with such manufacturers or suppliers that fix the costs of production or parts.
There can be no assurance that the Company will be able to negotiate acceptable
arrangements with such manufacturers, or, if negotiated, that such arrangements
will be on terms and conditions favorable to the Company. Any difficulties
encountered by third-party manufacturers which result in product defects,
production delays, cost overruns, or the inability to fulfill orders on a timely
basis could have a material adverse effect on the Company.
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COMPETITION
The Company's principal competition to date has been from video
conferencing systems companies, particularly PictureTel Corporation
("PictureTel"), Compression Labs, Inc. ("CLI") and VTEL Corp. ("VTEL," formerly,
Video Telecom Corp.). According to a June 1995 article in U.S. News & World
Report, PictureTel and CLI had approximately 71% market share in the video
conferencing systems market. Virtually all of the Company's competitors have
longer operating histories, greater name recognition, larger customer bases and
significantly greater financial, technical and marketing resources than the
Company. The Company also expects substantial additional competition from new
market entrants, such as Intel Corp. There can be no assurance that the Company
will have the financial resources, technical expertise or manufacturing,
marketing, distribution and support capabilities to compete successfully against
such competitors. See "Business -- Competition."
Furthermore, there can be no assurance that other companies will not
develop technologies such as those offered by the Company, technologies superior
to the Company's or alternative capabilities which meet the same needs of
customers. The Company expects that it will encounter substantial competition
from companies with significantly greater financial and other resources than the
Company. There can be no assurance that the Company will be able to respond to
competitive pressures, or that the effect of competitive pressures will not
change the demand for, or pricing of, the Company's products and services. To
the extent that competitors achieve performance, price or other selling
advantages, the Company's business, operations and financial condition could be
adversely affected. There can be no assurance that the Company will have the
resources required to respond effectively to market or technological changes or
to otherwise compete successfully in the video conferencing market.
DEPENDENCE ON KEY PERSONNEL
The Company's performance is substantially dependent upon the continued
efforts and abilities of its executive officers, key employees and consultants,
particularly those of Steven A. Rogers, the Company's founder, President and
Chief Executive Officer. The loss of the services of Mr. Rogers or any of the
Company's other key management or technical personnel would have a material
adverse effect on the Company. The Company currently has an employment and
non-competition agreement with and maintains a key person life insurance policy
on Mr. Rogers. However, the Company does not currently have any employment
agreements with, or key person insurance policies on, any of its other executive
officers, key employees or consultants. In order to support its anticipated
growth, the Company will be required to recruit effectively, hire, train and
retain additional qualified personnel. The competition for qualified technical
and management personnel is intense and there can be no assurance that the
Company will be able to attract or retain qualified personnel in the future. The
Company is dependent upon its ability to retain and motivate high quality
personnel, especially its existing senior management and technical personnel.
The inability of the Company to retain its existing, or attract and retain
additional, personnel could have a material adverse effect on the Company. See
"Management -- Employment and Confidentiality Agreements."
CONTROL BY EXISTING STOCKHOLDERS
Following completion of the Offering, Mr. Rogers will beneficially own, and
the directors and executive officers of the Company will beneficially own in the
aggregate, 25.3% and 49.1%, respectively, of the outstanding shares of Common
Stock (approximately 23.8% and 46.5%, respectively, if the Underwriter's
Over-Allotment Option is exercised in full). As a result of such ownership, Mr.
Rogers, acting individually, and such holders, if they act in concert, will be
able to exert significant influence in the election of the Company's Board of
Directors and the determination of all other matters requiring approval by the
stockholders of the Company. See "Principal Stockholders."
BROAD DISCRETION AS TO USE OF PROCEEDS
An estimated $1,354,000, or 16.7%, of the net proceeds of the Offering has
been allocated to working capital and general corporate purposes, and will be
used for such specific purposes as management of the
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Company may determine. Management will have broad discretion with respect to the
expenditure of that portion of the net proceeds of the Offering. In addition,
the Company's estimated allocations of the uses of the remaining net proceeds of
the Offering are subject to reapportionment among the purposes set forth under
"Use of Proceeds" or to other general corporate purposes, including working
capital. The amount and timing of expenditures will vary depending upon a number
of factors, including the progress of the Company's product development and
marketing efforts, changing competitive conditions and general economic
conditions. See "Use of Proceeds."
NEED FOR ADDITIONAL FINANCING
The Company anticipates that the net proceeds of the Offering, together
with its existing capital resources, will be adequate to satisfy its operating
and capital requirements through the next 15 months, assuming that the Company
performs substantially in accordance with its current business plan. Thereafter,
the Company will need to raise additional funds. Changes in the market in which
the Company operates, in the Company's business, or in its business plan could
affect the Company's capital requirements, which would cause the Company to need
to raise additional funds earlier than expected in order to fund its operations,
to fund expansion, to develop new or enhanced products, to respond to
competitive pressures or to acquire complementary business. The Company's future
capital requirements will depend on many factors, including the cost of
manufacturing and marketing activities, its ability to market its products
successfully, the size of its research and development programs, the length of
time required to collect accounts receivable, and competing technological and
market developments. If the Company were to raise additional funds through the
issuance of equity or convertible debt securities, stockholders could experience
substantial additional dilution and such securities could have rights,
preferences and privileges senior to those of the holders of the Company's
Common Stock. There can be no assurance that the Company will be able to raise
any additional required funds, or that any such funds will be available on terms
favorable to, or acceptable to, the Company. The lack of availability of
adequate funds, or the lack of availability of funds on terms acceptable to the
Company, would have a material adverse effect on the Company.
ABSENCE OF PUBLIC MARKET; NEGOTIATED OFFERING PRICE
Prior to the Offering, there has been no public market for the Common
Stock, and there can be no assurance that a trading market will develop or, if
any such market develops, that it will be maintained. Accordingly, purchasers of
shares of Common Stock may experience difficulty selling or otherwise disposing
of their Common Stock. The initial public offering price of the Common Stock
will be established by negotiation between the Company and the Underwriter, and
will not bear any relationship to the Company's book value, assets, past
operating results, financial condition or other established criteria of value.
See "Underwriting."
POSSIBILITY OF NASDAQ SMALLCAP MARKET, BSE AND PHL DELISTING; LOW STOCK PRICE
The quotation or trading of the Company's Common Stock on the Nasdaq
SmallCap Market, the PHL and the BSE will be conditioned upon the Company
meeting certain asset, capital and surplus earnings and stock price tests set
forth by such exchanges. For example, to maintain eligibility for quotation on
the Nasdaq SmallCap Market, the Company will be required to maintain total
assets in excess of $2,000,000, capital and surplus in excess of $1,000,000, and
(subject to certain exceptions) a bid price of $1.00 per share. Upon completion
of the Offering and the receipt of the net proceeds therefrom, the Company
believes that it will meet the respective asset, capital and surplus earnings
tests set forth by such quotation system and exchanges. If the Company fails any
of the tests, the Common Stock may be delisted from quotation or trading on such
system and exchanges. The effects of delisting include the limited release of
the market prices of the Company's securities and limited news coverage of the
Company. Delisting may restrict investors' interest in the Company's Common
Stock and materially adversely affect the trading market and prices for the
Common Stock and the Company's ability to issue additional securities or to
secure additional financing. In addition to the risk of volatile stock prices
and possible delisting, low price stocks are subject to the additional risks of
Federal and state regulatory requirements and the potential loss of effective
trading markets. In particular, if
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the Common Stock were delisted from trading on the Nasdaq SmallCap Market or the
exchanges and the trading price of the Common Stock was less than $5.00 per
share, the Common Stock could be subject to Rule 15g-9 under the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), which requires that
broker-dealers satisfy special sales practice requirements, including making
individualized written suitability determinations and receiving any purchaser's
written consent, prior to any transaction. In addition, the Company's Common
Stock could be deemed "penny stock" under the Securities Enforcement and Penny
Stock Reform Act of 1990. If this were to occur, additional disclosure would be
required in connection with trades in the Company's Common Stock, including the
delivery of a disclosure schedule explaining the nature and risks of the penny
stock market. Such requirements could severely limit the liquidity of the
Company's Common Stock and the ability of purchasers in the Offering to sell
their Common Stock in the secondary market.
SHARES ELIGIBLE FOR FUTURE SALE; REGISTRATION RIGHTS
Upon the completion of the Offering, the Company will have 4,361,844 shares
of Common Stock outstanding (4,631,844 shares if the Underwriter's
Over-Allotment Option is exercised in full). Of such shares, all of the
1,800,000 shares sold in the Offering (2,070,000 if the Underwriter's
Over-Allotment Option is exercised in full) will be freely transferable (other
than those purchased by affiliates of the Company) without restriction or
further registration under the Securities Act. In addition, the 180,000 shares
of Common Stock issuable upon exercise of the Underwriter's Options, all of
which also are being registered under the Securities Act pursuant to the
registration statement of which this Prospectus constitutes a part, will be
freely transferable under the Securities Act, subject to a one year restriction
on transferability. Subject to a lock-up arrangement with the Underwriter, (i)
the 500,000 shares of Common Stock issuable upon exercise of the Bridge
Warrants, (ii) the 500,000 shares of Common Stock issuable upon conversion of
the Series A Preferred Stock, and (iii) the 100,000 shares of Common Stock
issuable upon exercise of the warrants to purchase up to 100,000 shares of
Common Stock at an exercise price of $4.00 per share, issued by the Company in
connection with the private placement of the Series A Preferred Stock (the
"Series A Warrants"), all of which also are being registered under the
Securities Act pursuant to the registration statement of which this Prospectus
constitutes a part, will be freely transferable under the Securities Act without
restriction or further registration, other than those shares held by affiliates
of the Company. The remaining 2,061,844 shares of Common Stock are, and the
396,686 shares of Common Stock issuable upon exercise of outstanding warrants
(other than the Bridge Warrants and the Series A Warrants) will be, "restricted
securities" under Rule 144 under the Securities Act and may not be sold other
than in accordance with Rule 144, or pursuant to an effective registration
statement under the Securities Act or an exemption from such registration
requirement.
Additionally, the Company has granted certain demand and/or "piggyback"
registration rights to the holders of 1,600,718 shares of Common Stock, 500,000
shares of Series A Preferred Stock and warrants to purchase an aggregate of
996,686 shares of Common Stock, to require the Company to register under the
Securities Act those shares of Common Stock and the shares issuable upon
conversion of the Series A Preferred Stock or exercise of the warrants. If such
holders, by exercising their registration rights, cause a large number of shares
to be registered and sold in the public market, such sales could have a material
adverse effect on the market price for the Company's Common Stock.
The sale of a substantial number of shares of Common Stock or the
availability of Common Stock for sale could adversely affect the market price of
the Common Stock prevailing from time to time. The number of shares of Common
Stock available for sale in the public market is limited by restrictions under
the Securities Act, and lock-up agreements under which the current holders of
shares of Common Stock, Series A Preferred Stock, and warrants to purchase
Common Stock have agreed not to sell or otherwise dispose of any of their shares
of Common Stock for a period of twelve months or twenty-four months from the
date on which the Offering closes, except in certain limited circumstances,
without the prior written consent of the Underwriter. See "Principal
Stockholders," "Description of Securities," "Shares Eligible for Future Sale"
and "Underwriting."
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EFFECT OF OPTIONS, WARRANTS AND UNDERWRITER'S OPTIONS ON STOCK PRICE
The Company has reserved 343,000 shares of Common Stock for issuance to key
employees, officers and consultants upon the exercise of options granted under
the 1994 Plan, and 450,000 shares of Common Stock authorized for issuance under
the 1996 Plan. Additionally, the Company has reserved an aggregate of 190,000
shares of Common Stock for issuance upon the exercise of options granted to
certain directors of the Company. The Company also has reserved 500,000 shares
of Common Stock for issuance upon exercise of the Bridge Warrants, 500,000
shares of Common Stock for issuance upon conversion of the Series A Preferred
Stock, 100,000 shares of Common Stock for issuance upon exercise of the Series A
Warrants, and 396,686 shares of Common Stock for issuance upon exercise of other
outstanding warrants. The Company also will sell to the Underwriter, in
connection with the Offering, the Underwriter's Options to purchase an aggregate
of 180,000 shares, subject to adjustment as provided therein. The Bridge
Warrants, the Series A Warrants, the other outstanding warrants, the
Underwriter's Options, outstanding options issued under the 1994 Plan, options
that may be issued in the future under the 1996 Plan, and options granted to
directors could hinder future financings. In addition, certain holders of such
securities have certain registration rights, and the sale of shares of Common
Stock upon exercise of such rights or the availability of such shares for sale
could adversely affect the market price of the Common Stock. Additionally, if
the holders of the Underwriter's Options were to exercise their registration
rights to effect a distribution of the securities underlying the Underwriter's
Options, the Underwriter, as an interested person, would be unable to make a
market in the Company's securities prior to and during such distribution and
would be required to comply with other limitations on trading set forth in Rules
10b-2, 10b-6 and 10b-7 promulgated under the Exchange Act. These rules restrict
the solicitation of purchasers of a security by an interested person and also
limit market-making activities by an interested person until the completion of
the distribution. If the Underwriter were required to cease market-making
activities, the market and market price for such securities may be adversely
affected and holders of such securities may be unable to sell such securities.
See "Description of Securities" and "Underwriting."
VOLATILITY OF STOCK PRICES
The market prices of equity securities of technology companies have
experienced substantial price volatility in recent years for reasons both
related and unrelated to the individual performance of specific companies.
Accordingly, the market price of the Common Stock following the Offering may be
highly volatile. Factors such as announcements by the Company or its competitors
concerning products, patents and technology, governmental regulatory actions,
events affecting technology companies generally and general market conditions,
may have a significant impact on the market price of the Common Stock and could
cause it to fluctuate substantially. In addition, it is expected that there will
be a relatively small number of shares of Common Stock trading publicly
following the Offering. Accordingly, stockholders may experience difficulty
selling or otherwise disposing of shares of Common Stock at favorable prices, or
at all. See "Shares Eligible For Future Sale" and "Underwriting."
DILUTION
The assumed initial public offering price per share of Common Stock exceeds
the book value per share of the Common Stock. Investors in the Offering will,
therefore, incur immediate and substantial dilution of $3.84 per share of Common
Stock, representing 69.8% of the initial public offering price per share. See
"Dilution."
NO DIVIDENDS
The Company currently anticipates that it will retain all of its future
earnings, if any, for use in the expansion and operation of its business, and
does not anticipate paying any cash dividends on the Common Stock in the
foreseeable future. See "Dividend Policy" and "Description of Securities."
15
<PAGE> 18
LIMITATION ON UTILIZATION OF INCOME TAX LOSS CARRYFORWARDS
Upon the consummation of the sale of the 500,000 shares of Series A
Preferred Stock, the Company may have undergone an "ownership change" within the
meaning of Section 382 of the Internal Revenue Code of 1986, as amended (the
"Code"). Under Section 382 of the Code, upon undergoing an ownership change, the
Company's right to use its then existing income tax loss carryforwards as of the
date of the ownership change is limited during each future year to a percentage
of the fair market value of the Company's outstanding capital stock immediately
before the ownership change. The Company expects that its ability to utilize its
net operating loss carryforwards to offset future taxable income will be limited
annually in the future.
ANTI-TAKEOVER EFFECTS OF CERTAIN PROVISIONS OF THE CERTIFICATE OF INCORPORATION
AND THE DELAWARE GENERAL CORPORATION LAW
The Company is subject to certain anti-takeover provisions of the General
Corporation Law of the State of Delaware, which could have the effect of
discouraging, delaying or preventing a change of control of the Company. In
addition, the Company's Amended and Restated Certificate of Incorporation (the
"Certificate of Incorporation") contains provisions that may have the effect of
discouraging certain transactions involving an actual or threatened change in
control of the Company. Such provisions include a provision in the Certificate
of Incorporation which grants to the Board of Directors the authority to issue
up to 2,500,000 shares of preferred stock in one or more series and to fix the
powers, preferences and rights of each such series without further stockholder
action. The issuance in the future of any such preferred stock could have the
effect of diluting the purchasers of the Common Stock offered hereby,
discouraging unsolicited acquisition proposals or making it more difficult for a
third party to commence such an acquisition. See "Description of Securities."
16
<PAGE> 19
USE OF PROCEEDS
The net proceeds from the sale of the shares of Common Stock offered
hereby, assuming an initial public offering price of $5.50 per share, and after
deducting underwriting discounts and commissions and other expenses of the
Offering estimated to be $1,832,000, will be approximately $8,068,000
($9,359,950 if the Underwriter's Over-Allotment Option is exercised in full).
The Company intends to use the net proceeds of the Offering as follows:
<TABLE>
<CAPTION>
APPROXIMATE PERCENT OF
AMOUNT NET PROCEEDS
----------- ------------
<S> <C> <C>
Product development.......................................... $ 2,750,000 34.1%
Repayment of debt............................................ 2,564,000 31.8
Sales and marketing.......................................... 700,000 8.7
Capital expenditures......................................... 400,000 5.0
Facilities expansion......................................... 300,000 3.7
Working capital and general corporate purposes............... 1,354,000 16.7
----------- ------
$ 8,068,000 100.0%
========= =========
</TABLE>
The Company intends to use an estimated $2,750,000 of the net proceeds of
the Offering to complete the development of its VidPhone(R) system, which
includes the VidModem and EVS, and to continue software development through
hardware and software engineering efforts. See "Business -- Products and
Technology."
The Company intends to use approximately $2,564,000 of the net proceeds of
the Offering to repay in full certain outstanding indebtedness, including
accrued and unpaid interest thereon. The indebtedness to be repaid consists of
(i) approximately $304,000 to repay a promissory note outstanding to the Adelson
Investment Company in the principal amount of $300,000, which matures on the
initial public offering date and bears interest at a varying floating rate equal
to 1.5% over the prime rate of interest announced from time to time by
NationsBank, N.A. (averaging 10.50% over the term of the loan), (ii)
approximately $215,000 to repay promissory notes to certain directors, officers
and affiliates of the Company in the principal amounts of $100,000, $60,000,
$19,500 and $19,500, respectively, each of which matures on March 31, 1997 and
bears interest at a fixed rate of 7% per annum, and (iii) approximately
$2,044,000 to repay the Bridge Notes, which have an outstanding principal amount
of $2,000,000, mature upon the consummation of the Offering, and bear interest
at a fixed rate of 10% per annum.
An estimated $700,000 of the net proceeds will be used to develop the sales
channels for the Company's products, including establishing customer and
technical service teams, creating sales and technology training programs for
resellers and marketing partners, and establishing end-use customer support.
The Company intends to use an estimated $400,000 of the net proceeds to
purchase capital equipment required to support product development and sales and
marketing expansion described above, and an estimated $300,000 for expansion and
improvement of its facilities. In anticipation of increased production of the
VidPhone(R), the Company plans to enter into a longer term leasing arrangement
that will include space to maintain a more comprehensive inventory and to
accomplish system integration, testing and quality control on a more significant
scale. Additionally, the Company plans to increase its engineering efforts and
support staff, each of which will require additional space.
The remaining net proceeds of approximately $1,354,000, and any additional
net proceeds resulting from the exercise of the Over-Allotment Option, will be
employed for working capital and general corporate purposes.
The table above represents the Company's best estimate of its allocation of
the uses of the net proceeds of the Offering, based upon the current state of
its business operations, its current business plan and strategy, and current
economic and industry conditions. The amount and timing of expenditures will
vary depending upon a number of factors, including, among others, the progress
of the Company's product development and marketing efforts, changing competitive
conditions, and general economic conditions. The allocations of the
17
<PAGE> 20
uses of the net proceeds of the Offering are subject to reapportionment among
the purposes listed above, and to other general corporate purposes, including
working capital. The actual amount of the uses of proceeds cannot be predicted
with any degree of certainty.
Pending application of the net proceeds as described above, the Company
intends to invest the net proceeds in short-term, interest-bearing,
investment-grade debt securities, money market accounts, certificates of
deposit, or direct or guaranteed obligations of the United States government.
DIVIDEND POLICY
The Company expects that it will retain all earnings, if any, generated by
its operations for the development and growth of its business and does not
anticipate paying any cash dividends to its stockholders in the foreseeable
future. The payment of future dividends on the Common Stock and the rate of such
dividends, if any, will be determined in light of the Company's earnings,
financial condition, capital requirements and other factors deemed relevant by
the Board of Directors.
18
<PAGE> 21
DILUTION
As of December 31, 1996, after giving pro forma effect to (i) the issuance
and sale in January 1997 by the Company of 250,000 shares of Series A Preferred
Stock and Series A Warrants to purchase 50,000 shares of Common Stock at an
exercise price of $4.00 per share and the receipt of $930,000 in net proceeds
therefrom and (ii) the consummation of the warrant exchange transaction with
certain existing investors in the Company, which was completed in January 1997,
the Company had a pro forma net tangible book value (deficit) of approximately
$(615,258) or $(0.24) per share of Common Stock. Without taking into account any
other changes in the pro forma net tangible book value of the Company after
December 31, 1996, other than to give as adjusted effect to (i) the issuance of
500,000 shares of Common Stock upon the automatic conversion, at the time of the
closing of the Offering, of the Series A Preferred Stock, (ii) the sale by the
Company of the 1,800,000 shares of Common Stock offered hereby at an assumed
initial offering price of $5.50 per share and receipt of the net proceeds
therefrom and (iii) the application of a portion of the net proceeds of the
Offering to repay certain outstanding indebtedness as set forth under "Use of
Proceeds," and the write-off of debt issuance costs associated with the
indebtedness to be repaid, the Company's pro forma net tangible book value, as
adjusted at December 31, 1996, would have been approximately $7,238,676 or $1.66
per share of Common Stock. See "Certain Transactions," "Description of
Securities" and Note 7 of Notes to Financial Statements. This represents an
immediate increase in the pro forma net tangible book value of $1.90 per share
to present stockholders and an immediate dilution of $3.84 or 69.8% per share to
new investors. The following table illustrates this dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share of Common Stock
(1)................................................................ $5.50
Pro forma net tangible book value (deficit) per share of Common
Stock before the Offering...................................... $(1.16)
Increase per share attributable to conversion of Series A
Preferred Stock to Common Stock................................ 0.92
Increase per share attributable to purchase of shares of Common
Stock by new investors......................................... 1.90
------
Pro forma net tangible book value per share of Common Stock as of
December 31, 1996, as adjusted..................................... 1.66
-----
Dilution per share of Common Stock to investors in the Offering...... $3.84
=====
</TABLE>
- ---------------
(1) Represents the assumed initial public offering price per share of Common
Stock, before deducting underwriting discounts and offering expenses payable
by the Company.
The following table summarizes, immediately prior to the Offering, the
differences between existing stockholders and investors in the Offering with
respect to the number and percentage of shares of Common Stock purchased from
the Company, the amount and percentage of consideration paid, and the average
price paid per share of Common Stock, before deduction of offering expenses and
underwriting discounts:
<TABLE>
<CAPTION>
SHARES OWNED CONSIDERATION AVERAGE
----------------------- ------------------------- PRICE PER
NUMBER PERCENTAGE AMOUNT PERCENTAGE SHARE
--------- ---------- ----------- ---------- ---------
<S> <C> <C> <C> <C> <C>
Existing stockholders................... 2,561,844 58.7% $ 4,762,048 32.5% $1.86
New investors........................... 1,800,000 41.3 9,900,000 67.5 $5.50
--------- ----- ----------- -----
Total.............................. 4,361,844 100.0% $14,662,048 100.0%
========= ===== =========== =====
</TABLE>
The foregoing table assumes (i) the issuance and sale in January 1997 by
the Company of 250,000 shares of Series A Preferred Stock and Series A Warrants
to purchase 50,000 shares of Common Stock at an exercise price of $4.00 per
share, and the receipt of $930,000 in net proceeds therefrom; (ii) the issuance
of the 500,000 shares of Common Stock upon the automatic conversion, at the time
of the closing of the Offering, of the outstanding shares of Series A Preferred
Stock; and (iii) the consummation of the warrant exchange transaction with
certain existing investors in the Company, which was completed in January 1997.
The table does not include (i) 500,000 shares of Common Stock issuable upon
exercise of the Bridge Warrants;
19
<PAGE> 22
(ii) 496,686 shares issuable upon the exercise of other outstanding warrants to
purchase shares of Common Stock; (iii) 343,000 shares of Common Stock reserved
for issuance upon exercise of outstanding options granted to executive officers,
key employees and consultants under the 1994 Plan, and 190,000 shares of Common
Stock reserved for issuance upon exercise of non-qualified stock options granted
to certain directors of the Company; and (iv) 450,000 shares of Common Stock
reserved for issuance under the 1996 Plan. The exercise of any such options and
warrants will have a dilutive effect upon investors in the Offering. See
"Management -- Directors' Non-Qualified Options," "-- 1994 Stock Option Plan,"
"-- 1996 Stock Incentive Plan," "Certain Transactions," "Description of
Securities" and Note 7 of Notes to Financial Statements.
20
<PAGE> 23
CAPITALIZATION
The following table sets forth the capitalization of the Company (i) as of
December 31, 1996; (ii) as of December 31, 1996, on a pro forma basis, to
reflect (a) the issuance and sale in January 1997 by the Company of 250,000
shares of Series A Preferred Stock and Series A Warrants to purchase 50,000
shares of Common Stock at an exercise price of $4.00 per share and the receipt
of $930,000 in net proceeds therefrom and (b) the consummation of the warrant
exchange transaction with certain existing investors in the Company, which was
completed in January 1997; and (iii) as of December 31, 1996, on a pro forma, as
adjusted basis to reflect (a) the issuance of 500,000 shares of Common Stock
upon the automatic conversion, at the time of the closing of the Offering, of
the Series A Preferred Stock; (b) the sale by the Company of the 1,800,000
shares of Common Stock offered hereby at an assumed initial public offering
price of $5.50 per share and the receipt of the net proceeds therefrom; and (c)
the application of a portion of the net proceeds of the Offering to repay
certain outstanding indebtedness, as set forth under "Use of Proceeds," and the
write-off of the debt issuance costs associated with the indebtedness to be
repaid. See "Use of Proceeds," "Certain Transactions," "Description of
Securities" and Note 7 of Notes to Financial Statements. This table should be
read in conjunction with "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and the Financial Statements and the notes
thereto appearing elsewhere in this Prospectus.
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1996
---------------------------------------
PRO PRO FORMA,
ACTUAL FORMA (1) AS ADJUSTED (2)
------- --------- ---------------
(IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C>
Notes payable, current portion (including current portion
of capital lease obligations)............................ $ 2,515 $ 2,515 $ 16
======= ======= =======
Long-term obligation under capital lease................... 26 26 26
Preferred Stock, $.01 par value, 2,500,000 shares
authorized; 250,000 shares Series A Convertible Preferred
Stock issued and outstanding, actual; 500,000 shares
issued and outstanding, pro forma; none issued and
outstanding, pro forma, as adjusted...................... 848 1,778 --
Common Stock, $.01 par value, 10,000,000 shares authorized;
2,061,844 shares issued and outstanding, actual 2,061,844
shares issued and outstanding, pro forma; 4,361,844
shares issued and outstanding, pro forma, as adjusted
(3)...................................................... 19 21 44
Additional paid-in capital................................. 3,371 3,369 13,192
Accumulated deficit........................................ (5,751) (5,751) (5,965)
------- ------- -------
Total stockholders' equity (deficit).................. (2,361) (2,361) 7,271
------- ------- -------
Total capitalization............................. $(1,487) $ (557) $ 7,297
======= ======= =======
</TABLE>
- ---------------
(1) Pro forma to give effect to (i) the issuance and sale in January 1997 by the
Company of 250,000 shares of Series A Preferred Stock and Series A Warrants
to purchase 50,000 shares of Common Stock at an exercise price of $4.00 per
share, and the receipt of $930,000 in net proceeds therefrom and (ii) the
consummation of the warrant exchange transaction with certain existing
investors in the Company, which was completed in January 1997. See "Certain
Transactions," "Description of Securities" and Note 7 of Notes to Financial
Statements.
(2) Pro forma, as adjusted to give effect to (i) the issuance of 500,000 shares
of Common Stock upon the automatic conversion, at the time of the closing of
the Offering, of the Series A Preferred Stock; (ii) the sale by the Company
of the 1,800,000 shares of Common Stock offered hereby at an assumed initial
public offering price of $5.50 per share and receipt of the net proceeds
therefrom; and (iii) the application of a portion of the net proceeds of the
Offering to repay certain outstanding indebtedness, as set forth under "Use
of Proceeds," and the write-off of the debt issuance costs associated with
the indebtedness to be repaid. See "Use of Proceeds."
(3) Does not include (i) 500,000 shares of Common Stock issuable upon exercise
of the Bridge Warrants; (ii) 496,686 shares of Common Stock issuable upon
exercise of other outstanding warrants to purchase shares of Common Stock;
(iii) 343,000 shares of Common Stock reserved for issuance upon exercise of
outstanding options granted to executive officers, key employees and
consultants under the Company's 1994 Plan and 190,000 shares of Common Stock
reserved for issuance upon exercise of outstanding non-qualified stock
options granted to certain directors of the Company; and (iv) 450,000 shares
of Common Stock reserved for issuance under the 1996 Plan. See
"Management -- Directors' Non-Qualified Options," "-- 1994 Stock Option
Plan," "-- 1996 Stock Incentive Plan" and "Description of Securities."
21
<PAGE> 24
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the Company's
audited Financial Statements and notes thereto appearing elsewhere in this
Prospectus.
OVERVIEW
The Company was incorporated in October 1993 to develop and produce
products and systems to support new communications devices that make extensive
use of broadband networks, and transmit high-quality video and audio and high
speed data. The Company's operations to date have related primarily to
organizational activities, including research and development and organizational
efforts involving the development of its initial products, including the
VidPhone(R) system, recruiting management and technical personnel and raising
capital.
The Company's business plan for the year following the consummation of the
Offering focuses on refining its product development and commencing sales and
marketing of its products, particularly the VidPhone(R) system. In order to
achieve its objectives, the Company's strategy currently includes: (i)
completing engineering modifications required to transition from production of
beta test units to commercially available VidPhone(R) systems, (ii) hiring
additional personnel in engineering, sales and marketing, manufacturing and
testing, and administration, (iii) establishing direct sales relationships with
reference accounts, (iv) negotiating reseller relationships with providers of
PBX and Centrex systems relating to the introduction of the VidPhone(R) system
and related products and services into their product line, (v) continuing
research and development to enhance current products and develop complementary
products, and (vi) securing further intellectual property protection, including
additional patent, trademark and copyright protections. The Company plans to
subcontract all major manufacturing and production activities for the
foreseeable future, but to retain test and quality assurance functions until all
subcontractors can be certified with respect to quality.
To date, the Company has not generated substantial revenues from the sale
of its products and services. The Company's business strategy is to increase
revenues through sales of its products, particularly the VidPhone(R) system.
Accordingly, in the future, the Company plans to devote substantially all of its
efforts to production and sales and support of the VidPhone(R) system. The
Company is currently working on a limited number of customer orders. There can
be no assurance that the Company will be successful in its efforts to market and
sell its products. The Company's inability to establish marketing channels for
its products and to obtain orders for its products, particularly the VidPhone(R)
system, would have a material adverse effect on the Company's business,
financial condition and results of operations. See "Risk Factors -- Fluctuations
in Operating Results," "-- Limited Operating History; Dependence on Market for
New Products," and "Business -- Strategy."
From inception to December 31, 1996, the Company had cumulative losses of
$5,737,915, and expects to incur additional operating losses for the foreseeable
future. The Company's operations to date have been funded primarily through
private sales of debt and equity securities. See "Risk Factors -- Development
Stage Enterprise; Losses Since Inception; Accumulated Deficit; Expectation of
Continuing Losses."
The Company expects to incur substantial operating expenses in the future
to support its product development efforts, expand and enhance significantly its
sales and marketing capabilities and organization, expand its technical and
management personnel and for the other general and administrative expenses. The
Company's results of operations may vary significantly from quarter to quarter
during this period of development.
RESULTS OF OPERATIONS
COMPARISON OF YEAR ENDED DECEMBER 31, 1996 AND YEAR ENDED DECEMBER 31, 1995.
Revenues. Revenues for 1996 decreased by $143,303, or 63.8%, to $81,375,
from $224,678 for 1995. The Company's revenues in both periods were derived from
sales of VidPhone(R) remote terminals, which are
22
<PAGE> 25
VidPhone(R) units with ISDN capabilities that are used for testing purposes, and
from consulting services provided by the Company. Revenues declined in 1996 as a
result of the completion in 1995 of a single consulting contract which accounted
for 89.5% of total revenues in 1995. See "Business -- Products and Technology."
Gross Margin. The Company's gross margin for 1996 was 23.3% of total
revenues, as compared with 38.8% of total revenues for 1995. The Company does
not believe that gross margins in past periods, including 1996 and 1995, are
necessarily indicative of gross margin in future periods because such margins do
not relate to the revenues and costs of producing and selling the VidPhone(R)
system. In the future, the Company intends to focus on sales of its products
and, accordingly, may experience significant changes in gross margin in future
periods.
Research and Development. Research and development expenses for 1996
decreased by $125,145, or 10.2%, to $1,106,901, from $1,232,046 for 1995.
Research and development expenses include the costs associated with all
personnel, materials and contract personnel engaged in research and development
for the Company. In addition, research and development expenses include an
allocated portion of the Company's general and administrative expenses, such as
rent, telephone and office supplies. The decrease in research and development
expenses in 1996 was primarily attributable to the redeployment by the Company
of limited engineering resources to support beta units, which is classified as a
general and administrative expense rather than a research and development
expense.
The Company expects to continue to incur substantial research and
development expenses as it further enhances existing products and develops new
products and services, and expects research and development expenses to
increase. The Company is developing a number of new inventions and associated
products to complement and expand the Company's VidPhone(R) technology. The
Company's research and development program includes mechanical design, circuit
card development, transmission technology, embedded software, control software
for multiple platforms, and some applications software. See "Risk
Factors -- Risks Associated With Rapid Growth and With the Company's Business
Plan and Strategy," "Use of Proceeds" and "Business -- Strategy."
General and Administrative Expenses. General and administrative expenses
increased by $214,835, or 26.0%, for 1996 to $1,041,840, from $827,005 for 1995.
General and administrative expenses consist of marketing and sales expenses,
such as advertising, expenses associated with customer support, legal,
accounting and consulting fees, and an allocated portion of rent, telephone,
mail, office supplies and other costs incurred that are associated with the
Company's business. The increase in 1996 of general and administrative expenses
was primarily due to significantly increased legal fees to support increasingly
complex financial operations at the Company, increased consulting fees,
including higher expenses related to accounting and technical consultants, and
the inclusion in 1996 of expenses related to the employment of key
administrative personnel by the Company for a full year compared with partial
year employment in 1995.
Upon completion of the Offering, the Company intends to hire additional
personnel to expand the Company's engineering staff, its marketing and sales
personnel, including customer support and, to a lesser extent, administrative
staff personnel to support accounting and personnel management. See "Risk
Factors -- Limited Marketing Experience; Need for Additional Personnel" and
"Business -- Strategy" and "-- Marketing and Sales." Additionally, the Company
expects general and administrative expenses to increase in future periods as the
Company incurs additional costs related to being a public company and expands
its facilities, including its production facilities.
Depreciation. Depreciation for 1996 increased by $98,416, or 163.2%, to
$158,714, from $60,298 for 1995. This increase was primarily due to the
depreciation associated with the acquisition of substantial new capital assets
in 1996, primarily computer equipment, and, to a lesser extent, the accelerated
write-down of leasehold improvements as a result of the Company's move to new
office space. See Note 3 of Notes to Financial Statements.
Other Operating Expenses. Other operating expenses for 1996 decreased by
$12,318, or 87.8% to $1,713, from $14,031 for 1995. Operating expenses in 1995
primarily consisted of late fees and interest costs
23
<PAGE> 26
on trade credit which were classified as an operating expense. The Company did
not incur comparable costs in 1996 because of the availability of additional
cash as a result of indebtedness incurred by the Company, interest on which is
classified as interest expense.
Interest Expense. Interest expense, net, for 1996 was $990,290. The
Company did not incur any interest expense in 1995. The increase in interest
expense is primarily due to warrant issuance costs, $907,789, which is a
non-cash expense. See Note 6 of Notes to Financial Statements.
Net Loss. As a result of the foregoing factors, the Company's net loss for
1996 increased by $1,234,320, or 60.3%, to $3,280,436 from $2,046,116 for 1995.
COMPARISON OF YEAR ENDED DECEMBER 31, 1995 AND YEAR ENDED DECEMBER 31, 1994.
Revenues. Revenues for 1995 increased by $35,071, or 18.5%, to $224,678,
from $189,607 for 1994. The Company's revenues in 1995 were derived from sales
of VidPhone(R) remote terminals, which are VidPhone(R) units with ISDN
capabilities that are used for testing purposes, and from consulting services.
All of the Company's revenues in 1994 were generated by consulting services
provided by the Company. See "Business -- Products and Technology."
Gross Margin. The Company's gross margin for 1995 was 38.8% of total
revenues, as compared with 73.8% of total revenues for 1994. The Company does
not believe that gross margins in past periods, including 1995 and 1994, are
necessarily indicative of gross margin in future periods because such margins do
not relate to the revenues and costs of producing the VidPhone(R) System. In the
future, the Company intends to focus on sales of its products and, accordingly,
may experience significant changes in gross margin in future periods.
Research and Development. Research and development expenses for 1995
increased significantly by $1,066,773, or 645.5%, to $1,232,046, from $165,273
for 1994. This significant increase was primarily due to the retention of
additional technical personnel and research and development-related materials as
the Company shifted its focus to product development from organizational
activities.
General and Administrative Expenses. General and administrative expenses
increased significantly by $445,967, or 117.0%, for 1995 to $827,005, from
$381,038 for 1994. The increase in general and administrative expenses was
primarily due to significantly increased legal, consulting and accounting fees
to support increasingly complex operations at the Company, and higher personnel
costs in 1995 compared to 1994, as a result of increased staffing during 1995.
Depreciation. Depreciation for 1995 increased by $56,536, or 1,502.8%, to
$60,298, or 2.0% of revenues for 1994. This increase was primarily due to the
depreciation associated with the acquisition of substantial new capital assets
in 1995, primarily computer technology.
Other Operating Expenses. Other operating expenses for 1995 increased by
$13,778, or 5,445.8% to $14,031, from $253 for 1994. This increase was primarily
due to the late fees and interest costs on trade credit incurred during 1995,
which were classified as an operating expense. The Company did not incur
significant comparable costs in 1994 as the Company focused on organizational
activities during that year.
Interest Income. The Company did not incur any interest income or interest
expense in 1995. The Company recorded interest income of $3,485 in 1994,
relating to interest on a note receivable from an investor.
Net Loss. As a result of the foregoing factors, the Company's net loss for
1995 increased by $1,639,274, or 402.9%, to $2,046,116 from $406,842 for 1994.
LIQUIDITY AND CAPITAL RESOURCES
From its inception through December 31, 1996, the Company incurred
cumulative losses aggregating $5,737,915, and has not experienced any quarter of
profitable operations. The Company expects to continue to incur operating losses
for the foreseeable future until the Company achieves significant commercial
sales of its products, principally as a result of expenses associated with the
Company's product development efforts and anticipated sales, marketing and
general and administrative expenses. During the past three years, the
24
<PAGE> 27
Company has satisfied its cash requirements principally from private sales of
equity and debt securities and, to a limited extent, from cash flows from
operations. The primary uses of cash have been to fund research and development
and for general and administrative expenses.
At December 31, 1996, the Company had cash and cash equivalents of
approximately $623,241, and a working capital deficit of $1,915,786. As of the
date hereof, the Company's total debt obligations (exclusive of trade credit)
consist primarily of the $2,000,000 principal amount payable to the holders of
the Bridge Notes and the $300,000 principal amount payable to Adelson Investment
Company. See "Certain Transactions" and "Description of Securities -- Debt
Securities." The Company intends to use a portion of the net proceeds of the
Offering to repay in full the Bridge Notes and the Adelson Note. See "Use of
Proceeds."
Net cash used in operating activities for 1996, 1995 and 1994 totaled
approximately $2,916,709, $1,445,087 and $203,731, respectively. Net cash
provided by financing activities for 1996, 1995 and 1994 totaled approximately
$3,750,351, $1,354,834 and $564,582, respectively, reflecting the proceeds from
the issuance of equity securities and debt securities and borrowings from
related parties, offset by principal repayments of $385,000 and $30,000 in 1996
and 1995, respectively. No principal repayments were made in 1994.
The Company intends to use approximately $400,000 of the net proceeds of
the Offering for capital expenditures. The Company currently anticipates that
such capital expenditures will include acquisition of computer hardware and
software to support new engineering staff, test equipment to support research
and development, integration, testing and quality assurance for manufacturing,
demonstration units and trade show material to support marketing and sales, and
acquisitions of furniture, fixtures and other personal property to support
expanded staff in new facilities.
Based on the Company's operating plan, the Company believes that the net
proceeds of this Offering, together with its existing resources and revenues
from continuing operations, will be sufficient to satisfy its capital
requirements and finance its operations for 15 months following the consummation
of the Offering. Such estimate is based upon certain assumptions, and there can
be no assurance that such assumptions are correct. In the event that the
Company's plans change, or the proceeds of the Offering are insufficient to fund
operations due to unanticipated delays, problems, expenses or otherwise, the
Company would be required to seek additional funding sooner than anticipated.
Further, depending upon the Company's progress in commercializing its
VidPhone(R) technology, marketing its product line, gaining acceptance of the
VidPhone(R) technology and its other products and services among the business
community, the Company may determine that it is advisable to raise additional
capital sooner than anticipated. The Company has no current arrangements with
respect to, or specific sources of, any such capital, and there can be no
assurance that such additional capital will be available to the Company when
needed on commercially reasonable terms, or at all. The Company anticipates that
any additional financing required to meet its current plans for growth and
expansion may take the form of the issuance of common or preferred stock or debt
securities, or may involve other secured or unsecured debt financing. To the
extent that the Company elects to obtain debt financing, the lender may impose
certain restrictive covenants on the Company and upon any default by the Company
on such debt financing, and a liquidation of the Company, the rights of such
lender would be superior to the rights of the holders of Common Stock, including
investors in the Offering. Additional equity financing may involve substantial
dilution to the interests of the Company's then existing stockholders. There can
be no assurance that the Company will be able to obtain such additional capital
on a timely basis, on favorable terms, or at all. In any of such events, the
Company may be unable to implement its business plan. See "Risk Factors -- Need
for Additional Financing" and "-- Dilution."
INFLATION
The impact of inflation on the Company's business has been insignificant to
date and the Company believes that it will continue to be insignificant for the
foreseeable future.
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BUSINESS
GENERAL
The Company has developed a proprietary video communications system, the
VidPhone(R) system, which is an integrated hardware and software system that
provides high-quality, low-cost video distribution and stereo audio transmission
capabilities using the existing unshielded telephone wiring. The VidPhone(R)
enables video conferencing, data and file sharing, full-motion broadcasting and
retrieval of stored data directly to or from the desktop or conference room
system. The Company believes that the VidPhone(R) system offers greater
functionality and compatibility with existing infrastructure at a lower price
than most high-quality video conferencing equipment on the market today. The
Company believes that it offers the only video distribution system that combines
all three major video applications, video conferencing, video broadcast and
video retrieval, in a single cost-effective, turn-key solution.
The VidPhone(R) system enables an existing PBX or Centrex system to
transmit live television broadcasts, conduct two-way or multi-party video
conferences, and distribute stored video material to the desktop. The Company
believes that these applications can be used for meetings, training programs and
retrieval of real-time financial market information and other news.
The Company's objective is to gain a leading position in the desktop video
applications industry by marketing the VidPhone(R) system through large business
telephone system providers which sell, install and support PBX systems, such as
the RBOCs, LEXCs, PBX manufacturers and PBX resellers. These providers have
direct access to end-users to which the VidPhone(R) system can be easily
introduced. The Company anticipates that such PBX system manufacturers will be
interested in establishing marketing relationships with the Company, because of
the ease with which the VidPhone(R) can be marketed and sold to existing
customers as an upgrade to an existing telephony system. The Company currently
is discussing a test marketing arrangement for the VidPhone(R) with leading PBX
manufacturers and resellers and also is discussing the establishment of joint
marketing relationships. As part of these test marketing arrangements, the
Company has installed VidPhone(R) equipment in the facilities of various PBX
manufacturers, LEXCs and at an end-user customer location. The Company has not
yet entered into any joint venture relationships and there can be no assurance
that it will be successful in its efforts to develop such relationships or that,
if established, such arrangements will be profitable. See "Risk
Factors -- Limited Marketing Experience; Need for Additional Personnel."
INDUSTRY BACKGROUND
The Telecommunications Industry. The telecommunications industry is
rapidly changing and expanding, and the video applications technologies within
that market are quickly developing. The industry has experienced the growth of
enhanced communication services such as multimedia applications, the Internet,
video and desktop conferencing, facsimile transmission and data communication
among computers. The Company believes that the growth in the telecommunications
industry will contribute to growth in demand for videoconferencing products
generally and for its products in particular. The Company believes that most
high-quality video conferencing equipment on the market today is expensive and
incompatible with the existing communications infrastructure of a typical
organization. The Company believes that it offers the only video applications
and distribution system that combines all three major video applications: video
conferencing, broadcast and retrieval. The VidPhone(R) system offers users an
integrated video conferencing system that provides a single, cost-effective
solution to the user's need to coordinate video conferencing among various
parties in disparate locations.
Video Conferencing. According to a 1996 report by Frost and Sullivan, the
U.S. video conferencing market generated $2.94 billion in 1995, and revenues are
projected to grow to over $34.76 billion by the year 2002, which would represent
a compound annual growth rate of 42.3% over such period. The market currently
consists of two segments: services and systems. Video conferencing services
include transport services, which provide ISDN line service for teleconference
parties; multi-point bridging services, which coordinate calls among various
parties at multiple locations; and public room services, which provide video
conferencing services and equipment to the public for a per-hour or per-day
charge. The video conferencing systems
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currently available include permanently-installed and portable boardroom systems
and desktop systems. According to a November 1996 article in PC Week, the
desktop segment of the video conferencing market, which the Company services, is
expected to grow from 300,000 units shipped in 1996 to 6,000,000 units shipped
by 2000.
Video Broadcast. Video broadcast is readily available to the consumer
market through cable services or satellite connections. These methods of
distribution of video broadcast for home use are effective, since the cable or
satellite connects to one or two television units within the home. To date,
however, the Company is unaware of any effective method to provide video
broadcast to the numerous desktop units used in most businesses or government
organizations. The Company believes that there is a growing demand for access to
video broadcasts, such as CNN, CNBC or Bloomberg, at the desktop in the
workplace.
Video Retrieval. Video retrieval systems allow on-demand retrieval of
films, training information, news excerpts or any other recordable material. A
video retrieval application could permit access to video content from a
third-party provider or from a business' own library. Video retrieval can serve
any business that requires frequent personnel training regarding new products or
procedures or that must research video materials. For example, a surgeon could
review the latest successful technique developed by a prominent medical center
or automotive technicians could review the most current repair procedure for a
particular model car. A business could keep training videos for all employees on
servers, ready for review at the individual employee's convenience.
The Company believes that video retrieval will become a necessity for
large, geographically diverse businesses that will require cost-efficient access
to training materials and other information at the desktop. The Company believes
that, to date, no reliable method of retrieval and distribution for recorded,
broadcast-quality video materials has been successfully introduced. Accordingly,
there is a lower demand for video retrieval applications than for video
conferencing or video broadcasting capabilities. However, the Company believes
that the demand for video retrieval in the workplace is growing, and will
continue to grow, as companies expand to multiple office locations worldwide.
The Company is unaware of any reliable, broadcast-quality video retrieval system
for the desktop available today.
VIDEO APPLICATIONS TECHNOLOGY
General. Video applications operate using a variety of communications
circuits. The speed of a transmission of digital data depends upon the capacity
of the communications circuit. A single twisted pair of copper wires connected
to a telephone company's central office can normally transmit up to 28 Kilobits
(28,000 bits) per second. With appropriate changes in the system's central
office switching equipment, a twisted pair can become a Basic Rate Interface ("1
BRI") or ISDN line, capable of transmitting 128 Kilobits per second. Three ISDN
circuits, each with two separate telephone numbers, can be combined by high-end
video conferencing systems to produce a "3 BRI" connection that can handle 384
Kilobits per second. A "T1" line, which uses a different cable, can handle l.5
Megabits (1,500,000 bits) per second. A fiber optic cable can transmit up to 2.5
Gigabits (2,500,000,000 bits) per second, or more, depending on the transmission
standards and methods. An increase in circuit capacity is accompanied by
increased cost. As fiber optic cables become more widely used and more companies
compete to supply communications circuits, however, the cost of the higher
capacity circuits is expected to decrease.
According to a 1996 Frost and Sullivan report, the proliferation of the
ISDN infrastructure is concentrated in the Northeast and the West Coast of the
United States and is expanding through the Midwest. As the requirements for
greater digital capacity are increasing, however, ISDN capacity is already
proving insufficient to support the demands of developing technologies. The
Company believes that in the near future, transmissions will occur through
synchronous fiber optic networks ("SONET") and asynchronous transfer mode
("ATM") switches. Unlike ISDN, the SONET network will be "scaleable," meaning
that bandwidths for various services can be expanded as required by future needs
and the ATM switches will adapt to the size of the SONET. A report by Thomson
Financial Services concludes that the ATM protocol will provide a long-term
solution to the search for a standard for videoconferencing systems.
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Telephone companies, such as the RBOCs, are already replacing the ISDN
lines among their central offices and the lines to their larger corporate
customers with SONET lines. Some companies, such as Citicorp, are installing
their own fiber optic lines to connect their various offices directly according
to a November 1994 article in Communications Week. These trends are expected to
continue and accelerate. According to an April 1996 report in
Telecommunications, the research firm Dataquest predicted that by the end of
1996 the revenues from sales of ATM switches will have jumped to $508 million.
The Video Conferencing Application. Generally, a video conferencing
station includes a video camera, monitor, microphone, one or more speakers and
associated circuit boards and software, either in a stand-alone system, or
partially incorporated in a desktop computer. The video conferencing unit also
requires a coder-decoder ("CODEC") to transform the analog video and audio
signals into digital form, compressing them for transmission to the receiving
station or stations. Because of the high cost of quality hardware CODECs, some
desktop systems economize by using a software CODEC. Generally, software CODECs
produce lower-quality images than their hardware counterparts.
Currently, there are two principal types of video conferencing systems
available in the market: "boardroom" systems and desktop systems. According to
an October 1996 article in BusinessWeek, boardroom and similar "rollabout"
systems have, to date, dominated the market for video conferencing stations. In
June 1995, U.S. News & World Report reported that PictureTel and CLI produce
almost all of the boardroom systems, which are designed either for permanent
installation or for portability around an office. These systems produce the best
video quality available and can produce full-motion video, but only if connected
by expensive, high-quality data circuits. Although the image quality varies
greatly, high-end boardroom systems can operate on circuits that vary from a
low-capacity single ISDN line to a high-capacity T1 line. The newest boardroom
systems conform to H.320, the protocol standard of the International
Telecommunications Union, so that they can communicate with each other.
Currently, the price of a single high-end boardroom station ranges from $15,000
to $80,000, with an average price of approximately $45,000.
According to an industry report by Thomson Financial Services, the video
conferencing market is migrating toward desktop systems from the large boardroom
systems. Desktop systems use personal computers and produce a lower-quality and
generally smaller image than boardroom systems. According to an October 1996
article in BusinessWeek, the price of a single desktop system can range from
$1,000 to $10,000. Current models of desktop systems operate using a
low-capacity single ISDN circuit, which reduces the wiring cost to the end user,
but also substantially reduces the amount of video data that can be transmitted.
A January 1996 Special Report in Video Technology News reports that desktop
sales comprised approximately 8% of the video conferencing market in 1995. The
Company believes that disappointing sales to date in the desktop market are
attributable to the limitations of existing desktop systems, both in terms of
the inability of such systems to communicate with existing installations and the
poor quality of the video.
For customers to communicate between two video conferencing stations, calls
travel from one station through a dedicated telephone line, to a central office
and back to the other station. For customers to communicate via more than two
video conferencing stations, the calls are usually channeled through a multi-
point bridge service, generally located at the telephone company or at an
independent service provider. This service coordinates the multiple calls,
permitting several groups to conference simultaneously or one company executive
to address several offices simultaneously.
The Video Retrieval Application. The Company does not believe that
retrieval and display of broadcast quality video at the desktop throughout a
business is offered by any currently available video conferencing system. To
date, no practical means for transmitting the video information to each desktop
on demand have entered the market. Most existing solutions attempt to use the
customer's local area network ("LAN"). LANs, however, were designed to be shared
by users each using the system for only short periods of time, not to handle
large amounts of continuous data. For LAN-video, the video server must convert
the video information to digital form and then compress it for storage on a
server. When the user requests a video, the server retrieves the video data and
streams the video to the user through the LAN. The user's computer must then
decompress the video and display the result.
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Even highly compressed video requires large bandwidth and 1.5 megabits per
second and a LAN typically has between one and two megabits per second of
bandwidth. Such a LAN could only carry one video stream, of low-quality video,
in one direction at a time. In addition, the LAN would be rendered nearly
useless for all other users. Several companies, such as Starlight Networks,
Inc., offers server and client software to support video distribution over the
LAN. Their equipment produces multiple video transmissions by reducing the
quality of the video below broadcast quality and by "multicasting," where many
users must watch the same video program simultaneously.
INDUSTRY BARRIERS
The widespread use of video applications in the workplace has been hindered
by certain industry barriers:
- Cost/Quality Tradeoff. Video applications systems with high-resolution,
realistic video images generally cost a customer more than $15,000 for a
unit that operates only in one location within a facility. Although such
systems can operate on a low-capacity ISDN line, Bellcore studies show
that for the majority of users a 3 BRI line gives the minimum acceptable
image quality for business applications. Thus, without installing
high-capacity lines to its existing infrastructure, which will
significantly increase the cost to the purchaser, the customer cannot
receive the best video quality from a boardroom system. As an
alternative, desktop systems generally cost under $10,000 per unit, but
the video image is low-resolution and unrealistic. Thus, the customer's
affordable alternative hinders the objective of video conferencing, which
is to see and hear the other conferees clearly and easily. The Company
believes that the high cost associated with the higher quality video
applications systems is prohibitive and has hindered widespread use of
video applications in the business community.
- Closed Architecture; Incompatibility. Many of the systems currently
available use a proprietary protocol, rather than the international
standard and, as a result, cannot interface with other systems. These
systems, although useful internally, may not easily permit external video
conferencing or may permit it only with other entities using the same
protocol.
THE OBJECTIVE COMMUNICATIONS SOLUTION
VidPhone(R) System. The Company's principal product is the VidPhone(R)
system. The Company is currently marketing a VidPhone(R) remote for use as a
video conferencing station that is fully compatible for use with the VidPhone(R)
system, which the Company intends to begin marketing in late 1997. The
VidPhone(R) system is comprised of desktop computers (configured with a
microphone, speakers, and a camera), the VidModem(TM), Objective View(TM) and
other software, all of which are linked by the EVS. The EVS connects each
VidPhone(R) terminal within a company and also connects the remote VidPhones(R)
that communicate with EVS via CODECs, ISDN lines, ATM switches or other
communication lines. The EVS also will provide a connection to the retrievable
video and audio material and sources of direct television broadcasts from
satellites or other sources.
The VidPhone(R) system is designed to provided high-quality, low-cost video
distribution and communications in any building using the existing unshielded
telephone wiring. All VidPhone(R) system functions, video retrieval,
broadcasting and conferencing, can be performed while a user simultaneously
engages in a telephone conversation over the same wires. This minimizes a
customer's need for new communications or transport infrastructure.
Additionally, the VidPhone(R) system is designed for both H.320 and ATM
conferencing, making it compatible with existing systems. See "-- Products and
Technology."
Figure 1 below demonstrates how the VidPhone(R) may be used in conjunction
with a customer's existing communications system.
[Graphic showing the connections between a desktop work station, the
VidModems(TM) and EVS]
Software Applications. The Company has developed several software
applications for use with the VidPhone(R).
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Objective View(TM) is the Company's primary software platform, providing an
easy-to-use graphical user interface for any VidPhone(R). Objective View(TM)
provides the user interface for establishing connections for all three video
applications, creating address books for frequently dialed broadcast signals or
conferencing parties, controlling the camera and volume levels on the desktop
unit, transferring files and launching other software programs.
The Company also provides two additional software programs, TeleDraw(TM)
and TeleShare(TM), with each VidPhone(R) system.
TeleDraw(TM) is a full-featured software package that permits collaborative
drawing, annotation and editing of drawings or pictures. Participants in
different locations can start with a blank page, a computer-generated drawing,
or a scanned image of an X-ray, photo or advertising layout. Each participant
can then make a sketch on the blank page, highlight sections of the image, or
change elements of the drawing or photograph, and the changes will appear on the
screen of every participant. The program also provides a presentation mode,
providing the ability to create (or import) and show a multi-slide presentation
to remote participants.
TeleShare(TM) allows participants in different locations to share
applications. TeleShare(TM) permits a computer program, such as a word
processing program or a spreadsheet, that is on the computer screen of one
conferee to appear on the screens of all the conferees. Each participant can
edit the screen on his or her own computer, and the edited version will appear
on the screens of all participants.
The Company believes that these programs have multiple applications in a
variety of professions, including but not limited to engineering, medicine, and
advertising.
STRATEGY
The Company believes that the VidPhone(R) offers users a cost-effective
video conferencing product without sacrificing image resolution. The relatively
high cost of high-resolution video conferencing equipment with which the
VidPhone(R) will compete, the capital costs and wiring requirements associated
with such systems, and the lack of video broadcast and retrieval applications in
the workplace present the Company with a strategic opportunity to market the
VidPhone(R) and its related software applications to customers in the desktop
video market. To achieve its objective, the Company intends to implement the
following strategies.
Penetrate the Video Conferencing Market. The Company intends to gain entry
into the stand-alone video conferencing market by introducing its VidPhone(R)
remote terminals, which will provide the basis for customers to establish video
applications networks both within and among companies for use with the Company's
desktop VidPhone(R) system. See "-- Products and Technology." VidPhone(R) remote
terminals have already been selected by the United States Federal government for
use in its telecommuting work center program and are currently operating in
seven sites around the Washington, D.C. metropolitan area.
Develop and Expand VidPhone(R) as the Compatible Industry Standard. The
Company believes that the VidPhone(R) system will become a competitive product
in the market for live, full-motion video and stereo audio, scanned images and
computer-generated text, spreadsheets and graphics. The Company believes that
the VidPhone(R) system will be particularly appealing to information systems
managers in corporate and government organizations, because the system can be
easily integrated with a customer's existing system and is compatible with the
systems already installed in an organization's offices and those of other
companies with which the customer regularly communicates.
Introduce Flexible Video Broadcast and Retrieval Applications. The Company
anticipates that users of video conferencing systems also will require video
broadcast and retrieval applications, and it believes that the market for such
broadcast and retrieval capabilities is larger than the market for video
conferencing. The VidPhone(R) system provides the user with video broadcast and
retrieval capabilities that will allow desktop access to training programs,
business news services and financial market quotations, and research databases.
Expand the Market of Video Applications End Users. The Company believes
that many industries, including financial institutions and industrial
manufacturers, offer a largely untapped market for affordable video
applications. For example, using the VidPhone(R) system, each office of a bank,
could offer customers the
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opportunity to communicate visually and verbally with a variety of specialists.
In addition, financial traders could use the VidPhone(R) system's video
broadcast capability to broadcast significant financial news directly on
computer screens. Airplane manufacturers could share engineering sketches and
databases of prior airplane designs. The Company intends to market the
VidPhone(R) system to industries that may have a need for video conferencing
capabilities, but have considered video applications unsuitable for their
business based on cost-quality considerations.
PRODUCTS AND TECHNOLOGY
The Company's principal product is the VidPhone(R) system. The Company is
currently marketing four components of the VidPhone(R) system. First is the
VidPhone(R) terminal, which provides one- and two-way video communications
within an office building, using VidModem(TM) technology. Second is the EVS,
which acts as a video network server, making connections, hosting conferences,
and retrieving stored video. Third is the VidPhone(R) remote terminal. This
terminal can gain remote access to all of the VidPhone(R) network functions via
ISDN or ATM lines. By using ATM, a VidPhone(R) remote terminal can have the
quality video and audio communications of the VidPhone(R) configured with a
VidModem(TM). Fourth is the user interface, Objective View(TM), and
communicating applications, TeleDraw(TM), TeleShare(TM) and Telefile(TM). The
Company currently expects to initiate sales of the VidPhone(R) system hardware
and software in late 1997.
The VidPhone(R) System. The VidPhone(R) system is the centerpiece of the
Company's suite of products. It is comprised of VidPhone(R) terminals, an EVS
and Objective View(TM). VidPhone(R) terminals use a personal computer or
workstation to which is added a microphone, speaker and camera, and proprietary
software. VidPhone(R) terminals can be connected through a VidModem(TM) or, for
remote terminals, through ISDN lines or ATM interfaces. Terminals connect to the
EVS to display broadcast television programs, conduct two-way or multi-party
conferences and to retrieve stored video for viewing.
VidPhone(R) terminals equipped with VidModems(TM) do not need a direct ISDN
or ATM interface since they are connected directly to the EVS. These VidPhone(R)
terminals connect to the EVS, which is normally located near the telephone PBX,
through a VidModem(TM) attached to the user's existing telephone line. The
VidPhone(R) system can provide high-quality, low-cost video communications
within a building using the existing, standard unshielded telephone wiring and
can extend that same quality to any other location worldwide by using
appropriate communications lines from a customer's PBX to the central office of
the local telephone company. The number of outside data lines needed is only as
large as the number of outside video conferencing calls being made at any one
time from the EVS.
An internal video conference call between two or more VidPhones(R) each of
which are within 1,250 feet of their PBX (a distance that would allow calls
within the largest high-rise buildings) would be connected using the building's
existing telephone lines via the EVS. The Company believes that the VidPhone(R)
system, unlike any other vendor's system, can transmit full-motion,
broadcast-quality, two-way video and stereo audio up to 1,250 feet to and from
the EVS. The telephone can be used for incoming or outgoing calls, even while
the line is being used for video conferencing or other video applications. No
CODECs, outside circuits, or multi-point controllers are needed if the
building's wiring is equal to or better than category 3 lines, which are
voice-grade cables typically used in residential or business telephone systems.
The VidPhone(R) system generally requires no new building wiring, provided that
the wiring is category 3 quality or better, except to connect the EVS to the
adjacent telephone PBX. Using the Company's proprietary technology, the Company
believes that every desktop computer in a high-rise building could be
inexpensively equipped to conduct full-motion, true-to-life video applications
with any other desktop computer inside and outside of the building with quality
equal to or surpassing that of existing high-end systems.
An external video conference call would connect from a VidPhone(R) terminal
to the EVS and then, through a CODEC, to a high-capacity outside circuit
connected to the telephone company's central office. The VidPhone(R) system,
like the high-end boardroom systems currently available, can use any quality
outside circuit, such as an ISDN, a T-1 or a SONET. Unlike existing systems,
however, which require separate, dedicated CODECs and dedicated circuits for
each video conferencing station, a VidPhone(R) system needs only one CODEC and
one outside circuit for each participant in an outside video conference being
conducted
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at any one time. Just as a telephone switchboard may have numerous inside
extensions and a few outside lines, all of the VidPhone(R) systems within the
organization can share a few, high-quality CODECs coupled to a few outside
lines. Thus, the VidPhone(R) system requires substantially less equipment and
expense per video conferencing station.
The standard CODEC included with the VidPhone(R) system is compatible with
the H.320 international standard for video conferencing, used by all high-end
video conferencing systems. One or more VidPhone(R) system special CODECs could
be installed with the EVS to permit calls to systems that are not compatible
with H.320. When a user wants to conference from a VidPhone(R) system station
with a party who has a non-H.320 system, the end-user can use the VidPhone(R) to
select a CODEC that is compatible with the outside party's system. Since there
are no established standards for ATM conferencing, the Company has designed the
VidPhone(R) system for both H.320 and ATM conferencing. The Company is aware of
no system other than the VidPhone(R) system that is designed to communicate with
any system, anywhere.
The Company originally developed the VidPhone(R) remote terminals for ISDN
use as a stand-alone desktop video conferencing system that can utilize either
an ISDN line or a 3 BRI line. The VidPhone(R) remote terminals will permit video
conferencing at a lower resolution than the VidPhone(R) systems linked by
VidModem(TM) within an organization. Such VidPhone(R) systems will integrate
with a business' current communications system. The Company has approximately 74
VidPhone(R) remote terminals in operation, including those installed at the U.S.
General Services Administration's new telecommuting work centers. The Company
intends to provide software upgrades to its existing customers and will seek
orders for additional systems to establish a greater market presence during
1997. Additionally, the VidPhone(R) remote terminals serve as a remote location
VidPhone(R) that connects to an EVS via ISDN lines.
MARKETING AND SALES
The Company intends to market the VidPhone(R) system as an easily
integrable component to an existing communications system. The Company will
focus on PBX and Centrex system vendors, such as Lucent Technologies, Inc. and
Siemens-Rolm Communications, Inc., which have established a worldwide, office
communications product distribution network. PBX and Centrex vendors currently
do not offer a video applications product that is integrable with the business
telephone systems sold by such vendors. The Company intends to leverage the
existing PBX base of products and customers and believes that the compatibility
of the VidPhone(R) system technology with the PBX and Centrex products will be
more appealing than the boardroom or current desktop systems to the PBX vendors.
While the Company is developing relationships with PBX vendors, it also
intends to sell its products through a variety of channels including systems
integrators, value-added resellers ("VARS") such as interconnector companies,
and partnership agreements with synergistic vendors, such as the ATM switching
providers, and network providers and other providers with an interest in
sponsoring applications for their transport equipment or networks.
The Company has already made direct and indirect sales of the VidPhone(R)
system. Bell Atlantic Corp. purchased 13 VidPhone(R) remote terminals and
ordered four VidPhone(R) systems configured with VidModems(TM) for use in its
business. The Company currently has no other contracts to sell its systems or
provide services. The Company has demonstrated the VidPhone(R) system only under
non-disclosure agreements since it is a proprietary product. The Company intends
to expand its efforts to contact new potential customers and will organize
support services for its products. The Company intends to establish both
customer and support services for its products as well as a sales training
program and a technical training program for its resellers and partners. The
Company has set up an Internet site to give further support to end-users of its
products.
The Company has already installed VidPhone(R) remote terminals at a major
PBX vendor site, at an RBOC site and at the headquarters of a telecommunications
company.
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PRODUCT RESEARCH AND DEVELOPMENT
The Company is currently focusing on the development and production of the
VidPhone(R) system. This includes further improvements to its underlying
VidModem(TM) technology, the EVS-50 and the accompanying user interface and
applications software.
The Company has a manager and several engineers and technicians working
directly on hardware and software development. The Company also has 10
consulting hardware engineers under contract. These engineers are working
principally on the EVS-50 hardware and on VidModem(TM) development.
The EVS-10 development program is essentially complete. The EVS-10 is a ten
user, fully functional product that is designed for beta testing of the
VidPhone(R) technology. It has ten VidModem(TM) user ports available, a
four-party control unit to host video conference calls during which multiple
parties can all see and hear each other, and a dual channel ISDN CODEC system.
Four additional ports are available for connection to broadcast television, to
ATM CODECs or to a video server. Currently, four EVS-10 products have been
installed. Others are in production and are scheduled for installation in the
first quarter of 1997.
EVS-50 accommodates up to 50 users. It is designed to be highly reliable
and easily maintained in the field. Installation of an EVS-50 is designed to be
straightforward and will require less than one day in a typical corporate
facility.
In addition to several new applications, software development continues on
the basic software applications: Objective View(TM), TeleDraw(TM) and
TeleShare(TM).
INTELLECTUAL PROPERTY
Parts of the Company's technology are protected by both registered
trademarks and pending patents. The Company has received a notice of allowance
from the U.S. Patent and Trademark Office for a pending patent application
covering a method and apparatus for transmitting video information over
telephone wires. This patent is expected to be issued in March 1997. An
international patent application and a Taiwanese patent application covering
this invention have also been filed and are still pending. The Company has also
filed a patent application covering its video network and switching system using
telephone wires. The Company is also preparing applications for hardware and
software innovations in the VidPhone(R) system. The success of the Company's
products depends in part on its ability to obtain and protect patents, licenses
and other intellectual property rights covering its significant hardware and
software products. To that end, the Company intends to seek patents and
copyrights on certain of its inventions and proprietary processes.
The Company has acquired several trademarks, including Objective
Communications(R) and VidPhone(R), and has several other trademarks pending.
COMPETITION
The market for video conferencing systems is highly competitive, subject to
rapid technological change and emerging industry standards. The Company believes
that the principal competitive factors in the markets in which it intends to
compete are product performance, price and product support and services.
The Company's principal competition to date has been from video
conferencing systems companies, particularly PictureTel, CLI and VTEL. According
to a June 1995 article in U.S. News & World Report, PictureTel and CLI had
approximately 71% market share in the video conferencing systems market. The
Company also expects substantial additional competition from new market
entrants, such as Intel Corp., which recently entered the video conferencing
market with "ProShare(R)," a document sharing software for a desktop system with
an optional video capability that includes a camera, a communications board,
CODEC and software. However, the Company believes that this system provides low
resolution, unrealistic images. In addition, at least one competing "desktop"
system manufactured by C-Phone Corporation is designed to operate on a LAN
within a building, if the LAN uses shielded or co-axial cable. In total, there
are approximately 22 companies, including Apple Computers and Creative Labs,
offering desktop systems. To date, none of the new desktop systems has captured
any significant portion of the market.
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<PAGE> 36
Virtually all of the companies with which the Company expects to compete
have longer operating histories, greater name recognition, larger customer bases
and significantly greater financial, technical and marketing resources than does
the Company. The Company believes that it will be able to compete effectively
against larger companies with substantially greater resources on the basis of
its products' capabilities, including broadcast and retrieval applications, the
high quality image resolution and stereo audio in the VidPhone(R) system, and
price. However, there can be no assurance the Company will be able to compete
successfully.
MANUFACTURING
The Company will outsource the manufacture of components to be used in its
products and the assembly of those components into the finished products. The
products will be shipped to the Company for final assembly check, systems
integration and testing. The Company has initiated discussions with many
manufacturers and suppliers but has no current arrangements with manufacturers
or suppliers that fix the costs of production or parts. Any difficulties
encountered with third-party manufacturers could result in product defects,
production delays, cost overruns or the inability to fulfill orders on a timely
basis which, in turn, could have a material adverse effect on the Company.
GOVERNMENT REGULATION
The FCC regulates the operation of telecommunications equipment for use in
the United States. The Company's products will be required to conform with
certain guidelines and regulations promulgated by the FCC relating to radio
frequency equipment and to terminal equipment that is connected to the public,
switched telephone network. As a result, the Company will be required to verify
that the equipment complies with the applicable technical standards. For certain
uses of the product, the Company may need to obtain equipment registration from
the FCC prior to connection to the public, switched telephone network.
FACILITIES
The Company's headquarters are located in Chantilly, Virginia in facilities
currently consisting of approximately 5,000 square feet for its offices,
engineering lab and demonstration room which it contracts for a monthly payment
of approximately $13,000. The contract is renewable on a month-to-month basis.
The Company is currently negotiating a new contract which it expects will
commence in February 1997 for 8,500 square feet of space for a monthly payment
of approximately $17,000. In 1997, the Company currently intends to enter into a
lease to accommodate the expansion of its facilities. See "Use of Proceeds."
EMPLOYEES
As of December 31, 1996, the Company had 17 employees, of whom 15 are
full-time and two are part-time. The employees include five members of
management, four hardware and software engineers, one service technician, one
junior technician, one technical writer, one manufacturing supervisor and one
administrative assistant. The Company also uses the services of technical
consultants and subcontractors on an as-needed basis. Each employee and
consultant has executed both a confidentiality agreement and an agreement not to
compete with the Company for a period of 24 months after performing services for
the Company. The Company does not have employment agreements with its employees,
except for Steven A. Rogers. The Company's employees are not unionized, and the
Company believes that its relations with its employees and consultants are good.
LEGAL PROCEEDINGS
As of the date of this Prospectus, the Company is not a party to, and the
property of the Company is not subject to, any material legal proceedings.
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<PAGE> 37
GLOSSARY OF TERMS
Asynchronous Transfer Mode ("ATM"). A technology which represents
digitized signals of voice, data or video in a stream of packets each of which
is 53 bytes (1 byte equals 8 bits or binary units of information) long. Each
packet identifies a source and a destination so it can be switched individually.
Basic Rate Interface ("BRI"). One interface type used to access the
Integrated Services Digital Network. The BRI interface allows two simultaneous
calls across a single pair of copper wires.
Bell Communications Research ("Bellcore"). A telecommunications entity
which, among other functions, establishes standards and specifications for the
telecommunications industry, particularly Regional Bell Operating Companies. Any
equipment, documentation or system that complies to those published standards is
said to be "Bellcore-compliant."
Integrated Services Digital Network ("ISDN"). A set of standards adopted
by domestic and international carriers for termination, transmission and
switching equipment to allow digital formatted voice, data and video signals to
be processed and transported through the telephone network.
LEXC. Long Distance Exchange Company.
Local Area Network ("LAN"). A type of high-speed data communications
arrangement in which multiple computer and related products in an office or
campus environment are connected by means of a standard transmission medium.
Local Exchange Carrier ("LEC"). A local phone company such as a Regional
Bell Operating Company or an independent that provides local transmission
services.
Mbps. A million bits per second.
Private Branch Exchange ("PBX"). Equipment located at a business
customer's premises facilitating telephone calls within the building and to a
central office and offering other enhanced services such as call waiting,
conferencing, call transfer and other services.
RBOC. Regional Bell Operating Company.
SONET. Synchronous fiber optic network.
T1. A telecommunications line format adopted in North America for
transmission at speeds of 1.544 megabits per second and containing 24 voice
channels.
Telephony. The technology and manufacture of telephone equipment.
T3. A telecommunications line format which incorporates 28 T1s and whose
signaling speed is approximately 45 Mbps.
Wide Area Network ("WAN"). A network that extends beyond the distance that
can be accommodated by local cabling methods.
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<PAGE> 38
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The executive officers and directors of the Company are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- -------------------------------------------- --- ------------------------------------------------
<S> <C> <C>
Mr. Steven A. Rogers (1)(4)................. 44 President, Chief Executive Officer and Director
Mr. Clifford M. Kendall (1)................. 65 Chairman of the Board of Directors
Mr. Anthony M. Agnello...................... 47 Director
Mr. Robert L. Barnett....................... 56 Director
Mr. Donald W. Barrett....................... 50 Director
Dr. Eugene R. Cacciamani (1)................ 60 Director
Lt. Gen. Lincoln D. Faurer, USAF (Ret.)..... 68 Director
Mr. Richard T. Liebhaber (1)(4)............. 61 Director
Mr. Roy C. Nash............................. 54 Director
Mr. John B. Torkelsen....................... 51 Director
Mr. Robert H. Emery......................... 52 Vice President, Administration and Finance
Mr. Frank M. Gore........................... 57 Vice President, Sales
Mr. Lewis M. Roch III....................... 40 Vice President, Marketing
Mr. Roger A. Booker......................... 42 Vice President, Manufacturing
</TABLE>
- ---------------
(1) Member of the Executive Committee of the Board of Directors.
(2) Member of the Audit Committee of the Board of Directors.
(3) Member of the Compensation Committee of the Board of Directors.
(4) Member of the Preferred Stock Committee of the Board of Directors.
STEVEN A. ROGERS founded the Company in 1993 and has served as President and
Chief Executive Officer since the Company's inception. Mr. Rogers has
participated in other successful start-up companies as an executive officer or
founder. From July 1990 to July 1992, he served as a Senior Vice President of
General Kinetics, Inc. where he managed the Cryptek division. In January 1986,
he had founded Cryptek, Inc., a company that developed desktop facsimile
machines, and, from January 1986 to July 1990, served as its President and Chief
Operating Officer until it was acquired by General Kinetics, Inc. Mr. Rogers
holds four patents and was a nominee for KPMG Peat Marwick's "1990 Entrepreneur
of the Year" award. He has a B.S.E.E. from Virginia Polytechnic Institute.
CLIFFORD M. KENDALL has been Chairman of the Board of Directors since August
1994. Mr. Kendall is one of the founders and current Chairman of the Board of
Computer Data Systems, Inc. ("CDSI"), a professional and processing services
company which provides consulting and data processing services to Federal, state
and local governments, not-for-profit institutions and commercial clients, and
has served in such capacity since July 1991. From 1971 to July 1991, Mr. Kendall
served as Chairman and Chief Executive Officer of CDSI. Mr. Kendall also serves
as a member of the Advisory Board of Atlantic Holdings, Inc. and Ferris, Baker,
Watts Incorporated.
ANTHONY M. AGNELLO has served as a director of the Company since January 1997.
Mr. Agnello co-founded Ariel Corporation in 1982 and currently serves as Chief
Executive Officer and Chairman of the Board of Ariel Corporation. Mr. Agnello
received his M.S.E.E. from City College of New York and owns several patents in
digital signal processing.
ROBERT L. BARNETT has served as a director of the Company since August 1994. Mr.
Barnett has served as Corporate Vice President of iDEN Group of Motorola, Inc.,
since 1995, where he is responsible for the development of wireless
communications products. From 1992 to 1995, he was the President of Nexteps,
Inc., an international communications consulting firm. He served in various
capacities at the Ameritech Corporation from 1987 to 1993, including President
of Ameritech Bell Group and Vice-Chairman of Ameritech
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<PAGE> 39
Corporation. Mr. Barnett serves on the boards of Johnson Controls, Inc., USG,
the parent company of United States Gypsum and Central Vermont Public Service, a
utility company.
DONALD W. BARRETT has served as a director of the Company since August 1994. Mr.
Barrett has been Chairman of the Board and Chief Executive Officer of Telepad,
Corp., a telecommunications and information systems equipment manufacturer since
April 1996. From July 1991 to March 1996, Mr. Barrett was President and Chief
Executive Officer of Ideas, Inc., a systems integrator for the intelligence
community. From July 1987 to June 1991, he served as President of the Government
Systems Group of Contel Federal Systems where he was responsible for the design,
development and integration of information systems supporting the United States
government. Mr. Barrett has a B.S. from California State Polytechnic University
and an M.B.A. from California State University, Fullerton.
EUGENE R. CACCIAMANI has served as a director of the Company since August 1994.
Dr. Cacciamani has been a Senior Vice President of Hughes Network Systems, Inc.
a company furnishing private communications networks to business, government
common carriers since 1987, where he is responsible for developing new
technologies, systems and businesses, including lead efforts in the Hughes DBS
DirecTv system and the system design in the ICO global satellite personal
communications system. Dr. Cacciamani is on the Engineering Advisory Boards at
Union College and The Catholic University of America and serves as an advisor to
Aloha Networks, Inc. and Quest Communications.
LINCOLN D. FAURER has served as a director of the Company since August 1994. Mr.
Faurer has served as President of LDF, Inc., a company providing consulting
services on intelligence and security matters, since 1991. From 1986 to 1991,
Mr. Faurer also served as President of the Corporation for Open Systems, Inc., a
corporation engaged in research and development of a worldwide "open systems"
environment. Lt. Gen. Faurer retired from the United States Air Force in 1985,
serving the last four years as Director of the National Security Agency.
RICHARD T. LIEBHABER has served as a director of the Company since August 1994.
Mr. Liebhaber has been a Managing Director of Veronis, Suhler & Associates,
Inc., New York, a media merchant banking firm, since 1995. From 1985 to 1995,
Mr. Liebhaber was Chief Strategy and Technology Officer of MCI Communications
Corporation. He is the Chairman of the Board of Precision Systems, Inc., and
serves on the board of
directors of Alcatel Network Systems, Inc., a subsidiary of Alcatel Alsthom
Compagnie Generale d'Electricite, Geotek Communications, Inc., Advanced Network
Services, Inc., a subsidiary of America Online, Inc., and Scholz Master
Builders, Inc. He is also a member of the Steering Committee for the National
Information Infrastructure for the Computer Science and Telecommunications Board
of the National Research Council and is a member of the Federal Networking
Commission Advisory Council.
ROY C. NASH has served as a director of the Company since August 1994. Mr. Nash
has been Vice President of Audit for MCI Communications Corporation since 1995.
From 1993 to 1995, Mr. Nash served as Chief Financial Officer for Concert
Communications Company, a joint venture between MCI and British Telecom plc.
From 1987 to 1993, Mr. Nash served as Vice President and Controller, responsible
for all internal and external financial reporting of MCI Communications
Corporation. Mr. Nash received a B.A. in Economics from Cornell University and
an M.B.A. from Columbia University.
JOHN B. TORKELSEN has served as a director of the Company since March 1996. Mr.
Torkelsen has served as President of Princeton Venture Research, Inc. since 1984
and President of its affiliate PVR Securities Inc. since 1987. Mr. Torkelsen
also is Chairman of the Board of Voice Control Systems, Inc. and a director of
Mikros Systems Corporation. He has a B.S. in engineering from Princeton
University and an M.B.A. from Harvard University.
ROBERT H. EMERY has served as Vice President, Administration and Finance since
December 1996, and previously served as Vice President, Administration from May
1995 to December 1996. From May 1986 to May 1995, he served as Vice President of
Aries Systems International, Inc., an information services company. From August
1983 to July 1986, Mr. Emery served as the ADP Security Officer for the
military's largest secure computer network. He has a B.S. from the U.S. Naval
Academy and an M.S. in information systems from the Naval Postgraduate School.
He is a CPA and a certified financial planner.
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<PAGE> 40
FRANK M. GORE has served as Vice President, Sales since July 1994. From January
1990 to June 1994, he served as Director of Sales for International Financial
Communications, Inc., a distributor of video conferencing equipment. From March
1988 to January 1990, Mr. Gore served as Director of Marketing for International
Data Services, Inc., a communications company, where he was responsible for
establishing and managing a $35 million contract. From October 1987 to March
1988, Mr. Gore served as National Sales Manager for British Telecom, plc, U.S.
division, managing 120 sales people and 12 regional sales managers. From
February 1980 to October 1987, Mr. Gore served as Marketing Program Manager for
Boeing Computer Services, Inc., a division of The Boeing Company, where he
managed the development and distribution of hardware and software products
related to computer communications.
LEWIS M. ROCH III has served as Vice President, Marketing since May 1994. From
March 1991 to May 1994, Mr. Roch served as Managing Partner of RFP Associates,
Ltd., an investment partnership. From March 1984 to March 1991, Mr. Roch was the
founder and Chief Executive Officer of SM Telecorp, Inc., a diversified
telecommunications company that supplied, installed and maintained telephone
private branch exchanges, fiber optic cabling and microwave transmission
systems; built and operated cellular, paging and voicemail systems; and provided
long distance, operator and local exchange services in central Texas. From
February 1981 to February 1984, Mr. Roch also worked in the Executive Management
Development Program at Continental Telephone, now a division of GTE Corporation.
He received a B.S. from Washington University in St. Louis and an M.B.A. from
The University of Texas at Austin in telecommunications management.
ROGER A. BOOKER has served as Vice President, Manufacturing since February 1996.
From June 1994 to February 1996, Mr. Booker served as the Vice President,
International Development and Operations at Global Partnership, Inc., where he
directed international development and operations. From February 1990 to June
1994, Mr. Booker also served as the Vice President, Manufacturing Operations at
Cryptek, Inc. and served in the same position at General Kinetics, Inc. when it
acquired Cryptek, Inc., where he was responsible for overseeing operations,
including several acquisitions and divestitures. From August 1986 to February
1990, Mr. Booker was Director of Operations for Magnavox Government and
Industrial Electronics Company where he managed the startup of a 200,000 square
foot manufacturing facility. He received a B.S. and an M.A. in manufacturing
technology and management from East Tennessee State University.
Under three separate agreements, certain parties have the right to
designate nominees for members of the Board of Directors. In connection with the
private placement of equity securities of the Company by PVR Securities, Inc.,
Mr. John Torkelsen, a director of the Company, and Mr. Steven A. Rogers, a
director and the President and Chief Executive Officer of the Company, entered
into an agreement that provides that, for a five-year period beginning December
5, 1995, each of them will vote any shares that he controls for the election to
the Board of Directors of an individual nominated by the other and on a best
efforts basis will seek additional votes for the other party's nominee. Mr.
Torkelsen was elected to the Board of Directors pursuant to this agreement. In
addition, Mr. Torkelsen agreed, subject to his fiduciary obligations to the
Company, to vote for Mr. Rogers to continue his position as President and Chief
Executive Officer of the Company during the term of the voting agreement.
Mr. Anthony M. Agnello was elected to the Board of Directors on January 16,
1997 pursuant to a voting agreement dated December 19, 1996 by and among
Applewood Associates, L.P. ("Applewood"), Acorn Technology Partners, L.P.
("Acorn") and Mr. Rogers, entered into in connection with the private placement
of the Series A Preferred Stock and the Series A Warrants by the Company to
Applewood and Acorn. Subject to certain percentage ownership requirements, Mr.
Rogers agreed, pursuant to such voting agreement, to vote his shares of Common
Stock to elect as a director the nominee of Applewood and Acorn.
In connection with the Offering the Company has agreed, for a period of
five years following completion of the Offering, to use its best efforts
(including the solicitation of proxies, if necessary) to elect one designee of
the Underwriter to the Board of Directors of the Company. See "Underwriting."
DIRECTOR COMPENSATION
The Company reimburses directors for expenses incurred in connection with
attending Board meetings, but does not pay director's fees or other compensation
for services rendered as a director. In lieu of fees, in
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<PAGE> 41
August 1994, the Company granted to each director then serving (other than
Steven Rogers) options to purchase shares of Common Stock. Each grant was
negotiated with the director at the time he was appointed. See "-- Directors'
Non-Qualified Options." In addition, directors or their affiliates may receive
compensation for services rendered to the Company in other capacities. Mr.
Torkelsen, a director of the Company, is the President of PVR Securities, Inc.,
which has in the past, and may in the future, provide investment banking
services to the Company. See "Certain Transactions."
DIRECTORS' NON-QUALIFIED OPTIONS
In August 1994, the Company granted options to purchase an aggregate of
200,000 shares of Common Stock ("Directors' Non-Qualified Options"), to the
persons then serving as directors of the Company. Such options were granted in
lieu of directors' fees and pursuant to agreements ("Non-Qualified Stock Option
Agreements") with each director. The options are exercisable for a period of ten
years from the date of grant, have an exercise price of $2.00 per share and vest
20% per year on each of the first, second, third, fourth and fifth anniversaries
of the date of grant. Notwithstanding the foregoing vesting schedule, if a
director fails to attend more than one-half (50%) of the total number of
meetings of the full Board of Directors and any committees of the Board of which
he is a member, the director forfeits any percentage of the option that would
otherwise have vested in that year. Further, if a director ceases to be a
director of the Company for any reason, including removal, death or disability,
such director forfeits any portion of the option that is unvested at that time.
As of the date of this Prospectus, Directors' Non-Qualified Options to purchase
70,000 shares of Common Stock have vested, and Directors' Non-Qualified Options
to purchase 10,000 shares of Common Stock have been exercised. Directors'
Non-Qualified Options may be exercised only to the extent vested. The optionee,
or his estate in the case of death, can exercise the option to the extent vested
at the time he ceases to be a director of the Company until the expiration of
the option.
Subject to a limited exception in the event of a business combination
accounted for under the "pooling of interests" method of accounting, in the
event of any pending or threatened takeover bid or tender offer pursuant to
which 25% or more of the outstanding Common Stock of the Company is or may be
acquired, or in the event that any person makes any filing under Section 13(d)
or 14(d) of the Exchange Act, indicating an intention to commence any such
takeover bid or tender offer, all outstanding Directors' Non-Qualified Options
will become immediately exercisable, or, if exercise of the Directors'
Non-Qualified Options would not be in conformity with all applicable federal and
state securities laws, then the options will be entitled to receive cash in an
amount equal to the difference between the fair market value of the Common Stock
subject to options and the exercise price of the options.
COMMITTEES OF THE BOARD OF DIRECTORS
The Board of Directors has three standing committees: the Executive
Committee, the Audit Committee and the Compensation Committee.
Executive Committee. The Board of Directors has established an Executive
Committee comprised of four (4) directors. The Executive Committee has the
authority to exercise substantially all of the powers and authority of the full
Board of Directors in the management and affairs of the Company between meetings
of the full Board of Directors, to the fullest extent permitted by the Delaware
General Corporation Law. Messrs. Rogers, Kendall, Liebhaber and Cacciamani
currently serve as members of the Executive Committee.
Audit Committee. The Board of Directors has established an Audit Committee
comprised of three (3) directors. The Audit Committee is responsible for
approving the Company's independent auditors, reviewing the scope of their
engagement, consulting with such auditors and, reviewing the results of any
audit examination, reviewing the disposition of recommendations made by the
independent auditors during the past year, acting as a liaison between the Board
of Directors and the independent auditors and reviewing various Company
policies, including those related to accounting and internal control matters.
Messrs. , and currently serve as members of the
Audit Committee.
Compensation Committee. The Board of Directors has established a
Compensation Committee consisting of three (3) outside, non-employee directors.
The Compensation Committee is responsible for reviewing
39
<PAGE> 42
and approving executive compensation policies, practices, salary levels and
bonuses programs and for administering the Company's 1996 Plan. Messrs.
, and currently serve as members of the
Compensation Committee.
The Board of Directors also has appointed a Preferred Stock Committee, on
which Mr. Rogers and Mr. Liebhaber currently serve. The Preferred Stock
Committee has authority to approve the issuance and sale, from time to time, of
one or more series of preferred stock for cash or other property, including the
issuance and sale from time to time of warrants for such preferred stock, or
common or preferred stock of the Company into which any series of preferred
stock may be convertible or exchangeable. The Preferred Stock Committee also is
authorized, in connection with the issuance of one or more series of the
preferred stock and any common or preferred stock into which such preferred
stock may be convertible or exchangeable, to determine the price at which the
preferred stock of each such series or class will be sold, to declare dividends
payable on the preferred stock, to reserve for issuance shares of any common
stock or preferred stock into which any series of the preferred stock may be
convertible or exchangeable, and to determine the designation, preferences and
privileges, the relative, participating, optional or other special rights, and
the qualifications, limitations, and restrictions of such securities.
EXECUTIVE COMPENSATION
The following table lists the cash remuneration paid or accrued during the
year ended December 31, 1996 to the President and Chief Executive Officer of the
Company, Mr. Steven A. Rogers. No other executive officer of the Company
received salary and bonus in excess of $100,000 for or with respect to 1996. The
Company did not pay any bonuses or other compensation, did not have any pension
or long-term incentive plan and did not issue any restricted stock awards or
stock awards to Mr. Rogers during 1996.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
AWARDS
ANNUAL ------------
COMPENSATION SECURITIES
------------ UNDERLYING
NAME AND PRINCIPAL POSITION YEAR SALARY OPTIONS
- ------------------------------------------------------------- ---- ------------ ------------
<S> <C> <C> <C>
Steven A. Rogers
President and Chief Executive Officer...................... 1996 $120,000 25,000
</TABLE>
The following table sets forth certain information about the stock options
granted to Mr. Rogers in 1996 under the Company's 1994 Plan.
OPTION GRANTS IN 1996
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES PERCENTAGE OF TOTAL
UNDERLYING OPTIONS GRANTED TO EXERCISE PRICE EXPIRATION
NAME OPTIONS GRANTED (1) EMPLOYEES IN 1996 ($/SH) DATE
- ---------------------------- ------------------- ------------------- -------------- ------------------
<S> <C> <C> <C> <C>
Steven A. Rogers............ 25,000 18.1% $ 4.00 December 16, 2006
</TABLE>
- ---------------
(1) The options granted to Mr. Rogers were non-qualified stock options that
were granted at fair market value at the time of the grant and vest over a
five-year period on the anniversary of the grant date. The options expire
on the tenth anniversary of the date of grant. See "-- 1994 Stock Option
Plan" below.
The Company has an employment agreement with Mr. Rogers, but does not
currently have any employment agreements with any of its other executive
officers or employees. See "-- Employment and Confidentiality Agreements."
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<PAGE> 43
1994 STOCK OPTION PLAN
In October 1994, the Company adopted the 1994 Stock Option Plan. The 1994
Plan is intended to attract, retain and motivate officers, key employees and
consultants and to provide the Company with the ability to provide incentives
linked to the profitability of the Company's businesses and increases in
stockholder value. The Company has reserved for issuance 343,000 shares of
Common Stock upon the exercise of options awarded under the 1994 Plan. The 1994
Plan authorizes the issuance of incentive stock options qualifying under Section
422 of the Internal Revenue Code of 1986, as amended (the "Code") ("Incentive
Options") and non-qualified stock options ("Non-Qualified Options") to qualified
executive officers, key employees and consultants of the Company.
As of the date hereof, Non-Qualified Options to purchase 343,000 shares of
Common Stock at an exercise price of $4.00 per share, have been granted to
executive officers, other key employees and consultants. Non-Qualified Options
to purchase 41,000 of these shares have vested. The Company does not intend to
grant any additional options under the 1994 Plan. Future awards, if any, will be
made under the 1996 Plan.
1996 STOCK INCENTIVE PLAN
In January 1997, the Company adopted the 1996 Stock Incentive Plan. The
1996 Plan, which terminates in January 2007 (the tenth anniversary of the
effective date of the plan), is intended to promote the long-term growth of the
Company by rewarding its officers, key employees, directors and consultants with
a proprietary interest in the Company for outstanding long-term performance and
to attract, motivate and retain capable management employees. The Company has
reserved for issuance 450,000 shares of Common Stock upon exercise of options
awarded under the 1996 Plan. To date, no awards have been made under the 1996
Plan.
The 1996 Plan is to be administered by the Compensation Committee of the
Board, which is required to be comprised of at least two non-employee directors,
as defined under Rule 16b-3 under the Exchange Act or, if no Committee is
appointed, by the Board of Directors of the Company. The 1996 Plan authorizes
the grant of incentive stock options (as defined in Section 422 of the Code),
non-qualified stock options, restricted stock awards and stock appreciation
rights ("SARs"), or any combination thereof, at the discretion of the
Compensation Committee. Subject to adjustment in certain circumstances, the
aggregate number of shares of Common Stock which may be issued under the 1996
Plan upon the exercise of options or SARs or in the form of restricted stock, or
some combination hereof, may not exceed 100,000 shares in any one year to any
single plan participant. Common Stock acquired through the exercise of an
option, SAR or restricted stock award granted to an insider of the Company may
not be disposed of by an insider during the six-month period beginning on the
date of grant.
The option price per share of Common Stock underlying each option granted
under the 1996 Plan may not be less than 100% (110% in the case of an incentive
stock option granted to a 10% stockholder) of the fair market value per share of
Common Stock on the date of the option grant. The 1996 Plan provides that
one-fifth of each option granted to a participant vests on each of the first,
second, third, fourth and fifth anniversary of the date on which the option was
granted, unless otherwise provided in the option agreement.
Options may not be exercised after ten years from the option grant date
(five years in the case of an incentive stock option granted to a 10%
stockholder). In the case of any incentive stock option, the option shall
terminate on the date that is three months (one year, in the event that the
termination of employment is by reason of death or disability) after the date on
which the optionee terminates employment or, if earlier, the date specified in
the agreement relating to the option grant.
Awards under the 1996 Plan also may be made in the form of restricted
stock, at the discretion of the Compensation Committee. The Compensation
Committee has the authority to determine the terms and conditions of any
restricted stock awards.
SARs may be granted in conjunction with all or a part of an option granted
under the 1996 Plan, either at the time of initial grant of the option or a
subsequent time prior to the expiration of the option, except that SARs may not
be granted in connection with a prior option without the consent of the option
holder. Upon the exercise of a SAR, the participant is entitled to the
difference between the fair market value of one share of
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<PAGE> 44
Common Stock and the exercise price per share of the related option, multiplied
by the number of shares in respect of which the SAR has been exercised. The
Compensation Committee has the discretion to determine the form in which the
payment will be made, which may be in cash, shares of Common Stock, or a
combination thereof.
EMPLOYMENT AND CONFIDENTIALITY AGREEMENTS
Each employee and consultant of the Company is required to enter into an
agreement prohibiting such employee from disclosing any confidential,
proprietary information of the Company and a non-compete agreement with the
Company pursuant to which such employees may not, directly or indirectly,
compete with the Company in any geographic market in which the Company operates
or is preparing to operate during the term of his or her employment with the
Company and for a period of 24 months following the termination of employment.
The non-compete agreement also provides for an assignment to the Company by such
employees and consultants of the rights to any invention made or discovered
during the term of employment.
The Company also has entered into an employment agreement with Mr. Rogers.
The agreement is effective as of the effective date of the Prospectus and is for
a term of three years, unless sooner terminated as provided in the agreement.
The agreement provides that the 1997 base salary for Mr. Rogers will be
$120,000. The agreement also includes a non-competition commitment during and
after the term of the agreement, confidentiality commitments, non-solicitation
of employee provisions, and assignment of work product agreements. The Company
also maintains a key man life insurance policy on Mr. Rogers in the amount of
$1,000,000. The Company has no other employment agreements with, nor does it
maintain "key person" life insurance on, any of its employees other than Mr.
Rogers.
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<PAGE> 45
CERTAIN TRANSACTIONS
FOUNDER'S TRANSACTIONS
The Company issued a total of 1,300,000 shares of Common Stock to Mr.
Rogers in exchange for services rendered in connection with the formation of the
Company and an initial capital contribution of $1,000. In addition, in December
1996, the Company granted to Mr. Rogers under the 1994 Plan non-qualified
options to purchase 25,000 shares of Common Stock at an exercise price of $4.00
per share. See Note 6 of Notes to Financial Statements.
The Company has notes outstanding to Mr. Rogers which are described below
under "-- Related Party Loans."
RELATED PARTY LOANS
During the three-year period ending December 31, 1996, certain officers,
stockholders and members of management extended loans to the Company totaling
$714,000 in aggregate principal amount. The following is a discussion of loans
made to the Company by directors, executive officers, and 5% stockholders of the
Company, or members of the immediate family of any of the foregoing persons,
during the three-year period ending December 31, 1996 in which the amount
involved exceeds $60,000. See Note 5 of Notes to Financial Statements.
In April 1996, Mr. Clifford M. Kendall, the Chairman of the Board of
Directors of the Company, loaned the Company $100,000 in aggregate principal
amount. Interest accrues quarterly on the loan at a fixed rate of 7% per annum,
payable at maturity. The principal amount of and accrued interest on the loan
are due and payable in full on March 31, 1997. The Company intends to use a
portion of the net proceeds of the Offering to repay the loan in full. See "Use
of Proceeds."
In May 1995, RFP Associates, Ltd., a general partnership in which Mr. Lewis
M. Roch, III, the Company's Vice President of Marketing, is the managing
partner, loaned the Company $60,000 in aggregate principal amount. The loan bore
interest at a fixed rate of 7% per annum. The note was repaid in full in
November 1996.
Princeton Venture Research, Inc. ("PVR"), a corporation of which Mr. John
B. Torkelsen, a director of the Company, serves as the President, loaned the
Company an aggregate of $320,000 during 1995. The loan accrued interest at a
fixed rate of 7% per annum. As an inducement to PVR to extend the loan to the
Company, the Company issued to Mr. Torkelsen warrants to purchase 53,333 shares
of Common Stock at an original exercise price of $8.00 per share. In June 1995,
PVR converted the outstanding principal amount of and the accrued interest on
the loan to Common Stock and warrants. In connection with the loan conversion,
Mr. Torkelsen invested an additional $160,000 in the Company. In the loan
conversion transaction, the Company issued to Mr. Torkelsen 60,361 shares of
Common Stock and warrants to purchase 60,361 shares of Common Stock, to Mrs.
Pamela R. Torkelsen 10,000 shares of Common Stock and warrants to purchase
10,000 shares of Common Stock, and to PVR 10,000 shares of Common Stock and
warrants to purchase 10,000 shares of Common Stock. All common stock was issued
at $6.00 per share, and all warrants to purchase Common Stock were issued with
an original exercise price of $8.00 per share. See "-- Equity
Issuances -- Warrant Exchange."
In July 1995, Robert H. Emery, Vice President, Administration and Finance,
loaned $35,000 to the Company. The loan accrued interest at a fixed rate of 7%
per annum. The note was repaid in full in 1996. As an inducement to extend the
loan to the Company, the Company also issued to Mr. Emery in June 1995, warrants
to acquire 5,833 shares of Common Stock. The warrants were issued at an original
exercise price of $8.00 per share and are exercisable for a period of five years
from the date of issuance. See "-- Equity Issuances -- Warrant Exchange."
Steven A. Rogers, the founder, President and Chief Executive Officer and a
director of the Company, loaned the Company an aggregate of $30,000 during 1995
and an additional $70,000 during 1996. The loans bear interest at a fixed rate
of 7% per annum. During 1996, $10,000 plus accrued interest was repaid. Interest
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<PAGE> 46
accrues quarterly, but is payable upon maturity. The principal amount of and
accrued interest on the loans are due and payable in full on March 31, 1997. The
Company intends to use a portion of the net proceeds of the Offering to repay
the loan in full. See "Use of Proceeds."
EQUITY ISSUANCES
Private Placement Services Provided by Barington Capital Group,
L.P. Barington Capital Group, L.P., the underwriter of the Offering (the
"Underwriter"), acted as the placement agent of the Company in connection with
the private placement of $2,000,000 aggregate principal amount of Bridge Notes
and Bridge Warrants to purchase 500,000 shares of Common Stock at an exercise
price equal to the lesser of $3.30 or 60% of the initial public offering price
per share. The Bridge Financing was completed in November 1996. As partial
compensation for services provided in that offering, the Underwriter received
warrants to purchase up to 50,000 shares of Common Stock at an exercise price of
$4.00 per share, which warrants will be forfeited upon consummation of the
Offering. In addition, the Underwriter also received a fee of $200,000 for
placement services provided in connection with the Bridge Financing, which fee
represented 10% of the gross proceeds raised in the Bridge Financing, and was
reimbursed for certain other expenses. See Note 5 of Notes to Financial
Statements.
The Underwriter also acted as the placement agent of the Company in
connection with the private placement of 250,000 shares of Series A Preferred
Stock and warrants to purchase up to an additional 50,000 shares of Common Stock
in December 1996 and 250,000 shares of Series A Preferred Stock and warrants to
purchase 50,000 shares of Common Stock in January 1997 for aggregate gross
proceeds to the Company of $2,000,000. As compensation for services provided in
that offering, the Company paid the Underwriter a fee of $140,000, which fee
represented 7.0% of the gross proceeds raised in the private placement. See
"Description of Securities," "Underwriting" and Note 7 of Notes to the Financial
Statements.
Private Placement Services Provided by PVR Securities, Inc. PVR
Securities, Inc., a corporation of which John B. Torkelsen is the President
("PVR Securities"), acted as the placement agent of the Company in connection
with the private placements in June 1995 and August 1996, of 50 units and 19.03
units, respectively, in the Company. Each unit sold consisted of 10,000 shares
of Common Stock and warrants to purchase an additional 10,000 shares of Common
Stock at $8.00 per share. Aggregate gross proceeds to the Company from the
offering were $2,071,000. As partial compensation for services provided in the
private placement, the Company issued to an affiliate of PVR Securities,
warrants to purchase 69,106 shares of Common Stock. The exercise price for
warrants to acquire 34,553 shares of Common Stock was originally $6.60 per
share, and the exercise price for warrants to acquire 34,553 shares of Common
Stock was originally $8.80 per share (the "PVR Warrants"). In addition, as
compensation for financial advisory and other services rendered in connection
with the private placement, the Company paid PVR Securities a fee of
approximately $150,000. See "-- Warrant Exchange," "Management," "Description of
Securities" and Note 6 of Notes to the Financial Statements.
Private Placement of Series A Preferred Stock. In December 1996, the
Company issued and sold to Applewood 250,000 shares of Series A Preferred Stock,
and warrants to purchase 50,000 shares of Common Stock at an exercise price of
$4.00 per share, for aggregate gross proceeds of $1,000,000. See "Description of
Securities" and Note 7 of Notes to the Financial Statements.
In January 1997, the Company issued and sold to Acorn 250,000 shares of
Series A Preferred Stock, and warrants to purchase 50,000 shares of Common Stock
at an exercise price of $4.00 per share, for aggregate gross proceeds of
$1,000,000. Acorn is a venture capital fund organized as a limited partnership.
Certain members of the general partner of Acorn are executives of PVR. Mr. John
B. Torkelsen is the President and Manager of the general partner of Acorn. PVR
serves as the investment advisor to Acorn. See "Description of Securities" and
Note 7 of Notes to the Financial Statements.
Warrant Exchange. In January 1997, the Company offered to certain
investors the opportunity to exchange existing warrants, representing the right
to purchase an aggregate of 345,536 shares of Common Stock at an exercise price
of $8.00 per share, for new warrants representing the right to purchase one-half
of the shares of Common Stock issuable upon exercise of such investor's PVR
Warrants at an exercise price of
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<PAGE> 47
$4.00 per share. Investors who accepted the offer also were issued by the
Company an additional 2,500 shares of Common Stock for each unit originally
purchased in the private placement, and agreed to sign an agreement with the
Company relating to registration rights and an agreement with the Underwriter
restricting the transferability of their shares of Common Stock for a period
following the Offering. See "Shares Eligible for Future Sale -- Lock-up
Arrangements," and "Underwriting." In addition, investors were also required to
pay additional consideration in the amount of $350,166 to Mr. Steven A. Rogers
for shares of Common Stock purchased from Mr. Rogers in the original offering at
a below market price per share. In connection with the warrant exchange, the
Company also exchanged warrants held by PVR to purchase an aggregate of 34,553
shares of Common Stock at an exercise price of $6.60 per share and 34,553 shares
of Common Stock at an exercise price of $8.80 per share, with a term expiring on
June 29, 2000, for new warrants to purchase an aggregate of 69,106 shares of
Common Stock at an exercise price of $4.00 per share with a term expiring on
January 24, 2001. In addition, in the warrant exchange, the Company also issued
to other existing investors warrants to purchase an aggregate of 102,332 shares
of Common Stock at an exercise price of $4.00 per share with a term expiring on
January 24, 2001, in exchange for existing warrants to purchase an equal number
of shares of Common Stock at an exercise price of $8.00 per share. The purpose
of the warrant exchange was to provide those investors with the opportunity to
invest in the Company upon terms and conditions that more closely reflect the
terms and conditions upon which other investors invested in the Company during a
comparable time frame. The Company did not receive any additional cash proceeds
as a result of the warrant exchange transaction. See "Description of Securities"
and Note 6 of Notes to Financial Statements.
The Company believes that all of the transactions set forth above were made
on terms no less favorable to the Company than could have been obtained from
unaffiliated third parties. All future transactions between the Company and its
officers, directors and principal stockholders and their affiliates will be
approved by at least a majority of the Board of Directors, including a majority
of the independent and disinterested members of the Board of Directors, and will
be on terms no less favorable to the Company than could be obtained from
unaffiliated third parties.
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<PAGE> 48
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of Common Stock of the Company as of January , 1997, and as of such
date, as adjusted to give effect to the Offering, by (i) all persons known by
the Company to beneficially own 5% or more of the outstanding shares of Common
Stock, (ii) each current director of the Company, and (iii) all current
directors and officers of the Company, as a group.
<TABLE>
<CAPTION>
NUMBER OF SHARES OF
COMMON STOCK NUMBER OF SHARES OF
BENEFICIALLY OWNED COMMON STOCK
PRIOR TO THE OFFERING BENEFICIALLY OWNED
NAME OF BENEFICIAL OWNER (1) AFTER THE OFFERING (1)
- --------------------------------------------------- ---------------------- ----------------------
NUMBER PERCENT NUMBER PERCENT
--------- ------- --------- -------
<S> <C> <C> <C> <C>
Steven A. Rogers (2)............................... 1,106,582 42.9% 1,106,582 25.3%
Robert L. Barnett (3).............................. 15,000 * 15,000 *
Donald W. Barrett (4).............................. 15,000 * 15,000 *
Eugene R. Cacciamani (5)........................... 20,000 * 20,000 *
Lincoln D. Faurer (6).............................. 10,000 * 10,000 *
Clifford M. Kendall (7)............................ 82,500 3.1 82,500 1.9
Richard T. Liebhaber (8)........................... 35,000 1.4 35,000 *
Roy C. Nash (9).................................... 11,000 * 11,000 *
John B. Torkelsen (10)............................. 360,661 13.2 360,661 8.0
Applewood Associates, L.P. (11).................... 300,000 11.5 300,000 6.8
Acorn Technology Partners, L.P. (12)............... 300,000 11.5 300,000 6.8
All directors and executive officers as a group (15
persons) (13).................................... 2,375,576 78.2% 2,375,576 49.1%
</TABLE>
- ---------------
* Less than one percent
(1) Percentage of ownership before the Offering is based on 2,561,844 shares of
Common Stock outstanding as of the date of this Prospectus, including
500,000 shares of Common Stock issuable upon conversion of the Series A
Preferred Stock. For each beneficial owner, shares of Common Stock subject
to convertible securities exercisable within 60 days of the date of this
Prospectus are deemed outstanding for purposes of computing the percentage
ownership of such beneficial owner.
(2) The address of Mr. Rogers is P.O. Box 221350, Chantilly, Virginia
20153-1350. Includes 16,666 shares of Common Stock issuable upon exercise of
warrants exercisable within 60 days of the date of this Prospectus.
(3) The address of Mr. Barnett is 1445 South Ridge Road, Lake Forest, Illinois
60045. Includes 7,500 shares of Common Stock issuable upon exercise of
options exercisable within 60 days of the date of this Prospectus.
(4) The address of Mr. Barrett is 3105 Bennett Point Road, Queenstown, Maryland
21658. Includes 10,000 shares of Common Stock issuable upon exercise of
options exercisable within 60 days of the date of this Prospectus.
(5) The address of Dr. Cacciamani is 11409 Rolling House Road, Rockville,
Maryland 20852. Includes 10,000 shares of Common Stock issuable upon
exercise of options exercisable within 60 days of the date of this
Prospectus.
(6) The address of Mr. Faurer is 1438 Brookhaven Drive, McLean, Virginia 22102.
Consists of 10,000 shares of Common Stock issuable upon exercise of options
exercisable within 60 days of the date of this Prospectus.
(7) The address of Mr. Kendall is 2 Tobin Court, Potomac, Maryland 20854.
Includes 17,500 shares of Common Stock issuable upon the exercise of options
exercisable within 60 days of the date of this Prospectus and 50,000 shares
of Common Stock subject to other conversion rights exercisable within 60
days of the date of this Prospectus.
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<PAGE> 49
(8) The address of Mr. Liebhaber is 1100 Chain Bridge Road, P.O. Box 8210,
McLean, Virginia 22106. Includes 7,500 shares of Common Stock issuable upon
the exercise of options exercisable within 60 days of the date of this
Prospectus and 2,500 shares of Common Stock that may be acquired upon the
exercise of warrants exercisable within 60 days of the date of this
Prospectus.
(9) The address of Mr. Nash is 9800 Arnon Chapel Road, Great Falls, Virginia
22066. Includes 7,500 shares of Common Stock issuable upon the exercise of
options exercisable within 60 days of the date of this Prospectus.
(10) The address of Mr. Torkelsen is 240 Library Place, Princeton, New Jersey
08540. Includes (i) 158,041 shares of Common Stock beneficially owned by
Mr. Torkelsen and 152,620 shares of Common Stock that may be acquired by
Mr. Torkelsen upon exercise of currently exercisable warrants; (ii) 20,000
shares of Common Stock beneficially owned by PVR, of which Mr. Torkelsen is
the President and 5,000 shares of Common Stock that may be acquired upon
the exercise of currently exercisable warrants beneficially owned by PVR;
and (iii) 20,000 shares of Common Stock beneficially owned by Pamela
Torkelsen, Mr. Torkelsen's wife, and 5,000 shares of Common Stock that may
be acquired upon the exercise of currently exercisable warrants
beneficially owned by Pamela Torkelsen. Excludes 250,000 shares of Common
Stock that may be acquired by Acorn upon conversion of the Series A
currently Preferred Stock owned by Acorn, and 50,000 shares of Common Stock
that may be acquired by Acorn upon the exercise of currently exercisable
Series A Warrants. Acorn is a venture capital fund organized as a limited
partnership. Certain members of the general partner of Acorn are executives
of PVR. Mr. Torkelsen is the President and Manager of the general partner
of Acorn. PVR serves as the investment advisor to Acorn. Mr. Torkelsen
disclaims beneficial ownership of all such shares of Common Stock and
warrants owned by Mrs. Torkelsen and by Acorn.
(11) The address of Applewood is c/o Barry Rubenstein, 68 Wheatley Road,
Brookville, New York 11545. Consists of 250,000 shares of Common Stock
issuable upon conversion of the Series A Preferred Stock owned by
Applewood, and 50,000 shares of Common Stock that may be acquired by
Applewood upon the exercise of currently exercisable Series A Warrants.
(12) The address of Acorn is c/o Codan Services, Limited, Clarendon House, 21
Church Street, Hamilton, HM II, Bermuda. Consists of 250,000 shares of
Common Stock issuable upon conversion of the Series A currently Preferred
Stock owned by Acorn, and 50,000 shares of Common Stock that may be
acquired by Acorn upon the exercise of currently exercisable Series A
Warrants.
(13) Includes 300,119 shares of Common Stock issuable to executive officers and
directors upon exercise of currently exercisable warrants, 124,000 shares
of Common Stock issuable to executive officers and directors upon the
exercise of options currently exercisable or exercisable within 60 days of
the date of this Prospectus and 50,000 shares of Common Stock subject to
other conversion rights exercisable within 60 days of the date of this
Prospectus.
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<PAGE> 50
DESCRIPTION OF SECURITIES
COMMON STOCK
As of the date of this Prospectus, the Company's Certificate of
Incorporation authorizes the issuance of up to 10,000,000 shares of Common
Stock, par value $.01 per share. Of the 10,000,000 shares of Common Stock
authorized, 2,561,844 shares are issued and outstanding as of the date of this
Prospectus including 500,000 shares of Common Stock issuable upon conversion of
the Series A Preferred Stock. Upon completion of the Offering, there will be
4,361,844 shares of Common Stock issued and outstanding. To date, there has been
no public market for the Common Stock. See "Principal Stockholders."
Holders of the shares of Common Stock are entitled to receive such
dividends as may be declared by the Board of Directors of the Company from funds
legally available for such dividends. See "Risk Factors -- No Dividends" and
"Dividend Policy." Upon liquidation, holders of shares of Common Stock are
entitled to a pro rata share in any distribution available to holders of Common
Stock. The holders of shares of Common Stock have one vote per share on each
matter to be voted on by stockholders, but are not entitled to vote
cumulatively. Holders of Common Stock have no preemptive rights. All of the
outstanding shares of Common Stock are, and all of the shares of Common Stock to
be issued in connection with the Offering will be, validly issued, fully paid
and non-assessable.
PREFERRED STOCK
The Company's Certificate of Incorporation authorizes the Board of
Directors of the Company to issue up to 2,500,000 shares of preferred stock, par
value $0.01 per share (the "Preferred Stock"), to establish one or more series
of Preferred Stock and to determine, with respect to each such series, the
preferences, rights and other terms thereof. Of the 2,500,000 shares of
Preferred Stock authorized, 500,000 shares of Series A Preferred Stock are
issued and outstanding as of the date of this Prospectus. The Series A Preferred
Stock will automatically convert to shares of Common Stock on a one-to-one basis
at the time of the closing of the Offering. Upon completion of the Offering, no
shares of Preferred Stock will be outstanding and the Board has no present
intention to issue any such shares. See Note 7 of Notes to Financial Statements.
WARRANTS
Upon completion of the Offering, the following warrants to purchase an
aggregate of 996,686 shares of Common Stock will be outstanding: the Bridge
Warrants to purchase 500,000 shares of Common Stock at an exercise price of
$3.30 per share (assuming an initial public offering price of $5.50 per share);
warrants to purchase 436,707 shares of Common Stock at an exercise price of
$4.00 per share; warrants to purchase 44,979 shares of Common Stock at an
exercise price of $6.68 per share; and warrants to purchase 15,000 shares of
Common Stock at $8.00 per share. In each case, the exercise price of and the
number of shares of Common Stock subject to the warrants is subject to
adjustment based upon anti-dilution provisions. The following discussion of the
material terms and provisions of the warrants is qualified in its entirety by
reference to the detailed provisions of the agreements relating to the issuance
of the warrants and the forms of warrants, which have been filed as an exhibit
to the Registration Statement of which this Prospectus constitutes a part.
PVR Warrants. In connection with the private placement of Common Stock by
the Company in June 1995 and August 1996, the Company issued warrants to
purchase an aggregate of 447,868 shares of Common Stock, of which warrants to
purchase 345,536 shares of Common Stock were issued to investors and warrants to
purchase 102,332 shares of Common Stock were issued as inducements to make loans
to the Company. The Company also issued to an affiliate of PVR Securities, as
partial compensation for its services as placement agent for the offering,
warrants to purchase 69,106 shares of Common Stock. Including those warrants
issued to PVR Securities as compensation, the Company originally issued warrants
to acquire 34,553 shares of Common Stock with an exercise price of $6.60 per
share, warrants to acquire 447,868 shares of Common Stock with an exercise price
of $8.00 per share, and warrants to acquire 34,553 shares of Common Stock with
an exercise price of $8.80 per share. Certain of these warrants were issued to
directors, officers and
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<PAGE> 51
affiliates of the Company to induce them to make loans to the Company. Certain
investors subsequently converted the principal amount of and accrued interest on
their outstanding loans to the Company to units consisting of Common Stock and
warrants.
In January 1997, the Company entered into an exchange transaction with
certain investors who purchased Common Stock and warrants in the private
placement conducted on behalf of the Company by PVR Securities, and with PVR
Securities. In the exchange transaction, the Company issued to such investors
new warrants to purchase an aggregate of 165,269 shares of Common Stock at an
exercise price of $4.00 per share and 165,267 newly issued shares of Common
Stock, in exchange for the cancellation of outstanding warrants to purchase an
aggregate of 330,536 shares of Common Stock at an exercise price of $8.00 per
share. In addition, the Company issued to an affiliate of PVR Securities
warrants to purchase 69,106 shares of Common Stock at an exercise price of $4.00
per share, in exchange for the cancellation of previously outstanding warrants
to purchase 34,553 shares of Common Stock at an exercise price of $6.60 per
share and previously outstanding warrants to purchase 34,553 shares of Common
Stock at an exercise price of $8.80 per share. As part of the exchange
transaction, all investors to which new warrants were issued also agreed to
change the period during which the warrants may be exercised. The Company also
exchanged warrants to acquire 102,332 shares of Common Stock at an exercise
price of $8.00 per share for warrants to acquire an equal number of shares at an
exercise price of $4.00 per share and reissued warrants to purchase 15,000
shares of Common Stock at $8.00 per share with a new expiration date of January
24, 2001. The new warrants issued by the Company in the exchange transaction
expire on January 24, 2001. See "Certain Transactions" and Note 6 of Notes to
Financial Statements.
The exercise price of the warrants and the number of shares of Common Stock
issuable upon exercise thereof are subject to adjustment in certain
circumstances, including the event of a stock dividend, subdivision or
combination of the Common Stock, the issuance of Common Stock or rights, options
or warrants to acquire Common Stock at a price per share less than the exercise
price of the warrants in effect immediately prior to such issuance. These
warrants are exercisable in whole or in part. Warrants to purchase 336,707
shares of Common Stock at an exercise price of $4.00 per share and warrants to
purchase 15,000 shares of Common Stock at an exercise price of $8.00 per share
expire on January 24, 2001. The holders of these warrants have certain
registration rights with respect to the shares of Common Stock underlying the
warrants. See "Certain Transactions" and "Shares Eligible For Future
Sale -- Registration Rights."
Adelson Warrant. In connection with a loan to the Company in the principal
amount of $300,000 in August 1996, the Company issued to the Adelson Investment
Company a warrant (the "Adelson Warrant") to purchase 44,979 shares of Common
Stock at an exercise price of $6.68 per share. The exercise price of the Adelson
Warrant and the number of shares of Common Stock issuable upon exercise of the
Adelson Warrant are subject to adjustment in certain circumstances, including
the event of a stock dividend, subdivision or combination of the Common Stock,
the issuance of Common Stock or rights, options or warrants to acquire Common
Stock at a price per share less than either the market price or the exercise
price of the Adelson Warrant in effect immediately prior to such issuance. The
Adelson Warrant is exercisable in whole or in part and expires on August 31,
2001. The holders of the Adelson Warrant have certain registration rights with
respect to the shares of Common Stock underlying the Adelson Warrant. See
"Shares Eligible for Future Sale -- Registration Rights."
Bridge Warrants. In October and November 1996, the Company issued to
investors Bridge Warrants to purchase, in the aggregate, up to 500,000 shares of
Common Stock at an exercise price equal to the lesser of $3.30 per share or 60%
of the aggregate initial public offering price per share of Common Stock in the
Offering ($3.30 per share at the assumed initial public offering price of $5.50
per share). The exercise price of the Bridge Warrants and the number of shares
of Common Stock issuable upon exercise of the Bridge Warrants are subject to
adjustment in certain circumstances, including stock dividends, stock splits,
combinations or reclassifications involving or in respect of the Common Stock of
the Company, or an extension by the Company of the maturity date of the Bridge
Notes. If the Company extends the maturity date of the Bridge Notes for a period
of six months, the exercise price per share of the Bridge Warrants shall
automatically decrease to the lesser of $2.75 per share or 50% of the initial
public offering price per share. The Bridge Warrants are exercisable in whole or
in part and expire on dates ranging from October 2001 to Decem-
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<PAGE> 52
ber 2001. The shares of Common Stock underlying the Bridge Warrants are being
registered in the Offering, and are subject to a twenty-four month lock-up
arrangement with the Underwriter. See "Certain Transactions," "Shares Eligible
for Future Sale" and "Underwriting."
Series A Warrants. In connection with the private placement of Series A
Preferred Stock in December 1996 and January 1997, the Company issued warrants
to purchase an aggregate of 100,000 shares of Common Stock at an exercise price
of $4.00 per share. The Series A Warrants are currently exercisable and expire
on December 20, 2001 and January 22, 2002. The holders of the Series A Warrants
have certain registration rights with respect to the shares of Common Stock
underlying the Series A Warrants. See "Shares Eligible For Future
Sale -- Registration Rights." The exercise price of these warrants and the
number of shares of Common Stock issuable upon exercise thereof are subject to
adjustment in certain circumstances, including the event of a stock dividend,
subdivision or combination of the Common Stock, the issuance of Common Stock or
rights, options or warrants to acquire Common Stock at a price per share less
than the exercise price of the warrants in effect immediately prior to such
issuance. The shares of Common Stock underlying the Series A Warrants are being
registered in the Offering, and are subject to a twelve month lock-up
arrangement with the Underwriter. See "Certain Transactions," "Shares Eligible
For Future Sale," and "Underwriting."
DEBT SECURITIES
Bridge Financing. In connection with the Bridge Financing, the Company
issued 20 Bridge Units. Each Bridge Unit consists of a Bridge Note issued by the
Company in the principal amount of $100,000 and a Bridge Warrant to purchase up
to 25,000 shares of Common Stock at an exercise price equal to the lesser of
$3.30 per share or 60% of the initial public offering price per share in this
Offering. The Bridge Notes and the Bridge Warrants are separately transferable,
subject to certain restrictions upon transferability.
Bridge Notes. The Bridge Notes bear interest at the rate of 10% per annum,
with interest accruing from the date of issuance and payable in four quarterly
installments on the first day of January, April, July and October commencing on
January 1, 1997 and at maturity. The principal of, and any accrued and unpaid
interest on, the Bridge Notes are due and payable in full on the earlier of (i)
the consummation of the Offering, (ii) one year from the date on which the
Bridge Notes were issued or (iii) the date of the closing of a sale (or the
closing of the last of a series of sales) of securities by the Company or any
subsidiary or affiliate thereof (other than the Bridge Notes and Bridge
Warrants), the gross proceeds of which, in the aggregate, equal or exceed the
value of the Bridge Notes. The Company intends to use a portion of the net
proceeds of the Offering to repay in full the principal balance of the Bridge
Notes, and accrued and unpaid interest thereon. See "Use of Proceeds."
The Company has the right, at its option, to extend the maturity date of
the Bridge Notes for up to one year. In the event that the Company elects to
extend such maturity date, then the number of shares issuable upon the exercise
of each Bridge Warrant will automatically increase by an additional 10% for each
month that the Bridge Notes continue to remain outstanding and the exercise
price will decrease to the lesser of $2.75 per share or 50% of the initial
public offering price per share.
The Bridge Notes rank senior in right of payment to all junior debt of the
Company, which is defined as all existing and future indebtedness of the Company
other than (i) the indebtedness represented by the Bridge Notes, (ii) capital
lease obligations, and (iii) certain other indebtedness which was repaid by the
Company out of the proceeds of the Bridge Financing. See "Certain Transactions."
The Bridge Notes are secured by a lien on certain assets of the Company. See
Note 5 of Notes to Financial Statements.
STOCKHOLDER REPORTS
The Company intends to furnish its stockholders annual reports containing
financial statements audited by independent accountants, and such other periodic
reports as the Company may deem appropriate or as may be required by law.
50
<PAGE> 53
TRANSFER AGENT AND REGISTRAR
The Company has retained Continental Stock Transfer & Trust Company as
transfer agent and registrar for the Common Stock.
DIRECTORS' LIMITATION OF LIABILITY AND INDEMNIFICATION
The Certificate of Incorporation and Amended and Restated Bylaws of the
Company (the "Bylaws") provide for the indemnification of the Company's
directors and officers to the fullest extent permitted under the General
Corporation Law of the State of Delaware (the "GCL").
As permitted by the GCL, the Company's Certificate of Incorporation
provides that directors of the Company shall not be personally liable to the
Company or its stockholders for monetary damages for breach of fiduciary duty as
a director, except (i) for any breach of the director's duty of loyalty to the
Company or its stockholders; (ii) for acts or omissions not in good faith or
which involve intentional misconduct or violation of law; (iii) for acts and
omissions relating to prohibited dividends or distributions or the purchase or
redemption of stock; or (iv) for any transaction from which the director derives
an improper personal benefit. As a result of this provision, the Company and its
stockholders may be unable to obtain monetary damages from a director for breach
of his or her duty of care.
DELAWARE ANTI-TAKEOVER LAW AND CERTAIN CHARTER PROVISIONS
Section 203 of the Delaware General Corporation Law. The Company is
subject to the provisions of Section 203 of the GCL (the "Anti-takeover Law")
regulating corporate takeovers. The Anti-takeover Law prevents certain Delaware
corporations, including those whose securities are quoted on the Nasdaq SmallCap
Market and listed on the PHL and the BSE, from engaging, under certain
circumstances, in a "business combination" (which includes a merger or sale of
more than 10% of the corporation's assets) with any "interested stockholder" (a
stockholder who acquired 15% or more of the corporation's outstanding voting
stock without the prior approval of the corporation's Board of Directors) for
three years following the date that such stockholder became an "interested
stockholder." A Delaware corporation may "opt out" of the Anti-takeover Law with
an express provision in its original certificate of incorporation, or an express
provision in its certificate of incorporation or bylaws resulting from a
stockholders' amendment approved by at least a majority of the outstanding
voting shares. The Company has not "opted out" of the application of the
Anti-takeover Law.
Certain Charter Provisions. The Company's Certificate of Incorporation
contains provisions that may have the effect of discouraging certain
transactions involving an actual or threatened change in control of the Company.
The Certificate of Incorporation grants to the Board the authority to issue
shares of Preferred Stock in one or more series without stockholder approval.
The ability to issue such Preferred Stock could have the effect of discouraging
unsolicited acquisition proposals or making it more difficult for a third party
to commence such an acquisition.
LISTING
The Company has applied for quotation of the Common Stock on the Nasdaq
SmallCap Market under the symbol OCOM and for listing on the Philadelphia Stock
Exchange and the Boston Stock Exchange under the symbol OBC.
51
<PAGE> 54
SHARES ELIGIBLE FOR FUTURE SALE
GENERAL
Upon completion of the Offering, there will be 4,361,844 shares of Common
Stock outstanding (4,631,844 if the Over-Allotment is exercised in full). Of
such shares, all of the 1,800,000 shares sold in the Offering (2,070,000 if the
Underwriter's Over-Allotment Option is exercised in full) will be freely
transferable (other than those purchased by affiliates of the Company) without
restriction or further registration under the Securities Act. In addition, the
180,000 shares of Common Stock issuable upon exercise of the Underwriter's
Options, all of which also are being registered under the Securities Act
pursuant to the registration statement of which this Prospectus constitutes a
part, will be freely transferable under the Securities Act without restriction
or further registration, subject to the limitation that the Underwriter may not
transfer, assign, or hypothecate the Underwriter's Options or the underlying
shares of Common Stock for a period of one year, with certain limited
exceptions. See "Underwriting."
Subject to certain limited exceptions, the holders of all of the remaining
shares of Common Stock and the holders of all of the warrants to purchase shares
of Common Stock, have agreed not to transfer or otherwise dispose of any
securities of the Company for a period following the closing of the Offering,
without the prior written consent of the Underwriter. See "-- Lock-up
Agreements" below.
Subject to the lock-up arrangements with the Underwriter, (i) the 500,000
shares of Common Stock issuable upon exercise of the Bridge Warrants, (ii) the
500,000 shares of Common Stock issuable upon conversion of the Series A
Preferred Stock, and (iii) the 100,000 shares of Common Stock issuable upon
exercise of the Series A Warrants, all of which also are being registered under
the Securities Act pursuant to the registration statement of which this
Prospectus constitutes a part, will be freely transferable under the Securities
Act without restriction or further registration, other than those shares held by
affiliates of the Company.
The remaining 2,061,844 shares of Common Stock are, and the 396,686 shares
of Common Stock issuable upon exercise of outstanding warrants (other than the
Bridge Warrants or the Series A Warrants) will be, "restricted securities"
within the meaning of Rule 144 and may not be sold other than in accordance with
Rule 144 or pursuant to an effective registration statement under the Securities
Act or an exemption from such registration requirement. In general, Rule 144
provides that any person (or persons whose shares are aggregated) to whom Rule
144 is applicable, including an affiliate, who has beneficially owned shares for
at least a two-year period (as computed under Rule 144) is entitled to sell
within any three-month period the number of shares that does not exceed the
greater of (i) 1% of the then outstanding shares of the Common Stock
(approximately 43,618 shares after giving effect to the Offering) and (ii) the
reported average weekly trading volume of the then outstanding shares of Common
Stock during the four calendar weeks immediately preceding the date on which the
notice of sale is filed with the Securities and Exchange Commission. Sales under
Rule 144 also are subject to certain provisions relating to the manner and
notice of sale and the availability of current public information about the
Company. A person (or persons whose shares are aggregated) who is not deemed an
affiliate of the Company at any time during the 90 days immediately preceding a
sale, and who has beneficially owned shares for at least a three-year period (as
computed under Rule 144), would be entitled to sell such shares under Rule
144(k) without regard to the volume limitation and other conditions described
above.
Prior to the date of this Prospectus, there has been no public market for
the Common Stock. Trading of the Common Stock is expected to commence following
the completion of the Offering. No prediction can be made as to the effect, if
any, that future sales of shares, or the availability of shares for future sale,
will have on the market price prevailing from time to time. Sales of substantial
amounts of Common Stock, or the perception that such sales could occur, could
adversely affect prevailing market prices of the Common Stock and the Company's
ability to raise capital in the future through the sale of additional
securities.
Up to 180,000 additional shares of Common Stock may be purchased by the
Underwriter through the exercise of the Underwriter's Options during the period
commencing on the closing of the Offering and ending on the fifth anniversary of
such date. The holders of the Underwriter's Options will have certain demand and
52
<PAGE> 55
"piggyback" registration rights with respect to the shares of Common Stock
underlying such options. Such shares of Common Stock issuable upon exercise of
the Underwriter's Options may be freely tradable, provided that the Company
satisfies certain securities registration and qualification requirements in
accordance with the terms of the Underwriter's Options. See "-- Registration
Rights" and "Underwriting."
Up to 500,000 shares of Common Stock may be purchased by the holders of the
Bridge Warrants, up to 180,269 shares of Common Stock may be purchased by the
holders of the PVR Warrants, up to 44,979 shares of Common Stock may be
purchased by the holders of the warrants originally issued to Adelson, up to
100,000 shares of Common Stock may be purchased by the holders of the Series A
Warrants, and up to 171,438 shares of Common Stock may be purchased by the
holders of other outstanding warrants. The holders of such warrants are entitled
to certain demand and "piggyback" registration rights as to such shares
commencing twelve months after the closing of the Offering. Such shares will be
freely tradable upon such registration. See "-- Registration Rights" below.
REGISTRATION RIGHTS
Subject to the lock-up arrangements described below, the Company has
granted certain demand and "piggyback" registration rights with respect to
1,600,719 outstanding shares of Common Stock, the 500,000 shares of Common Stock
issuable upon conversion of the Series A Preferred Stock, the 100,000 shares of
Common Stock issuable upon exercise of the Series A Warrants, the 500,000 shares
of Common Stock issuable upon exercise of the Bridge Warrants, the 180,000
shares of Common Stock issuable upon exercise of the Underwriter's Options, and
the 396,686 shares of Common Stock issuable upon exercise of other outstanding
warrants. Subject to certain conditions and limitations, the registration rights
grant to such holders the right to register all or any portion of the Common
Stock held by them or issuable upon the exercise of warrants held by them or the
conversion of convertible securities held by them upon the conclusion of the
Offering (collectively, the "Registrable Securities"), in connection with any
registration by the Company of shares of Common Stock or securities
substantially similar to the Common Stock. In addition, the holders of the
shares of Series A Preferred Stock and the Series A Warrants, as a group, are
entitled to exercise demand registration rights to require the Company to
register such securities under the Securities Act not more than twice; the
holder of a warrant to purchase an aggregate of 44,979 shares of Common Stock is
entitled to exercise demand registration rights to require the Company to
register such securities under the Securities Act not more than twice; the
holders of the Bridge Warrants, as a group, are entitled to exercise demand
registration rights to require the Company to register such securities under the
Securities Act not more than twice; the Underwriter is entitled to exercise
demand registration rights to require the Company to register under the
Securities Act the shares issuable upon exercise of the Underwriter's Options
not more than twice; and Mr. Steven A. Rogers, who will hold 1,089,916 shares of
Common Stock upon the conclusion of the Offering, is entitled to exercise demand
registration rights to require the Company to register such securities under the
Securities Act not more than twice. The registration rights described herein are
subject to certain notice requirements, timing restrictions and volume
limitations which may be imposed by the underwriters of an offering. The Company
is required to bear the expenses of all such registrations, except for the
expenses associated with one of the demand registrations granted to the holders
of the Bridge Warrants, and the underwriting discounts and commissions relating
to the sale of the shares of Common Stock held by such investors.
LOCK-UP AGREEMENTS
Subject to the limited exception described below, and pursuant to the
Underwriting Agreement, the Company, all of the existing stockholders of the
Company and all of the existing warrantholders of the Company (other than the
holders of the Series A Preferred Stock or the Series A Warrants) as of the
effective date of the Registration Statement, have agreed not to offer, issue,
sell, contract to sell, grant any option for the sale of or otherwise dispose of
any securities of the Company for a period of twenty-four months from the date
of closing of the Offering, without the prior written consent of the
Underwriter. Pursuant to the Underwriting Agreement, the holders of the Series A
Preferred Stock or the Series A Warrants have agreed not to offer, issue, sell,
contract to sell, grant any option for the sale of or otherwise dispose of any
securities of
53
<PAGE> 56
the Company for a period of twelve months from the date of closing of the
Offering, without the prior written consent of the Underwriter. Notwithstanding
these lock-up arrangements, any stockholder subject to such arrangement may sell
up to 30% of his, her or its shares of Common Stock commencing 12 months after
the completion of the Offering in the event that the last sales price for the
Common Stock on its principal exchange has been at least 200% of the initial
public offering price for a period of 20 consecutive trading days ending within
five days of the date of such sale, and such sale is completed at a price in
excess of 200% of the initial public offering price.
54
<PAGE> 57
UNDERWRITING
The Underwriter has agreed, subject to the terms and conditions of the
Underwriting Agreement (the form of which has been filed as an exhibit to the
Registration Statement), to purchase from the Company all of the shares of
Common Stock offered hereby. The Underwriting Agreement provides that the
obligations of the Underwriter are subject to certain conditions precedent and
that the Underwriter shall be obligated to purchase all of the shares of Common
Stock if any are purchased by the Underwriter.
The Underwriter has advised the Company that the Underwriter proposes to
offer the shares of Common Stock offered hereby to the public at the offering
price set forth on the cover page of this Prospectus and that the Underwriter
may allow to certain dealers, who are members of the National Association of
Securities Dealers (the "NASD"), concessions of not in excess of $ per
share of Common Stock, of which not in excess of $ may be reallowed to
other dealers who are members of the NASD. After the commencement of this
Offering, the public offering price, the concessions and the reallowance may be
changed.
The Company has granted the Over-Allotment Option to the Underwriter,
exercisable during the 45-day period after the closing date of the Offering, to
purchase up to an aggregate of 270,000 additional shares of Common Stock at the
initial public offering price, less underwriting discounts and commissions. The
Underwriter may exercise such option only for the purpose of covering
over-allotments made in connection with the sale of the Common Stock offered
hereby.
The Company has agreed to indemnify the Underwriter against certain
liabilities in connection with the Registration Statement, including liabilities
under the Securities Act. Insofar as indemnification for liabilities arising
under the Securities Act may be permitted to the Underwriter, the Underwriter
has been advised that, in the opinion of the Commission such indemnification is
against public policy as expressed in the Securities Act and is, therefore
unenforceable.
The Company has agreed to pay the Underwriter a non-accountable expense
allowance of 3% of the aggregate offering price of the shares of Common Stock
offered hereby (including any shares of Common Stock purchased pursuant to the
Over-Allotment Option), of which $40,000 has been paid to date.
The Company also has agreed to sell to the Underwriter, or its designees,
Underwriter's Options to purchase 180,000 shares at a price of $0.001 per
option. The Underwriter's Options will be exercisable for a period of five
years, commencing on the closing date of the Offering, at an initial per share
exercise price equal to 120% of the initial public offering price per share. The
Underwriter's Options cannot be transferred, assigned or hypothecated for one
year from the date of issuance, except that they may be assigned, in whole or in
part, to any successor, officer or partner of the Underwriter (or to officers or
partners of any such successor or partner). The Underwriter's Options may be
exercised as to all or a lesser number of shares covered by the options, and
will contain certain registration rights and anti-dilution provisions providing
for appropriate adjustment of the exercise price and number of shares which may
be purchased upon exercise, upon the occurrence of certain events. See "Risk
Factors -- Effect of Previously Issued Options, Warrants and Underwriter's
Options on Stock Price."
The Company has granted to the Underwriter two "demand" registration rights
for the sale of the shares of Common Stock underlying the Underwriter's Options,
for a period of five years after the closing of the Offering, of which one
registration will be at the Company's expense. The Company also has granted to
the Underwriter, for a period of seven years after the date of closing of the
Offering, unlimited "piggyback" registration rights for the sale of the shares
of Common Stock underlying the Underwriter's Options. See "Shares Eligible For
Future Sale."
The Company has granted to the Underwriter a right of first refusal to
purchase for its account or to sell for the account of the Company or any
subsidiary or successor of the Company, or any of the Company's stockholders
owning at least 2% of the Company's capital stock, any securities of the Company
or any subsidiary or successor which the Company, any subsidiary or successor,
or any such stockholder may seek to sell, for a period of three years after the
Offering is completed. In addition, the Company and the Underwriter have agreed
that, for a period of two years, the Underwriter will act as a non-exclusive
investment banker and
55
<PAGE> 58
financial consultant to the Company for a fee of $80,000 (exclusive of any
accountable out-of-pocket expenses), which fee is payable upon the closing date
of the Offering.
The Company also has agreed that for a period of five years following the
completion of the Offering, it will use its best efforts (including the
solicitation of proxies) to elect one designee of the Underwriter to the Board
of Directors of the Company. No designee has been chosen as of the date hereof.
The foregoing discussion of the material terms and provisions of the
Underwriting Agreement is qualified in its entirety by reference to the detailed
provisions of the Underwriting Agreement, the form of which has been filed as an
exhibit to the Registration Statement on Form SB-2, of which this Prospectus
forms a part.
The Underwriter acted as placement agent in connection with the Bridge
Financing and the placement of the Series A Preferred Stock and Series A
Warrants. In connection therewith, the Underwriter received sales commissions of
$340,000 in the aggregate, was reimbursed approximately $32,000 for certain
expenses (including attorneys' fees) and, in connection with the Bridge
Financing, was issued a total of 50,000 warrants with terms and conditions
identical to the Bridge Warrants (the "Placement Agent's Warrants"). The
Placement Agent's Warrants will be forfeited by the Underwriter upon the
consummation of the Offering.
The Company, all of the existing stockholders of the Company and all of the
existing warrantholders of the Company (other than the holders of the Series A
Preferred Stock and the Series A Warrants) have agreed with the Underwriter not
to offer, pledge, sell, contract to sell, grant any option for the sale of or
otherwise dispose of any of the Company's securities held by them for a period
of twenty-four months from the date of closing of the Offering, without the
prior written consent of the Underwriter, subject to certain limited exceptions.
The holders of the Series A Preferred Stock and the Series A Warrants have
agreed with the Underwriter not to offer, pledge, sell, contract to sell, grant
any option for the sale of or otherwise dispose of any of the Company's
securities held by them for a period of twelve months from the date of closing
of the Offering, without the prior written consent of the Underwriter. See
"Shares Eligible for Future Sale."
Prior to the Offering, there has been no public market for the Common
Stock. Consequently, the initial public offering price of the shares of Common
Stock offered and sold in the Offering will be determined by arms-length
negotiation between the Company and the Underwriter and will not necessarily
bear any relationship to the Company's book value, assets, past operating
results, financial condition, or other established criteria of value. Factors to
be considered in determining such price include an assessment of the Company's
recent financial results and current financial condition, future prospects of
the Company, the qualifications of the Company's management, and other relevant
factors.
LEGAL MATTERS
The validity of the Common Stock offered hereby and legal matters will be
passed upon for the Company by Shaw, Pittman, Potts & Trowbridge, Washington,
D.C., a partnership including professional corporations. Certain legal matters
in connection with the Offering will be passed upon for the Underwriter by
Kramer, Levin, Naftalis & Frankel, New York, New York.
EXPERTS
The balance sheets as of December 31, 1995 and 1996 and the statements of
operations, changes in stockholders' equity (deficit) and cash flows for each of
the three years in the period ended December 31, 1996 and for the period October
5, 1993 (date of inception) to December 31, 1996, included in this Prospectus,
have been included herein in reliance on the report of Coopers & Lybrand L.L.P.,
independent accountants, given on the authority of that firm as experts in
accounting and auditing.
56
<PAGE> 59
AVAILABLE INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission"), Washington, D.C., a Registration Statement on Form SB-2 (together
with all amendments, schedules and exhibits thereto, the "Registration
Statement") under the Securities Act with respect to the shares of Common Stock
offered hereby. This Prospectus, which constitutes a part of the Registration
Statement, does not contain all of the information set forth in the Registration
Statement, certain terms of which are omitted in accordance with the rules and
regulations of the Commission. For further information with respect to the
Company and the Common Stock, reference is made to the Registration Statement,
which may be inspected without charge, at the public reference facilities
maintained by the Commission at Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549; Seven World Trade Center, 13th Floor, New York, New York
10048; and 500 West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies
of such materials may be obtained from the public reference section of the
Commission, 450 Fifth Street, N.W., Washington, D.C., 20549, at prescribed
rates. The Registration Statement is also publicly available through the
Commission's web site located at http://www.sec.gov.
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<PAGE> 60
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Report of Independent Accountants..................................................... F-2
Financial Statements:
Balance Sheets................................................................... F-3
Statements of Operations......................................................... F-4
Statements of Changes in Stockholders' Equity (Deficit).......................... F-5
Statements of Cash Flows......................................................... F-6
Notes to Financial Statements......................................................... F-7
</TABLE>
F-1
<PAGE> 61
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors of
Objective Communications, Inc.
We have audited the accompanying balance sheets of Objective
Communications, Inc. (a development stage enterprise) as of December 31, 1995
and 1996, and the related statements of operations, changes in stockholders'
equity (deficit) and cash flows for each of the three years in the period ended
December 31, 1996 and for the period October 5, 1993 (date of inception) to
December 31, 1996. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Objective Communications,
Inc. as of December 31, 1995 and 1996, and the results of its operations and its
cash flows for each of the three years in the period ended December 31, 1996 and
for the period October 5, 1993 (date of inception) to December 31, 1996, in
conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note I to the
financial statements, the Company has suffered recurring losses from operations
and has a significant working capital deficit and an accumulated deficit that
raise substantial doubt about its ability to continue as a going concern.
Management's plans in regard to these matters are also described in Note 1. The
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
Coopers & Lybrand L.L.P.
Washington, D.C.
January 10, 1997
F-2
<PAGE> 62
OBJECTIVE COMMUNICATIONS, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
BALANCE SHEETS
DECEMBER 31, 1995 AND 1996
<TABLE>
<CAPTION>
PRO FORMA
DECEMBER
31,
1995 1996 1996
----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents........................ $ 86,491 $ 623,241 $ 1,553,241
Accounts receivable.............................. 65,470 84,855 84,855
Inventory........................................ 30,994 366,099 366,099
Other current assets............................. 11,276 178,376 178,376
----------- ----------- -----------
Total current assets........................ 194,231 1,252,571 2,182,571
Property and equipment, net........................... 121,047 182,072 182,072
Debt issue costs, net................................. -- 214,066 214,066
Deposits.............................................. 308 -- --
Trademarks and patents................................ 18,898 32,869 32,869
----------- ----------- -----------
$ 334,484 $ 1,681,578 $ 2,611,578
=========== =========== ===========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Notes payable.................................... $ 250,000 $ 2,300,000 $ 2,300,000
Notes payable -- related parties................. 164,000 199,000 199,000
Accounts payable................................. 715,375 390,438 390,438
Accrued liabilities.............................. 100,338 263,376 263,376
Obligation under capital lease................... -- 15,543 15,543
----------- ----------- -----------
1,229,713 3,168,357 3,168,357
Obligation under capital lease........................ -- 25,610 25,610
----------- ----------- -----------
Total liabilities........................... 1,229,713 3,193,967 3,193,967
Redeemable series A convertible preferred stock, par
value $.01, 500,000 shares authorized, 0 and 250,000
shares issued and outstanding at December 31, 1995
and 1996, respectively, 500,000 shares issued and
outstanding pro forma (unaudited), liquidation
preference of $0 and $1,000,000 at December 31, 1995
and 1996, respectively, and liquidation preference
of $2,000,000 pro forma (unaudited)................. -- 848,440 1,778,440
Stockholders' deficit:
Common stock, par value $.01, 10,000,000 shares
authorized; 1,711,413 and 1,896,577 shares
issued and outstanding at December 31, 1995 and
1996, respectively, 2,061,844 shares issued and
outstanding pro forma (unaudited).............. 17,115 18,966 20,618
Additional paid-in capital....................... 1,558,130 3,371,115 3,369,463
Deficit accumulated during development stage..... (2,470,474) (5,750,910) (5,750,910)
----------- ----------- -----------
Total stockholders' deficit................. (895,229) (2,360,829) (2,360,829)
----------- ----------- -----------
$ 334,484 $ 1,681,578 $ 2,611,578
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE> 63
OBJECTIVE COMMUNICATIONS, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE PERIOD
OCTOBER 5, 1993
FOR THE (DATE OF INCEPTION)
YEARS ENDED DECEMBER 31, TO
--------------------------------------- DECEMBER 31,
1994 1995 1996 1996
--------- ----------- ----------- -------------------
<S> <C> <C> <C> <C>
Operating revenues:
Merchandise revenue................ $ -- $ 129,861 $ 45,440 $ 175,301
Service revenue.................... 189,607 94,817 35,935 320,359
--------- ----------- ----------- -----------
Total revenues................ 189,607 224,678 81,375 495,660
--------- ----------- ----------- -----------
Operating expenses:
Cost of merchandise................ -- 124,730 44,579 169,309
Cost of services................... 49,608 12,684 17,774 80,066
Research and development........... 165,273 1,232,046 1,106,901 2,504,753
General and administrative......... 381,038 827,005 1,041,840 2,253,871
Depreciation....................... 3,762 60,298 158,714 222,774
Other.............................. 253 14,031 1,713 15,997
--------- ----------- ----------- -----------
Total operating expenses...... 599,934 2,270,794 2,371,521 5,246,770
--------- ----------- ----------- -----------
Loss from operations.................... (410,327) (2,046,116) (2,290,146) (4,751,110)
Interest (income) expense, net.......... (3,485) -- 990,290 986,805
--------- ----------- ----------- -----------
Net loss................................ $(406,842) $(2,046,116) $(3,280,436) $(5,737,915)
========= =========== =========== ===========
Net loss per common share............... $ (0.15) $ (0.57) $ (0.87) $ (1.53)
========= =========== =========== ===========
Weighted average common shares and
common share equivalents
outstanding........................... 2,665,420 3,612,963 3,758,938 3,758,938
========= =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE> 64
OBJECTIVE COMMUNICATIONS, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
FOR THE PERIOD OCTOBER 5, 1993 (DATE OF INCEPTION) TO DECEMBER 31, 1996
<TABLE>
<CAPTION>
DEFICIT
ACCUMULATED
ADDITIONAL DURING
COMMON PAID-IN DEVELOPMENT
SHARES STOCK CAPITAL STAGE TOTAL
--------- ------- ---------- ------------ -----------
<S> <C> <C> <C> <C> <C>
Balance, October 5, 1993............ 500 5 $ 995 $ -- $ 1,000
Net loss............................ -- -- -- (4,521) (4,521)
--------- ------- ---------- ----------- -----------
Balance, December 31, 1993.......... 500 5 995 (4,521) (3,521)
Stock dividend...................... 1,299,500 12,995 -- (12,995) --
Issuance of common stock at
$2/share.......................... 171,000 1,710 340,290 -- 342,000
Issuance of common stock at $2/share
(Issued in exchange for
services)......................... 16,666 167 33,167 -- 33,334
Issuance of common stock at
$6/share.......................... 45,000 450 269,550 -- 270,000
Expenses associated with issuance of
common stock...................... -- -- (47,418) -- (47,418)
Issuance of common stock at
$2.68/share
(Issued in exchange for
services)......................... 8,375 84 22,416 -- 22,500
Net loss............................ -- -- -- (406,842) (406,842)
--------- ------- ---------- ----------- -----------
Balance, December 31, 1994.......... 1,541,041 15,411 619,000 (424,358) 210,053
Issuance of common stock at
$6/share.......................... 111,666 1,117 668,883 -- 670,000
Expenses associated with issuance of
common stock...................... -- -- (81,389) -- (81,389)
Notes payable converted to common
stock at $6/share................. 58,704 587 351,636 -- 352,223
Net loss............................ -- -- -- (2,046,116) (2,046,116)
--------- ------- ---------- ----------- -----------
Balance, December 31, 1995.......... 1,711,411 17,115 1,558,130 (2,470,474) (895,229)
Exercise of common stock options at
$2/ share......................... 10,000 100 19,900 -- 20,000
Issuance of common stock at
$6/share.......................... 175,166 1,751 1,052,232 -- 1,053,983
Expenses associated with issuance of
common stock...................... -- -- (166,936) -- (166,936)
Interest expense incurred for
issuance of warrants.............. -- -- 907,789 -- 907,789
Net loss............................ -- -- -- (3,280,436) (3,280,436)
--------- ------- ---------- ----------- -----------
Balance, December 31, 1996.......... 1,896,577 18,966 3,371,115 (5,750,910) (2,360,829)
Pro forma issuance of common stock
pursuant to warrant exchange
agreement (unaudited) (see Note
6)................................ 165,267 1,652 (1,652) -- --
--------- ------- ---------- ----------- -----------
Pro forma balance, December 31, 1996
(unaudited)....................... 2,061,844 $20,618 $3,369,463 $ (5,750,910) $(2,360,829)
========= ======= ========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE> 65
OBJECTIVE COMMUNICATIONS, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE OCTOBER 5, 1993
YEARS ENDED DECEMBER 31, (DATE OF INCEPTION) TO
--------------------------------------- DECEMBER 31,
1994 1995 1996 1996
--------- ----------- ----------- ----------------------
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net loss.................................. $(406,842) $(2,046,116) $(3,280,436) $ (5,737,915)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization............. 3,762 60,298 158,714 222,774
Stock issued in exchange for services
rendered................................ 55,834 -- -- 55,834
Interest expense incurred for issuance of
warrants................................ -- -- 907,789 907,789
Changes in operating assets and
liabilities:
Accounts receivable.................. (54,073) (11,397) (19,385) (84,855)
Other current assets................. (10,300) (976) (167,100) (178,376)
Inventory............................ -- (30,994) (335,105) (366,099)
Deposits............................. (538) 230 308 --
Trademarks and patents............... (6,000) (12,898) (19,595) (38,493)
Accounts payable..................... 190,173 520,681 (324,937) 390,438
Accounts liabilities................. 24,253 76,085 163,038 263,376
--------- ----------- ----------- -----------
Net cash used in operating
activities..................... (203,731) (1,445,087) (2,916,709) (4,565,527)
--------- ----------- ----------- -----------
Cash flows from investing activities:
Purchase of property and equipment........ (18,811) (166,296) (116,892) (301,999)
--------- ----------- ----------- -----------
Net cash used in investing
activities......................... (18,811) (166,296) (116,892) (301,999)
--------- ----------- ----------- -----------
Cash flows from financing activities:
Proceeds from the issuance of common
stock................................... 564,582 588,611 907,047 2,061,240
Proceeds from the issuance of notes
payable................................. -- 250,000 2,300,000 2,550,000
Repayments of notes payable............... -- -- (250,000) (250,000)
Proceeds from the issuance of notes
payable to related parties.............. -- 546,223 170,000 716,223
Proceeds from issuance of Series A
preferred stock......................... -- -- 848,440 848,440
Repayments of notes payable to related
parties................................. -- (30,000) (135,000) (165,000)
Debt issue costs.......................... -- -- (258,131) (258,131)
Principal payments on capital leases...... -- -- (12,005) (12,005)
--------- ----------- ----------- -----------
Net cash provided by financing
activities......................... 564,582 1,354,834 3,570,351 5,490,767
--------- ----------- ----------- -----------
Net increase (decrease) in cash and cash
equivalents................................. 342,040 (256,549) 536,750 623,241
Cash and cash equivalents, at beginning of the
period...................................... 1,000 343,040 86,491 --
--------- ----------- ----------- -----------
Cash and cash equivalents, at end of the
period...................................... $ 343,040 $ 86,491 $ 623,241 $ 623,241
========= =========== =========== ===========
Supplemental disclosure of non-cash investing
and financing activities
Conversion of notes payable-related
parties and accrued interest into common
stock................................... $ -- $ 352,223 -- $ 352,223
========= =========== =========== ===========
Capital lease obligations................. $ -- $ -- $ 53,158 $ 53,158
========= =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE> 66
OBJECTIVE COMMUNICATIONS, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS
1. NATURE OF BUSINESS AND FINANCING PLAN
Objective Communications, Inc. (the Company) was formed and incorporated in
the State of Delaware on October 5, 1993. The Company is developing a
proprietary video communications system which is an integrated hardware and
software system of video applications that provides high quality video and
stereo audio transmission capabilities for video conferencing, data and file
sharing, full-motion broadcasting and retrieval of stored data directly to a
desktop personal computer.
The Company has suffered recurring losses from operations and has a
significant working capital deficit and an accumulated deficit that raise
substantial doubt about its ability to continue as a going concern. The Company
has required substantial funding through debt and equity financings since its
inception to complete its development plans and commence full scale operations.
Management has historically been successful in obtaining outside financing to
meet obligations and fund working capital requirements as they come due.
Recently, the Company's Board of Directors approved the filing of a registration
statement on Form SB-2 (the "Registration Statement") with the Securities and
Exchange Commission relating to a proposed initial public offering ("IPO") of
1,800,000 shares of the Company's common stock at a price per share estimated to
be in the range of $5.00 to $6.00. The anticipated proceeds from this offering
would be used to fund continued product development, repay certain outstanding
notes payable, fund working capital and facilitate expansion of the Company's
business. If the Company's proposed IPO is consummated on the currently expected
time schedule and generates the anticipated proceeds, or if the Company is
successful in completing comparable fund raising activities on a similar time
schedule, management believes that the Company will continue as a going concern.
Should the IPO not be successfully completed, the Company will pursue other debt
and equity financing alternatives available. Management is aware of other
venture capital groups as well as additional potential investors interested in
the continued development of the Company's products through strategic business
relationships. These alternatives will be pursued in the event that the IPO is
unsuccessful.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF ACCOUNTING
The Company's principal activities to date have been planning and
organization, initiating research and development projects, conducting market
research and securing adequate financing for the development of its products.
Accordingly, the Company's financial statements are presented as those of a
development stage enterprise, as prescribed by Statement of Financial Accounting
Standards ("SFAS") No. 7, "Accounting and Reporting by Development Stage
Enterprises."
CASH AND CASH EQUIVALENTS
Cash and cash equivalents consist of cash and investments with original
maturities of three months or less.
REVENUE RECOGNITION
The Company's revenue recognition policy is in conformity with the American
Institute of Certified Public Accountants' Statement of Position 91-1, "Software
Revenue Recognition." Merchandise revenue, consisting principally of sales of
the Company's video-teleconferencing products, is recognized upon delivery and
acceptance by customers. Service revenue, consisting principally of consulting
services, is recognized over the time period to which it relates.
F-7
<PAGE> 67
OBJECTIVE COMMUNICATIONS, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
RESEARCH AND DEVELOPMENT AND SOFTWARE DEVELOPMENT COSTS
Software development costs are included in research and development and are
expensed as incurred. SFAS No. 86, "Accounting for the Cost of Computer Software
to be Sold, Leased or Otherwise Marketed" requires the capitalization of certain
software development costs once technological feasibility is established.
Capitalization ceases when the products are available for general release to
customers, at which time amortization of the capitalized costs begins on a
straight-line basis over the estimated product life, or on the ratio of current
revenues to total projected product revenues, whichever is greater. To date, the
period between achieving technological feasibility and the general availability
of such software has been short, and software development costs qualifying for
capitalization have been insignificant. Accordingly, the Company has not
capitalized any software development costs.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost and depreciated on an accelerated
basis over five years. Upon retirement or disposition of property and equipment,
the cost and related accumulated depreciation are removed from the accounts and
any resulting gain or loss is reflected in income.
INVENTORY
Inventory, consisting principally of hardware for the Company's video
conferencing products, is valued at the lower of cost or market, with cost being
determined using the FIFO (first-in, first-out) method of accounting.
CONCENTRATION OF CREDIT RISK
Financial instruments that potentially subject the Company to significant
concentrations of credit risk consist principally of cash and cash equivalents
and accounts receivable. The Company's cash and cash equivalents are held with a
U.S. commercial bank. The Company has not experienced any losses related to its
cash and cash equivalents. The Company generally grants uncollateralized credit
terms to its customers and has not experienced any credit related losses.
INCOME TAXES
Deferred income taxes are recognized for the tax consequences in future
years for differences between the tax bases of assets and liabilities and their
financial reporting amounts at each year-end, based on enacted tax laws and
statutory tax rates applicable to the periods in which the differences are
expected to affect taxable income. Valuation allowances are established, when
necessary, to reduce deferred tax assets to the amount expected to be realized.
Income tax expense is the current tax provision for the period plus the change
during the period in deferred tax assets and liabilities.
NET LOSS PER COMMON SHARE
Net loss per common share is based on the weighted average number of common
shares and dilutive common share equivalents outstanding during the periods
presented. Pursuant to Securities and Exchange Commission requirements, common
stock issued and options and warrants to purchase shares of common stock granted
by the Company during the twelve months preceding the initial filing date of the
Registration Statement have been included in the calculation of weighted average
common shares and common share equivalents outstanding as if they were
outstanding for all periods presented. Options and warrants issued by
F-8
<PAGE> 68
OBJECTIVE COMMUNICATIONS, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
the Company prior to the aforementioned twelve-month period have not been
included in the calculation because the effects of such items were
anti-dilutive.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying value of cash and cash equivalents, accounts receivable and
notes payable approximate fair value because of the relatively short maturity of
these instruments.
STOCK-BASED COMPENSATION
In October 1995, the Financial Accounting Standards Board issued SFAS No.
123, "Accounting for Stock-Based Compensation." SFAS No. 123 is effective
beginning with the year ending December 31, 1996. SFAS No. 123 permits companies
to account for stock based compensation based on the provisions prescribed in
SFAS No. 123 or based on the authoritative guidance in Accounting Principles
Board Opinion No. 25 ("APB 25"), "Accounting for Stock Issued to Employees." The
Company has elected to continue to account for its stock based compensation in
accordance with APB 25, however, as required by SFAS No. 123, the Company has
disclosed the pro forma impact on the financial statements assuming the
measurement provisions of SFAS No. 123 had been adopted (see Note 6).
RECLASSIFICATIONS
Certain reclassifications have been made to the prior year financial
statements to conform to the current year presentation.
PRO FORMA FINANCIAL INFORMATION
The unaudited pro forma financial information gives effect to the receipt
in January 1997 of $930,000 in net proceeds from the sale of 250,000 shares of
redeemable Series A convertible preferred stock and warrants to purchase 50,000
shares of Common Stock authorized for issuance in December 1996 at $4.00 per
share (see Note 7). Additionally, the unaudited pro forma financial information
gives effect to the issuance in January 1997 of 165,267 shares of common stock
pursuant to a warrant exchange agreement (see Note 6).
F-9
<PAGE> 69
OBJECTIVE COMMUNICATIONS, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
3. PROPERTY AND EQUIPMENT
Property and equipment consist of the following at December 31:
<TABLE>
<CAPTION>
1995 1996
-------- --------
<S> <C> <C>
Computer equipment...................................... $158,290 $328,340
Furniture and fixtures.................................. 26,817 26,817
-------- --------
185,107 355,157
Accumulated depreciation................................ (64,060) (173,085)
-------- --------
$121,047 $182,072
======== ========
</TABLE>
Included in computer equipment is $53,158 in assets under capital lease as
of December 31, 1996 with related accumulated amortization of $13,289.
Amortization is being recorded over the three year life of the related lease.
4. INCOME TAXES
The components of the Company's net deferred tax position and the tax
effects of temporary differences giving rise to the Company's deferred tax
assets (liabilities) as of December 31, 1995 and 1996 are as follows:
<TABLE>
<CAPTION>
1995 1996
--------- -----------
<S> <C> <C>
Net operating loss carryforward..................... $ 904,000 $ 1,769,000
Accrued liabilities................................. 34,000 28,000
Depreciation........................................ (10,000) (24,000)
Valuation allowance................................. (928,000) (1,773,000)
--------- -----------
Net deferred tax assets............................. $ -- $ --
========= ===========
</TABLE>
The Company has net operating loss carryforwards for federal and state
income tax purposes available to offset future taxable income of approximately
$4,666,000 as of December 31, 1996. Utilization of these net operating loss
carryforwards could be subject to an annual limitation based on certain changes
in ownership of the Company as defined by section 382 of the Internal Revenue
Code. The net operating loss carryforwards expire as follows:
<TABLE>
<S> <C>
2009............................................................ $ 324,000
2010............................................................ 2,060,000
2011............................................................ 2,282,000
$4,666,000
</TABLE>
5. NOTES PAYABLE
During 1995 and 1996, the Company borrowed $224,000 and $170,000,
respectively, from various stockholders of the Company. The loans accrue
interest at 7% per annum and are payable, along with all accrued interest, upon
demand. In connection with the loans made in 1995, the Company issued warrants
to purchase common stock equal to the principal balance of the loans divided by
$6.00 per share, for an aggregate of 37,333 warrants. The exercise price of
these warrants is $8.00 per share. In June 1995, one of the lenders converted a
$30,000 loan plus accrued interest into 5,009 shares of common stock.
F-10
<PAGE> 70
OBJECTIVE COMMUNICATIONS, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
5. NOTES PAYABLE -- (CONTINUED)
Additionally, during 1995, the Company borrowed an aggregate of $320,000
from a financial advisory firm hired to assist the Company in raising equity.
This amount as well as $2,166 in accrued interest were converted to common stock
during 1995 (see Note 8).
In November 1995, the Company borrowed $250,000 from a third party. This
loan, which accrued interest at 6% per annum, was repaid along with $5,548 in
accrued interest, in October 1996 with the proceeds from the August 1996 loan
(see below).
In August 1996, the Company borrowed $300,000 from an investment company.
The loan bears interest at the NationsBank prime rate plus 1.5% per annum,
adjusted quarterly beginning September 30, 1996. Interest is payable
semi-annually in arrears on the last day of January and August of each year,
commencing January 31, 1997. The full balance of this note is due and payable on
the earlier of: (1) August 14, 1997, or (2) the closing date of an initial
public offering of securities of the Company. In consideration for this loan,
the Company issued to the lender warrants to purchase 33,750 shares of the
Company's common stock at an initial exercise price of $8.90 per share. Each
time the Company declares a stock split or dividend, sells previously unissued
shares, or issues additional options, warrants or rights to purchase shares of
the Company's common stock, the Company applies a formula, pursuant to the terms
of the warrant, to determine if the number of warrants and the exercise price
thereof must be adjusted. As of December 31, 1996, the number of shares subject
to warrants pursuant to the loan agreement are 43,382 at an exercise price of
$6.92.
In November 1996, the underwriter of the Company's proposed IPO placed
$2,000,000 in bridge notes of the Company to provide the Company with operating
capital until the time of the expected closing of the IPO. The bridge notes are
due and payable upon the earliest of the closing of the IPO, twelve months from
the date of issuance, or the closing of a series of sales of securities of the
Company with aggregate gross proceeds of at least $2,000,000, and the notes bear
interest at the rate of 10% per annum, due and payable quarterly, beginning
January 1, 1997. The notes were issued to a total of 38 investors, in three
tranches: (1) $1,025,000 as of October 18, 1996, (2) $400,000 as of November 6,
1996, and (3) $575,000 as of November 22, 1996. The individual note holders were
also issued warrants to purchase an aggregate of 500,000 shares of the Company's
common stock at an exercise price of $3.30 per share. As a fee for this
transaction, the underwriter received $200,000 and warrants to purchase 50,000
shares of common stock at an exercise price of $3.30 per share. These fee
warrants will be forfeited upon the completion of the Company's initial public
offering. The estimated fair value of the warrants issued in connection with
obtaining these debt financings was approximately $782,000. Based on the
short-term nature of these loans, this amount has been reflected as a non-cash
interest expense in the statement of operations for the year ended December 31,
1996.
6. CAPITAL STOCK TRANSACTIONS
REVERSE STOCK SPLIT
On October 16, 1996, the Board of Directors (the "Board") approved a one
for two reverse stock split (the "Reverse Split") of the Company's common stock
which was effective on December 5, 1996. No changes were made to the number of
common shares authorized or to the par value per share. All share and per share
data and references to options, warrants and exercise prices have been
retroactively restated to give effect to the reverse stock split.
COMMON STOCK
The Company was initially capitalized in the amount of $1,000 by the
issuance of 500 shares of common stock, par value $.01. On June 28, 1994, the
Company filed a Certificate of Amendment of Certificate of Incorporation
increasing the authorized shares to 10,000,000.
F-11
<PAGE> 71
OBJECTIVE COMMUNICATIONS, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
6. CAPITAL STOCK TRANSACTIONS -- (CONTINUED)
On June 28, 1994, the Company issued a stock dividend of 1,299,500 shares
to the Company's sole stockholder and President and Chief Executive Officer, Mr.
Steven A. Rogers.
On August 3, 1994, the Company sold 187,666 shares of common stock for
$2.00 per share. Of the shares issued, 171,000 shares were sold for cash and
16,666 were issued in exchange for services rendered. On December 31, 1994, the
Company sold an additional 45,000 shares of common stock for $6.00 per share.
On December 31, 1994, the Company issued 8,375 shares in fulfillment of an
obligation of $22,500 for services rendered in connection with the previous
stock offerings.
In December 1994, the Company entered into an agreement with a financial
advisory firm to assist in raising a minimum of $600,000 in equity for the
Company. In return, the Company was required to issue warrants to the financial
advisor to purchase shares of the Company's common stock equal to 10% of the
number of shares of common stock sold by the financial advisor to investors and
10% of the number of warrants issued to investors. The exercise price for these
warrants is 110% of the common stock issue price or warrant exercise price.
Pursuant to this agreement, the Company sold 111,666 shares of common stock
for $6.00 per share during June 1995. Each share of common stock sold entitled
the investor to a warrant to purchase an additional share of the Company's
common stock, at an exercise price of $8.00 per share. Further, the Company
converted $30,057 in notes payable and accrued interest into 5,009 shares of
common stock. Additionally, the Company converted $202,166 in outstanding notes
payable and accrued interest to the financial advisory firm into 33,694 shares
of common stock. Each share of common stock issued in the conversion was
accompanied by a warrant to purchase one share of common stock, at an exercise
price of $8.00 per share. The Company also converted an additional $120,000 loan
from the financial advisory firm into 20,000 shares of common stock, subject to
the warrant provision described above.
Pursuant to its 1995 agreement with the financial advisory firm, during
June 1996, the Company sold 175,166 shares of common stock for $6.00 per share.
Each share of common stock sold entitled the investor to a warrant to purchase
an additional share of the Company's common stock at an exercise price of $8.00
per share. In connection with the provisions of the agreement, the financial
advisory firm received 34,553 warrants at an exercise price of $6.60 per share
and 34,553 warrants at an exercise price of $8.80 per share.
A summary of the number of shares of common stock subject to purchase under
all warrant agreements and the related exercise prices as of December 31, 1996
is as follows:
<TABLE>
<CAPTION>
NUMBER OF SHARES EXERCISE PRICE
- ---------------- --------------
<S> <C>
34,553 $ 6.60
447,868 8.00
34,553 8.80
43,382 6.92
50,000 4.00
550,000 3.30
- ----------------
1,160,356
=============
</TABLE>
The Company has recorded a non-cash interest expense of approximately
$53,000 in the statement of operations for the year ended December 31, 1996
representing the estimated fair value of warrants to non-employees in
consideration of services performed to help the Company obtain equity financing.
F-12
<PAGE> 72
OBJECTIVE COMMUNICATIONS, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
6. CAPITAL STOCK TRANSACTIONS -- (CONTINUED)
STOCK OPTIONS
On August 3, 1994, the Company granted certain outside directors of the
Company options to purchase 200,000 shares of common stock. These options vest
on the anniversary of the option grant date in accordance with a five year
vesting schedule, 20% each year. The exercise price is $2.00 per share, which
was in excess of the fair value of the stock on the date of the grant, as
determined by the Board of Directors. As of December 31, 1996, 10,000 of these
options had been exercised and 70,000 of these options were exercisable. The
right to exercise these options terminates ten years from the grant date.
In October 1994, the Board of Directors adopted the 1994 Stock Option Plan
(the 1994 Plan) pursuant to which 343,000 shares of common stock are reserved
for issuance. The 1994 Plan is administered by the Board of Directors. Options
granted under the 1994 plan are subject to the same vesting provisions as the
options granted to directors. As of December 31, 1996, 41,000 options were
exercisable under the 1994 plan.
Option activity under the 1994 plan is as follows:
<TABLE>
<CAPTION>
SHARES PRICE
------- -----
<S> <C> <C>
Balance, December 31, 1994.................................. -- $--
Granted................................................ 232,500 4.00
Exercised.............................................. -- --
Forfeited.............................................. -- --
------- -----
Balance, December 31, 1995.................................. 232,500 4.00
Granted................................................ 138,000 4.00
Exercised.............................................. -- --
Forfeited.............................................. (27,500) --
------- -----
Balance, December 31, 1996.................................. 343,000 $4.00
======= =====
</TABLE>
The Company accounts for the fair value of its options granted to employees
and directors in accordance with APB 25. Accordingly, no compensation expense
has been recognized for the options granted, since the exercise price of the
options has been in excess of the fair value of the options on the date of
grant, as determined by the Board of Directors. Had compensation expense been
determined based on the fair value of the options at the grant dates consistent
with the method of accounting under SFAS 123, the Company's net loss and net
loss per share would have been increased to the pro forma amounts indicated
below:
<TABLE>
<CAPTION>
1995 1996
----------- -----------
<S> <C> <C>
Net loss
As reported................................... $(2,046,116) $(3,280,436)
Pro forma..................................... $(2,046,116) $(3,481,916)
</TABLE>
<TABLE>
<CAPTION>
1995 1996
------ ------
<S> <C> <C>
Net loss per common share
As reported............................................ $(0.57) $(0.87)
Pro forma.............................................. $(0.57) $(0.93)
</TABLE>
The fair value of each option is estimated on the date of grant using a
type of Black-Scholes option-pricing model with the following weighted-average
assumptions used for grants during the years ended December 31, 1995 and 1996:
dividend yield of 0%, expected volatility of 43%, risk-free interest rate of
5.9%
F-13
<PAGE> 73
OBJECTIVE COMMUNICATIONS, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
6. CAPITAL STOCK TRANSACTIONS -- (CONTINUED)
and expected term of 5 years. All options granted to employees have been granted
at an exercise price of $4.00 per share. Thus, this exercise price is indicative
of the weighted average exercise price.
In December 1996, the Board of Directors adopted the 1996 Stock Option Plan
(the 1996 Plan) pursuant to which 450,000 shares of common stock are reserved
for issuance. The 1996 Plan is administered by the Board of Directors. No
options under the 1996 Plan have been granted.
SUBSEQUENT EVENT
During January 1997, the Company executed a warrant exchange agreement (the
"Exchange Agreement") with investors who purchased shares of common stock and
received warrants through the financial advisory firm during 1995 and 1996. The
purpose of the Exchange Agreement was to provide those investors with the
opportunity to invest in the Company upon terms and conditions that more closely
reflect the terms and conditions upon which the other investors invested in the
Company during a comparable time period. Under the Exchange Agreement, each such
investor was given the opportunity to exchange existing warrants to purchase
5,000 shares of common stock at an exercise price of $8.00 per share for new
warrants to purchase 2,500 shares of common stock at an exercise price of $4.00
per share and an additional 2,500 newly issued shares of common stock. Investors
were also required to pay additional consideration to Steven A. Rogers for
shares of common stock purchased from Mr. Rogers in the original offering at a
below market purchase price per share. As a result of the Exchange Agreement,
the Company issued an aggregate of 165,267 shares of common stock, and an
aggregate of 345,536 warrants with an exercise price of $8.00 per share were
exchanged for 165,269 warrants with an exercise price of $4.00 per share and
15,000 warrants with an exercise price of $8.00 per share. Further, in
connection with the Warrant Agreement, the Company also exchanged warrants held
by the financial advisory firm to purchase 34,553 warrants to purchase shares of
common stock at an exercise price of $6.60 per share, and 34,553 warrants to
purchase shares of common stock at an exercise price of $8.80 per share, for an
aggregate of 69,106 warrants to purchase shares of common stock at an exercise
price of $4.00 per share. Additionally, the Company exchanged warrants
originally issued to other investors as an inducement to loan funds to the
Company, representing the right to purchase an aggregate of 102,332 shares at an
exercise price of $8.00 per share for warrants to purchase 102,332 shares of
common stock at an exercise price of $4.00 per share (see Note 5). The Company
did not receive any additional cash proceeds as a result of the Exchange
Agreement.
A summary of the number of common shares subject to purchase under all
warrant agreements after giving effect to the exchange transactions is as
follows:
<TABLE>
<CAPTION>
NUMBER OF SHARES EXERCISE PRICE
- ---------------- --------------
<S> <C>
436,707 $ 4.00
44,979 6.68
500,000 3.30
15,000 8.00
-------
996,686
=======
</TABLE>
7. PREFERRED STOCK
On December 9, 1996, the Board of Directors and a majority of the holders
of the outstanding Common Stock authorized the establishment of 2,500,000 shares
of preferred stock, with a par value of $.01 per share. In December 1996, the
Company authorized the issuance and sale of 500,000 shares of Series A
Convertible Preferred Stock (Series A) and warrants to purchase 100,000 shares
of common stock for aggregate
F-14
<PAGE> 74
OBJECTIVE COMMUNICATIONS, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
7. PREFERRED STOCK -- (CONTINUED)
100,000 shares of common stock for aggregate consideration of $2,000,000. The
Series A shares have liquidation preferences over the common stock and any
series of preferred stock authorized in the future. The holders of Series A
shares are entitled to non-cumulative dividends when dividends are declared on
the common stock as though the Series A shares had been converted to common
stock. At any time after five years following the issuance of the Series A
shares, or upon a merger in which the Company is not the surviving entity, or
upon a sale of all or substantially all of the assets of the Company, at the
request of at least 50% of the holders of Series A shares and given sixty days
notice, the Company is required to redeem all or a portion of the outstanding
Series A shares at a redemption price equal to the amount such holders would be
entitled to receive had they converted the Series A shares into common stock or
the liquidation value of $4 per share, whichever is greater. The Series A shares
are convertible to common stock as determined by multiplying the Series A stated
value plus all declared but unpaid dividends by $4.00 and dividing that result
by the conversion price, which as defined by the agreement will not exceed $4
per share. The Series A shares will automatically convert to shares of common
stock upon the consummation of the Company's IPO. The holders of Series A shares
are entitled to vote, with each holder entitled to the number of votes per share
as equal to the number of shares of common stock into which each share of Series
A is then convertible.
The warrants issued in conjunction with the Series A shares have an
exercise price of $4.00 per share. As a fee for the placement of the Series A
shares and related warrants, the underwriting firm received a $140,000
underwriter's discount and commission in consideration of its services on this
transaction.
As of December 31, 1996, the Company had issued 250,000 Series A shares and
50,000 warrants for the purchase of common stock and had received $1 million of
the consideration for the sale of the Series A shares. The remaining $1 million
was received in January 1997. The Series A shares have been recorded net of the
underwriters discount and commission and approximately $82,000 in other issuance
costs.
F-15
<PAGE> 75
================================================================================
NO DEALER, SALESMAN OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY PRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THE OFFERING MADE HEREBY, AND, IF GIVEN OR MADE,
SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY OR THE UNDERWRITER. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, ANY OF THE
SECURITIES OFFERED HEREBY IN ANY JURISDICTION TO ANY PERSON TO WHOM IT IS LAWFUL
TO MAKE SUCH AN OFFER OR SOLICITATION IN SUCH JURISDICTION. NEITHER THE DELIVERY
OR THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL UNDER ANY CIRCUMSTANCES
CREATE ANY 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 DATES AS OF WHICH SUCH INFORMATION IS
FURNISHED.
------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary..................... 3
Risk Factors........................... 8
Use of Proceeds........................ 17
Dividend Policy........................ 18
Dilution............................... 19
Capitalization......................... 21
Management's Discussion and Analysis of
Financial Condition and Results of
Operations........................... 22
Business............................... 26
Management............................. 36
Certain Transactions................... 43
Principal Stockholders................. 46
Description of Securities.............. 48
Shares Eligible for Future Sale........ 52
Underwriting........................... 55
Legal Matters.......................... 56
Experts................................ 56
Available Information.................. 57
Index to Financial Statements.......... F-1
</TABLE>
------------------
UNTIL , 1997 (25 DAYS AFTER THE DATE HEREOF), ALL DEALERS
EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN
ACTING AS UNDERWRITER AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
1,800,000 SHARES
OBJECTIVE COMMUNICATIONS, INC.
COMMON STOCK
------------------------
PROSPECTUS
------------------------
BARINGTON CAPITAL
GROUP, L.P.
, 1997
================================================================================
<PAGE> 76
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF 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.
PROSPECTUS
SUBJECT TO COMPLETION DATED , 199
OBJECTIVE COMMUNICATIONS, INC.
------------------
This Prospectus relates to the Offering (the "Offering") by certain selling
stockholders (the "Selling Stockholders") of 1,280,000 shares (the "Shares") of
Common Stock, par value $.01 per share, which may be sold from time to time by
the Selling Stockholders, or by transferees, on or after the date of this
Prospectus, subject to contractual restrictions which provide that such
securities may not be sold for a period of twelve months or twenty-four months
from the date of closing of the Company Offering (defined below) without the
prior written consent of Barington Capital Group, L.P., the underwriter of the
Company Offering (the "Underwriter"), subject to certain limited exceptions. See
"Risk Factors -- Shares Eligible for Future Sale," "Certain Transactions,"
"Description of Securities," "Shares Eligible For Future Sale," "Selling
Stockholders" and "Concurrent Sales By Selling Stockholders."
No underwriting arrangements have been entered into by the Selling
Stockholders. The distribution of the Shares by the Selling Stockholders may be
effected from time to time in transactions on the Nasdaq SmallCap Market, the
PHL or the BSE, in negotiated transactions, through the writing of options on
the Shares, or a combination of such methods of sale, at fixed prices that may
be changed, at market prices prevailing at the time of sale, at prices related
to such prevailing market prices, or at negotiated prices. The Selling
Stockholders may effect such transactions by the sale of the Shares to or
through broker-dealers, and such broker-dealers may receive compensation in the
form of discounts, concessions or commissions from the Selling Stockholders
and/or the purchasers of the Shares for whom such broker-dealers may act as
agent or to whom they may sell as principal, or both. Usual and customary or
specifically negotiated brokerage fees or commission may be paid by the Selling
Stockholders in connection with sales of the Shares.
The Selling Stockholders and intermediaries through whom the Shares are
sold may be deemed "underwriters" within the meaning of the Securities Act of
1933, as amended (the "Securities Act"), with respect to the securities offered
and any profits realized or commissions received may be deemed underwriting
compensation.
The Company will not receive any proceeds from sales of the Shares. See
"Selling Stockholders."
A registration statement under the Act has been filed with the Securities
and Exchange Commission with respect to an underwritten public offering on
behalf of the Company of 1,800,000 shares of Common Stock, plus up to 270,000
shares which may be offered pursuant to the exercise of the Underwriter's
over-allotment option (the "Company Offering"). See "Concurrent Sales By
Company."
------------------
AN INVESTMENT IN THE SECURITIES OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK
AND IMMEDIATE AND SUBSTANTIAL DILUTION AND SHOULD BE CONSIDERED
CAREFULLY AND ONLY BY PERSONS WHO CAN AFFORD THE LOSS OF
THEIR ENTIRE INVESTMENT. SEE "RISK FACTORS"
BEGINNING ON PAGE HEREIN.
------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF
THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
The date of this Prospectus is , 1997
<PAGE> 77
THE OFFERING
Securities Offered.............. 1,280,000 shares of Common Stock, $.01 par
value per share. See "Risk
Factors -- Shares Eligible for Future
Sale," "Certain Transactions," "Description
of Securities" and "Shares Eligible For
Future Sale." No underwriting arrangements
have been entered into by the Selling
Stockholders. See "Selling Stockholders."
Common Stock Outstanding after
the Company Offering (1)(3)..... 4,361,844 shares of Common Stock
Shares of Common Stock to be
Outstanding After this
Offering (2)(3)............... 5,641,844 shares of Common Stock
Use of Proceeds................. The Company will not receive any proceeds
from the sale of the Shares.
Risk Factors.................... An investment in the securities offered
hereby involves certain risks and immediate
and substantial dilution. Prospective
investors should consider carefully the
factors set forth under "Risk Factors."
Proposed Nasdaq SmallCap Market
Trading Symbol (4)............ OCOM
Proposed PHL Symbol (4)......... OBC
Proposed BSE Symbol (4)......... OBC
- ---------------
(1) Does not include (i) 500,000 shares of Common Stock issuable upon exercise
of warrants (the "Bridge Warrants"), issued by the Company to purchasers of
its 10% Senior Secured Promissory Notes (the "Bridge Notes"), in connection
with a debt financing consummated prior to the Company Offering (the "Bridge
Financing"); (ii) 496,686 shares issuable upon exercise of other outstanding
warrants to purchase shares of Common Stock; (iii) 343,000 shares of Common
Stock reserved for issuance upon exercise of outstanding options granted to
executive officers, key employees and consultants under the Company's 1994
Stock Option Plan (the "1994 Plan"), and 190,000 shares of Common Stock
reserved for issuance upon exercise of non-qualified options granted to
certain directors of the Company; and (iv) 450,000 shares reserved for
issuance under the Company's 1996 Stock Incentive Plan (the "1996 Plan").
See "Management -- Directors' Non-Qualified Options," "-- 1994 Stock Option
Plan," "-- 1996 Stock Incentive Plan," "Certain Transactions," and
"Description of Securities."
(2) Does not include (i) 496,686 shares issuable upon exercise of other
outstanding warrants to purchase shares of Common Stock; (ii) 343,000 shares
of Common Stock reserved for issuance upon exercise of outstanding options
granted to executive officers, key employees and consultants under the 1994
Plan, and 190,000 shares of Common Stock reserved for issuance upon exercise
of non-qualified options granted to certain directors of the Company; and
(iii) 450,000 shares reserved for issuance under the 1996 Plan. See
"Management -- Directors' Non Qualified Options," "-- 1994 Stock Option
Plan," "-- 1996 Stock Incentive Plan," "Certain Transactions," and
"Description of Securities."
(3) Does not include up to 270,000 shares of Common Stock issuable upon exercise
of the Over-Allotment in the Company Offering.
(4) There is currently no market for the Common Stock and there can be no
assurance that a market for the Common Stock will develop after the Company
Offering. The Company has applied for quotation of the Common Stock on the
Nasdaq SmallCap Market and for listing of the Common Stock on the PHL and
the BSE. There can be no assurance, however, that such applications for
quotation or listing will be approved, or if approved, will be maintained.
See "Risk Factors -- Absence of Public Market; Negotiated Offering Price."
Alt-2
<PAGE> 78
CONCURRENT SALES BY COMPANY
A registration statement under the Securities Act has been filed by the
Company with the Securities and Exchange Commission with respect to an
underwritten public offering by the Company of 1,800,000 shares of Common Stock,
plus 270,000 shares which may be offered pursuant to exercise of the
Underwriter's over-allotment option.
Concurrent sales of securities by both the Company and by the Selling
Stockholders would likely have an adverse effect on the market price of the
Common Stock. The Shares are subject to contractual restrictions upon resale
with the Underwriter. See "Selling Stockholders -- Lock-up Arrangements," "Risk
Factors -- Shares Eligible for Future Sale" and "Description of Securities."
Alt-3
<PAGE> 79
SELLING STOCKHOLDERS
The following table sets forth the name of each person who is a Selling
Stockholder, the number of Shares owned by each selling Stockholder's account,
the percentage of outstanding shares of Common Stock of the Company owned by
such person prior to this Offering, the number of shares being sold by such
person, the number of shares of Common Stock such person will own after the
completion of this Offering, and the percentage of outstanding shares of Common
Stock of the Company owned by such person after the completion of this Offering.
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP BENEFICIAL OWNERSHIP
PRIOR TO OFFERING NUMBER OF AFTER OFFERING
----------------------- SHARES -----------------------
NAME OF BENEFICIAL OWNER SHARES PERCENTAGE BEING SOLD SHARES PERCENTAGE
- ----------------------------------------- --------- ---------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C>
</TABLE>
LOCK-UP ARRANGEMENTS
Subject to the limited exception described below, and pursuant to the
Underwriting Agreement, each of the Selling Stockholders (other than the holders
of 500,000 shares of Common Stock issued upon conversion of the Series A
Preferred Stock and the Series A Warrants) as of the effective date of the
Registration Statement, has agreed not to offer, issue, sell, contract to sell,
grant any option for the sale of or otherwise dispose of any securities of the
Company for a period of twenty-four months from the date of closing of the
Company Offering, without the prior written consent of the Underwriter. Pursuant
to the Underwriting Agreement, the holders of the shares of Common Stock issued
upon conversion of the Series A Preferred Stock and the Series A Warrants have
agreed not to offer, issue, sell, contract to sell, grant any option for the
sale of or otherwise dispose of any securities of the Company for a period of
twelve months from the date of closing of the Offering, without the prior
written consent of the Underwriter. Notwithstanding these lock-up arrangements,
any stockholder subject to such arrangement may sell up to 30% of his, her or
its shares of Common Stock commencing 12 months after the completion of the
Offering in the event that the last sales price for the Common Stock on its
principal exchange has been at least 200% of the initial public offering price
for a period of 20 consecutive trading days ending within five days of the date
of such sale, and such sale is completed at a price in excess of 200% of the
initial public offering price. See "Risk Factors -- Shares Eligible for Future
Sale," "Certain Transactions," and "Description of Securities."
PLAN OF DISTRIBUTION
The distribution of the Shares by the Selling Stockholders may be effected
from time to time in transactions on the Nasdaq SmallCap Market, the PHL, the
BSE, in negotiated transactions, through the writing of options on the Shares,
or a combination of such methods of sale, at fixed prices that may be changed,
at market prices prevailing at the time of the sale, at prices related to such
prevailing market prices or at negotiated prices. The Selling Stockholders may
effect such transactions by the sale of the Shares to or through broker-dealers,
and such broker-dealers may receive compensation in the form of discounts,
concessions or commissions from the Selling Stockholders and/or the purchasers
of the Shares for whom such broker-dealers may act as agent or to whom they may
sell as principal, or both. Usual and customary or specifically negotiated
brokerage fees or commissions may be paid by the Selling Stockholders in
connection with sales of the Shares. No underwriting arrangements have been
entered into by the Selling Stockholders.
Alt-4
<PAGE> 80
The Selling Stockholders and intermediaries through whom the Shares are
sold may be deemed "underwriters" without the meaning of the Act with respect to
the securities offered and any profits realized or commissions received may be
deemed underwriting compensation. The Company has agreed to indemnify the
Selling Stockholders against certain liabilities, including liabilities under
the Securities Act.
Alt-5
<PAGE> 81
================================================================================
NO DEALER, SALESMAN OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY PRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THE OFFERING MADE HEREBY, AND, IF GIVEN OR MADE,
SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY OR THE UNDERWRITER. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, ANY OF THE
SECURITIES OFFERED HEREBY IN ANY JURISDICTION TO ANY PERSON TO WHOM IT IS LAWFUL
TO MAKE SUCH AN OFFER OR SOLICITATION IN SUCH JURISDICTION. NEITHER THE DELIVERY
OR THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL UNDER ANY CIRCUMSTANCES
CREATE ANY 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 DATES AS OF WHICH SUCH INFORMATION IS
FURNISHED.
------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.....................
Risk Factors...........................
Use of Proceeds........................
Dividend Policy........................
Dilution...............................
Capitalization.........................
Management's Discussion and Analysis of
Financial Condition and Results of
Operations...........................
Business...............................
Management.............................
Certain Transactions...................
Concurrent Sales by Company............
Selling Stockholders...................
Description of Securities..............
Shares Eligible for Future Sale........
Legal Matters..........................
Experts................................
Available Information..................
Index to Financial Statements..........
</TABLE>
------------------
UNTIL , 1997 (25 DAYS AFTER THE DATE HEREOF), ALL DEALERS
EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN
ACTING AS UNDERWRITER AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
1,280,000 SHARES
OBJECTIVE COMMUNICATIONS, INC.
COMMON STOCK
------------------------
PROSPECTUS
------------------------
, 1997
================================================================================
Alt-6
<PAGE> 82
PART II.
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The General Corporation Law of the State of Delaware (the "GCL") provides
that a corporation may limit the liability of each director to the corporation
or its stockholders for monetary damages, except for liability (i) for any
breach of the director's duty of loyalty to the corporation or its stockholders;
(ii) for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law; (iii) in respect of certain unlawful
dividend payments or stock redemptions or repurchases; and (iv) for any
transaction from which the director derived an improper personal benefit. The
Amended and Restated Certificate of Incorporation (the "Certificate") and
Amended and Restated Bylaws (the "Bylaws") of the Registrant provide for the
elimination and limitation of the personal liability of directors of the
Registrant for monetary damages to the fullest extent permitted by the GCL.
In addition, the Certificate and Bylaws provide that if the GCL is amended
to authorize the further elimination or limitation of the liability of a
director, then the liability of the directors of the Registrant shall be
eliminated or limited to the fullest extent permitted by the GCL, as so amended.
The effect of this provision is to eliminate the right of the Registrant and its
stockholders (through stockholders' derivative suits on behalf of the
Registrant) to recover monetary damages against a director for breach of the
fiduciary duty of care as a director (including breaches resulting from
negligent or grossly negligent behavior) except in the situations described in
clauses (i) through (iv) above. The provision does not limit or eliminate the
rights of the Registrant or any stockholder to seek non-monetary relief such as
an injunction or rescission in the event of a breach of a director's duty of
care. In addition, the Certificate provides that the Registrant shall, to the
fullest extent permitted by the GCL, as amended from time to time, indemnify
each of its currently acting and former directors, officers, employees and
agents.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the expenses to be incurred by the
Registrant in connection with the issuance and distribution of the securities
registered hereby, all of which expenses, except for the registration fee and
the Nasdaq SmallCap Market filing fee and the Philadelphia Stock Exchange and
Boston Stock Exchange listing fees, are estimates:
<TABLE>
<CAPTION>
DESCRIPTION AMOUNT
------------------------------------------------------------------ --------
<S> <C>
SEC registration fee.............................................. $ 5,383
NASD filing fee................................................... 2,277
Nasdaq SmallCap Market filing fee................................. 6,800
Philadelphia Stock Exchange listing fee........................... 8,750
Boston Stock Exchange listing fee................................. 7,250
Blue Sky fees and expenses (including fees of counsel)............ 60,000
Transfer agent and registrar's fee................................ 2,500
Printing expenses................................................. 125,000
Legal fees and expenses (other than Blue Sky)..................... 140,000
Accounting fees and expenses...................................... 140,000
Miscellaneous..................................................... 47,040
--------
TOTAL................................................... $545,000
========
</TABLE>
II-1
<PAGE> 83
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES.
All share information set forth below, has been adjusted to reflect a
one-for-two reverse stock split effective on December 5, 1996.
(1) Since the formation of the Registrant on October 5, 1993, the
Registrant has issued or sold unregistered Common Stock as set forth below:
<TABLE>
<CAPTION>
NUMBER OF PER SHARE
SHARES PRICE
--------- ---------------
<S> <C> <C>
From inception (October 5, 1993) through
December 31, 1993................................ 500 $2.00
Year ended December 31, 1994....................... 187,666 $2.00
8,375 $2.68
45,000 $6.00
1,299,500 stock dividend
Year ended December 31, 1995....................... 170,370 $6.00
Year ended December 31, 1996....................... 175,166 $6.00
Year ended December 31, 1997 (to date)............. 165,267 *(1)
</TABLE>
- ---------------
(1) Such shares of Common Stock were issued in connection with the warrant
exchange in January 1997 pursuant to which certain investors exchanged
warrants to purchase an aggregate of 330,536 shares of Common Stock with an
exercise price of $8.00 per share, for warrants to purchase an aggregate of
165,269 shares of Common Stock with an exercise price of $4.00 per share.
(2) Since January 1, 1994, the Registrant has issued or sold unregistered
Preferred Stock as set forth below:
<TABLE>
<CAPTION>
NUMBER OF PER SHARE
SHARES PRICE
--------- ---------
<S> <C> <C>
Year ended December 31, 1994............................. -- --
Year ended December 31, 1995............................. -- --
Year ended December 31, 1996............................. 250,000 $4.00
Year ending December 31, 1997 (to date).................. 250,000 $4.00
</TABLE>
(3) Since January 1, 1994, the Registrant issued shares of Common Stock
pursuant to the exercise of stock options granted to employees or directors of
the Registrant as follows:
<TABLE>
<CAPTION>
NUMBER OF EXERCISE
SHARES PRICE
--------- --------
<S> <C> <C>
Year ended December 31, 1994.............................. -- --
Year ended December 31, 1995.............................. -- --
Year ended December 31, 1996.............................. 10,000 $ 2.00
</TABLE>
II-2
<PAGE> 84
(4) Since January 1, 1994 the Registrant has issued or sold unregistered
warrants as set forth below:
<TABLE>
<CAPTION>
NUMBER OF EXERCISE
WARRANTS PRICE
--------- --------
<S> <C> <C>
Year ended December 31, 1994........................... -- --
Year ended December 31, 1995........................... 17,037(1) $ 6.60
256,036(2) $ 8.00
17,037(1) $ 8.80
Year ended December 31, 1996........................... 500,000 $ 3.30
50,000 $ 4.00
17,516(1) $ 6.60
44,979(3) $ 6.68
191,832(2) $ 8.00
17,516(1) $ 8.80
Year ending December 31, 1997 (to date)................ 386,707 $ 4.00
</TABLE>
- ---------------
(1) Such warrants were subsequently exchanged for new warrants to purchase an
equal number of shares at an exercise price of $4.00 per share.
(2) Of such warrants issued in 1995 and 1996, warrants to purchase an aggregate
of 432,868 shares of Common Stock were subsequently exchanged for new
warrants to purchase 267,501 shares of Common Stock at an exercise price of
$4.00 per share.
(3) The Company originally issued warrants to purchase 33,750 shares of Common
Stock at an exercise price of $8.90 per share. The number of Shares of
Common Stock issuable upon exercise of the warrant set forth above reflect
the warrant currently outstanding which reflects adjustments pursuant to the
terms of the warrant.
In 1993 and 1994, the Registrant issued a total of 1,300,000 shares of
common stock, par value $.01 per share (the "Common Stock"), to Steven A.
Rogers, founder, President and Chief Executive Officer of the Registrant, in
exchange for services rendered in connection with the formation of the
Registrant and an initial capital contribution of $1,000 in cash.
Of the remaining shares of Common Stock issued by the Registrant in 1994,
171,000 shares and 45,000 shares of Common Stock were issued to accredited
investors in private placements by the Registrant at a purchase price of $2.00
and $6.00 per share, respectively. In addition, the Registrant issued 16,666
shares of Common Stock in exchange for services, at a deemed purchase price of
$2.00 per share, and issued an additional 8,375 shares of Common Stock in
fulfillment of a $22,500 obligation for services rendered in connection with
previous stock offerings pursuant to an agreement which obligated the Registrant
to issue such shares at a purchase price of $2.68 per share.
In 1995 and 1996, PVR Securities, Inc. ("PVR Securities") acted as the
placement agent for a private offering to accredited investors of units
consisting of Common Stock and warrants to acquire Common Stock. Each unit
consisted of 10,000 shares of Common Stock and warrants to purchase an
additional 10,000 shares of Common Stock at an exercise price of $8.00 per
share. Pursuant to such offering, in 1995, the Registrant issued an aggregate of
170,370 shares of Common Stock to accredited investors for $6.00 per share, and
warrants to purchase an aggregate of 170,370 shares of Common Stock at an
exercise price of $8.00 per share. In addition, during 1995, the Registrant
converted $30,057 in notes payable (and accrued and unpaid interest thereon)
into 5,009 shares of Common Stock at a purchase price of $6.00 per share.
Additionally in 1995, the Registrant converted $202,166 in outstanding notes
payable (and accrued and unpaid interest thereon) into 33,694 shares of Common
Stock. In connection with the transaction, the holders of the converted notes
also were issued an aggregate of warrants to purchase 85,666 shares of Common
Stock at an exercise price of $8.00 per share. As partial compensation for
services provided by PVR Securities in connection with the private placements,
in 1995, the Registrant issued to an affiliate of PVR Securities warrants to
purchase 17,037 shares of Common Stock at an exercise price of $6.60 per share
and warrants to purchase 17,037 shares of Common Stock at an exercise price of
$8.80 per share.
II-3
<PAGE> 85
Pursuant to such offering, in 1996, the Registrant issued to accredited
investors for a purchase price of $6.00 per share, 175,166 shares of Common
Stock and warrants to acquire an additional 175,166 shares of Common Stock at an
exercise price of $8.00 per share. Additionally, in 1996, as an inducement to
certain Lenders to extend loans to the Company, the Company issued warrants to
purchase an aggregate number of 16,666 shares of Common Stock at an exercise
price of $8.00 per share. As partial compensation for services provided by PVR
Securities in connection with the private placement in 1996, the Registrant
issued to an affiliate of PVR Securities warrants to purchase 17,516 shares of
Common Stock at an exercise price of $6.60 per share and warrants to purchase
17,516 shares of Common Stock at an exercise price of $8.80 per share.
In 1996, Barington Capital Group, L.P. (the "Underwriter") acted as the
placement agent for the Registrant in connection with the private placement of
$2,000,000 aggregate principal amount of bridge notes and bridge warrants to
purchase 500,000 shares of Common Stock at an exercise price of $3.30 per share.
As partial compensation for services provided in that offering, the Underwriter
received warrants to purchase up to 50,000 shares of Common Stock of the
Registrant, which, by their terms, will be forfeited upon consummation of the
Registrant's initial public offering. In December 1996 and January 1997, the
Underwriter acted as the placement agent in connection with the private
placement by the Registrant of 500,000 shares of Series A Convertible Preferred
Stock and warrants to purchase an additional 100,000 shares of Common Stock at
an exercise price of $4.00 per share.
In connection with a loan to the Company in the principal amount of
$300,000 in August 1996, the Company issued to the Adelson Investment Company a
warrant to purchase 33,750 shares of Common Stock at an exercise price of $8.90
per share. The exercise price and number of shares of the warrant have been
adjusted, pursuant to its provisions to an exercise price of $6.68 per share for
44,979 shares of Common Stock. The warrant is exercisable in whole or in part
and expires on August 31, 2001.
In January 1997, the Registrant issued to existing investors in the
Registrant 165,267 shares of Common Stock and warrants to purchase an aggregate
of 336,707 shares of Common Stock at an exercise price of $4.00 per share, in
exchange for outstanding warrants to purchase 432,868 shares of Common Stock at
an exercise price of $8.00 per share, outstanding warrants to purchase 34,553
shares of Common Stock at an exercise price of $6.60 per share, and outstanding
warrants to purchase 34,553 shares of Common Stock at an exercise price of $8.80
per share.
The sales and issuance of securities in the transactions described above
were exempt from the registration requirements of the Securities Act pursuant to
Section 4(2) thereof and Regulation D promulgated thereunder.
II-4
<PAGE> 86
ITEM 27. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
<TABLE>
<CAPTION>
EXHIBITS
- --------
<C> <S>
1.1 Form of Underwriting Agreement
3.1 Amended and Restated Certificate of Incorporation of the Registrant
3.2* Amended and Restated Bylaws of the Registrant
3.3* Certificate of Designations, Preferences and Rights of Series A Convertible
Preferred Stock
3.4 Form of Warrant for the Purchase of Shares of Common Stock, issued in connection
with the private placement of $2,000,000 aggregate principal amount of Bridge Notes
3.5 Form of Warrant to Purchase Common Stock of Objective Communications, issued in
connection with the private placement units in June 1995 and August 1996
3.6 Warrant to Purchase 43,382 Shares of Common Stock, issued to the Adelson Investment
Company
3.7 Form of Warrants for the Purchase of 100,000 Shares of Common Stock, $.01 par value
per share, issued in connection with the private placement of Series A Convertible
Preferred Stock and warrants in December 1996 and January 1997
3.8 Form of Option for the Purchase of 180,000 shares of Common Stock issued to
Barington Capital Group, L.P.
4.1 Reference is made to Exhibits 3.1, 3.2, 3.3, 3.4, 3.5, 3.6 and 3.7
4.2* Specimen certificate evidencing shares of Common Stock of the Registrant.
5* Form of opinion of Shaw, Pittman, Potts & Trowbridge as to the legality of the
securities being registered
10.1 1994 Stock Option Plan
10.2 1996 Stock Incentive Plan
10.3* Employment Agreement between the Registrant and Steven A. Rogers.
10.4 Form of Consulting Agreement by and between the Registrant and Barington Capital
Group, L.P.
11 Statement regarding calculation of net income per share
21 Subsidiaries of the Registrant
23.1* Consent of Shaw, Pittman, Potts & Trowbridge (included as part of Exhibit 5)
23.2 Consent of Coopers & Lybrand, LLP
24 Power of Attorney (included on signature page to the Registration Statement)
27.1 Financial Data Schedule
</TABLE>
- ---------------
* To be filed by amendment.
Financial Statement Schedules
Schedules other than those listed above have been omitted since they are
not required or are not applicable or the required information is in the
financial statements or related notes.
ITEM 28. UNDERTAKINGS
(a) 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 and 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
II-5
<PAGE> 87
change in the volume and price represent no more than 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 the plan of distribution
not previously disclosed in the registration statement or any material
change to such information in the registration statement;.
(2) That, for 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;
(3) To remove from registration any means of a post-effective
amendment any of the securities being registered which remain unsold at the
termination of the offering.
(f) The undersigned Registrant hereby undertakes to provide to the
underwriter at the closing specified in the underwriting agreements,
certificates in such denominations and registered in such names as required by
the underwriter to permit prompt delivery to each purchaser.
(h) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
(i) The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this registration statement in reliance upon Rule 430A and contained in
a form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be a part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-6
<PAGE> 88
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the County of Fairfax, Virginia, on
January 29, 1997.
OBJECTIVE COMMUNICATIONS, INC.
(Registrant)
By: /s/ STEVEN A. ROGERS
------------------------------------
STEVEN A. ROGERS
PRESIDENT AND CHIEF EXECUTIVE
OFFICER
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Steven A. Rogers and Robert H. Emery and each of
them, his true and lawful attorney-in-fact and agents, with full power of
substitution and resubstitution, for and in his name, place and stead, in any
and all capacities to sign any and all amendments (including posteffective
amendments) to this Registration Statement and any or all other documents in
connection therewith, and to file the same, with all exhibits thereto, with the
Securities and Exchange Commission, granting unto said authority to do and
perform each and every act and thing requisite and necessary to be done in and
about the premises, as fully to all intents and purposes as might or could be
done in person, hereby ratifying and confirming all said attorney-in-fact and
agents or any of them, or their substitute or substitutes, may lawfully do or
cause to be done by virtue hereof.
II-7
<PAGE> 89
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed by the following persons in the
capacities and as of the dates indicated.
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
- --------------------------------------------- ----------------------------- ----------------
<C> <S> <C>
/s/ STEVEN A. ROGERS President and Chief Executive January 29, 1997
- --------------------------------------------- Officer, and Director
STEVEN A. ROGERS (Principal Executive
Officer)
/s/ ROBERT H. EMERY Vice President of January 29, 1997
- --------------------------------------------- Administration and Finance
ROBERT H. EMERY (Principal Financial and
Accounting Officer)
/s/ CLIFFORD M. KENDALL Chairman of the Board of January 29, 1997
- --------------------------------------------- Directors
CLIFFORD M. KENDALL
/s/ ANTHONY M. AGNELLO Director January 29, 1997
- ---------------------------------------------
ANTHONY M. AGNELLO
/s/ ROBERT L. BARNETT Director January 29, 1997
- ---------------------------------------------
ROBERT L. BARNETT
/s/ DONALD W. BARRETT Director January 29, 1997
- ---------------------------------------------
DONALD W. BARRETT
/s/ EUGENE R. CACCIAMANI Director January 29, 1997
- ---------------------------------------------
EUGENE R. CACCIAMANI
/s/ LINCOLN D. FAURER Director January 29, 1997
- ---------------------------------------------
LINCOLN D. FAURER
/s/ RICHARD T. LIEBHABER Director January 29, 1997
- ---------------------------------------------
RICHARD T. LIEBHABER
/s/ ROY C. NASH Director January 29, 1997
- ---------------------------------------------
ROY C. NASH
/s/ JOHN B. TORKELSEN Director January 29, 1997
- ---------------------------------------------
JOHN B. TORKELSEN
</TABLE>
II-8
<PAGE> 90
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- ---------------------------------------------------------------------------------
<C> <S>
1.1 Form of Underwriting Agreement
3.1 Amended and Restated Certificate of Incorporation of the Registrant
3.2* Amended and Restated Bylaws of the Registrant
3.3* Certificate of Designations, Preferences and Rights of Series A Convertible
Preferred Stock
3.4 Form of Warrant for the Purchase of Shares of Common Stock, issued in connection
with the private placement of $2,000,000 aggregate principal amount of Bridge
Notes
3.5 Form of Warrant to Purchase Common Stock of Objective Communications, issued in
connection with the private placement units in June 1995 and August 1996
3.6 Warrant to Purchase 43,382 Shares of Common Stock, issued to the Adelson
Investment Company
3.7 Form of Warrants for the Purchase of 100,000 Shares of Common Stock, $.01 par
value per share, issued in connection with the private placement of Series A
Convertible Preferred Stock and warrants in December 1996 and January 1997
3.8 Form of Option for the Purchase of 180,000 shares of Common Stock issued to
Barington Capital Group, L.P.
4.1 Reference is made to Exhibits 3.1, 3.2, 3.3, 3.4, 3.5, 3.6 and 3.7
4.2* Specimen certificate evidencing shares of Common Stock of the Registrant.
5* Form of opinion of Shaw, Pittman, Potts & Trowbridge as to the legality of the
securities being registered
10.1 1994 Stock Option Plan
10.2 1996 Stock Incentive Plan
10.3* Employment Agreement between the Registrant and Steven A. Rogers.
10.4 Form of Consulting Agreement by and between the Registrant and Barington Capital
Group, L.P.
11 Statement regarding calculation of net income per share
21 Subsidiaries of the Registrant
23.1* Consent of Shaw, Pittman, Potts & Trowbridge (included as part of Exhibit 5)
23.2 Consent of Coopers & Lybrand, LLP
24 Power of Attorney (included on signature page to the Registration Statement)
27.1 Financial Data Schedule
</TABLE>
- ---------------
* To be filed by amendment.
<PAGE> 1
EXHIBIT 1.1
1,800,000 Shares of Common Stock
OBJECTIVE COMMUNICATIONS, INC.
UNDERWRITING AGREEMENT
, 1996
-------
Barington Capital Group, L.P.
888 Seventh Avenue
New York, New York 10019
Dear Sirs:
The undersigned, Objective Communications, Inc., a
Delaware corporation (the "Company"), hereby confirms its agreement with you
(the "Underwriter") and any other selling group members named in Schedule I
hereto in connection with the proposed offering of certain of its securities to
the public (the "Offering") as follows:
1. Introductory. The Company proposes to issue and sell to
the Underwriter 1,800,000 shares of Common Stock, par value $.01 per share, of
the Company (the "Common Stock"). In addition, solely for the purpose of
covering over-allotments, the Company proposes to grant the Underwriter the
option to purchase from it up to an additional 270,000 shares of Common Stock
(the "Additional Stock") identical to the Common Stock. The Common Stock is
more fully described in the Prospectus referred to below.
2. Representations and Warranties of the Company. The
Company represents and warrants to, and agrees with, the Underwriter that:
(a) The Company has filed with the Securities and
Exchange Commission (the "Commission") under the Securities
Act of 1933, as amended (the "Act"), a registration statement,
and may have filed one or more amendments thereto, on Form
SB-2 (Registration No. 333-____), including in such
registration statement and each such amendment and related
preliminary prospectus (a "Preliminary Prospectus") for the
registration of (i) the 1,800,000 shares of Common Stock (the
"Firm Stock"), (ii) the Additional Stock, (iii) the Common
Stock purchase options referred to in Section 5(t) (the
"Underwriter's Options"), (iv) the shares of Common Stock (the
"Underwriter's Stock") issuable upon exercise of the
Underwriter's Options and (v) the shares of
<PAGE> 2
Common Stock (the "Bridge Stock") issuable upon exercise of
the warrants issued to investors in connection with the bridge
financing in which the Underwriter acted as placement agent
(the Firm Stock, the Additional Stock, the Underwriter's
Options and the Underwriter's Stock, and the Bridge Stock are
collectively referred to as the "Securities"). As used in
this Agreement, the term "Registration Statement" means such
registration statement, as amended, on file with the
Commission at the time such registration statement becomes
effective (including the prospectus, financial statements,
exhibits, and all other documents filed as a part thereof),
provided that such Registration Statement, at the time it
becomes effective, may omit such information as is permitted
to be omitted from the Registration Statement when it becomes
effective pursuant to Rule 430A of the General Rules and
Regulations promulgated under the Act (the "Regulations"),
which information ("Rule 430 Information") shall be deemed to
be included in such Registration Statement when a final
prospectus is filed with the Commission in accordance with
Rules 430A and 424(b)(1) or (4) of the Regulations; the term
"Preliminary Prospectus" means each prospectus included in the
Registration Statement, or any amendments thereto, before it
becomes effective under the Act, the form of prospectus
omitting Rule 430A Information included in the Registration
Statement when it becomes effective, if applicable (the "Rule
430A Prospectus"), and any prospectus filed by the Company
with your consent pursuant to Rule 424(a) of the Regulations;
and the term "Prospectus" means the final prospectus included
as part of the Registration Statement, except that if the
prospectus relating to the securities covered by the
Registration Statement in the form first filed on behalf of
the Company with the Commission pursuant to Rule 424(b) of the
Regulations shall differ from such final prospectus, the term
"Prospectus" shall mean the prospectus as filed pursuant to
Rule 424(b) from and after the date on which it shall have
first been used.
(b) When the Registration Statement becomes
effective, and at all times subsequent thereto and including
the Closing Date (as defined in Section 3) and each Additional
Closing Date (as defined in Section 3), and during such longer
period as the Prospectus may be required to be delivered in
connection with sales by the Underwriter or a dealer, and
during such longer period until any post-effective amendment
thereto shall become effective, the Registration Statement
(and any post-effective amendment thereto) and the Prospectus
(as amended or as supplemented if the Company shall have filed
with the Commission any amendment or supplement to the
Registration Statement or the Prospectus) will contain all
statements which are required to be stated therein in
accordance with the Act and the Regulations, will comply with
the Act and the Regulations, and will not contain any untrue
statement of a material fact
-2-
<PAGE> 3
or omit to state any material fact required to be stated
therein or necessary to make the statements therein not
misleading, and no event will have occurred which should have
been set forth in an amendment or supplement to the
Registration Statement or the Prospectus which has not then
been set forth in such an amendment or supplement; if a Rule
430A Prospectus is included in the Registration Statement at
the time it becomes effective, the Prospectus filed pursuant
to Rules 430A and 424 (b) (1) or (4) will contain all Rule
430A Information and all statements which are required to be
stated therein in accordance with the Act or the Regulations,
will comply with the Act and the Regulations, and will not
contain any untrue statement of a material fact or omit to
state any material fact required to be stated therein or
necessary to make the statements therein not misleading; and
each Preliminary Prospectus, as of the date filed with the
Commission, did not include any untrue statement of a material
fact or omit to state any material fact required to be stated
therein or necessary to make the statements therein not
misleading; except that no representation or warranty is made
in this Section 2(b) with respect to statements or omissions
made in reliance upon and in conformity with written
information furnished to the Company as stated in Section 8(b)
with respect to the Underwriter by the Underwriter expressly
for inclusion in any Preliminary Prospectus, the Registration
Statement, or the Prospectus, or any amendment or supplement
thereto.
(c) Neither the Commission nor the "blue sky" or
securities authority of any jurisdiction has issued an order
(a "Stop Order") suspending the effectiveness of the
Registration Statement, preventing or suspending the use of
any Preliminary Prospectus, the Prospectus, the Registration
Statement, or any amendment or supplement thereto, refusing to
permit the effectiveness of the Registration Statement, or
suspending the registration or qualification of any of the
Securities, nor has any of such authorities instituted or
threatened to institute any proceedings with respect to a Stop
Order.
(d) Any contract, agreement, instrument, lease,
or license required to be described in the Registration
Statement or the Prospectus has been properly described
therein. Any contract, agreement, instrument, lease, or
license required to be filed as an exhibit to the Registration
Statement has been filed with the Commission as an exhibit to
the Registration Statement.
(e) The Company has no subsidiaries (as defined
in the Regulations). The Company is a corporation duly
organized, validly existing, and in good standing under the
laws of Delaware, with full corporate power and authority, and
all necessary consents, authorizations, approvals, orders,
licenses, certificates, and permits of and from, and
-3-
<PAGE> 4
declarations and filings with, all federal, state, local, and
other governmental authorities and all courts and other
tribunals, to own, lease, license, and use its properties and
assets and to carry on the business in the manner described in
the Prospectus. The Company is duly qualified to do business
and is in good standing in every jurisdiction in which its
ownership, leasing, licensing, or use of property and assets
or the conduct of its business makes such qualification
necessary except where the failure to be so qualified does not
now have and will not in the future have a material adverse
effect on the operations, business, properties, or assets of
the Company.
(f) As of the Closing of the sale of the Firm
Stock, the authorized capital stock of the Company consists of
____________ shares of Common Stock, of which ___________
shares are outstanding. Each outstanding share of Common
Stock is validly authorized, validly issued, fully paid, and
nonassessable, without any personal liability attaching to the
ownership thereof, and has not been issued and is not owned or
held in violation of any preemptive rights of stockholders.
There is no commitment, plan, or arrangement to issue, and no
outstanding option, warrant, or other right calling for the
issuance of, any share of capital stock of the Company or any
security or other instrument which by its terms is convertible
into, exercisable for, or exchangeable for, capital stock of
the Company, except as may be properly described in the
Prospectus. There is outstanding no security or other
instrument which by its terms is convertible into or
exchangeable for capital stock of the Company except as may
have been properly described in the Prospectus. There is
outstanding no indebtedness other than (i) trade payables
incurred in the ordinary course of business, (ii) certain
capital lease obligations, (iii) an aggregate principal amount
of $2,000,000 currently outstanding on 10% Senior Secured
Promissory Notes issued pursuant to a bridge financing entered
into as of October __, 1996, October __, 1996 and October __,
1996 and (iv) no more than $_______ outstanding under existing
notes payable.
(g) The financial statements of the Company
included in the Registration Statement and the Prospectus
fairly present the financial position, the results of
operations, and the other information purported to be shown
therein at the respective dates and for the respective periods
to which they apply. Such financial statements have been
prepared in accordance with generally accepted accounting
principles (except to the extent that certain footnote
disclosures regarding any period may have been omitted in
accordance with the applicable rules of the Commission under
the Securities Exchange Act of 1934, as amended (the "Exchange
Act")) consistently applied throughout the periods involved,
are correct and complete, and are in accordance with the books
and records of the Company. The accountants whose
-4-
<PAGE> 5
report on the audited financial statements is filed with the
Commission as a part of the Registration Statement are, and
during the periods covered by their report(s) included in the
Registration Statement and the Prospectus, were independent
certified public accountants within the meaning of the Act and
the Regulations. No other financial statements are required
by Form SB-2 or otherwise to be included in the Registration
Statement or the Prospectus. There has at no time been a
material adverse change in the financial condition, results of
operations, business, properties, assets, liabilities, or
future prospects of the Company from the latest information
set forth in the Registration Statement or the Prospectus,
except as may be properly described in the Prospectus.
(h) There is no litigation, arbitration, claim,
governmental or other proceeding (formal or informal), or
investigation pending, threatened, or in prospect (or any
basis therefor) with respect to the Company, or any of its
operations, businesses, properties, assets, liabilities or
future prospects, except as may be properly described in the
Prospectus or such as individually or in the aggregate do not
now have and cannot be expected in the future to have a
material adverse effect upon the operations, business,
properties, or assets of the Company. The Company is not in
violation of, or in default with respect to, any law, rule,
regulation, order, judgment, or decree except as may be
properly described in the Prospectus or such as in the
aggregate do not now have and will not in the future have a
material adverse effect upon the operations, business,
properties, assets, liabilities or future prospects, of the
Company; nor is the Company required to take any action in
order to avoid any such violation or default.
(i) The Company has good and marketable title in
fee simple to all real properties and good title to all other
properties and assets which the Prospectus indicates are owned
by it, free and clear of all liens, security interests,
pledges, charges, encumbrances, and mortgages (except as may
be properly described in the Prospectus). No real property
owned, leased, licensed, or used by the Company lies in an
area which is, or to the knowledge of the Company will be,
subject to zoning, use, or building code restrictions which
would prohibit, and no state of facts relating to the actions
or inaction of another person or entity or his or its
ownership, leasing, licensing, or use of any real or personal
property exists or will exist which would prevent, the
continued effective ownership, leasing, licensing, or use of
such real property in the business of the Company as presently
conducted or as the Prospectus indicates it contemplates
conducting (except as may be properly described in the
Prospectus).
-5-
<PAGE> 6
(j) The Company is not, nor to the knowledge of
the Company is any other party, now or expected by the Company
in the future to be in violation or breach of, or in default
with respect to, complying with any material provision of any
contract, agreement, instrument, lease, license, arrangement,
or understanding which is material to the Company, and each
such contract, agreement, instrument, lease, license,
arrangement, and understanding is in full force and is the
legal, valid, and binding obligation of the parties thereto
and is enforceable as to them in accordance with its terms.
The Company enjoys peaceful and undisturbed possession under
all leases and licenses under which it is operating. The
Company is not a party to or bound by any contract, agreement,
instrument, lease, license, arrangement, or understanding, or
subject to any charter or other restriction, which has had or
may in the future have a material adverse effect on the
financial condition, results of operations, business,
properties, assets, liabilities, or future prospects of the
Company. The Company is not in violation or breach of, or in
default with respect to, any term of its articles of
incorporation (or other charter document) or by-laws.
(k) All patents, patent applications, trademarks,
trademark applications, trade names, service marks,
copyrights, franchises, and other intangible properties and
assets (all of the foregoing being herein called
"Intangibles") that the Company owns or has pending, or under
which it is licensed, are in good standing and, to the
Company's knowledge, uncontested. The "Objective
Communication", "________" and "_________" names and their
related logos are trademarks and service marks used by the
Company to identify its products, and such trademarks and
service marks are protected by registration in the name of the
Company on the principal register in the United States Patent
and Trademark Office. There is no right under any Intangible
necessary to the business of the Company as presently
conducted or as the Prospectus indicates it contemplates
conducting except as may be so designated in the Prospectus.
The Company has not infringed, is not infringing, nor has
received notice of infringement with respect to asserted
Intangibles of others. To the knowledge of the Company, there
is no infringement by others of Intangibles of the Company.
To the knowledge of the Company, there is no Intangible of
others which has had or may in the future have a materially
adverse effect on the financial condition, results of
operations, business, properties, assets, liabilities, or
future prospects of the Company.
(l) Neither the Company, nor any director,
officer, agent, employee, or other person associated with or
acting on behalf of the Company has, directly or indirectly,
used any corporate funds for unlawful contributions, gifts,
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<PAGE> 7
entertainment, or other unlawful expenses relating to
political activity; made any unlawful payment to foreign or
domestic government officials or employees or to foreign or
domestic political parties or campaigns from corporate funds;
violated any provision of the Foreign Corrupt Practices Act of
1977, as amended; or made any bribe, rebate, payoff, influence
payment, kickback, or other unlawful payment.
(m) The Company has all requisite corporate power
and authority to execute, deliver, and perform its obligations
under each of (i) this Agreement, (ii) the certificate
evidencing the Underwriter's Options (the "Underwriter's
Option Agreement"), and (iii) the proposed financial advisory
and consulting agreement to be entered into between the
Company and the Underwriter in connection with the
consummation of the offering contemplated hereby (the
"Consulting Agreement" and, collectively with this Agreement
and the Underwriter's Option Agreement the "Company
Documents"). All necessary corporate proceedings of the
Company have been duly taken to authorize the execution,
delivery, and performance of each of the Company Documents by
the Company. This Agreement has been duly authorized,
executed, and delivered by the Company, is the legal, valid,
and binding obligation of the Company, and is enforceable as
to the Company in accordance with its terms. Each of the
other Company Documents has been duly authorized by the
Company, and is or, when executed and delivered by the
Company, will be the legal, valid, and binding obligation of
the Company, enforceable against the Company in accordance
with its terms. No consent, authorization, approval, order,
license, certificate, or permit of or from, or declaration or
filing with, any federal, state, local, or other governmental
authority or any court or other tribunal is required by the
Company for the execution, delivery, or performance by the
Company of any of the Company Documents (except filings under
the Act which have been or will be made before the Closing
Date and such consents consisting only of consents under "blue
sky" or state securities laws). No consent of any party to any
contract, agreement, instrument, lease, license, arrangement,
or understanding to which the Company is a party, or to which
any of its properties or assets are subject, is required for
the execution, delivery, or performance of the Company
Documents; and the execution, delivery, and performance of any
of the Company Documents will not violate, result in a breach
of, conflict with, or (with or without the giving of notice or
the passage of time or both) entitle any party to terminate or
call a default under any such contract, agreement, instrument,
lease, license, arrangement, or understanding, or violate or
result in a breach of any term of the certificate of
incorporation (or other charter document) or by-laws of the
Company or violate, result in a breach of, or conflict with
any law, rule, regulation,
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<PAGE> 8
order, judgment, or decree binding on the Company or to which
any of its operations, businesses, properties, or assets are
subject.
(n) The Firm Stock and the Additional Stock are
validly authorized and, when issued and delivered in
accordance with this Agreement, will be validly issued, fully
paid, and nonassessable, without any personal liability
attaching to the ownership thereof, and will not be issued in
violation of any preemptive rights of stockholders. The
Underwriter will receive good title to the Firm Stock and
Additional Stock purchased by them, respectively, free and
clear of all liens, security interests, pledges, charges,
encumbrances, stockholders' agreements, and voting trusts.
(o) The Underwriter's Stock is validly authorized
and reserved for issuance and, when issued and delivered upon
exercise of the Underwriter's Options in accordance with the
Underwriter's Option Agreement, will be validly issued, fully
paid and nonassessable, without any personal liability
attaching to ownership thereof, and will not be issued in
violation of any preemptive rights of stockholders; and the
holders of the Underwriter's Options will receive good title
to the securities purchased by them, respectively, free and
clear of all liens, security interests, pledges, charges,
encumbrances, stockholders' agreements, and voting trusts.
(p) The Securities conform to all statements
relating thereto contained in the Registration Statement or
the Prospectus.
(q) Subsequent to the respective dates as of
which information is given in the Registration Statement and
the Prospectus, and except as may otherwise be properly
described in the Prospectus, the Company has not (i) issued
any securities or incurred any liability or obligation,
primary or contingent, for borrowed money, (ii) entered into
any transaction not in the ordinary course of business, or
(iii) declared or paid any dividend on its capital stock.
(r) Neither the Company nor any of its officers,
directors, or affiliates (as defined in the Regulations), has
taken or will take, directly or indirectly, prior to the
termination of the underwriting syndicate contemplated by this
Agreement, any action designed to stabilize or manipulate the
price of any security of the Company, or which has caused or
resulted in, or which might in the future reasonably be
expected to cause or result in, stabilization or manipulation
of the price of any security of the Company, to facilitate the
sale or resale of any of the Firm Stock or Additional Stock,
as the case may be.
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<PAGE> 9
(s) The Company has obtained from each of its
directors, officers and affiliates (as defined in the
Regulations), and from each other person or entity who
beneficially owned as of the effective date of the
Registration Statement shares of Common Stock of the Company
(each an "Original Stockholder"), enforceable written
agreements, in form and substance satisfactory to counsel for
the Underwriter, that for a period of 24 months from the
Closing Date he will not, without your prior written consent,
offer, pledge, issue, sell, contract to sell, grant any option
for the sale of, or otherwise dispose of, directly or
indirectly, any shares of Common Stock or any security or
other instrument which by its terms is convertible into,
exercisable for, or exchangeable for shares of Common Stock or
other securities of the Company, including, without
limitation, any shares of Common Stock issuable under any
outstanding stock options. Such agreements may provide that
any such Original Stockholder may sell up to 30% of his shares
of Common Stock commencing 12 months after the offering is
completed in the event that the last sales price for the
Common Stock on the Nasdaq SmallCap Market has been at least
200% of the initial public offering price per share hereunder
for a period of 20 consecutive trading days ending within 5
days of the date of such sale, and such sale is completed at a
price in excess of 200% of such initial public offering price.
(t) Except as may have been registered in the
Registration Statement or already been exercised or waived, no
person or entity has the right to require registration of
shares of Common Stock or other securities of the Company
because of the filing or effectiveness of the Registration
Statement.
(u) Except as may be set forth in the Prospectus,
the Company has not incurred any liability for a fee,
commission, or other compensation on account of the employment
of a broker or finder in connection with the transactions
contemplated by this Agreement.
(v) Neither the Company nor any of its affiliates
is presently doing business with the government of Cuba or
with any person or affiliate located in Cuba. If, at any time
after the date that the Registration Statement is declared
effective with the Commission or with the Florida Department
of Banking and Finance (the "Florida Department"), whichever
date is later, and prior to the end of the period referred to
in the first clause of Section 2(b), the Company commences
engaging in business with the government of Cuba or with any
person or affiliate located in Cuba, the Company will so
inform the Florida Department within ninety days after such
commencement of business in Cuba, and during the period
referred to in Section 2(b) will inform the Florida
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<PAGE> 10
Department within ninety days after any change occurs with
respect to previously reported information.
(w) The Securities have been approved for
quotation on NASDAQ, subject to official notice of issuance.
(x) The Securities have been approved for listing
on the [Boston] Stock Exchange and the [Philadelphia] Stock
Exchange, subject to official notice of issuance.
(y) Except as contemplated herein or therein or
as may have been waived, no person or entity has any right of
first refusal, preemptive right, right to any compensation, or
other similar right or option, in connection with the
Offering, this Agreement, the Underwriter's Options or the
Consulting Agreement, or any of the transactions contemplated
hereby or thereby.
3. Purchase, Sale, and Delivery of the Firm Stock and
the Additional Stock. On the basis of the representations, warranties,
covenants, and agreements of the Company herein contained, but subject to the
terms and conditions herein set forth, the Company agrees to sell to the
Underwriter, and the Underwriter agrees to purchase from the Company, all of
the shares of Firm Stock.
The purchase price per share of Firm Stock to be paid by the
Underwriter shall be $____. The initial public offering price per share of
Firm Stock shall be $____.
Payment for the Firm Stock by the Underwriter shall be made by
certified or official bank check in New York Clearing House funds payable to
the order of the Company at the offices of Barington Capital Group, L.P., 888
Seventh Avenue, New York, New York 10019, or at such other place in the New
York City Metropolitan Area as you shall determine and advise the Company by at
least two full days' notice in writing, upon delivery of the Firm Stock to you
for the account of the Underwriter. Such delivery and payment shall be made at
10:00 A.M., New York City Time, on the third business day following the
commencement of the initial public offering, as defined in Section 11(a), or at
such other time as shall be agreed upon between you and the Company. The time
and date of such delivery and payment are herein called the "Closing Date."
Certificates for the Firm Stock shall be registered in such
name or names and in such authorized denominations as you may request in
writing at least two full business days prior to the Closing Date. The Company
shall permit you to examine and package such certificates for delivery at least
one full business day prior to the Closing Date.
In addition, the Company hereby grants to the Underwriter the
option to purchase all or a portion of the Additional Stock
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<PAGE> 11
as may be necessary to cover over-allotments, at the same purchase price per
share to be paid by the Underwriter to the Company for the Firm Stock as
provided for in this Section 3. This option may be exercised only to cover
over-allotments in the sale of shares of Common Stock by the Underwriter. This
option may be exercised by you on the basis of the representations, warranties,
covenants, and agreements of the Company herein contained, but subject to the
terms and conditions herein set forth, at any time and from time to time on or
before the forty-fifth day following the effective date of the Registration
Statement, by written notice by you to the Company. Such notice shall set
forth the aggregate number of Additional Stock as to which the option is being
exercised and the time and date, as determined by you, when such Additional
Stock are to be delivered (such time and date are herein called an "Additional
Closing Date"); provided, however, that no Additional Closing Date shall be
earlier than the Closing Date nor earlier than the second business day after
the date on which the notice of the exercise of the option shall have been
given nor later than the eighth business day after the date on which such
notice shall have been given.
Payment for the Additional Stock by the Underwriter shall be
made by certified or official bank check in New York Clearing House funds
payable to the order of the Company at the offices of Barington Capital Group,
L.P., 888 Seventh Avenue, New York, New York 10019, or at such other place in
the New York City Metropolitan Area as you shall determine and advise the
Company by at least two full days' notice in writing, upon delivery of the
Additional Stock to you for the account of the Underwriter.
Certificates for the Additional Stock shall be registered in
such name or names and in such authorized denominations as you may request in
writing at least two full business days prior to the Additional Closing Date
with respect thereto. The Company shall permit you to examine and package such
certificates for delivery at least one full business day prior to the
Additional Closing Date with respect thereto.
4. Offering. The Underwriter is to make a public offering of
the Firm Stock as soon, on or after the effective date of the Registration
Statement, as you deem it advisable so to do. The Firm Stock is to be
initially offered to the public at the initial public offering price as
provided for in Section 3 (such price being herein called the "public offering
price"). After the initial public offering, you may from time to time increase
or decrease the public offering price, in your sole discretion, by reason of
changes in general market conditions or otherwise.
5. Covenants of the Company. The Company covenants that it
will:
(a) Use its best efforts to cause the
Registration Statement to become effective as promptly as
possible. If
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<PAGE> 12
the Registration Statement has become or becomes effective
with a form of prospectus omitting Rule 430A Information, or
filing of the Prospectus is otherwise required under Rule
424(b), the Company will file the Prospectus, properly
completed, pursuant to Rule 424(b) within the time period
prescribed and will provide evidence satisfactory to you of
such timely filing.
(b) Notify you immediately, and confirm such
notice in writing, (i) when the Registration Statement and any
post-effective amendment thereto become effective, (ii) of the
receipt of any comments from the Commission or the "blue sky"
or securities authority of any jurisdiction regarding the
Registration Statement, any post-effective amendment thereto,
the Prospectus, or any amendment or supplement thereto, and
(iii) of the receipt of any notification with respect to a
Stop Order or the initiation or threatening of any proceeding
with respect to a Stop Order. The Company will use its best
efforts to prevent the issuance of any Stop Order and, if any
Stop Order is issued, to obtain the lifting thereof as
promptly as possible.
(c) During the time when a prospectus relating to
the Firm Stock and the Additional Stock is required to be
delivered hereunder or under the Act or the Regulations,
comply so far as it is able with all requirements imposed upon
it by the Act, as now existing and as hereafter amended, and
by the Regulations, as from time to time in force, so far as
necessary to permit the continuance of sales of or dealings in
the Firm Stock or the Additional Stock, as the case may be, in
accordance with the provisions hereof and the Prospectus. If,
at any time when a prospectus relating to the Firm Stock and
the Additional Stock is required to be delivered hereunder or
under the Act or the Regulations, any event shall have
occurred as a result of which, in the reasonable opinion of
counsel for the Company or counsel for the Underwriter, the
Registration Statement or the Prospectus as then amended or
supplemented contains any untrue statement of a material fact
or omits to state any material fact required to be stated
therein or necessary to make the statements therein not
misleading, or if, in the opinion of either of such counsel,
it is necessary at any time to amend or supplement the
Registration Statement or the Prospectus to comply with the
Act or the Regulations, the Company will immediately notify
you and promptly prepare and file with the Commission an
appropriate amendment or supplement (in form and substance
satisfactory to you) which will correct such statement or
omission or which will effect such compliance and will use its
best efforts to have any such amendment declared effective as
soon as possible.
(d) Deliver without charge to the Underwriter
such number of copies of each Preliminary Prospectus as may
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<PAGE> 13
reasonably be requested by the Underwriter and, as soon as the
Registration Statement, or any amendment thereto, becomes
effective or a supplement is filed, deliver without charge to
you two signed copies of the Registration Statement, including
exhibits, or such amendment thereto, as the case may be, and
two copies of any supplement thereto, and deliver without
charge to the Underwriter such number of copies of the
Prospectus, the Registration Statement, and amendments and
supplements thereto, if any, without exhibits, as you may
request for the purposes contemplated by the Act.
(e) Endeavor in good faith, in cooperation with
you, at or prior to the time the Registration Statement
becomes effective, to qualify the Firm Stock and the
Additional Stock for offering and sale under the "blue sky" or
securities laws of such jurisdictions as you may designate;
provided, however, that no such qualification shall be
required in any jurisdiction where, as a result thereof, the
Company would be subject to service of general process or to
taxation as a foreign corporation doing business in such
jurisdiction to which it is not then subject. In each
jurisdiction where such qualification shall be effected, the
Company will, unless you agree in writing that such action is
not at the time necessary or advisable, file and make such
statements or reports at such times as are or may be required
by the laws of such jurisdiction.
(f) Use its best efforts to keep the Prospectus
and the Registration Statement current and effective by filing
post-effective amendments, as necessary.
(g) Make generally available (within the meaning
of Section 11(a) of the Act and the Regulations) to its
security holders as soon as practicable, but not later than
_______, 1997, an earnings statement (which need not be
certified by independent certified public accountants unless
required by the Act or the Regulations, but which shall
satisfy the provisions of Section 11(a) of the Act and the
Regulations) covering a period of at least twelve months
beginning after the effective date of the Registration
Statement.
(h) For a period of twenty four months after the
date of the Prospectus, not, without your prior written
consent, offer, issue, sell, contract to sell, grant any
option for the sale of, or otherwise dispose of, directly or
indirectly, any shares of Common Stock or other securities of
the Company (or any security or other instrument which by its
terms is convertible into, exercisable for, or exchangeable
for shares of Common Stock or other securities of the Company)
except as provided in Section 3 and except for (i) the grant
of options under the Company's 1996 Stock Incentive Plan which
is properly described in the
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<PAGE> 14
Prospectus, (ii) the issuance of Common Stock issuable upon
the exercise of stock options and warrants and conversion of
other convertible securities outstanding on the date hereof
and pursuant to the plan[s] described in clause (i) hereof,
(iii) the issuance of the Securities, (iv) the issuance of any
securities in connection with any merger or acquisition, or
(v) the issuance at fair market value of any securities to
unaffiliated third parties approved by the Board of Directors.
(i) For a period of five years after the
effective date of the Registration Statement, furnish you,
without charge, the following:
(i) within 90 days after the end of each
fiscal year, three copies of financial statements
certified by independent certified public
accountants, including a balance sheet, statement of
income, and statement of cash flows of the Company
and its then existing subsidiaries, with supporting
schedules, prepared in accordance with generally
accepted accounting principles, as at the end of such
fiscal year and for the 12 months then ended, which
may be on a consolidated basis;
(ii) as soon as practicable after they have
been sent to stockholders of the Company or filed
with the Commission, three copies of each annual and
interim financial and other report or communication
sent by the Company to its stockholders or filed with
the Commission;
(iii) as soon as practicable, two copies of
every press release and every material news item and
article in respect of the Company or its affairs
which was released by the Company; and
(iv) such additional documents and
information with respect to the Company and its
affairs and the affairs of any of its subsidiaries as
you may from time to time reasonably request.
(j) Apply the net proceeds received by it from
the offering in the manner set forth under "Use of Proceeds"
in the Prospectus.
(k) Furnish to you as early as practicable prior
to the Closing Date and any Additional Closing Date, as the
case may be, but no less than two full business days prior
thereto, a copy of the latest available unaudited interim
consolidated financial statements of the Company and its
consolidated subsidiaries which have been read by the
Company's independent certified public accountants, as
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<PAGE> 15
stated in their letters to be furnished pursuant to Section
7(e).
(l) File no amendment or supplement to the
Registration Statement or Prospectus at any time, whether
before or after the effective date of the Registration
Statement, unless such filing shall comply with the Act and
the Regulations and unless you shall previously have been
advised of such filing and furnished with a copy thereof, and
you and counsel for the Underwriter shall have approved such
filing in writing.
(m) Comply with all registration, filing, and
reporting requirements of the Exchange Act which may from time
to time be applicable to the Company.
(n) Comply with all provisions of all
undertakings contained in the Registration Statement.
(o) Prior to the Closing Date or any Additional
Closing Date, as the case may be, issue no press release or
other communication, directly or indirectly, and hold no press
conference with respect to the Company, the financial
conditions, results of operations, business, properties,
assets, liabilities of the Company, or this offering, without
your prior written consent.
(p) File timely with the Commission an
appropriate form to register the Common Stock pursuant to
Section 12(b) under the Exchange Act.
(q) File timely and accurate reports on Form SR
with the Commission in accordance with Rule 463 of the
Regulations or any successor provision.
(r) Use its best efforts to cause the application
for quotation of the Firm Stock and the Additional Stock and
on The Nasdaq SmallCap Market ("NASDAQ") to be approved as
soon as possible.
(s) Use its best efforts to complete the listing
of the Securities on [The Boston Stock Exchange (the "Boston
Stock Exchange")] and [The Philadelphia Stock Exchange (the
"Philadelphia Stock Exchange")].
(t) On or prior to the Closing Date, enter into
the Consulting Agreement with Barington Capital Group, L.P.,
in the form set forth as an exhibit to the Registration
Statement, which will include, among other things, a provision
granting a right of first refusal to the Underwriter in
connection with certain sales of securities by the Company or
its subsidiaries.
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<PAGE> 16
(u) On or prior to the Closing Date, sell to the
Underwriter (or its designee) the Underwriter's Options to
purchase an aggregate of 140,000 shares of Common Stock, which
Underwriter's Options shall be evidenced by the Underwriter's
Option Agreement in the form set forth as an exhibit to the
Registration Statement.
(v) Until expiration of the Underwriter's
Options, keep reserved sufficient shares of Common Stock for
issuance upon exercise of the Underwriter's Options.
(w) Until the expiration of five years from the
Closing Date, if you shall so indicate in writing to the
Company, use its best efforts, including, without limitation,
the solicitation of proxies, to cause one individual selected
from time to time by Barington Capital Group, L.P. to be
elected director of the Company.
(x) Deliver to you, without charge, within a
reasonable period after the last Additional Closing Date or
the expiration of the period in which the Underwriter may
exercise the over-allotment option, four bound volumes of the
Registration Statement and all related materials.
(y) For a period of five years after the Closing
Date, supply to the appropriate parties such information as
may be necessary or desirable, and otherwise use its best
efforts, so that the Company will be listed and will maintain
its listing in one or more of the securities manuals published
by Standard & Poor's Corporation and Moody's Investors
Service, Inc. and that at all times during such period such
listing will, at a minimum, contain the names of the Company's
officers and directors, a balance sheet as of a date not more
than 18 months prior to such time, and a statement of
operations for either the fiscal year preceding such date or
the most recent fiscal year of operations.
(z) Use its best efforts to maintain the quotation
on the Nasdaq SmallCap Market, the [Boston] Stock Exchange and
the [Philadelphia] Stock Exchange of price information for the
Common Stock issued hereunder.
(aa) From the date the Registration Statement
becomes effective and until five years from the Closing Date,
procure and maintain Director and Officer Liability Insurance
with a reputable insurance carrier.
(bb) From the Closing Date and until three years
from the date the Registration Statement becomes effective,
retain a transfer agent acceptable to the Underwriter. Upon
the Underwriter's request, the Company shall provide the
Underwriter with copies of the Company's daily stock transfer
sheets and lists of the beneficial and record holders of the
Company, from such transfer agent and from
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<PAGE> 17
the Depository Trust Company, at the Company's sole cost and
expense.
(cc) From the date the Registration Statement
becomes effective and until three years from such date, the
Company shall retain a public relations firm reasonably
acceptable to the Underwriter.
6. Payment of Expenses. The Company hereby agrees to pay all
expenses (other than fees of counsel for the Underwriter, except as provided in
Sections 6(c) and 6(e)) in connection with (a) the preparation, printing,
filing, distribution, and mailing of the Registration Statement and the
Prospectus and the printing, filing, distribution, and mailing of this
Agreement, any Agreement Among Underwriters, any selected dealers agreement,
any Blue Sky Surveys, and if appropriate, any Underwriter's Questionnaire and
Power of Attorney, and related documents, including the cost of all copies
thereof and of the Preliminary Prospectuses and of the Prospectus and any
amendments or supplements thereto supplied to the Underwriter in quantities as
hereinabove stated, (b) the issuance, sale, transfer, and delivery of the Firm
Stock and the Additional Stock, including any transfer or other taxes payable
thereon, (c) the qualification of the Firm Stock and the Additional Stock under
state or foreign "blue sky" or securities laws, including the costs of printing
and mailing the preliminary and final "Blue Sky Survey" and the fees of counsel
for the Underwriter and the disbursements in connection therewith, (d) the
filing fees payable to the Commission, the NASD, and the jurisdictions in which
such qualification is sought, (e) the reasonable fees and disbursements of the
Underwriter relating to all filings with the NASD, (f) the quotation of the
Common Stock on NASDAQ and the listing of the Common Stock on the [Boston]
Stock Exchange and the [Philadelphia] Stock Exchange, (g) the fees and expenses
of the Company's transfer agent and registrar, (h) the fees and expenses of the
Company's legal counsel and accountants, (i) the fees of an investigative
search firm designated by the Underwriter to conduct a background check of the
principals of the Company, (j) the costs (up to a maximum of $10,000) of
placing "tombstone" advertisements in the national edition of The Wall Street
Journal and The New York Times, and (k) the costs of preparing a reasonable
number of transaction "bibles" or "mementos." In addition, the Company hereby
agrees to pay to the Underwriter a non-accountable expense allowance equal to
3% of the aggregate gross proceeds received by the Company from the sale of the
Firm Stock and the Additional Stock which amounts (less $40,000 previously paid
to you in respect of such non-accountable expense allowance) shall be paid to
you on the Closing Date (with respect to Common Stock sold by the Company on
the Closing Date) and, if applicable, on the Closing Date and any Additional
Closing Date (with respect to Additional Stock sold by the Company on the
Closing Date or such Additional Closing Date).
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<PAGE> 18
7. Conditions of Underwriter's Obligations. The obligations
of the Underwriter to purchase and pay for the Firm Stock and the Additional
Stock, as provided herein, shall be subject, in their discretion, to the
continuing accuracy of the representations and warranties of the Company
contained herein and in each certificate and document contemplated under this
Agreement to be delivered to you, as of the date hereof and as of the Closing
Date (or the Additional Closing Date, as the case may be), to the performance
by the Company of its obligations hereunder, and to the following conditions:
(a) The Registration Statement shall have become
effective not later than 6:00 P.M., New York City Time, on the
date of this Agreement or such later date and time as shall be
consented to in writing by you.
(b) At the Closing Date and any Additional
Closing Date, as the case may be, you shall have received the
favorable opinion of Shaw, Pittman, Potts & Towbridge, counsel
for the Company, dated the date of delivery, addressed to the
Underwriter, and in form and scope satisfactory to counsel for
the Underwriter, with such number of reproduced copies or
signed counterparts thereof for the Underwriter as shall be
satisfactory to the Underwriter, to the effect that:
(i) the Company is a corporation, duly
organized and validly existing, and in good standing
under the laws of Delaware with full corporate power
and authority, and all consents, authorizations,
approvals, orders, certificates, and permits of and
from, and declarations and filings with, all federal,
state, local, and other governmental authorities and
all courts and other tribunals necessary to own,
lease, license, and use its properties and assets and
to conduct its business in the manner described in
the Prospectus. The Company is duly qualified to do
business and is in good standing in every
jurisdiction in which its ownership, leasing,
licensing, or use of property and assets or the
conduct of its business makes such qualification
necessary except where the failure to be so qualified
does not now have and will not in the future have a
material adverse effect on the operations, business,
properties, or assets of the Company;
(ii) the authorized capital stock of the
Company consists of 20,000,000 shares of Common Stock
outstanding. Each outstanding share of Common Stock,
is duly authorized, validly issued, fully paid, and
nonassessable, without any personal liability
attaching to the ownership thereof has not been
issued and is not owned or held in violation of any
preemptive right of stockholders. To the knowledge
of such counsel, there
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<PAGE> 19
is no commitment, plan, or arrangement to issue, and
no outstanding option, warrant, or other right
calling for the issuance of, any share of capital
stock of the Company, or any security or other
instrument which by its terms is convertible into,
exercisable for, or exchangeable for, capital stock
of the Company, except as may be properly described
in the Prospectus. There is outstanding no security
or other instrument which by its terms is convertible
into or exchangeable for capital stock of the Company
except as may be properly described in the
Prospectus;
(iii) to the knowledge of such counsel,
there is no litigation, arbitration, claim,
governmental or other proceeding (formal or
informal), or investigation pending or threatened
with respect to the Company, or its operations,
business, properties, or assets except as may be
properly described in the Prospectus or as
individually or in the aggregate do not now have and
cannot be expected in the future to have a material
adverse effect upon the operations, business,
properties, or assets of the Company. To the
knowledge of such counsel, the Company is not in
violation of, or in default with respect to, any law,
rule, regulation, order, judgment, or decree, except
as may be properly described in the Prospectus or
such as in the aggregate do not now have and cannot
be expected in the future to have a material adverse
effect upon the operations, business, properties, or
assets of the Company, nor is the Company required to
take any action in order to avoid any such violation
or default;
(iv) to the knowledge of such counsel,
neither the Company, nor any other party is now or is
expected by the Company to be in violation or breach
of, or in default with respect to, complying with any
material provision of any contract, agreement,
instrument, lease, license, arrangement, or
understanding known to such counsel which is material
to the Company;
(v) the Company is not in violation or
breach of, or in default with respect to, any term of
its articles of incorporation (or other charter
document) or by-laws;
(vi) the Company has all requisite corporate
power and authority to execute, deliver, and perform
each of the Company Documents. All necessary
corporate proceedings of the Company have been taken
to authorize the execution, delivery, and performance
by the Company of the Company Documents. Each
Company Document (excluding any Firm Stock or
Additional Stock not issued on the date of such
opinion) has been duly executed and delivered by the
Company. Each Company
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<PAGE> 20
Document is, or when executed and delivered by the
Company will be, the legal, valid, and binding
obligation of the Company, and (subject to applicable
bankruptcy, insolvency, and other laws affecting the
enforceability of creditors' rights generally) is or
will be enforceable as to the Company in accordance
with its terms. No consent, authorization, approval,
order, license, certificate, or permit of or from, or
declaration or filing with, any federal, state,
local, or other governmental authority or any court
or other tribunal is required by the Company for the
execution, delivery, or performance by the Company of
any of the Company Documents (except filings under
the Act which have been made prior to the Closing
Date and consents consisting only of consents under
"blue sky" or state securities laws). No consent of
any party to any contract, agreement, instrument,
lease, license, arrangement, or understanding known
to such counsel and listed as an Exhibit to the
Registration Statement, to which the Company is a
party, or to which any of its properties or assets
are subject, is required for the execution, delivery,
or performance of any of the Company Documents; and
the execution, delivery, and performance of the
Company Documents will not violate, result in a
breach of, conflict with, or (with or without the
giving of notice or the passage of time or both)
entitle any party to terminate or call a default
under any such contract, agreement, instrument,
lease, license, arrangement, or understanding, or
violate or result in a breach of any term of the
articles of incorporation (or other charter document)
or by-laws of the Company, or violate, result in a
breach of, or conflict with any law, rule,
regulation, order, judgment, or decree binding on the
Company or to which any of its operations, business,
properties, or assets are subject;
(vii) the Firm Stock and the Additional
Stock are validly authorized. Such opinion delivered
at the Closing Date or any Additional Closing Date
shall state that each share of Firm Stock or
Additional Stock, as the case may be, to be delivered
on that date is validly issued, fully paid, and
nonassessable, with no personal liability attaching
to the ownership thereof, and is not issued in
violation of any preemptive rights of stockholders,
and the Underwriter has received good title to the
Firm Stock and Additional Stock purchased by them,
respectively, from the Company, free and clear of all
liens, security interests, pledges, charges,
encumbrances, stockholders' agreements, and voting
trusts;
(viii) the Underwriter's Stock has been duly
and validly reserved for issuance. Such opinion
delivered
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<PAGE> 21
at the Closing Date shall state that the
Underwriter's Options have been duly and validly
issued and delivered. The Underwriter's Stock, when
issued and delivered in accordance with the
Underwriter's Option Agreement, will be validly
authorized, validly issued, fully paid, and
nonassessable, with no personal liability attaching
to the ownership thereof, and will not have been
issued in violation of any preemptive rights of
stockholders; and the holders of the Underwriter's
Options will receive good title to the securities
purchased by them, respectively, free and clear of
all liens, security interests, pledges, charges,
encumbrances, stockholders' agreements, and voting
trusts;
(ix) the Common Stock and the Securities
conform to all statements relating thereto contained
in the Registration Statement or the Prospectus;
(x) to the knowledge of such counsel, the
descriptions of any contract, agreement, instrument,
lease, or license required to be described in the
Registration Statement or the Prospectus are correct
in all material respects. To the knowledge of such
counsel, any contract, agreement, instrument, lease,
or license required to be filed as an exhibit to the
Registration Statement has been filed with the
Commission as an exhibit to the Registration
Statement or has been incorporated as an exhibit by
reference into the Registration Statement;
(xi) insofar as statements in the Prospectus
purport to summarize the status of litigation or the
provisions of laws, rules, regulations, orders,
judgments, decrees, contracts, agreements,
instruments, leases, or licenses, such statements
have been prepared or reviewed by such counsel and
accurately reflect the status of such litigation and
provisions purported to be summarized and are correct
in all material respects;
(xii) the conditions for use of Form SB-2
have been satisfied with respect to the Registration
Statement;
(xiii) the Common Stock has been approved
for quotation on NASDAQ, subject to official notice
of issuance;
(xiv) the Common Stock has been approved for
listing on the [Boston] Stock Exchange and the
[Philadelphia] Stock Exchange, subject to official
notice of issuance;
(xv) to the knowledge of such counsel, no
person or entity has the right to require
registration of
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<PAGE> 22
shares of Common Stock or other securities of the
Company because of the filing or effectiveness of the
Registration Statement;
(xvi) the Registration Statement has become
effective under the Act. To the knowledge of such
counsel, no Stop Order has been issued and no
proceedings for that purpose have been instituted or
threatened;
(xvii) the Registration Statement, any Rule
430A Prospectus, and the Prospectus, and any
amendment or supplement thereto (other than financial
statements and other financial data and schedules
contained therein, as to which such counsel need
express no opinion), comply as to form in all
material respects with the requirements of the Act
and the Regulations;
(xviii) such counsel has no reason to
believe that any of the Registration Statement, any
Rule 430A Prospectus, or the Prospectus, or any
amendment or supplement thereto (other than financial
statements and other financial data and schedules
which are or should be contained therein, as to which
such counsel need express no opinion), contains any
untrue statement of a material fact or omits to state
a material fact required to be stated therein or
necessary to make the statements therein not
misleading;
(xix) to the knowledge of such counsel,
since the effective date of the Registration
Statement, no event has occurred which should have
been set forth in an amendment or supplement to the
Registration Statement or the Prospectus which has
not been set forth in such an amendment or
supplement; and
(xx) nothing has come to the attention of
such counsel that would lead them to believe that the
Registration Statement, at the time it became
effective or at the Closing Date or Additional
Closing Date, as the case may be, contained an untrue
statement of a material fact or omitted to state a
material fact required to be stated therein or
necessary to make the statements therein not
misleading or that the Prospectus, at the Closing
Date or Additional Closing Date, as the case may be
(unless the term "Prospectus" refers to a Prospectus
which has been provided to the Underwriter by the
Company for use in connection with the offering of
the Securities which differs from the Prospectus on
file at the Commission at the Closing Date or
Additional Closing Date, as the case may be, in which
case at the time it is first provided to the
Underwriter for such use), or at the Closing Date or
Additional Closing Date, as the case may be, included
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<PAGE> 23
or includes an untrue statement of a material fact or
omitted or omits to state a material fact necessary
in order to make the statements therein, in the light
of the circumstances under which they were made, not
misleading (in each case other than the financial
statements and supporting schedules and notes thereto
and other financial or statistical information
included therein, as to which no opinion need be
rendered) and such counsel does not know of any
amendment to the Registration Statement required to
be filed;
(xxi) any right of first refusal,
preemptive right, right to compensation, or other
similar right or option, in connection with the
Offering, this Agreement, the Underwriter's Options
or the Consulting Agreement, or any of the
transactions contemplated hereby or thereby known to
such counsel and not contemplated by the Offering,
this Agreement, the Underwriter's Options or the
Consulting Agreement has been effectively waived.
In rendering such opinion, counsel for the Company may rely (A) as to matters
involving the application of laws other than the laws of the United States, the
laws of the State of Delaware and the laws of the State of Virginia, to the
extent counsel for the Company deems proper and to the extent specified in such
opinion, upon an opinion or opinions (in form and substance satisfactory to
counsel for the Underwriter) of other counsel, acceptable to counsel for the
Underwriter, familiar with the applicable laws, in which case the opinion of
counsel for the Company shall state that the opinion or opinions of such other
counsel are satisfactory in scope, form, and substance to counsel for the
Company and that reliance thereon by counsel for the Company and the
Underwriter is reasonable; (B) may rely as to matters of fact, to the extent
they deem proper, on certificates of responsible officers of the Company; and
(C) may rely to the extent they deem proper, upon written statements or
certificates of officers of departments of various jurisdictions having custody
of documents respecting the corporate existence or good standing of the
Company, provided that copies of any such opinions, statements or certificates
shall be delivered to counsel for the Underwriter.
(c) On or prior to the Closing Date and any
Additional Closing Date, as the case may be, the Underwriter
shall have been furnished such information, documents,
certificates, and opinions as they may reasonably require for
the purpose of enabling them to review the matters referred to
in Section 7(b), and in order to evidence the accuracy,
completeness, or satisfaction of any of the representations,
warranties, covenants, agreements, or conditions herein
contained, or as you may reasonably request.
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<PAGE> 24
(d) At the Closing Date and any Additional Closing
Date, as the case may be, you shall have received a
certificate of the chief executive officer and of the chief
financial officer of the Company, dated the Closing Date or
such Additional Closing Date, as the case may be, to the
effect that the condition set forth in Section 7(a) has been
satisfied, that as of the date of this Agreement and as of the
Closing Date or such Additional Closing Date, as the case may
be, the representations and warranties of the Company
contained herein were and are accurate, and that as of the
Closing Date or such Additional Closing Date, as the case may
be, the obligations to be performed by the Company hereunder
on or prior thereto have been fully performed.
(e) At the time this Agreement is executed and at
the Closing Date and any Additional Closing Date, as the case
may be, you shall have received a letter from ___________,
certified public accountants, dated the date of delivery, and
addressed to the Underwriter, and in form and substance
satisfactory to you, with reproduced copies or signed
counterparts thereof for the Underwriter.
(f) All proceedings taken in connection with the
issuance, sale, transfer, and delivery of the Firm Stock and
the Additional Stock shall be satisfactory in form and
substance to you and to counsel for the Underwriter, and the
Underwriter shall have received from such counsel for the
Underwriter a favorable opinion, dated as of the Closing Date
and the Additional Closing Date, as the case may be, with
respect to such of the matters set forth under Section 7(b),
and with respect to such other related matters, as you may
reasonably request.
(g) The NASD, upon review of the terms of the public
offering of the Firm Stock and the Additional Stock, shall not
have objected to the Underwriter's participation in such
offering.
(h) Prior to or on the Closing Date, the Company
shall have entered into the Underwriter's Option Agreement
with the Underwriter.
(i) Prior to or on the Closing Date, the Company
shall have entered into the Consulting Agreement with
Barington Capital Group, L.P.
(j) Prior to or on the Closing Date, the Company
shall have provided to you copies of the agreements referred
to in Section 2(s).
Any certificate or other document signed by any officer of the
Company and delivered to you or to counsel for the Underwriter shall be deemed
a representation and warranty by such officer individually and by the Company
hereunder to the
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<PAGE> 25
Underwriter as to the statements made therein. If any condition to the
Underwriter's obligations hereunder to be fulfilled prior to or at the Closing
Date or any Additional Closing Date, as the case may be, is not so fulfilled,
you may terminate this Agreement or, if you so elect, in writing waive any such
conditions which have not been fulfilled or extend the time for their
fulfillment.
8. Indemnification and Contribution. (a) Subject to the
conditions set forth below, the Company agrees to indemnify
and hold harmless the Underwriter, its respective officers,
directors, partners, employees, agents, and counsel, and each
person, if any, who controls the Underwriter within the
meaning of Section 15 of the Act or Section 20(a) of the
Exchange Act, against any and all loss, liability, claim,
damage, and expense whatsoever (which shall include, for all
purposes of this Section 8, but not be limited to, attorneys'
fees and any and all expense whatsoever incurred in
investigating, preparing, or defending against any litigation,
commenced or threatened, or any claim whatsoever and any and
all amounts paid in settlement of any claim or litigation) as
and when incurred arising out of, based upon, or in connection
with (i) any untrue statement or alleged untrue statement of a
material fact contained (A) in any Preliminary Prospectus, any
Rule 430A Prospectus, the Registration Statement, or the
Prospectus (as from time to time amended and supplemented), or
any amendment or supplement thereto or (B) in any application
or other document or communication (in this Section 8
collectively called an "application") executed by or on behalf
of the Company or based upon written information furnished by
or on behalf of the Company filed in any jurisdiction in order
to qualify any of the Securities under the "blue sky" or
securities laws thereof or filed with the Commission or any
securities exchange; or any omission or alleged omission to
state a material fact required to be stated therein or
necessary to make the statements therein not misleading,
unless such statement or omission was made in reliance upon
and in conformity with written information furnished to the
Company as stated in Section 8(b) with respect to any
Underwriter by or on behalf of such Underwriter through the
Underwriter expressly for inclusion in any Preliminary
Prospectus, any Rule 430A Prospectus, the Registration
Statement, or the Prospectus, or any amendment or supplement
thereto, or in any application, as the case may be, or (ii)
any breach of any representation, warranty, covenant, or
agreement of the Company contained in this Agreement. The
foregoing agreement to indemnify shall be in addition to any
liability the Company may otherwise have, including
liabilities arising under this Agreement.
If any action is brought against the Underwriter or any of its
respective officers, directors, partners, employees, agents, or counsel, or any
controlling persons of the Underwriter (an
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<PAGE> 26
"indemnified party") in respect of which indemnity may be sought against the
Company pursuant to the foregoing paragraph, such indemnified party or parties
shall promptly notify the Company in writing of the institution of such action
(but the failure so to notify shall not relieve the Company from any liability
it may have other than pursuant to this Section 8(a), except to the extent it
may have been prejudiced in any material respect by such failure) and the
Company shall promptly assume the defense of such action, including the
employment of counsel (satisfactory to such indemnified party or parties) and
payment of expenses. Such indemnified party or parties shall have the right to
employ its or their own counsel in any such case, but the fees and expenses of
such counsel shall be at the expense of such indemnified party or parties
unless the employment of such counsel shall have been authorized in writing by
the Company in connection with the defense of such action or the Company shall
not have promptly employed counsel satisfactory to such indemnified party or
parties to have charge of the defense of such action or such indemnified party
or parties shall have reasonably concluded that there may be one or more legal
defenses available to it or them or to other indemnified parties which are
different from or additional to those available to the Company, in any of which
events such fees and expenses shall be borne by the Company and the Company
shall not have the right to direct the defense of such action on behalf of the
indemnified party or parties. Anything in this paragraph to the contrary
notwithstanding, the Company shall not be liable for any settlement of any such
claim or action effected without its written consent, which shall not be
unreasonably withheld. The Company shall not, without the prior written
consent of each indemnified party that is not released as described in this
sentence, settle or compromise any action, or permit a default or consent to
the entry of judgment in or otherwise seek to terminate any pending or
threatened action, in respect of which indemnity may be sought hereunder
(whether or not any indemnified party is a party thereto), unless such
settlement, compromise, consent, or termination includes an unconditional
release of each indemnified party from all liability in respect of such action.
The Company agrees promptly to notify the Underwriter of the commencement of
any litigation or proceedings against the Company or any of its officers or
directors in connection with the sale of the Firm Stock or the Additional
Stock, any Preliminary Prospectus, any Rule 430A Prospectus, the Registration
Statement, or the Prospectus, or any amendment or supplement thereto, or any
application.
(b) The Underwriter agrees to indemnify and hold
harmless the Company, each director of the Company, each
officer of the Company who shall have signed the Registration
Statement, and each other person, if any, who controls the
Company within the meaning of Section 15 of the Act or Section
20(a) of the Exchange Act, to the same extent as the foregoing
indemnity from the Company to the Underwriter in Section 8(a),
but only with respect to
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<PAGE> 27
statements or omissions, if any, made in any Preliminary
Prospectus, any Rule 430A Prospectus, the Registration
Statement, or the Prospectus (as from time to time amended and
supplemented), or any amendment or supplement thereto, or in
any application in reliance upon and in conformity with
written information furnished to the Company as stated in this
Section 8(b) with respect to any Underwriter by or on behalf
of such Underwriter through the Underwriter expressly for
inclusion in any Preliminary Prospectus, any Rule 430A
Prospectus, the Registration Statement, or the Prospectus, or
any amendment or supplement thereto, or in any application, as
the case may be; provided, however, that the obligation of the
Underwriter to provide indemnity under the provisions of this
Section 8(b) shall be limited to the amount which represents
the underwriting discounts received by the Underwriter
hereunder. For all purposes of this Agreement, the amounts of
the selling concession and reallowance set forth in the
Prospectus constitute the only information furnished in
writing by or on behalf of any Underwriter expressly for
inclusion in any Preliminary Prospectus, any Rule 430A
Prospectus, the Registration Statement, or the Prospectus (as
from time to time amended or supplemented), or any amendment
or supplement thereto, or in any application, as the case may
be. If any action shall be brought against the Company or any
other person so indemnified based on any Preliminary
Prospectus, any Rule 430A Prospectus, the Registration
Statement, or the Prospectus, or any amendment or supplement
thereto, or in any application, and in respect of which
indemnity may be sought against any Underwriter pursuant to
this Section 8(b), such Underwriter shall have the rights and
duties given to the Company, and the Company and each other
person so indemnified shall have the rights and duties given
to the indemnified parties, by the provisions of Section 8(a).
(c) To provide for just and equitable contribution,
if (i) an indemnified party makes a claim for indemnification
pursuant to Section 8(a) or 8(b) (subject to the limitations
thereof) but it is found in a final judicial determination,
not subject to further appeal, that such indemnification may
not be enforced in such case, even though this Agreement
expressly provides for indemnification in such case or (ii)
any indemnified or indemnifying party seeks contribution under
the Act, the Exchange Act, or otherwise, then the Company
(including for this purpose any contribution made by or on
behalf of any director of the Company, any officer of the
Company who signed the Registration Statement, and any
controlling person of the Company), as one entity, and the
Underwriter (including for this purpose any contribution by or
on behalf of an indemnified party), as a second entity, shall
contribute to the losses, liabilities, claims, damages, and
expenses whatsoever to which any of them may be subject, so
that the Underwriter is responsible for the proportion thereof
equal
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<PAGE> 28
to the percentage which the underwriting discount per share of
Firm Stock set forth on the cover page of the Prospectus
represents of the initial public offering price per share set
forth on the cover page of the Prospectus and the Company is
responsible for the remaining portion; provided, however, that
if applicable law does not permit such allocation, then other
relevant equitable considerations such as the relative fault
of the Company and the Underwriter, in connection with the
facts which resulted in such losses, liabilities, claims,
damages, and expenses shall also be considered. The relative
fault, in the case of an untrue statement, alleged untrue
statement, omission, or alleged omission, shall be determined
by, among other things, whether such statement, alleged
statement, omission, or alleged omission relates to
information supplied by the Company or by the Underwriter, and
the parties' relative intent, knowledge, access to
information, and opportunity to correct or prevent such
statement, alleged statement, omission, or alleged omission.
The Company and the Underwriter agree that it would be unjust
and inequitable if the respective obligations of the Company
and the Underwriter for contribution were determined by pro
rata or per capita allocation of the aggregate losses,
liabilities, claims, damages, and expenses (even if the
Underwriter and the other indemnified parties were treated as
one entity for such purpose) or by any other method of
allocation that does not reflect the equitable considerations
referred to in this Section 8(c). No person guilty of a
fraudulent misrepresentation (within the meaning of Section
11(f) of the Act) shall be entitled to contribution from any
person who is not guilty of such fraudulent misrepresentation.
For purposes of this Section 8(c), each person, if any, who
controls the Underwriter within the meaning of Section 15 of
the Act or Section 20(a) of the Exchange Act and each officer,
director, partner, employee, agent, and counsel of the
Underwriter shall have the same rights to contribution as such
Underwriter and each person, if any, who controls the Company
within the meaning of Section 15 of the Act or Section 20(a)
of the Exchange Act, each officer of the Company who shall
have signed the Registration Statement, and each director of
the Company shall have the same rights to contribution as the
Company, subject in each case to the provisions of this
Section 8(c). In no case shall the Underwriter be liable or
responsible for any amount in excess of the Underwriting
discount applicable to the Firm Stock purchased by such
Underwriter hereunder. Anything in this Section 8(c) to the
contrary notwithstanding, no party shall be liable for
contribution with respect to the settlement of any claim or
action effected without its written consent. This Section
8(c) is intended to supersede any right to contribution under
the Act, the Exchange Act, or otherwise.
9. [Reserved]
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<PAGE> 29
10. Representations and Agreements to Survive Delivery. All
representations, warranties, covenants, and agreements contained in this
Agreement shall be deemed to be representations, warranties, covenants, and
agreements at the Closing Date and any Additional Closing Date, and such
representations, warranties, covenants, and agreements of the Underwriter and
the Company, including the indemnity and contribution agreements contained in
Section 8, shall remain operative and in full force and effect regardless of
any investigation made by or on behalf of any Underwriter or any indemnified
person, or by or on behalf of the Company or any person or entity which is
entitled to be indemnified under Section 8(b), and shall survive termination of
this Agreement or the delivery of the Firm Stock and the Additional Stock to
the Underwriter. In addition, the provisions of Sections 6, 8, 10, 11, and 13
shall survive termination of this Agreement, whether such termination occurs
before or after the Closing Date or any Additional Closing Date.
11. Effective Date of This Agreement and Termination Thereof.
(a) This Agreement shall become effective at 9:30
A.M., New York City Time, on the first full business day
following the day on which the Registration Statement becomes
effective or at the time of the initial public offering by the
Underwriter of the Firm Stock, whichever is earlier. The time
of the initial public offering shall mean the time, after the
Registration Statement becomes effective, of the release by
you for publication of the first newspaper advertisement which
is subsequently published relating to the shares or the time,
after the Registration Statement becomes effective, when the
Firm Stock are first released by you for offering by the
Underwriter or dealers by letter or telegram, whichever shall
first occur. You or the Company may prevent this Agreement
from becoming effective without liability of any party to any
other party, except as noted below in this Section 11, by
giving the notice indicated in Section 11(c) before the time
this Agreement becomes effective.
(b) In addition to the right to terminate this
Agreement pursuant to Section 7 hereof, you shall have the
right to terminate this Agreement at any time prior to the
Closing Date or any Additional Closing Date, as the case may
be, by giving notice to the Company if any domestic or
international event, act, or occurrence has materially
disrupted, or in your opinion will in the immediate future
materially disrupt, the securities markets; or if there shall
have been a general suspension of, or a general limitation on
prices for, trading in securities on the New York Stock
Exchange, the Nasdaq SmallCap Market, the American Stock
Exchange, the [Boston] Stock Exchange, or the [Philadelphia]
Stock Exchange or in the over-the-counter market; or if there
shall have been an outbreak of major
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<PAGE> 30
hostilities or other national or international calamity; or if
a banking moratorium has been declared by a state or federal
authority; or if a moratorium in foreign exchange trading by
major international banks or persons has been declared; or if
there shall have been a material interruption in the mail
service or other means of communication within the United
States; or if the Company shall have sustained a material or
substantial loss by fire, flood, accident, hurricane,
earthquake, theft, sabotage, or other calamity or malicious
act which, whether or not such loss shall have been insured,
will, in your opinion, make it inadvisable to proceed with the
offering, sale, or delivery of the Firm Stock or the
Additional Stock, as the case may be; or if there shall have
been such change in the market for securities in general or in
political, financial, or economic conditions as in your
judgment makes it inadvisable to proceed with the offering,
sale, and delivery of the Firm Stock or the Additional Stock,
as the case may be, on the terms contemplated by the
Prospectus.
(c) If you elect to prevent this Agreement from
becoming effective, as provided in this Section 11, or to
terminate this Agreement pursuant to Section 7, or this
Section 11, you shall notify the Company promptly by
telephone, telex, facsimile or telegram, confirmed by letter.
If the Company elects to prevent this Agreement from becoming
effective, as provided in this Section 11, the Company shall
notify you promptly by telephone, telex, facsimile, or
telegram, confirmed by letter.
(d) Anything in this Agreement to the contrary
notwithstanding other than Section 11(e), if this Agreement
shall not become effective by reason of an election pursuant
to this Section 11 or if this Agreement shall terminate or
shall otherwise not be carried out within the time specified
herein by reason of any failure on the part of the Company to
perform any covenant or agreement or satisfy any condition of
this Agreement by it to be performed or satisfied, the sole
liability of the Company to the Underwriter, in addition to
the obligations the Company assumed pursuant to Section 6,
will be to (i) reimburse the Underwriter for such
out-of-pocket expenses (including the fees and disbursements
of their counsel) as shall have been incurred by them in
connection with this Agreement or the proposed offer, sale,
and delivery of the Firm Stock and the Additional Stock, and
the Company agrees to pay promptly upon demand the full amount
thereof to you for the account of the Underwriter less amounts
previously paid to you in reimbursement of such expenses, and
(ii) if the Company has elected to prevent this Agreement from
becoming effective or if you terminate this Agreement pursuant
to Section 7, the Company and Barington Capital Group, L.P.
shall enter into a consulting agreement, substantially in the
form set forth as an exhibit to the Registration Statement,
providing that for
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a period of one year subsequent to such termination, if the
Company or any subsidiary, affiliate or successor to the
Company is involved in any private placement, merger,
acquisition, disposition or other business combination
transaction, or the acquisition, sale or issuance of any
securities joint venture or other similar transaction (any of
the foregoing, a "Transaction"), or enters into an agreement
with respect thereto, the Company shall pay to Barington
Capital Group, L.P. a fee equal to the sum of (i) 5% of the
first five million dollars of consideration paid in any
Transaction, (ii) 4% of the next two million dollars of
consideration paid in any Transaction, (iii) 3% of the next
two million dollars of consideration paid in any Transaction,
(iv) 2% of the next two million dollars of consideration paid
in any Transaction, and (v) 1% of any consideration paid in
any Transaction in excess of eleven million dollars, such fee
to be paid at the closing of the Transaction to which it
relates. The amount of consideration paid in a Transaction
shall include, for purposes of calculating such fee, all forms
of consideration paid by the Company, or any subsidiary or
affiliate, or received by the Company, its stockholders, or
any subsidiary or affiliate, including, but not limited to,
cash, stock or evidences of indebtedness, or any combination
thereof.
(e) Notwithstanding any election hereunder or any
termination of this Agreement, and whether or not this
Agreement is otherwise carried out, the provisions of Sections
6, 8, 10, and 15 shall not be in any way affected by such
election or termination or failure to carry out the terms of
this Agreement or any part hereof.
12. Notices. All communications hereunder, except as may be
otherwise specifically provided herein, shall be in writing and, if sent to any
Underwriter, shall be mailed, delivered, or telexed or telegraphed and
confirmed by letter, to such Underwriter, to Barington Capital Group, L.P., 888
Seventh Avenue, New York, New York 10019, Attention: Marc Cooper; or if sent
to the Company, shall be mailed, delivered, or telexed or telegraphed and
confirmed by letter, to the Company, 14100 Park Meadow Drive, Chantilly, VA
20151, Attention: ______________. All notices hereunder shall be effective
upon receipt by the party to which it is addressed.
13. Parties. You represent that you are authorized to act on
behalf of the parties named in Schedule I hereto, and the Company shall be
entitled to act and rely on any request, notice, consent, waiver, or agreement
purportedly given on behalf of the Underwriter when the same shall have been
given by you on such behalf. This Agreement shall inure solely to the benefit
of, and shall be binding upon, the Underwriter and the Company and the persons
and entities referred to in Section 8 who are entitled to indemnification or
contribution, and their respective successors, legal representatives, and
assigns (which shall not include any
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<PAGE> 32
buyer, as such, of the Firm Stock or the Additional Stock), and no other person
shall have or be construed to have any legal or equitable right, remedy, or
claim under or in respect of or by virtue of this Agreement or any provision
herein contained.
14. Construction. This Agreement shall be construed in
accordance with the laws of the State of New York, without giving effect to
conflict of laws. TIME IS OF THE ESSENCE IN THIS AGREEMENT.
15. Consent to Jurisdiction. The Company irrevocably
consents to the jurisdiction of the courts of the State of New York and of any
federal court located in such State in connection with any action or proceeding
arising out of or relating to this Agreement, any document or instrument
delivered pursuant to, in connection with or simultaneously with this
Agreement, or a breach of this Agreement or any such document or instrument.
In any such action or proceeding, the Company waives personal service or any
summons, complaint or other process and agrees that service thereof may be made
in accordance with Section 12. Within 30 days after such service, or such other
time as may be mutually agreed upon in writing by the attorneys for the parties
to such action or proceeding, the Company shall appear or answer such summons,
complaint or other process.
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<PAGE> 33
If the foregoing correctly sets forth the understanding
between you and the Company, please so indicate in the space provided below for
that purpose, whereupon this letter shall constitute a binding agreement
between us.
Very truly yours,
OBJECTIVE COMMUNICATIONS, INC.
By:
---------------------------------
Name:
Title:
Accepted as of the date first above written.
New York, New York
BARINGTON CAPITAL GROUP, L.P.
By: LNA CAPITAL CORP.,
General Partner
By:
-----------------------------
Marc Cooper, Executive Vice-
President
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<PAGE> 1
EXHIBIT 3.1
FIRST AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF
OBJECTIVE COMMUNICATIONS, INC.
It is hereby certified that:
1. The present name of the corporation (hereinafter, the
"Corporation") is Objective Communications, Inc., which is the
name under which the corporation was originally incorporated;
and the date of filing the original certificate of
incorporation of the corporation with the Secretary of State
of Delaware is October 5, 1993.
2. The certificate of incorporation is hereby amended and
restated in its entirety as set forth in the First Amended And
Restated Certificate of Incorporation hereinafter provided
for.
3. The provisions of the certificate of incorporation of the
Corporation as herein amended are hereby restated and
integrated into the single instrument which is hereinafter set
forth, and which is entitled First Amended And Restated
Certificate of Incorporation of Objective Communications, Inc.
without any further amendments other than the amendments
herein certified.
4. The amendments and restatement of the certificate of
incorporation herein certified were declared advisable and
adopted by the board of directors of the Corporation on
November 21, 1996, were approved by the written consent of
the holders of the outstanding shares of Common Stock (with
written notice being given by the Corporation to each
stockholder who has not so consented in writing) pursuant to
Section 228 of the General Corporation Law of the State of
Delaware and have been duly adopted in accordance with
Sections 242 and 245 of the General Corporation Law of the
State of Delaware.
5. The certificate of incorporation of the Corporation, as
amended and restated herein, shall at the effective time of
this First Amended And Restated Certificate of Incorporation,
read as follows:
<PAGE> 2
FIRST AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF
OBJECTIVE COMMUNICATIONS, INC.
The undersigned, a natural person, for the purpose of conducting the
business and promoting the purposes hereinafter stated, under the provisions
and subject to the requirements of the laws of the State of Delaware
(particularly Chapter 1, Title 8 of the Delaware Code, as amended, and referred
to as the "General Corporation Law of the State of Delaware"), hereby certifies
that:
ARTICLE FIRST
NAME
The name of the corporation is: Objective Communications, Inc. (the
"Corporation").
ARTICLE SECOND
REGISTERED OFFICE AND REGISTERED AGENT
The address of the registered office of the Corporation in the State
of Delaware is 1209 Orange Street, Wilmington, Delaware, 19801, County of New
Castle, Delaware, and the name of the Corporation's registered agent in the
State of Delaware at such address is The Corporation Trust Company.
ARTICLE THIRD
PURPOSE
The purpose or purposes for which the Corporation is organized is to
engage in any lawful act or activity for which corporations may be organized
under the General Corporation Law of the State of Delaware.
ARTICLE FOURTH
CAPITAL STOCK
The total number of shares which the Corporation shall have
authority to issue is [twelve million, five hundred thousand (12,500,000)]
shares of capital stock, of which ten million (10,000,000) shares shall be
Common Stock, par value of $.01 per share, and [two million, five hundred
thousand (2,500,000)] shall be Preferred Stock, par value $.01 per share.
ARTICLE FIFTH
COMMON STOCK
Except as required by law, all shares of Common Stock shall be
identical in all respects and shall entitle the holders thereof to the same
rights and privileges, subject to the same
1
<PAGE> 3
qualifications, limitations and restrictions. Except as required by law, the
holders of shares of Common Stock shall be entitled to one vote per share of
Common Stock on all matters on which stockholders of the Corporation has the
right to vote.
ARTICLE SIXTH
PREFERRED STOCK
Section A. Preferred Stock. Shares of Preferred Stock may be issued
from time to time in one or more classes or series as the Board of Directors of
the Corporation (the "Board"), by resolution or resolutions, may from time to
time determine, each of such classes or series to be distinctly designated.
The voting powers, preferences and relative, participating, optional and other
special rights, and the qualifications, limitations or restrictions thereof, if
any, of each such class or series may differ from those of any and all other
class or series of Preferred Stock at any time outstanding, and the Board is
hereby expressly granted authority to fix or alter, by resolution or
resolutions, the designation, number, voting powers, preferences and relative,
participating, optional and other special rights, and the qualifications,
limitations and restrictions, of each such series, including, but without
limiting the generality of the foregoing, the following:
1. The distinctive designation of, and the number of shares of
Preferred Stock that shall constitute, such class or series,
which number (except where otherwise provided by the Board in
the resolution establishing such class or series) may be
increased (but not above the total number of shares of
Preferred Stock) or decreased (but not below the number of
shares of such class or series then outstanding) from time to
time by like action of action of the Board;
2. The rights in respect of dividends, if any, of such class or
series of Preferred Stock, the extent of the preference or
relation, if any, of such dividends to the dividends payable
on any other class or classes or any other series of the same
or other class or classes of capital stock of the Corporation,
and whether such dividends shall be cumulative or
noncumulative;
3. The right, if any, of the holders of such class or series of
Preferred Stock to convert the same into, or exchange the same
for, shares of any other class or classes or of any other
series of the same or any other class or classes of capital
stock of the Corporation, and the terms and conditions of such
conversion or exchange;
4. Whether or not shares of such class or series of Preferred
Stock shall be subject to redemption, and the redemption price
or prices and the times at which, and the terms and conditions
on which, shares of such class or series of Preferred Stock
may be redeemed;
5. The rights, if any, of the holders of such class or series of
Preferred Stock upon the voluntary or involuntary liquidation,
dissolution or winding-up of the Corporation or in the event
of any merger or consolidation of or sale of assets by the
Corporation;
2
<PAGE> 4
6. The terms of any sinking fund or redemption or purchase
account, if any, to be provided for shares of such class or
series of the Preferred Stock;
7. The voting powers, if any, of the holders of any class or
series of Preferred Stock generally or with respect to any
particular matter, which may be less than, equal to or greater
than one vote per share, and which may, without limiting the
generality of the foregoing, include the right, voting as a
class or series by itself or together with the holders of any
other class or classes or series of Preferred Stock or all
series of Preferred Stock as a class, to elect one or more
directors of the Corporation (which, without limiting the
generality of the foregoing, may include a specified number or
portion of the then-existing number of authorized
directorships of the Corporation) generally or under such
specific circumstances and on such conditions as shall be
provided in the resolution or resolutions of the Board adopted
pursuant thereto; and
8. Such other powers, preferences and relative, participating,
optional and other special rights, and the qualifications,
limitations and restrictions thereof, as the Board shall
determine.
Section B. Rights of Preferred Stock.
1. After the provisions with respect to preferential dividends on
any series of Preferred Stock (fixed in accordance with the
provisions of this Article Sixth), if any, shall have been
satisfied and after the Corporation shall have complied with
all the requirements, if any, with respect to redemption of,
or the setting aside of sums as sinking funds or redemption or
purchase accounts with respect to, any series of Preferred
Stock (fixed in accordance with the provisions of this Article
Sixth), and subject further to any other conditions that may
be fixed in accordance with the provisions of this Article
Sixth, then and not otherwise the holders of Common Stock
shall be entitled to receive such dividends as may be declared
from time to time by the Board.
2. In the event of the voluntary or involuntary liquidation,
dissolution or winding-up of the Corporation, after
distribution in full of the preferential amounts, if any this
Article_Sixth), to be distributed to the holders of Preferred
Stock by reason thereof, the holders of Common Stock shall,
subject to the additional rights, if any (fixed in accordance
with the provisions of this Article Sixth), of the holders of
any outstanding shares of Preferred Stock, be entitled to
receive all of the remaining assets of the Corporation,
tangible or intangible, of whatever kind available for
distribution to stockholders ratably in proportion to the
number of shares of Common Stock held by them respectively.
3. Except as may otherwise be required by law, and subject to the
provisions of such resolution or resolutions as may be adopted
by the Board pursuant to this Article Sixth granting the
holders of one or more series of Preferred Stock exclusive
voting powers with respect to any matter, each holder of
Common Stock may have one vote
3
<PAGE> 5
in respect to each share of Common Stock held on all matters
voted upon by the stockholders.
The number of authorized shares of Preferred Stock and each class of
Common Stock may, without a class or series vote, be increased or decreased
from time to time by the affirmative vote of the holders of shares having a
majority of the total number of votes which may be cast in the election of
directors of the Corporation by all stockholders entitled to vote in such an
election, voting together as a single class.
ARTICLE SEVENTH
DURATION
The Corporation is to have perpetual existence.
ARTICLE EIGHTH
BYLAWS
In furtherance and not in limitation of the powers conferred by
statute, the Board of Directors of the Corporation is expressly authorized to
make, alter, or repeal the Bylaws of the corporation.
ARTICLE NINTH
INDEMNIFICATION
The Corporation shall, to the fullest extent permitted by Section 145
of the General Corporation Law of the State of Delaware, as the same may be
amended and supplemented, indemnify and hold harmless any and all persons who
it shall have power to indemnify under said section from and against any and
all of the expenses, liabilities, or other matters referred to in or covered by
said section, and the indemnification provided for herein shall not be deemed
exclusive of any other rights to which those stockholders, or disinterested
directors or otherwise, both as to action in his official capacity and as to
action in any other capacity while holding such office, and shall continue as
to a person who has ceased to be a director or officer and shall inure to the
benefit of the heirs, executors, and administrators of such a person.
ARTICLE TENTH
LIMITATION ON DIRECTOR LIABILITY
A director of the Corporation shall not be personally liable to the
Corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director, except for liability (i) for any breach of the director's
duty of loyalty to the Corporation or its stockholders, (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) under Section 174 of the General Corporation
Law of the State of Delaware, or (iv) for any transaction from which the
director derived any improper personal benefit. If the General Corporation Law
of the State of Delaware is amended after the filing of this First Amended and
Restated Certificate of Incorporation to authorize corporate action further
eliminating or limiting
4
<PAGE> 6
the personal liability of directors, then the liability of a director of the
Corporation shall be eliminated or limited to the fullest extent permitted by
the General Corporation Law of the State of Delaware. No modifications or
repeal of the provisions of this Article Tenth shall adversely affect any right
or protection of any director of the Corporation existing at the date of such
modification or repeal or create any liability or adversely affect any such
right or protection for any acts or omissions of such director occurring prior
to such modification or repeal.
ARTICLE ELEVENTH
RIGHTS OF STOCKHOLDERS
From time to time any of the provisions of this First Amended and
Restated Certificate of Incorporation may be amended, altered, or replaced, and
other provisions authorized by the laws of the State of Delaware at the time in
force may be added or inserted in the manner and at the time prescribed by said
laws, and all rights at any time conferred upon the stockholders of the
Corporation by this Certificate of Incorporation are granted subject to the
provisions of this Article Eleventh.
5
<PAGE> 7
IN WITNESS WHEREOF, this First Amended and Amended And Restated Certificate of
Incorporation which restates and integrates and also amends the provisions of
the Certificate of Incorporation of the Corporation and which has been duly
adopted in accordance with Sections 242 and 245 of the General Corporation Law
of the State of Delaware, as the Corporation has received payment for its
capital stock, has been executed by its President and Chief Executive Officer
and the Secretary this ___ day of December, 1996.
Objective Communications, Inc.
By:
----------------------------------------------
Name: Steven A. Rogers
Title: President and Chief Executive Officer
Attest:
By:
----------------------------------------------
Name: Robert H. Emery
Title: Secretary
6
<PAGE> 1
EXHIBIT 3.4
THE WARRANT REPRESENTED BY THIS CERTIFICATE AND THE SHARES ISSUABLE
UPON EXERCISE HEREOF HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED (THE "ACT"), OR ANY STATE SECURITIES LAWS AND NEITHER SUCH
SECURITIES NOR ANY INTEREST THEREIN MAY BE OFFERED, SOLD, PLEDGED, ASSIGNED OR
OTHERWISE TRANSFERRED UNLESS (1) A REGISTRATION STATEMENT WITH RESPECT THERETO
IS EFFECTIVE UNDER THE ACT AND ANY APPLICABLE STATE SECURITIES LAWS, OR (2) THE
COMPANY RECEIVES AN OPINION OF COUNSEL TO THE HOLDER OF SUCH SECURITIES, WHICH
COUNSEL AND OPINION ARE REASONABLY SATISFACTORY TO THE COMPANY, THAT SUCH
SECURITIES MAY BE OFFERED, SOLD, PLEDGED, ASSIGNED OR TRANSFERRED IN THE MANNER
CONTEMPLATED WITHOUT AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT OR
APPLICABLE STATE SECURITIES LAWS. THE WARRANT REPRESENTED BY THIS CERTIFICATE
IS SUBJECT TO CERTAIN LOCK-UP PROVISIONS SET FORTH IN THAT CERTAIN SUBSCRIPTION
AGREEMENT OF EVEN DATE HEREWITH BETWEEN THE ORIGINAL HOLDER HEREOF AND
BARINGTON CAPITAL GROUP, L.P.
THE TRANSFER OF THIS WARRANT IS
RESTRICTED AS DESCRIBED HEREIN,
OBJECTIVE COMMUNICATIONS, INC.
Warrant for the Purchase of Shares of Common Stock,
$.01 par value per share
THIS WARRANT EXPIRES ON OCTOBER 18, 2001
No. Shares
------ ------
THIS CERTIFIES that, for value received, _____________________ with an
address at _______________________________________ (including any transferee,
the "Holder"), is entitled to subscribe for and purchase from Objective
Communications, Inc., a Delaware corporation (the "Company"), upon the terms
and conditions set forth herein, at any time or from time to time before 5:00
P.M. on October 18, 2001, New York time (the "Exercise Period"), ________
shares of the Company's Common Stock, $.01 par value per share ("Common
Stock"), at a price equal to $3.30 per share prior to consummation of the
Company's initial public offering, and at the lesser of $3.30 and 60% of the
initial public offering price per share of Common Stock in the Company's
initial public offering thereafter (the "Exercise Price").
If the Company avails itself of the Extension Period (as such term is
defined in Section I(e) of the Subscription Agreements, dated the date hereof
between the Company and certain investors (the "Subscription Agreements")),
then the number of shares of Common Stock which this Warrant represents the
right to purchase shall be increased by 10% for each month of the Extension
Period and thereafter during which any of the indebtedness entered into
pursuant to the Subscription Agreements remains outstanding. If the Company
avails itself of the Extension
<PAGE> 2
Period then the Exercise Price following the Company's initial public offering
shall be deemed to have been defined in the preceding sentence as the lesser of
$2.75 and 50% of the initial public offering price per share of Common Stock in
the Company's initial public offering.
Notwithstanding anything to the contrary contained herein, in the
event that (i) Barington Capital Group, L.P. ("Barington") commences its
selling efforts with respect to the offering contemplated under the letter of
intent between the Company and Barington dated October 7, 1996 with respect to
an initial public offering of the Company's securities (the "Letter of
Intent"), and is either unable to sell the full amount of such offering or is
unable to sell such offering within the price range set forth in the Letter of
Intent, and (ii) the Company consummates an alternative financing from an
unrelated party in which the Notes (as hereinafter defined) and any accrued
interest thereon are paid in full prior to the Time-Based Maturity Date (as
such term is defined in the Subscription Agreement pursuant to which this
Warrant was issued by the Company), without taking into account any extensions
thereof, then the exercise price hereunder shall be adjusted to the same per
share price paid by the investors in any such alternate financing.
This Warrant is the warrant or one of the warrants (collectively,
including any warrants issued upon the exercise or transfer of any such
warrants in whole or in part, the "Warrants") issued pursuant to an offering
(the "Offering") by the Company of units, each consisting of (i) a $100,000
senior secured promissory note (collectively, with all notes included in the
units, the "Notes"), and (ii) a warrant to purchase 25,000 shares of Common
Stock, pursuant to a Confidential Private Placement Memorandum, dated October
9, 1996, as it may be amended or supplemented (the "Memorandum"). As used
herein the term "this Warrant" shall mean and include this Warrant and any
Warrant or Warrants hereafter issued as a consequence of the exercise or
transfer of this Warrant in whole or in part.
The number of shares of Common Stock issuable upon exercise of the
Warrants (the "Warrant Shares") and the Exercise Price may be adjusted from
time to time as hereinafter set forth.
1. (a) This Warrant may be exercised during the Exercise
Period, as to the whole or any lesser number of whole warrant Shares, by the
surrender of this Warrant (with the election at the end hereof duly executed)
to the Company at its office at Objective Communications, Inc., 14100 Park
Meadow Drive, Chantilly, VA 20151, or at such other place as is designated in
writing by the Company. Subject to Section 1(b) hereof, such executed election
must be accompanied by payment in an amount equal to the Exercise Price
multiplied by the number of Warrant Shares for which this Warrant is being
exercised. Such payment may be made by certified or bank cashier's check
payable to the order of the Company, or as provided in Section 1(b) hereof, or
as otherwise provided in Section 1(b) hereof.
(b) All or any part of this Warrant may be exercised on a
"cashless" basis, by stating in the Exercise Notice such intention and either
(x) the maximum number (the "Maximum Number") of shares of Common Stock the
Holder desires to purchase in consideration of cancellation of Warrants in
payment for such exercise, or (y) the amount of then outstanding principal
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<PAGE> 3
and accrued interest under Notes submitted with such Exercise Notice, to be
deemed to be prepaid pursuant to such exercise. The number of shares of Common
Stock the Holder shall receive (the "Cashless Exercise Number") upon such
exercise pursuant to clause (x) of this Section 1(b) shall equal the difference
between the Maximum Number and the quotient that is obtained when the product
of the Maximum Number and the then current Exercise Price is divided by the
then Current Market Price per share (as hereinafter defined). The amount
credited toward the payment due from the Holder upon such exercise in respect
of prepayment of Notes pursuant to clause (y) of this Section 1(b) shall equal
the amount of principal and interest deemed prepaid thereby.
2. Upon each exercise of the Holder's rights to purchase Warrant
Shares, the Holder shall be deemed to be the holder of record of the Warrant
Shares issuable upon such exercise, notwithstanding that the transfer books of
the Company shall then be closed or certificates representing such Warrant
Shares shall not then have been actually delivered to the Holder. As soon as
practicable after each such exercise of this Warrant, the Company shall issue
and deliver to the Holder a certificate or certificates for the Warrant Shares
issuable upon such exercise, registered in the name of the Holder or its
designee. If this Warrant should be exercised in part only, the Company shall,
upon surrender of this Warrant for cancellation, execute and deliver a new
warrant evidencing the right of the Holder to purchase the balance of the
Warrant Shares (or portions thereof) subject to purchase hereunder.
3. (a) Any Warrants issued upon the transfer or exercise in
part of this Warrant shall be numbered and shall be registered in a Warrant
Register as they are issued. The Company shall be entitled to treat the
registered holder of any warrant on the Warrant Register as the owner in fact
thereof for all purposes and shall not be bound to recognize any equitable or
other claim to or interest in such Warrant on the part of any other person, and
shall not be liable for any registration or transfer of Warrants which are
registered or to be registered in the name of a fiduciary or the nominee of a
fiduciary unless made with the actual knowledge that a fiduciary or nominee is
committing a breach of trust in requesting such registration or transfer, or
with the knowledge of such facts that its participation therein amounts to bad
faith. This Warrant shall be transferable only on the books of the Company
upon delivery thereof duly endorsed by the Holder or by his duly authorized
attorney or representative, or accompanied by proper evidence of succession,
assignment, or authority to transfer. In all cases of transfer by an attorney,
executor, administrator, guardian, or other legal representative, duly
authenticated evidence of his or its authority shall be produced. Upon any
registration of transfer, the Company shall deliver a new Warrant or Warrants
to the person entitled thereto. This Warrant may be exchanged, at the option
of the Holder thereof, for another Warrant, or other Warrants of different
denominations, of like tenor and representing in the aggregate the right to
purchase a like number of Warrant Shares (or portions thereof), upon surrender
to the Company or its duly authorized agent. Notwithstanding the foregoing,
the Company shall have no obligation to cause Warrants to be transferred on its
books to any person if, in the opinion of counsel to the Company, such transfer
does not comply with the provisions of the Securities Act of 1933, as amended
(the "Act"), and the rules and regulations thereunder.
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<PAGE> 4
(b) The Holder acknowledges that he has been advised by
the Company that neither this Warrant nor the Warrant Shares have been
registered under the Act, that this Warrant is being or has been issued and the
Warrant Shares may be issued on the basis of the statutory exemption provided
by Section 4(2) of the Act or Regulation D promulgated thereunder, or both,
relating to transactions by an issuer not involving any public offering, and
that the Company's reliance thereon is based in part upon the representations
made by the original Holder in the original Holder's Subscription Agreement
executed and delivered in accordance with the terms of the Offering (the
"Subscription Agreement"). The Holder acknowledges that he has been informed
by the Company of, or is otherwise familiar with, the nature of the limitations
imposed by the Act and the rules and regulations thereunder on the transfer of
securities. In particular, the Holder agrees that no sale, assignment or
transfer of this Warrant or the Warrant Shares issuable upon exercise hereof
shall be valid or effective, and the Company shall not be required to give any
effect to any such sale, assignment or transfer, unless (i) the sale,
assignment or transfer of this Warrant or such Warrant Shares is registered
under the Act, it being understood that neither this Warrant nor such Warrant
Shares are currently registered for sale and that the Company has no obligation
or intention to so register this Warrant or such Warrant Shares except as
specifically provided herein, or (ii) this Warrant or such Warrant Shares are
sold, assigned or transferred in accordance with all the requirements and
limitations of Rule 144 under the Act, it being understood that Rule 144 is not
available at the time of the original issuance of this Warrant for the sale of
this Warrant or such Warrant Shares and that there can be no assurance that
Rule 144 sales will be available at any subsequent time, or (iii) such sale,
assignment, or transfer is otherwise exempt from registration under the Act.
(c) Following any assignment or other transfer resulting
in the issuance of warrants to purchase Warrant Shares purchasable hereunder to
more than one person or entity, all elections that may be made by the Holders
under such warrants shall be made by written notice of Holders representing
rights to purchase a majority of the Warrant Shares for which such warrants are
then exercisable.
4. The Company shall at all times reserve and keep available out
of its authorized and unissued Common Stock, solely for the purpose of
providing for the exercise of the rights to purchase all Warrant Shares granted
pursuant to the Warrants, such number of shares of Common Stock as shall, from
time to time, be sufficient therefor. The Company covenants that all shares of
Common Stock issuable upon exercise of this Warrant, upon receipt by the
Company of the full Exercise Price therefor, shall be validly issued, fully
paid, nonassessable, and free of preemptive rights.
5. (a) In case the Company shall at any time after the date
this Warrant is first issued (i) declare a dividend on the outstanding Common
Stock payable in shares of its capital stock, (ii) subdivide the outstanding
Common Stock, or (iii) combine the outstanding Common Stock into a smaller
number of shares, but only if such combination is effective after such time as,
were an exercise of the Warrant to take place, in whole or in part, no
adjustment of the Exercise Price would be required pursuant to Subsection 5(e)
hereof, then, in each case, the Exercise Price, and the number of Warrant
Shares issuable upon exercise of this Warrant, in effect at the
-4-
<PAGE> 5
time of the record date for such dividend or of the effective date of such
subdivision, or combination, shall be proportionately adjusted so that the
Holder after such time shall be entitled to receive the aggregate number and
kind of shares for such consideration which, if such Warrant had been exercised
immediately prior to such time at the then-current exercise price, he would
have owned upon such exercise and been entitled to receive by virtue of such
dividend, subdivision, or combination. Such adjustment shall be made
successively whenever any event listed above shall occur.
(b) In case the Company shall issue or fix a record date
for the issuance to all holders of Common Stock of rights, options, or warrants
to subscribe for or purchase Common Stock (or securities convertible into or
exchangeable for Common Stock) at a price per share (or having a conversion or
exchange price per share, if a security convertible into or exchangeable for
Common Stock) less than the Current Market Price per share of Common Stock on
such record date, then, in each case, the Exercise Price shall be adjusted by
multiplying the Exercise Price in effect immediately prior to such record date
by a fraction, the numerator of which shall be the number of shares of Common
Stock outstanding on such record date plus the number of shares of Common Stock
which the aggregate offering price of the total number of shares of Common
Stock so to be offered (or the aggregate initial conversion or exchange price
of the convertible or exchangeable securities so to be offered) would purchase
at such Current Market Price and the denominator of which shall be the number
of shares of Common Stock outstanding on such record date plus the number of
additional shares of Common Stock to be offered for subscription or purchase
(or into which the convertible or exchangeable securities so to be offered are
initially convertible or exchangeable); provided, however, that no such
adjustment shall be made which results in an increase in the Exercise Price.
Such adjustment shall become effective at the close of business on such record
date; provided, however, that, to the extent the shares of Common Stock (or
securities convertible into or exchangeable for shares of Common Stock) are not
delivered, the Exercise Price shall be readjusted after the expiration of such
rights, options, or warrants (but only with respect to Warrants exercised after
such expiration), to the Exercise Price which would then be in effect had the
adjustments made upon the issuance of such rights, options, or warrants been
made upon the basis of delivery of only the number of shares of Common Stock
(or securities convertible into or exchangeable for shares of Common Stock)
actually issued. In case any subscription price may be paid in a consideration
part or all of which shall be in a form other than cash, the value of such
consideration shall be as determined in good faith by the board of directors of
the Company, whose determination shall be conclusive absent manifest error.
Shares of Common Stock owned by or held for the account of the Company or any
majority-owned subsidiary shall not be deemed outstanding for the purpose of
any such computation.
(c) In case the Company shall distribute to all holders
of Common Stock (including any such distribution made to the stockholders of
the Company in connection with a consolidation or merger in which the Company
is the continuing corporation) evidences of its indebtedness, cash (other than
any cash dividend which, together with any cash dividends paid within the 12
months prior to the record date for such distribution, does not exceed 5% of
the Current Market Price at the record date for such distribution) or assets
(other than distributions
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<PAGE> 6
and dividends payable in shares of Common Stock), or rights, options, or
warrants to subscribe for or purchase Common Stock, or securities convertible
into or changeable for shares of Common Stock (excluding those with respect to
the issuance of which an adjustment of the Exercise Price is provided pursuant
to Section 5(b) hereof), then, in each case, the Exercise Price shall be
adjusted by multiplying the Exercise Price in effect immediately prior to the
record date for the determination of stockholders entitled to receive such
distribution by a fraction, the numerator of which shall be the Current Market
Price per share of such class of Common Stock on such record date, less the
fair market value (as determined in good faith by the board of directors of the
Company, whose determination shall be conclusive absent manifest error) of the
portion of the evidences of indebtedness or assets so to be distributed, or of
such rights, options, or warrants or convertible or exchangeable securities, or
the amount of such cash, applicable to one share, and the denominator of which
shall be such Current Market Price per share of Common Stock. Such adjustment
shall become effective at the close of business on such record date.
(d) In case the Company shall issue shares of Common
Stock or rights, options, or warrants to subscribe for or purchase Common
Stock, or securities convertible into or exchangeable for Common Stock
(excluding shares, rights, options, warrants, or convertible or exchangeable
securities issued or issuable (i) in any of the transactions with respect to
which an adjustment of the Exercise Price is provided pursuant to Sections
5(a), 5(b), or 5(c) above, (ii) upon any issuance of securities pursuant to the
Offering or the proposed initial public offering or the exercise of securities
so issued, (iii) upon exercise of the Warrants, (iv) upon issuance or exercise
of any warrants issued to Barington or its designees in connection with the
Offering or the public offering proposed to be made as described in the
Memorandum, (v) upon adjustment of the number of shares of Common Stock
issuable upon exercise of the Warrants pursuant to the Preamble hereof, (vi)
upon issuance or exercise of up to 450,000 stock options granted or to be
granted to the directors, consultants or employees of the Company, other than
existing stockholders of the Company, pursuant to a stock option plan
reasonably acceptable to Barington, or (vii) upon issuance, prior to the
initial public offering of the Company, of shares of Common Stock in a
currently contemplated equity private placement in an amount and at a valuation
consented to by Barington and with proceeds in the approximate amount of the
positive difference between $3.0 million and the initial aggregate principal
amount of the Notes) at a price per share (determined, in the case of such
rights, options, warrants, or convertible or exchangeable securities, by
dividing (x) the total amount received or receivable by the Company in
consideration of the sale and issuance of such rights, options, warrants, or
convertible or exchangeable securities, plus the minimum aggregate
consideration payable to the Company upon exercise, conversion, or exchange
thereof, by (y) the maximum number of shares covered by such rights, options,
warrants, or convertible or exchangeable securities) lower than the Current
Market Price per share of Common Stock in effect immediately prior to such
issuance, then the Exercise Price shall be reduced on the date of such issuance
to a price (calculated to the nearest cent) determined by multiplying the
Exercise Price in effect immediately prior to such issuance by a fraction, (1)
the numerator of which shall be an amount equal to the sum of (A) the number of
shares of Common Stock outstanding immediately prior to such issuance plus (B)
the quotient obtained by dividing the consideration received by the Company
upon such issuance by such Current Market Price, and (2) the denominator of
which shall be the total number of shares of Common Stock outstanding
immediately after such issuance; provided, however, that no such adjustment
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<PAGE> 7
shall be made which results in an increase in the Exercise Price. For the
purposes of such adjustments, the maximum number of shares which the holders of
any such rights, options, warrants, or convertible or exchangeable securities
shall be entitled to initially subscribe for or purchase or convert or exchange
such securities into shall be deemed to be issued and outstanding as of the
date of such issuance, and the consideration received by the Company therefor
shall be deemed to be the consideration received by the Company for such
rights, options, warrants, or convertible or exchangeable securities, plus the
minimum aggregate consideration or premiums stated in such rights, options,
warrants, or convertible or exchangeable securities to be paid for the shares
covered thereby. No further adjustment of the Exercise Price shall be made as
a result of the actual issuance of shares of Common Stock on exercise of such
rights, options, or warrants or on conversion or exchange of such convertible
or exchangeable securities. On the expiration or the termination of such
rights, options, or warrants, or the termination of such right to convert or
exchange, the Exercise Price shall be readjusted (but only with respect to
Warrants exercised after such expiration or termination) to such Exercise Price
as would have obtained had the adjustments made upon the issuance of such
rights, options, warrants, or convertible or exchangeable securities been made
upon the basis of the delivery of only the number of shares of Common Stock
actually delivered upon the exercise of such rights, options, or warrants or
upon the conversion or exchange of any such securities; and on any change of
the number of shares of Common Stock deliverable upon the exercise of any such
rights, options, or warrants or conversion or exchange of such convertible or
exchangeable securities or any change in the consideration to be received by
the Company upon such exercise, conversion, or exchange, including, without
limitation, a change resulting from the antidilution provisions thereof. In
case the Company shall issue shares of Common Stock or any such rights,
options, warrants, or convertible or exchangeable securities for a
consideration consisting, in whole or in part, of property other than cash or
its equivalent, then the "price per share" and the "consideration received by
the Company" for purposes of the first sentence of this Section 5(d) shall be
as determined in good faith by the board of directors of the Company, whose
determination shall be conclusive absent manifest error. Shares of Common
Stock owned by or held for the account of the Company or any majority-owned
subsidiary shall not be deemed outstanding for the purpose of any such
computation.
(e) In the event of an exercise of this Warrant, whether
in part or whole, prior to or concurrent with the Company's achieving a
capitalization of no more than a total of 4,100,000 shares of all classes of
its capital stock outstanding (including shares reserved for issuance upon
exercise or conversion of securities (other than Capital Stock) exercisable or
convertible into any class of Capital Stock of the Company including, without
limitation, 450,000 shares issuable upon exercise of options issued or issuable
pursuant to an employee stock option plan acceptable to Barington and shares
reserved for issuance in connection with a currently contemplated equity
private placement in an amount and at a valuation consented to by Barington and
with proceeds in the approximate amount of the positive difference between $3.0
million and the initial aggregate principal amount of the Notes, but excluding
any shares of Capital Stock theretofore issued or reserved for issuance in
connection with the Offering)) (an "Early Exercise"), in addition to any other
adjustments provided for herein, the Exercise Price shall be adjusted to be the
product obtained by multiplying (X) the previously effective Exercise Price by
(Y) the quotient obtained by dividing 4,100,000 by the number of shares of all
classes of Capital Stock then
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<PAGE> 8
outstanding (including any shares of any class of Capital Stock reserved for
issuance upon exercise or conversion of any securities (other than Capital
Stock) exercisable or convertible into shares of any class of Capital Stock of
the Company including, without limitation, 450,000 shares issuable upon
exercise of options issued or issuable pursuant to an employee stock option
plan acceptable to Barington and shares reserved for issuance in connection
with a currently contemplated equity private placement in an amount and at a
valuation consented to by Barington and with proceeds in the approximate amount
of the positive difference between $3.0 million and the initial aggregate
principal amount of the Notes, but excluding any shares of Capital Stock
theretofore issued or reserved for issuance in connection with the Offering)).
In the event of an Early Exercise, this Warrant shall be exercisable for a
maximum number of shares of Common Stock equal to the number of shares of
Common Stock then issuable upon exercise of this Warrant multiplied by a
fraction, the numerator of which equals the number of shares of Capital Stock
then outstanding (including shares reserved for issuance upon exercise or
conversion of securities (other than Capital Stock) exercisable or convertible
into Capital Stock of the Company including, without limitation, 450,000 shares
issuable upon exercise of option issued or issuable pursuant to an employee
stock option plan acceptable to Barington and shares reserved for issuance in
connection with a currently contemplated equity private placement in an amount
and at a valuation consented to by Barington and with proceeds in the
approximate amount of the positive difference between $3.0 million and the
initial aggregate principal amount of the Notes, but excluding any shares of
Capital Stock theretofore issued or reserved for issuance in connection with
the Offering)), and the denominator of which equals 4,100,000. If such Early
Exercise is for less than the maximum number of shares of Common Stock provided
for in the previous sentence, the new Warrant subsequently issued to the Holder
pursuant to Section 2 hereof shall represent Warrants to purchase a number of
shares of Common Stock equal to the product of (X) the number of Warrants
represented by this Warrant prior to the adjustment provided for in this
subparagraph and prior to the Early Exercise times (Y) the quotient obtained by
dividing the number of shares of Common Stock for which this Warrant was
exercised in the Early Exercise by the maximum number of shares of Common Stock
for which this Warrant could have been exercised in such Early Exercise.
(f) For the purpose of any computation under this Section
5 or Section 1, the Current Market Price per share of Common Stock on any date
shall be deemed to be the average of the daily closing prices for the 30
consecutive trading days immediately preceding the date in question. The
closing price for each day shall be the last reported sales price regular way
or, in case no such reported sale takes place on such day, the closing bid
price regular way, in either case on the principal national securities exchange
(including, for purposes hereof, the NASDAQ National Market) on which the
Common Stock is listed or admitted to trading or, if the Common Stock is not
listed or admitted to trading on any national securities exchange, the highest
reported bid price for the Common Stock as furnished by the National
Association of Securities Dealers, Inc., through NASDAQ or a similar
organization if NASDAQ is no longer reporting such information. If on any such
date the Common Stock is not listed or admitted to trading on any national
securities exchange and is not quoted by NASDAQ or any similar organization,
the fair value of a share of Common Stock on such date, as determined in good
faith by the board of
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<PAGE> 9
directors of the Company, whose determination shall be conclusive absent
manifest error, shall be used.
(g) No adjustment in the Exercise Price shall be required
if such adjustment is less than $.05; provided, however, that any adjustments
which by reason of this Section 5 are not required to be made shall be carried
forward and taken into account in any subsequent adjustment. All calculations
under this Section 5 shall be made to the nearest cent or to the nearest
one-thousandth of a share, as the case may be.
(h) In any case in which this Section 5 shall require
that an adjustment in the Exercise Price be made effective as of a record date
for a specified event, the Company may elect to defer, until the occurrence of
such event, issuing to the Holder, if the Holder exercised this Warrant after
such record date, the shares of Common Stock, if any, issuable upon such
exercise over and above the shares of Common Stock, if any, issuable upon such
exercise on the basis of the Exercise Price in effect prior to such adjustment;
provided, however, that the Company shall deliver to the Holder a due bill or
other appropriate instrument evidencing the Holder's right to receive such
additional shares upon the occurrence of the event requiring such adjustment.
(i) Upon each adjustment of the Exercise Price as a
result of the calculations made in Sections 5(b), 5(c), or 5(d) hereof, this
Warrant shall thereafter evidence the right to purchase, at the adjusted
Exercise Price, that number of shares (calculated to the nearest thousandth)
obtained by dividing (A) the product obtained by multiplying the number of
shares purchasable upon exercise of this Warrant prior to adjustment of the
number of shares by the Exercise Price in effect prior to adjustment of the
Exercise Price by (B) the Exercise Price in effect after such adjustment of the
Exercise Price.
(j) Whenever there shall be an adjustment as provided in
this Section 5 other than adjustments pursuant to Subsection 5(e), the Company
shall promptly cause written notice thereof to be sent by certified mail,
postage prepaid, to the Holder, at its address as it shall appear in the
Warrant Register, which notice shall be accompanied by an officer's certificate
setting forth the number of Warrant Shares purchasable upon the exercise of
this Warrant and the Exercise Price after such adjustment and setting forth a
brief statement of the facts requiring such adjustment and the computation
thereof, which officer's certificate shall be conclusive evidence of the
correctness of any such adjustment absent manifest error.
(k) The Company shall not be required to issue fractions
of shares of Common Stock or other capital stock of the Company upon the
exercise of this Warrant. If any fraction of a share would be issuable on the
exercise of this Warrant (or specified portions thereof), the Company shall
purchase such fraction for an amount in cash equal to the same fraction of the
Current Market Price of such share of Common Stock on the date of exercise of
this Warrant.
6. (a) In case of any consolidation with or merger of the
Company with or into another corporation (other than a merger or consolidation
in which the Company is the surviving or continuing corporation), or in case of
any sale, lease, or conveyance to another corporation of the property and
assets of any nature of the Company as an entirety or substantially as an
entirety,
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<PAGE> 10
such successor, leasing, or purchasing corporation, as the case may be, shall
(i) execute with the Holder an agreement providing that the Holder shall have
the right thereafter to receive upon exercise of this Warrant solely the kind
and amount of shares of stock and other securities, property, cash, or any
combination thereof receivable upon such consolidation, merger, sale, lease, or
conveyance by a holder of the number of shares of Common Stock for which this
Warrant might have been exercised immediately prior to such consolidation,
merger, sale, lease, or conveyance, and (ii) make effective provision in its
certificate of incorporation or otherwise, if necessary, to effect such
agreement. Such agreement shall provide for adjustments which shall be as
nearly equivalent as practicable to the adjustments in Section 5.
(b) In case of any reclassification or change of the
shares of Common Stock issuable upon exercise of this Warrant (other than a
change in par value or from no par value to a specified par value, or as a
result of a subdivision or combination, but including any change in the shares
into two or more classes or series of shares), or in case of any consolidation
or merger of another corporation into the Company in which the Company is the
continuing corporation and in which there is a reclassification or change
(including a change to the right to receive cash or other property) of the
shares of Common Stock (other than a change in par value, or from no par value
to a specified par value, or as a result of a subdivision or combination, but
including any change in the shares into two or more classes or series of
shares), the Holder shall have the right thereafter to receive upon exercise of
this Warrant solely the kind and amount of shares of stock and other
securities, property, cash, or any combination thereof receivable upon such
reclassification, change, consolidation, or merger by a holder of the number of
shares of Common Stock for which this Warrant might have been exercised
immediately prior to such reclassification, change, consolidation, or merger.
Thereafter, appropriate provision shall be made for adjustments which shall be
as nearly equivalent as practicable to the adjustments in Section 5.
(c) The above provisions of this Section 6 shall
similarly apply to successive reclassifications and changes of shares of Common
Stock and to successive consolidations, mergers, sales, leases, or conveyances.
7. In case at any time the Company shall propose to:
(a) pay any dividend or make any distribution on shares
of Common Stock in shares of Common Stock or make any other distribution (other
than regularly scheduled cash dividends which are not in a greater amount per
share than the most recent such cash dividend) to all holders of Common Stock;
or
(b) issue any rights, warrants, or other securities to
all holders of Common Stock entitling them to purchase any additional shares of
Common Stock or any other rights, warrants, or other securities; or
(c) effect any reclassification or change of outstanding
shares of Common Stock, or any consolidation, merger, sale, lease, or
conveyance of property, described in Section 6 hereof; or
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<PAGE> 11
(d) effect any liquidation, dissolution, or winding-up of
the Company; or
(e) take any other action which would cause an adjustment
to the Exercise Price (other than an adjustment pursuant to Subsection 5(e)
hereof);
then, and in any one or more of such cases, the Company shall give written
notice thereof, by certified mail, postage prepaid, to the Holder at the
Holder's address as it shall appear in the Warrant Register, mailed at least 15
days prior to (i) the date as of which the holders of record of shares of
Common Stock to be entitled to receive any such dividend, distribution, rights,
warrants, or other securities are to be determined, (ii) the date on which any
such reclassification, change of outstanding shares of Common Stock,
consolidation, merger, sale, lease, conveyance of property, liquidation,
dissolution, or winding-up is expected to become effective, and the date as of
which it is expected that holders of record of shares of Common Stock shall be
entitled to exchange their shares for securities or other property, if any,
deliverable upon such reclassification, change of outstanding shares,
consolidation, merger, sale, lease, conveyance of property, liquidation,
dissolution, or winding-up, or (iii) the date of such action which would
require an adjustment to the Exercise Price.
8. The issuance of any shares or other securities upon the
exercise of this Warrant, and the delivery of certificates or other instruments
representing such shares or other securities, shall be made without charge to
the Holder for any tax or other charge in respect of such issuance. The
Company shall not, however, be required to pay any tax which may be payable in
respect of any transfer involved in the issue and delivery of any certificate
in a name other than that of the Holder and the Company shall not be required
to issue or deliver any such certificate unless and until the person or persons
requesting the issue thereof shall have paid to the Company the amount of such
tax or shall have established to the satisfaction of the Company that such tax
has been paid.
9. (a) If at any time following the date of issuance of this
Warrant, the Company shall file a registration statement for the Company's
initial public offering with the Securities and Exchange Commission (the
"Commission") while any Registrable Securities (as hereinafter defined) are
outstanding, the Company shall, at the Company's sole expense (other than the
fees and disbursements of counsel for the then holders of any Registrable
Securities (the "Eligible Holders") and the underwriting discounts, if any,
payable in respect of the Registrable Securities sold by any Eligible Holder),
register or qualify all of the Registrable Securities of any Eligible Holders,
all to the extent necessary to permit the public offering and sale of the
Registrable Securities through the facilities of all securities exchanges and
the over-the-counter markets on which the Company's securities are traded, and
will use its best efforts through its officers, directors, auditors, and
counsel to cause such registration statement to become effective as promptly as
practicable. As used herein, "Registrable Securities" shall mean the Warrant
Shares, if any, which, in each case, have not been previously sold pursuant to
a registration statement or Rule 144 promulgated under the Act.
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<PAGE> 12
(b) If, at any time following the date of issuance of
this Warrant, the Company shall file a registration statement (other than for
the Company's initial public offering or any registration statement on Form
S-4, Form S-8, or any successor form) with the Commission while any Registrable
Securities are outstanding, and for any reason the Eligible Holders will not
otherwise have as of the effective date of such registration statement, the
benefit of an effective registration statement, including all required
amendments and supplements, filed pursuant to Section 9(a) or 9(c) hereof,
registering for sale the Registrable Securities, the Company shall give all the
Eligible Holders at least 30 days prior written notice of the filing of such
registration statement. If requested by any Eligible Holder in writing within
20 days after receipt of any such notice, the Company shall, at the Company's
sole expense (other than the fees and disbursements of counsel for the Eligible
Holders and the underwriting discounts, if any, payable in respect of the
Registrable Securities sold by any Eligible Holder), register or qualify all
or, at each Eligible Holder's option, any portion of the Registrable Securities
of any Eligible Holders who shall have made such request, concurrently with the
registration of such other securities, all to the extent necessary to permit
the public offering and sale of the Registrable Securities through the
facilities of all securities exchanges and the over-the-counter markets on
which the Company's securities are traded, and will use its best efforts
through its officers, directors, auditors, and counsel to cause such
registration statement to become effective as promptly as practicable.
Notwithstanding the foregoing, if the managing underwriter of any such offering
shall advise the Company in writing that, in its opinion, the distribution of
all or a portion of the Registrable Securities requested to be included in the
registration concurrently with the securities being registered by the Company
would materially adversely affect the distribution of such securities by the
Company for its own account, then any Eligible Holder who shall have requested
registration of his or its Registrable Securities shall not be entitled to have
such Eligible Holder's Registrable Securities (or the portions thereof so
designated by the managing underwriter) included in such registration
statement, provided that no such exclusion or reduction shall be made as to any
Registrable Securities if any securities of the Company are included in such
registration statement for the account of any person other than the Company and
any Eligible Holder unless the securities so included in such registration
statement for each such other person or persons requesting registration shall
have been reduced by the same proportion (based upon the total amount of
securities for which each person is entitled to request registration in such
registration statement) as the Registrable Securities which were requested to
be included in such registration were reduced.
(c) If at any time after 12 months after the effective
date of the Company's initial public offering, and for any reason the Eligible
Holders do not otherwise have as of such date the benefit of an effective
registration statement, including all required amendments and supplements
thereto, filed pursuant to Section 9(a) or 9(b) hereof registering for sale the
Registrable Securities, the Company shall receive a written request, from
Eligible Holders who in the aggregate own (or which upon exercise of all
Warrants then outstanding would own) a majority of the total number of shares
of Common Stock then included (or upon such exercise would be included) in the
Registrable Securities then outstanding ("Majority Holders"), to register the
sale of all or part of such Registrable Securities, the Company shall, as
promptly as practicable, prepare and file with the Commission a registration
statement sufficient to permit the public offering and sale of the Registrable
Securities through the facilities of all securities exchanges and the over-the-
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counter markets on which the Company's securities are traded, and will use its
best efforts through its officers, directors, auditors, and counsel to cause
such registration statement to become effective as promptly as practicable;
provided, however, that the Company shall only be obligated to file one such
registration statement for which all expenses incurred in connection with such
registration (other than the fees and disbursements of counsel for the Eligible
Holders and underwriting discounts, if any, payable in respect of the
Registrable Securities sold by the Eligible Holders) shall be borne by the
Company and one additional such registration statement for which all such
expenses shall be paid by the Eligible Holders electing to include Registrable
Securities in such Registration Statement. The Company shall not be obligated
to effect any registration of its securities pursuant to this Section 9(c)
within six months after the effective date of a previous registration statement
prepared and filed in accordance with Section 9(a) (in which Registrable
Securities could have been included), 9(b) or 9(c). Within ten business days
after receiving any request contemplated by this Section 9(b), the Company
shall send written notice to all the other Eligible Holders, advising each of
them that the Company is proceeding with such registration and offering to
include therein all or any portion of any such other Eligible Holder's
Registrable Securities, provided that the Company receives a written request to
do so from such Eligible Holder within 20 days after receipt by him or it of
the Company's notice.
(d) In the event of a registration pursuant to the
provisions of this Section 9, the Company shall use its best efforts to cause
the Registrable Securities so registered to be registered or qualified for sale
under the securities or blue sky laws of such jurisdictions as the Holder or
such holders may reasonably request; provided, however, that the Company shall
not by reason of this Section 9(d) be required to qualify to do business in any
state in which it is not otherwise required to qualify to do business or to
file a general consent to service of process.
(e) The Company shall keep effective any registration or
qualification contemplated by this Section 9 and shall from time to time amend
or supplement each applicable registration statement, preliminary prospectus,
final prospectus, application, document, and communication for such period of
time as shall be required to permit the Eligible Holders to complete the offer
and sale of the Registrable Securities covered thereby. The Company shall in
no event be required to keep any such registration or qualification in effect
for a period in excess of nine months from the date on which the Eligible
Holders are first free to sell such Registrable Securities taking into account
any lock-up agreement agreed to by such Holder, and the underwriter of the
Company's initial public offering; provided, however, that, if the Company is
required to keep any such registration or qualification in effect with respect
to securities other than the Registrable Securities beyond such period, the
Company shall keep such registration or qualification in effect as it relates
to the Registrable Securities for so long as such registration or qualification
remains or is required to remain in effect in respect of such other securities.
(f) In the event of a registration pursuant to the
provisions of this Section 9, the Company shall furnish to each Eligible Holder
such reasonable number of copies of the registration statement and of each
amendment and supplement thereto (in each case, including all exhibits), such
reasonable number of copies of each prospectus contained in such registration
statement and each supplement or amendment thereto (including each preliminary
prospectus), all of which shall conform to the requirements of the Act and the
rules and regulations
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<PAGE> 14
thereunder, and such other documents, as any Eligible Holder may reasonably
request to facilitate the disposition of the Registrable Securities included in
such registration.
(g) In the event of a registration pursuant to the
provisions of this Section 9, the Company shall furnish each Eligible Holder of
any Registrable Securities so registered with an opinion of its counsel
(reasonably acceptable to the Eligible Holders) to the effect that (i) the
registration statement has become effective under the Act and no order
suspending the effectiveness of the registration statement, preventing or
suspending the use of the registration statement, any preliminary prospectus,
any final prospectus, or any amendment or supplement thereto has been issued,
nor to the best knowledge of such counsel has the Commission or any securities
or blue sky authority of any jurisdiction instituted or threatened to institute
any proceedings with respect to such an order, and (ii) the registration
statement and the prospectus included therein and any supplements or amendments
thereto (except for financial statements and related schedules and documents
incorporated thereto by reference, as to which such counsel need express no
opinion) comply as to form in all material respects with the Act, and the rules
and regulations of the Commission thereunder (except for financial statements
and related schedules, as to which counsel need express no opinion). In
addition, such counsel shall state that it has participated in conferences with
officers and other representatives of the Company, and representatives of
independent accountants for the Company, at which conferences such counsel made
inquiries of such officers, representatives and accountants; discussed the
contents of the preliminary prospectus; the registration statement; and the
prospectus and related matters were discussed and, although such counsel is not
passing and does not assume any responsibility for the accuracy, completeness
or fairness, the statements contained in the preliminary prospectus, the
registration statement and the prospectus, on the basis of the foregoing, no
facts have come to the attention of such counsel which lead it to believe that
either the registration statement or on any amendment thereto, at the time such
registration statement or amendment became effective or the preliminary
prospectus or prospectus or amendment or any supplement thereto as of the date
of such opinion contained any untrue statement of a material fact or omitted to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading (it being understood that such counsel need
express no opinion with respect to the financial statements and schedules and
other financial and statistical data included in the preliminary prospectus,
the registration statement, or prospectus). The Company shall also furnish to
each Eligible Holder a cold comfort letter from the independent certified
public accountants of the Company in customary form and substance.
(h) In the event of a registration pursuant to the
provision of this Section 9, the Company and each Eligible Holder shall enter
into a cross-indemnity agreement and a contribution agreement, each in
customary form, with each underwriter, if any, and, if requested, enter into an
underwriting agreement containing conventional representations, warranties,
allocation of expenses, and customary closing conditions, including, without
limitation, opinions of counsel and accountants' cold comfort letters, with any
underwriter who acquires any Registrable Securities.
(i) The Company agrees that, after the completion of its
initial public offering and until all the Registrable Securities have been sold
under a registration statement or pursuant
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<PAGE> 15
to Rule 144 under the Act, it shall keep current in filing all reports,
statements and other materials required to be filed with the Commission to
permit holders of the Registrable Securities to sell such securities under Rule
144.
(j) Except for rights granted to holders of the Warrants,
any warrants issued or issuable to Barington or its designees in connection
with this Offering or any other public or private offering, and the Notes, the
Company will not grant to any persons the right to request the Company to
register any securities of the Company without the written consent of the
Majority Holders, provided that the Company may grant such registration rights
to other persons so long as such rights are pari passu or subordinate to the
rights of the holders of the Registrable Securities.
10. (a) Subject to the conditions set forth below, the
Company agrees to indemnify and hold harmless each Eligible Holder, its
officers, directors, partners, employees, agents, and counsel, and each person,
if any, who controls any such person within the meaning of Section 15 of the
Act or Section 20(a) of the Exchange Act, from and against any and all loss,
liability, charge, claim, damage, and expense whatsoever (which shall include,
for all purposes of this Section 10, without limitation, reasonable attorneys'
fees and any and all expense whatsoever incurred in investigating, preparing,
or defending against any litigation, commenced or threatened, or any claim
whatsoever, and any and all amounts paid in settlement of any claim or
litigation), as and when incurred, arising out of, based upon, or in connection
with, (i) any breach of any representation, warranty, covenant, or agreement of
the Company contained in any of the Notes or Warrants, or (ii) any untrue
statement or alleged untrue statement of a material fact contained (A) in any
registration statement, preliminary prospectus, or final prospectus (as from
time to time amended and supplemented), or any amendment or supplement thereto,
relating to the sale of any of the Registrable Securities, or (B) in any
application or other document or communication (in this Section 10 collectively
called an "application") executed by or on behalf of the Company or based upon
written information furnished by or on behalf of the Company filed in any
jurisdiction in order to register or qualify any of the Registrable Securities
under the securities or blue sky laws thereof or filed with the Commission or
any securities exchange, or any omission or alleged omission to state a
material fact required to be stated therein or necessary to make the statements
therein not misleading, unless such statement or omission was made in reliance
upon and in conformity with written information furnished to the Company with
respect to such Eligible Holder by or on behalf of such person expressly for
inclusion in any registration statement, preliminary prospectus, or final
prospectus, or any amendment or supplement thereto, or in any application, as
the case may be. The foregoing agreement to indemnify shall be in addition to
any liability the Company may otherwise have, including liabilities arising
under any of the Notes or Warrants.
If any action is brought against any Eligible Holder or any of its
officers, directors, partners, employees, agents, or counsel, or any
controlling persons of such person (an "indemnified party") in respect of which
indemnity may be sought against the Company pursuant to the foregoing
paragraph, such indemnified party or parties shall promptly notify the Company
in writing of the institution of such action (but the failure so to notify
shall not relieve the Company from any liability under this Section 10(a)
unless the Company shall have been materially prejudiced
-15-
<PAGE> 16
by such failure or relieve the Company from any liability other than pursuant
to this Section 10(a)) and the Company shall promptly assume the defense of
such action, including the employment of counsel (reasonably satisfactory to
such indemnified party or parties) and payment of expenses. Such indemnified
party or parties shall have the right to employ its or their own counsel in any
such case, but the fees and expenses of such counsel shall be at the expense of
such indemnified party or parties unless the employment of such counsel shall
have been authorized in writing by the Company in connection with the defense
of such action or the Company shall not have employed counsel reasonably
satisfactory to such indemnified party or parties to have charge of the defense
of such action or such indemnified party or parties shall have reasonably
concluded that there may be one or more legal defenses available to it or them
or to other indemnified parties which are different from or additional to those
available to the Company, in any of which events such fees and expenses shall
be borne by the Company and the Company shall not have the right to direct the
defense of such action on behalf of the indemnified party or parties. Anything
in this Section 10 to the contrary notwithstanding, the Company shall not be
liable for any settlement of any such claim or action effected without its
written consent, which shall not be unreasonably withheld. The Company agrees
promptly to notify the Eligible Holders of the commencement of any litigation
or proceedings against the Company or any of its officers or directors in
connection with the sale of any Registrable Securities or any preliminary
prospectus, prospectus, registration statement, or amendment or supplement
thereto, or any application relating to any sale of any Registrable Securities.
(b) The Holder agrees to indemnify and hold harmless the
Company, each director of the Company, each officer of the Company who shall
have signed any registration statement covering Registrable Securities held by
the Holder, each other person, if any, who controls the Company within the
meaning of Section 15 of the Act or Section 20(a) of the Exchange Act, and its
or their respective counsel, to the same extent as the foregoing indemnity from
the Company to the Eligible Holders in Section 10(a), but only with respect to
statements or omissions, if any, made in any registration statement,
preliminary prospectus, or final prospectus (as from time to time amended and
supplemented), or any amendment or supplement thereto, or in any application,
in reliance upon and in conformity with written information furnished to the
Company with respect to the Holder by or on behalf of the Holder expressly for
inclusion in any such registration statement, preliminary prospectus, or final
prospectus, or any amendment or supplement thereto, or in any application, as
the case may be. If any action shall be brought against the Company or any
other person so indemnified based on any such registration statement,
preliminary prospectus, or final prospectus, or any amendment or supplement
thereto, or in any application, and in respect of which indemnity may be sought
against the Holder pursuant to this Section 10(b), the Holder shall have the
rights and duties given to the Company, and the Company and each other person
so indemnified shall have the rights and duties given to the indemnified
parties, by the provisions of Section 10(a).
(c) To provide for just and equitable contribution, if
(i) an indemnified party makes a claim for indemnification pursuant to Section
10(a) or 10(b) (subject to the limitations thereof) but it is found in a final
judicial determination, not subject to further appeal, that such
indemnification may not be enforced in such case, even though this Warrant
expressly provides for
-16-
<PAGE> 17
indemnification in such case, or (ii) any indemnified or indemnifying party
seeks contribution under the Act, the Exchange Act or otherwise, then the
Company (including for this purpose any contribution made by or on behalf of
any director of the Company, any officer of the Company who signed any such
registration statement, any controlling person of the Company, and its or their
respective counsel), as one entity, and the Eligible Holders of the Registrable
Securities included in such registration in the aggregate (including for this
purpose any contribution by or on behalf of an indemnified party), as a second
entity, shall contribute to the losses, liabilities, claims, damages, and
expenses whatsoever to which any of them may be subject, on the basis of
relevant equitable considerations such an the relative fault of the Company and
such Eligible Holders in connection with the facts which resulted in such
losses, liabilities, claims, damages, and expenses. The relative fault, in the
case of an untrue statement, alleged untrue statement, omission, or alleged
omission, shall be determined by, among other things, whether such statement,
alleged statement, omission, or alleged omission relates to information
supplied by the Company or by such Eligible Holders, and the parties' relative
intent, knowledge, access to information, and opportunity to correct or prevent
such statement, alleged statement, omission, or alleged omission. The Company
and the Holder agree that it would be unjust and inequitable if the respective
obligations of the Company and the Eligible Holders for contribution were
determined by pro rata or per capita allocation of the aggregate losses,
liabilities, claims, damages, and expenses (even if the Eligible Holders and
the other indemnified parties were treated as one entity for such purpose) or
by any other method of allocation that does not reflect the equitable
considerations referred to in this Section 10(c). In no case shall any
Eligible Holder be responsible for a portion of the contribution obligation
imposed on all Eligible Holders in excess of its pro rata share based on the
number of shares of Common Stock owned (or which would be owned upon exercise
of all Registrable Securities) by it and included in such registration an
compared to the number of shares of Common Stock owned (or which would be owned
upon exercise of all Registrable Securities) by all Eligible Holders and
included in such registration. No person guilty of a fraudulent
misrepresentation (within the meaning of Section 11(f) of the Act) shall be
entitled to contribution from any person who is not guilty of such fraudulent
representation. For purposes of this Section 10(c), each person, if any, who
controls any Eligible Holder within the meaning of Section 15 of the Act or
Section 20(a) of the Exchange Act and each officer, director, partner,
employee, agent, and counsel of each such Eligible Holder or control person
shall have the same rights to contribution as each Eligible Holder or control
person and each person, if any, who controls the Company within the meaning of
Section 15 of the Act or Section 20(a) of the Exchange Act, each officer of the
Company who shall have signed any such registration statement, each director of
the Company, and its or their respective counsel shall have the same rights to
contribution as the Company, subject in each case to the provisions of this
Section 10(c). Anything in this Section 10(c) to the contrary notwithstanding,
no party shall be liable for contribution with respect to the settlement of any
claim or action effected without its written consent. This Section 10(c) is
intended to supersede any right to contribution under the Act, the Exchange Act
or otherwise.
11. Unless registered pursuant to the provisions of Section 9
hereof, the Warrant Shares issued upon exercise of the Warrants shall be
subject to a stop transfer order and the certificate or certificates evidencing
such Warrant Shares shall bear the following legend:
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<PAGE> 18
"THE SHARES REPRESENTED BY THIS CERTIFICATE
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE "ACT"), OR ANY STATE SECURITIES
LAWS AND NEITHER SUCH SECURITIES NOR ANY INTEREST
THEREIN MAY BE OFFERED, SOLD, PLEDGED, ASSIGNED OR
OTHERWISE TRANSFERRED UNLESS (1) A REGISTRATION
STATEMENT WITH RESPECT THERETO IS EFFECTIVE UNDER THE
ACT AND ANY APPLICABLE STATE SECURITIES LAWS, OR (2)
THE COMPANY RECEIVES AN OPINION OF COUNSEL TO THE
HOLDER OF SUCH SECURITIES, WHICH COUNSEL AND OPINION
ARE REASONABLY SATISFACTORY TO THE COMPANY, THAT SUCH
SECURITIES MAY BE OFFERED, SOLD, PLEDGED, ASSIGNED OR
TRANSFERRED IN THE MANNER CONTEMPLATED WITHOUT AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT OR
APPLICABLE STATE SECURITIES LAWS."
12. Upon receipt of evidence satisfactory to the Company of the
loss, theft, destruction, or mutilation of any Warrant (and upon surrender of
any Warrant if mutilated), including an affidavit of the Holder thereof that
this Warrant has been lost, stolen, destroyed or mutilated, together with an
indemnity against any claim that may be made against the Company on account of
such lost, stolen, destroyed or mutilated Warrant, and upon reimbursement of
the Company's reasonable incidental expenses, the Company shall execute and
deliver to the Holder thereof a new Warrant of like date, tenor, and
denomination.
13. The Holder of any Warrant shall not have solely on account of
such status, any rights of a stockholder of the Company, either at law or in
equity, or to any notice of meetings of stockholders or of any other
proceedings of the Company, except as provided in this Warrant.
14. This Warrant shall be construed in accordance with the laws of
the State of New York applicable to contracts made and performed within such
State, without regard to principles governing conflicts of law.
15. The Company irrevocably consents to the jurisdiction of the
courts of the State of New York and of any federal court located in such State
in connection with any action or proceeding arising out of or relating to this
Warrant, any document or instrument delivered pursuant to, in connection with
or simultaneously with this Warrant, or a breach of this Warrant or any such
document or instrument. In any such action or proceeding, the Company waives
personal service of any summons, complaint or other process and agrees that
service thereof may be made in accordance with Section 7(b) of the Subscription
Agreement. Within 30 days after such service, or such other time as may be
mutually agreed upon in writing by the attorneys for the parties to such action
or proceeding, the Company shall appear to answer such summons, complaint or
other process.
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<PAGE> 19
16. Any notice or other communication required or permitted to be
given hereunder shall be in writing and shall be mailed by certified mail,
return receipt requested, or by Federal Express, Express Mail or similar
overnight delivery or courier service or delivered (in person or by telecopy,
telex or similar telecommunications equipment) against receipt to the party to
whom it is to be given, (i) if to the Company, at Objective Communications,
Inc., 14100 Park Meadow Drive, Chantilly, VA 20151, Attention: President, (ii)
if to the Holder, at its address set forth on the first page hereof, or (iii)
in either case, to such other address as the party shall have furnished in
writing in accordance with the provisions of this Section 16. Notice to the
estate of any party shall be sufficient if addressed to the party as provided
in this Section 16. Any notice or other communication given by certified mail
shall be deemed given at the time of certification thereof, except for a notice
changing a party's address which shall be deemed given at the time of receipt
thereof. Any notice given by other means permitted by this Section 16 shall be
deemed given at the time of receipt thereof.
17. No course of dealing and no delay or omission on the part of
the Holder in exercising any right or remedy shall operate as a waiver thereof
or otherwise prejudice the Holder's rights, powers or remedies. No right,
power or remedy conferred by this Warrant upon the Holder shall be exclusive of
any other right, power or remedy referred to herein or now or hereafter
available at law, in equity, by statute or otherwise, and all such remedies may
be exercised singly or concurrently.
18. This Warrant may be amended or any of its provisions waived
only by a written consent or consents executed by the Company and Holders of
Warrants representing a majority of the Warrants issued to investors pursuant
to the Memorandum. Any amendment or waiver shall be binding upon all future
Holders.
Dated: October 18, 1996
OBJECTIVE COMMUNICATIONS, INC.
By:
--------------------------------
Name: Steven A. Rogers
Title: President & CEO
- ----------------------------------
Robert Emery, Secretary
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<PAGE> 20
FORM OF ASSIGNMENT
(To be executed by the registered holder if such holder desires to transfer the
attached Warrant.)
FOR VALUE RECEIVED, ____________________________ hereby sells,
assigns, and transfers unto _________________________ a Warrant to purchase
________ shares of Common Stock, $.01 par value per share, of Objective
Communications, Inc. (the "Company"), together with all right, title, and
interest therein, and does hereby irrevocably constitute and appoint
________________________ attorney to transfer such Warrant on the books of the
Company, with full power of substitution.
Dated:
----------------------
Signature
-----------------------------
----------------------------------------
Signature Guarantee
NOTICE
The signature on the foregoing Assignment must correspond to the name
as written upon the face of this Warrant in every particular, without
alteration or enlargement or any change whatsoever.
-20-
<PAGE> 21
To: Objective Communications, Inc.
14100 Park Meadow Drive
Chantilly, VA 20151
ELECTION TO EXERCISE
The undersigned hereby exercises his or its rights to purchase _______
Warrant Shares covered by the within Warrant, and tenders payment herewith in
the aggregate amount of $________, including (i) $________ by certified or
bank cashier's check, (ii) $________ by deemed prepayment of Notes held by
________, and/or (iii) cancellation of Warrants to purchase _____ Warrant
Shares based upon a Maximum Number (as therein defined) of ________, in
accordance with the terms thereof, and requests that certificates for such
securities be issued in the name of, and delivered to:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(Print Name, Address and Social Security
or Tax Identification Number)
and, if such number of Warrant Shares shall not be all the Warrant Shares
covered by the within Warrant and the remaining portion of the within Warrant
be not cancelled in payment of the Exercise Price, that a new Warrant for the
balance of the Warrant Shares covered by the within Warrant be registered in
the name of, and delivered to, the undersigned at the address stated below.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(Print Name, Address and Social Security
or Tax Identification Number)
Dated: Name:
------------------------- ---------------------------------
(Print)
Address:
-----------------------------------------------------------------------
----------------------------------------
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<PAGE> 22
(Signature)
-----------------------------------------------
(Signature Guarantee)
-----------------------------------------------
(Signature Guarantee)
-22-
<PAGE> 1
EXHIBIT 3.5
FORM OF WARRANT
THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933 AND HAVE BEEN TAKEN FOR INVESTMENT PURPOSES ONLY AND NOT
WITH A VIEW TO THE DISTRIBUTION THEREOF AND SUCH SECURITIES MAY NOT BE SOLD OR
TRANSFERRED UNLESS THERE IS AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT
COVERING SUCH SECURITIES OR THE ISSUER CORPORATION RECEIVES AN OPINION OF
COUNSEL (WHICH MAY BE COUNSEL FOR THE ISSUER CORPORATION) WHICH IS SATISFACTORY
TO THE ISSUER CORPORATION (BOTH AS TO THE ISSUER OF THE OPINION AND THE FORM
AND SUBSTANCE THEREOF) STATING THAT SUCH SALE OR TRANSFER IS EXEMPT FROM THE
REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS OF SUCH ACT. THE SECURITIES
TO BE ISSUED UPON EXERCISE OF THIS WARRANT HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT. THIS WARRANT MAY NOT BE EXERCISED UNLESS SUCH SECURITIES ARE
REGISTERED UNDER THE SECURITIES ACT OR AN EXEMPTION FROM SUCH REGISTRATION IS
AVAILABLE.
WARRANT TO PURCHASE UP TO
SHARES OF COMMON STOCK
-------
NO.
------
WARRANT TO PURCHASE
COMMON STOCK
OF OBJECTIVE COMMUNICATIONS, INC.
This certifies that, for good and valuable consideration, _____________________
is entitled to purchase from Objective Communications, Inc., a corporation
incorporated under the laws of the State of Delaware (the "Company"), subject
to the terms and conditions hereof, at any time on or after 9:00 A.M., Eastern
Standard time, on _______, 1997, and before 5:00 P.M., Eastern Standard time,
on _______, 2001 (or, if such day is not a Business Day, at or before 5:00
P.M., Eastern Standard time, on the next following Business Day), the number of
fully paid and non-assessable shares of Common Stock stated above at the
Exercise Price herein. The Exercise Price and the number of shares purchasable
hereunder are subject to adjustment as provided in Article III hereof.
<PAGE> 2
ARTICLE I
DEFINITIONS
SECTION 1.01 DEFINITION OF TERMS. As used in this Warrant, the
following capitalized terms shall have the following respective meanings:
(a) Business Day: A day other than a Saturday, Sunday or other
day on which banks in the Commonwealth Of Virginia are authorized by law to
remain closed.
(b) Common Stock: Common Stock, $.01 par value per share, of
the Company.
(c) Exercise Price: $4.00 per Warrant Share, as such price may
be adjusted from time to time pursuant to Article III hereof.
(d) Expiration Date: 5:00 P.M., Eastern Standard time, on
________, 2002 or if such day is not a Business Day, the next succeeding day
which is a Business Day.
(e) Holder: A holder of outstanding Warrants.
(f) Person: An individual, partnership, joint venture,
corporation, trust, unincorporated organization or government or any department
or agency thereof.
(g) Public Offering: A public offering of the Company's Common
Stock pursuant to a registration statement filed with, and declared effective
by, the Securities and Exchange Commission under the Securities Act.
(h) Securities Act: The Securities Act of 1933, as amended.
(i) [Subscription Agreements: The Subscription Agreements
between the Company and various investors, each executed in connection with
the Company's offer of units pursuant to the Company's March 31, 1995
Confidential Private Placement Memorandum.]
(j) Transfer: See Section 5.01.
(k) Warrants: This Warrant, all other warrants issued pursuant
to the [Subscription Agreements ] and all other warrants that may be issued in
its or their place (together evidencing the right to purchase an aggregate of
____________(__) shares of Common Stock).
(l) Warrantholder: The person or entity to whom this Warrant
is originally issued, or any successor in interest thereto, or any assignee or
transferee thereof, in whose name this Warrant is registered upon the books to
be maintained by the Company for that purpose.
(m) Warrant Shares: Common Stock purchasable upon exercise of
the Warrants.
2
<PAGE> 3
ARTICLE II
DURATION AND EXERCISE OF WARRANT
SECTION 2.01 DURATION OF WARRANT. The Warrantholder may exercise
this Warrant at any time and from time to time and from time to time after 9:00
A.M., Eastern Standard time, on _________, 1997, and before 5:00 P.M., Eastern
Standard time, on the Expiration Date. If this Warrant is not exercised on the
Expiration Date, it shall become void, and all rights hereunder shall thereupon
cease, and the Warrantholder shall not be entitled to receive any payment or
other compensation from the Company in respect thereto.
SECTION 2.02 EXERCISE OF WARRANT.
(a) The Warrantholder may exercise this Warrant, in whole or in
part, by presentation and surrender of this Warrant to the Company at its
corporate office at 14100 Park Meadow Drive, Chantilly, Virginia 20151, or such
other address at which the Company's principal executive offices are then
located, or at the office of its stock transfer agent, if any, with the
Subscription Form annexed hereto duly executed and accompanied by payment of
the full Exercise Price for each Warrant Share to be purchased.
(b) Upon receipt of this Warrant with the Subscription Form duly
executed and accompanied by payment of the aggregate Exercise Price for the
Warrant Shares for which this Warrant is then being exercised, the Company
shall cause to be issued certificates for the total number of whole shares of
Common Stock for which this Warrant is being exercised (adjusted to reflect the
effect of the provisions contained in Article III hereof, if any) in such
denominations as are requested for delivery to the Warrantholder, and the
Company shall thereupon deliver such certificates to the Warrantholder. The
Warrantholder shall be deemed to be the holder of record of the Shares of
Common Stock issuable upon such exercise, notwithstanding that the stock
transfer books of the Company shall then be closed or that certificates
representing such shares of Common Stock shall not then be actually delivered
to the Warrantholder. If at the time this Warrant is exercised, a registration
statement is not in effect to register under the Securities Act the Warrant
Shares issuable upon exercise of this Warrant, the Company may require the
Warrantholder to make such investment intent and other representations, and to
provide the Company with an opinion of counsel to the effect that the issuance
of the Warrant Shares is exempt from registration under the Securities Act
(which may be counsel for the Company) and may place such legends on
certificates representing the Warrant Shares, as may be reasonably required in
the opinion of counsel to the Company, to permit the Warrant Shares to be
issued without such registration.
3
<PAGE> 4
(c) In case the Warrantholder shall exercise this Warrant with
respect to less than all of the Warrant Shares that may be purchased under this
Warrant, the Company shall execute a new warrant in the form of this Warrant
for the balance of such Warrant Shares and deliver such new warrant to the
Warrantholder.
SECTION 2.03 RESERVATION OF SHARES. The Company hereby agrees that
at all times there shall be reserved for issuance and delivery upon exercise of
this Warrant such number of shares of Common Stock or other shares of capital
stock of the Company from time to time issuable upon exercise of this Warrant.
All such shares shall be duly authorized, and when issued upon such exercise,
shall be validly issued, fully paid and nonassessable, free and clear of all
liens, security interests, charges and other encumbrances or restrictions on
sale and free and clear of all preemptive rights.
SECTION 2.04 FRACTIONAL SHARES. The Company shall not be required to
issue any fraction of a share of its capital stock in connection with the
exercise of this Warrant, and in any case where the Warrantholder would, except
for the provisions of this Section 2.04, be entitled under the terms of this
Warrant to receive a fraction of a share upon the exercise of this Warrant, the
Company shall, upon the exercise of this Warrant and receipt of the Exercise
Price, issue only the largest number of whole shares purchasable upon exercise
of this Warrant. The Company shall not be required to make any cash or other
adjustment in respect to such fraction of a share to which the Warrantholder
would otherwise be entitled, but shall return to the Warrantholder that portion
of the Exercise Price that represents such fraction of a share.
ARTICLE III
ADJUSTMENT OF SHARES OF COMMON STOCK PURCHASABLE
AND OF EXERCISE PRICE
The Exercise Price and the number and kind of Warrant Shares shall be
subject to adjustment from time to time upon the happening of certain events as
provided in this Article III.
SECTION 3.01 MECHANICAL ADJUSTMENT.
(a) If at any time prior to the exercise of this Warrant in full,
the Company shall (i) declare a dividend or make a distribution on the Common
Stock payable in shares of its capital stock (whether shares of Common Stock or
of capital stock of any other class); (ii) subdivide, reclassify or
recapitalize its outstanding Common Stock into a greater number of shares;
(iii) combine, reclassify or recapitalize its outstanding Common Stock into a
smaller number of shares; or (iv) issue any shares of its capital stock by
reclassification of its Common Stock (including any such reclassification in
connection with a consolidation or a merger in which the Company is the
continuing corporation), the Exercise Price in effect at the time of the record
date of such dividend, distribution, subdivision, combination, reclassification
or recapitalization (each such event being referred to herein as an "adjustment
event") shall be adjusted to the price (calculated to the nearest cent)
determined by dividing (1) an amount equal to the number of shares of Common
4
<PAGE> 5
Stock outstanding on such record date multiplied by the Exercise Price in
effect on such record date by (2) the total number of shares of Common Stock
outstanding and deemed outstanding immediately after such adjustment event.
Any adjustment required by this paragraph 3.01(a) shall be made successively
immediately after the record date, in the case of a dividend or distribution,
or the effective date, in the case of a subdivision, combination,
recapitalization or reclassification, to allow the purchase of such aggregate
number and kind of shares.
(b) Whenever the Exercise Price payable upon exercise of each
Warrant is adjusted pursuant to paragraph (a) of this Section 3.01, the Warrant
Shares shall simultaneously be adjusted (to the nearest whole share) by
multiplying the number of Warrant Shares initially issuable upon exercise of
each Warrant by the Exercise Price in effect on the date thereof and dividing
the product so obtained by the Exercise Price, as adjusted.
(c) Notwithstanding anything in this Section 3.01 to the contrary,
the Exercise Price shall not be reduced to less than the then existing par
value of the Common Stock as a result of any adjustment made hereunder.
SECTION 3.02 NOTICE OF ADJUSTMENT. Whenever the number of Warrant
Shares or the Exercise Price is adjusted as herein provided, the Company shall
prepare and deliver to the Warrantholder a certificate signed by its President,
setting forth the adjusted number of shares purchasable upon the exercise of
this Warrant and the Exercise Price of such shares after such adjustment,
setting forth a brief statement of the facts requiring such adjustment and
setting forth the computation by which adjustment was made.
SECTION 3.03 NO ADJUSTMENT FOR CASH DIVIDEND. No adjustment in
respect of any cash dividends shall be made during the term of this Warrant.
SECTION 3.04 PRESERVATION OF PURCHASE RIGHTS IN CERTAIN TRANSACTIONS.
In case of any reclassification, capital reorganization or other change of
outstanding shares of Common Stock (other than subdivision or combination of
the outstanding Common Stock and other than a change in the par value of the
common Stock) or in case of any consolidation or merger of the Company with or
into another corporation (other than a merger with a subsidiary in which the
Company is the continuing corporation and that does not result in any
reclassification, capital reorganization or other change of outstanding shares
of Common Stock of the class issuable upon exercise of this Warrant) or in the
case of any sale, lease transfer or conveyance to another corporation of the
property and assets of the Company as an entirety or substantially as an
entirety, the Company shall, as a condition precedent to such transaction,
cause such successor or purchasing corporation, as the case may be, to execute
with the Warrantholder an agreement granting the Warrantholder the right
thereafter, upon payment of the Exercise Price in effect immediately prior to
such action, to receive upon exercise of this Warrant the kind and amount of
shares and other securities and property,
5
<PAGE> 6
which he would have owned or have been entitled to receive after the happening
of such reclassification, change, consolidation, merger, sale or conveyance had
this Warrant been exercised immediately prior to such action. Such agreement
shall provide for adjustments in respect of such shares of stock and other
securities and property, which shall be as nearly equivalent as may be
practicable to the adjustments provided for in this Article III. In the event
that in connection with any such reclassification, capital reorganization,
change, consolidation, merger, sale or conveyance, additional shares of Common
Stock shall be issued in exchange, conversion, substitution or payment, in
whole or in part, for, or of, a security of the company other than Common
Stock, any such issue shall be treated as an issue of Common Stock covered by
the provisions of this Article III. The provisions of this Section 3.04 shall
similarly apply to successive reclassifications, capital reorganizations,
consolidations, mergers, sales or conveyances. Notwithstanding anything to the
contrary contained herein, the terms of this Section 3.04 shall not apply to
any transaction in which the Company and/or the Company stockholders receive as
consideration: (i) cash or cash equivalent, or (ii) stock of any company which
is publicly traded on a nationally recognized exchange; provided that the
average of the per share closing prices of such stock as reported on any
national exchange during the twenty (20) trading days immediately preceding the
execution of a definitive agreement with respect to the transaction is at least
three times the Exercise Price of this Warrant. In the event that the
consideration to be received by the holders of the Company's securities then
issuable upon exercise of this Warrant in connection with such transaction is
cash, upon consummation of the transaction the Warrantholder shall be entitled
to receive the difference between (i) the amount of cash he would have been
entitled to receive if he had exercised this Warrant immediately before the
consummation of the transaction and (ii) the product of the per share Exercise
Price and the number of Warrant Shares. In the event that the Company executes
a definitive agreement with respect to a transaction in which the holders of
the Company's securities then issuable upon exercise of this Warrant are
entitled to receive stock as described in clause (ii) above, it shall, not
later than 30 days prior to the consummation of the transaction, give the
Warrantholder notice specifying the terms of the transaction and the date on
which the Warrant shall expire pursuant to the following sentence. Provided
the Company gives such notice, this Warrant shall expire on the date specified
in the notice, which date shall not be earlier than the date of consummation of
the transaction. In the event that the transaction is not consummated, this
Warrant shall remain exercisable until the Expiration Date, and if the Warrant
was exercised after such notice, the Company shall at the request of the
Warrantholder and upon tender of the Warrant Shares issued upon such exercise
return to the Warrantholder all consideration paid upon such exercise of the
Warrant.
SECTION 3.05 FORM OF WARRANT AFTER ADJUSTMENTS. The form of this
Warrant need not be changed because of any adjustments in the Exercise Price or
the number or kind of the Warrant Shares, and Warrants theretofore or
thereafter issued may continue to express the same price and number and kind of
shares as are stated in this Warrant, as initially issued.
SECTION 3.06 TREATMENT OF WARRANTHOLDER. Prior to due presentment for
registration of transfer of this Warrant, the Company may deem and treat the
Warrantholder as the absolute owner of this Warrant (notwithstanding any
notation of ownership or other writing hereon) for all purposes and shall not
be affected by any notice to the contrary.
6
<PAGE> 7
ARTICLE IV
OTHER PROVISIONS RELATING TO
RIGHTS OF WARRANT HOLDER
SECTION 4.01 NO RIGHTS AS SHAREHOLDERS; NOTICE TO WARRANTHOLDERS.
Nothing contained in this Warrant shall be construed as conferring upon the
Warrantholder of his transferees the right to vote or to receive dividends or
to consent or to receive notice as a shareholder in respect of any meeting of
shareholders for the election of directors of the Company or of any other
matter, or any rights whatsoever as shareholders of the Company. The Company
shall give notice to the Warrantholder by registered mail if at any time prior
to the expiration or exercise in full of the Warrants, any of the following
events shall occur:
(a) The Company shall authorize the payment of any dividend
payable in any securities upon shares of Common Stock or authorize the making
of any distribution to the holders of shares of Common Stock;
(b) The Company shall authorize the issuance to all holders of
Common Stock of any additional shares of Common Stock or of rights, options or
warrants to subscribe for or purchase Common Stock or of any other subscription
rights, options or warrants;
(c) A dissolution, liquidation or winding up of the Company (other
than in connection with a consolidation, merger, or sale or conveyance of the
property of the Company as an entirety or substantially as an entirety); or
(d) A capital reorganization or reclassification of the Common
Stock (other than a subdivision or combination of the outstanding Common Stock
and other than a change in the par value of the Common Stock) or any
consolidation or merger of the Company with or into another corporation (other
than a consolidation or merger in which the Company is the continuing
corporation and that does not result in any reclassification or change of
Common Stock outstanding) or in the case of any sale or conveyance to another
corporation of the property of the Company as an entirety or substantially an
entirety.
Such giving of notice shall be initiated at least 10 Business Days
prior to the date fixed as a record date or effective date or the date of
closing of the Company's stock transfer books for the determination of the
shareholders entitled to such dividend, distribution, or subscription rights,
or for the determination of the shareholders entitled to vote on such proposed
merger, consolidation, sale conveyance, dissolution, liquidation or winding up.
Such notice shall specify such record date or the date of the closing of the
stock transfer books, as the case may be. Failure to provide such notice shall
not affect the validity of any action taken in connection with such dividend,
distribution or subscription rights, or proposed merger consolidation, sale,
conveyance, dissolution, liquidation or winding up.
SECTION 4.02 LOST, STOLEN, MUTILATED OR DESTROYED WARRANTS. If this
Warrant is lost, stolen, mutilated or destroyed, the Company shall, on such
terms as to indemnification or
7
<PAGE> 8
otherwise as it may in its discretion impose (which may include receipt of
evidence satisfactory to the Company of such loss, theft, or destruction and
which shall, in the case of a mutilated Warrant, include the surrender
thereof), issue a new Warrant of like denomination and tenor as, and in
substitution for, this Warrant.
ARTICLE V
RESTRICTIONS ON TRANSFER OF WARRANTS
SECTION 5.01 RESTRICTIONS ON TRANSFER. Neither this Warrant nor the
Warrant Shares may be disposed of or encumbered (any such action, a "Transfer")
unless such Transfer is in compliance with the provisions of the Securities Act
and the rules and regulations promulgated thereunder and any other applicable
laws or regulations.
ARTICLE VI
OTHER MATTERS
SECTION 6.01 AMENDMENTS AND WAIVERS. The provisions of this Warrant,
including the provision of this sentence, may not be amended, modified or
supplemented, and waiver or consents to departures from the provisions hereof
may not be given, unless the Company has obtained the written consent of
holders of at least a majority-in-interest of the outstanding Warrants.
Whenever in this Agreement such consent is required, such consent may be
effected by any available legal means, including without limitation at a
special or regular meeting, by written consent or otherwise. Holders shall be
bound by any consent agreed to by a majority-in-interest of the Holders,
whether or not certificates representing such Warrants have been marked to
indicate such consent.
SECTION 6.02 NOTICE. Any notices or certificates by the Company to
the Holder and by the Holder to the Company shall be deemed delivered if in
writing and delivered in person or by registered mail (return receipt
requested) to the Holder addressed to him at the address which Holder has
designated in writing to the Company, and if to the Company, addressed to it
at:
Objective Communications, Inc.
14100 Park Meadow Drive
Chantilly, Virginia 20151
Attention: Steven A. Rogers, President and Chief Executive
Officer
The Company may change its address by written notice to the Holder and
the Holder may change its address by written notice to the Company.
8
<PAGE> 9
IN WITNESS WHEREOF, this Warrant has been duly executed by the Company
as of the _____ day of ____________, 1997.
OBJECTIVE COMMUNICATIONS, INC., a
Delaware corporation
By:
-----------------------------------
Name: Steven A. Rogers
Title: President and Chief Executive Officer
9
<PAGE> 10
SUBSCRIPTION FORM
(TO BE EXECUTED UPON EXERCISE OF WARRANT)
Objective Communications, Inc.
The undersigned hereby irrevocably elects to exercise the right of
purchase represented by the within Warrant Certificate for, and to purchase
thereunder, ________________ (___) shares of Common Stock, as provided for
therein, and tenders herewith payment of the purchase price in full in the form
of cash or a certified or official bank check in the amount of $_____________
(the "Exercise Price").
The undersigned represents and warrants that the Common Stock being
acquired upon exercise of the within Warrant Certificate will be acquired for
the undersigned's own account without a view to public distribution or resale,
and that the undersigned has no contract, undertaking, agreement or arrangement
to sell or otherwise transfer or dispose of any of the Common Stock or any
portion thereof to any other person.
The undersigned understands and acknowledges that the Common Stock has
not been registered under the Securities Act of 1933, as amended (the "1933
Act"), or the securities laws of any state and is therefore a "restricted
security" and agrees not to sell or otherwise transfer or dispose of any of the
Common Stock or any portion thereof unless the Common Stock is registered under
the 1933 Act and any and all applicable state securities laws or the
undersigned obtains an opinion of counsel which is satisfactory to the Company
that the Common Stock may be sold in reliance on an exemption from such
registration requirements.
Please issue a certificate or certificates for such Common Stock in the
name of, and return that portion of the Exercise Price representing any
fractional shares to:
(Please print Name, Address and Social Security No.)
Name:
-----------------------------
Address:
-----------------------------
-----------------------------
Social Security No.:
------------------
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<PAGE> 11
If the foregoing number of shares shall not be all the shares
purchasable under the within Warrant Certificate, a new Warrant Certificate is
to be issued in the name of said undersigned for the balance remaining of the
shares purchasable.
Signature
----------------------------------------
The above signature should correspond ex-
actly with the name on the first page of
this Warrant Certificate.
11
<PAGE> 1
EXHIBIT 3.6
THIS WARRANT AND THE SHARES OF COMMON STOCK PURCHASABLE HEREUNDER HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933 AND MAY NOT BE SOLD, OFFERED FOR
SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT FILED UNDER SAID ACT AND ANY APPLICABLE STATE SECURITIES LAWS, UNLESS
AN EXEMPTION FROM SUCH REGISTRATION IS AVAILABLE.
August 14, 1996
OBJECTIVE COMMUNICATIONS, INC.
COMMON STOCK PURCHASE WARRANT
WARRANT TO PURCHASE 67,500 SHARES OF COMMON STOCK
EXPIRING AUGUST 31, 2001
THIS CERTIFIES THAT, for value received, Adelson Investment Company or
its successors or assigns (collectively, the "Warrant Holder"), at any time and
from time to time on any Business Day on or prior to 5:00 p.m., Pacific Time,
on August 31, 2001 (the "Expiration Date") is entitled to subscribe for and
purchase from Objective Communications, Inc., a Delaware corporation (the
"Company"), 67,500 shares of Common Stock at a price per share equal to the
Exercise Price; provided that the number of shares of Common Stock issuable
upon any exercise of this Warrant and the Exercise Price shall be adjusted and
readjusted from time to time in accordance with Section 5.
1. Certain Definitions.
The following terms, as used herein, have the following meanings:
"Affiliate" means, with respect to any Person, any other Person that
directly or indirectly controls, is controlled by, or is under common control
with such Person.
"Business Day" means any day except a Saturday, Sunday or other day on
which commercial banks in New York City are authorized by law to close.
"Closing Price" means, for any trading day with respect to each share
of Common Stock, (a) the last reported sale price on such day on the principal
national securities exchange on which the Common Stock is listed or admitted to
trading or, if no such reported sale taken place on any such day, the average
of the closing bid and asked prices thereon, as reported in The Wall Street
Journal, or (b) if such Common Stock shall not be listed or admitted to trading
on a national securities exchange, the last reported sales price on the NASDAQ
National Market System or, if no such reported sale takes place on any such
day, the average of the closing bid and asked prices thereon, as reported in
The Wall Street Journal, or (c) if such Common Stock shall not be quoted
<PAGE> 2
on such National Market System nor listed or admitted to trading on a national
securities exchange, then the average of the closing bid and asked prices, as
reported by The Wall Street Journal for the over-the-counter market, or (d) if
there is no public market for such Common Stock the fair market value of a
share of such Common Stock as determined in good faith by the Board of
Directors of the Company after consultation with an independent investment bank
of national repute (whose report will be made available to the Warrant Holder
prior to such determination of fair market value); provided that if clause (a),
(b), or (c) applies and no price is reported in The Wall Street Journal for any
trading day, then the price reported in The Wall Street Journal for the most
recent prior trading day shall be deemed to be the price reported for such
trading day.
"Commission" means the Securities and Exchange Commission or any other
Federal agency administering the Securities Act at the time.
"Common Stock" means the Company's currently authorized common stock,
$.01 par value, and stock of any other class or other consideration into which
such currently authorized common stock may hereafter have been changed.
"Exchange Act" means the Securities Exchange Act of 1934, or any
successor Federal statute, and the rules and regulations of the Commission
thereunder, all as the same shall be in effect at the time. Reference to a
particular section of the Exchange Act shall include a reference to the
comparable section, if any, of any such successor Federal statute.
"Exercise Price" means $4.45 per share, as adjusted from time to time
pursuant to Section 5.
"Market Price" on any day means the unweighted average of the daily
Closing Prices per share of Common Stock for the 20 consecutive trading days
prior to such date; provided that for purposes of the application of Section
5(b) to a Common Stock Distribution pursuant to a public offering registered
under the Securities Act, "Market Price" means the Closing Price per share of
Common Stock for the trading day preceding the effective date of the
registration statement with respect to such public offering.
"Person" means an individual, a corporation, a partnership, an
association, a trust or any other entity or organization, including a
government or political subdivision or an agency or instrumentality thereof.
"Registrable Securities" means any Warrant Shares until (a) a
registration statement under the Securities Act covering such Warrant Shares
shall have been declared effective by the Commission and such Warrant Shares
shall have been disposed of pursuant to such effective registration statement,
(b) such Warrant Shares shall have been sold under circumstances in which all
of the conditions of Rule 144 (or any similar provisions then in force) under
the Securities Act were met or such Warrant Shares may be sold pursuant to Rule
144(k), or (c) such Warrant Shares shall have been otherwise transferred, the
Company shall have delivered one or more certificates or other evidence of
ownership of such Warrant Shares not bearing the legend required pursuant
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<PAGE> 3
to Section 2 and such Warrant Shares may be resold without subsequent
registration under the Securities Act.
"Securities Act" means the Securities Act of 1933, or any successor
Federal statute, and the rules and regulations of the Commission thereunder,
all as the same shall be in effect at the time. Reference to a particular
section of the Securities Act shall include a reference to the comparable
section, if any, of any such successor Federal statute.
"Warrant Shares" means the 67,500 shares of Common Stock issued or
issuable upon exercise of this Warrant, as adjusted from time to time pursuant
to Section 5.
2. Exercise of Warrant.
The Warrant Holder may exercise this Warrant in whole or in part, at
any time or from time to time on any Business Day on or prior to the Expiration
Date, by delivering to the Company a duly executed notice (a "Notice of
Exercise") in the form of Annex A hereto and by payment to the Company of the
Exercise Price per Warrant Share, at the election of the Warrant Holder, either
(a) by wire transfer of immediately available funds to the account of the
Company in an amount equal to the product of (i) the Exercise Price times (ii)
the number of Warrant Shares as to which this Warrant in being exercised or (b)
by receiving from the Company the number of Warrant Shares equal to (i) the
number of Warrant Shares as to which this Warrant is being exercised minus (ii)
the number of Warrant Shares having a value, based on the Closing Price on the
trading day immediately prior to the date of such exercise, equal to the
product of (x) the Exercise Price times (y) the number of Warrant Shares as to
which this warrant is being exercised.
As soon as practicable but not later than five Business Days after the
Company shall have received such Notice of Exercise and payment, the Company
shall execute and deliver or cause to be executed and delivered, in accordance
with such Notice of Exercise, a certificate or certificates representing the
number of shares of Common Stock specified in such Notice of Exercise, issued
in the name of the Warrant Holder or in such other name or names of any Person
or Persons designated in such Notice of Exercise. This Warrant shall be deemed
to have been exercised and such share certificate or certificates shall be
deemed to have been issued, and such Warrant Holder or other Person or Persons
designated in such Notice of Exercise shall be deemed for all purposes to have
become a holder of record of shares of Common Stock, as of the date that such
Notice of Exercise and payment shall have been received by the Company.
The Warrant Holder shall surrender this Warrant Certificate to the
Company when it delivers the Notice of Exercise, and in the event of a partial
exercise of the Warrant, the Company shall execute and deliver to the Warrant
Holder, at the time the Company delivers the share certificate or certificates
issued pursuant to such Notice of Exercise, a new Warrant Certificate for the
unexercised section of the Warrant, but in all other respects identical to this
Warrant Certificate.
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<PAGE> 4
Each certificate for Warrant Shares issued upon exercise of this
Warrant, unless at the time of exercise such Warrant Shares are registered
under the Securities Act, shall bear the following legend:
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933 AND MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR
HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT FILED UNDER SAID ACT AND ANY APPLICABLE STATE
SECURITIES LAWS, UNLESS AN EXEMPTION FROM SUCH REGISTRATION IS
AVAILABLE.
Any certificate for Warrant Shares issued at any time in exchange or
substitution for any certificate bearing such legend (unless at that time such
Warrant Shares are registered under the Securities Act) shall also bear such
legend unless, in the written opinion of counsel selected by the holder of such
certificate (who may be an employee of such holder), which counsel and opinion
shall be reasonably acceptable to the Company, the Warrant Shares represented
thereby need no longer be subject to restrictions on resale under the
Securities Act.
The Company shall not be required to issue fractions of shares of
Common Stock upon an exercise of the Warrant. If any fraction of a share
would, but for this restriction, be issuable upon an exercise of the Warrant,
in lieu of delivering such fractional share, the Company shall pay to the
Warrant Holder, in cash, an amount equal to the same fraction times the Closing
Price on the trading day immediately prior to the date of such exercise.
The Company shall pay all expenses, taxes and owner charges payable in
connection with the preparation, issuance and delivery of certificates for the
Warrant Shares and any new Warrant Certificates, except that if the
certificates for the Warrant Shares or the new Warrant Certificates are to be
registered in a name or names other than the name of the Warrant Holder, funds
sufficient to pay all transfer taxes payable as a result of such transfer shall
be paid by the Warrant Holder at the time of its delivery of the Notice of
Exercise or promptly upon receipt of a written request by the Company for
payment.
3. Investment Representation.
By accepting the Warrant, the Warrant Holder represents that it is
acquiring the Warrant for its own account or the account of an Affiliate for
investment purposes and not with the view to any sale or distribution, and that
the Warrant Holder will not offer, sell or otherwise dispose of the Warrant or
the Warrant Shares except under circumstances as will not result in a violation
of applicable securities laws.
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<PAGE> 5
4. Validity of Warrant and Issuance of Shares.
The Company represents and warrants that this Warrant has been duly
authorized and in validly issued.
The Company further represents and warrants that on that date hereof
it in duly authorized and reserved, and the Company hereby agrees that it will
at all times until the Expiration Date have duly authorized and reserved, such
number of shares of Common Stock as will be sufficient to permit the exercise
in full of the Warrant, and that all such shares are and will be duly
authorized and, when issued upon exercise of the Warrant, will be validly
issued, fully paid and non-assessable, and free and clear of all security
interests, claims, liens, equities and other encumbrances.
5. Antidilution Provisions.
The Exercise Price in effect at any time, and the number of Warrant
Shares that may be purchased upon any exercise of the Warrant, shall be subject
to change or adjustment as follows:
(a) Common Stock Reorganization. If the Company shall
subdivide its outstanding shares of Common Stock into a greater number of
shares, by way of stock split, stock dividend or otherwise, or consolidate its
outstanding shares of Common Stock into a smaller number of shares (any such
event being herein called a "Common Stock Reorganization"), then (i) the
Exercise Price shall be adjusted, effective immediately after the effective
date of such Common Stock Reorganization, to a price determined by multiplying
the Exercise Price in effect immediately prior to such effective date by a
fraction, the numerator of which shall be the number of shares of Common Stock
outstanding on such effective date before giving effect to such Common Stock
Reorganization and the denominator of which shall be the number of shares of
Common Stock outstanding after giving effect to such Common Stock
Reorganization, and (ii) the number of shares of Common Stock subject to
purchase upon exercise of this Warrant shall be adjusted, effective at such
time, to a number determined by multiplying the number of shares of Common
Stock subject to purchase immediately before such Common Stock Reorganization
by a fraction, the numerator of which shall be the number of shares outstanding
after giving effect to such Common Stock Reorganization and the denominator of
which shall be the number of shares of Common Stock outstanding immediately
before giving effect to such Common Stock Reorganization.
(b) Common Stock Distribution.
(i) If the Company shall issue, sell or otherwise
distribute any shares of Common Stock, other than pursuant to a Common Stock
Reorganization (which is governed by Section 5(a)) (any such event, including
any event described in paragraphs (ii) and (iii) below, being herein called a
"Common Stock Distribution"), for a consideration per share less than (x) the
Market Price immediately prior to such Common Stock Distribution or (y) the
Exercise Price then in effect, then, effective upon such Common Stock
Distribution, the Exercise Price shall be
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<PAGE> 6
reduced to a price determined by multiplying the Exercise Price by a fraction,
the numerator of which shall be the sum of (A) the number of shares of Common
Stock outstanding immediately prior to such Common Stock Distribution
multiplied by the higher of such Market Price and the, Exercise Price, plus (B)
the consideration, if any, received by the Company upon such Common Stock
Distribution, and the denominator of which shall be the product of (1) the
total number of shares of Common Stock outstanding immediately after such
Common Stock Distribution multiplied by (2) the higher of such Market Price and
the Exercise Price.
If any Common Stock Distribution shall require an adjustment to the
Exercise Price pursuant to the foregoing provisions of this Section 5(b),
including by operation of paragraph (ii) or (iii) below, then, effective at the
time such adjustment is made, the number of shares of Common Stock subject to
purchase upon exercise of this Warrant shall be increased to a number
determined by multiplying the number of shares of Common Stock subject to
purchase immediately before such Common Stock Distribution by a fraction, the
numerator of which shall be the Exercise Price in effect immediately prior to
such event and the denominator of which shall be the Exercise Price as adjusted
in accordance with this Section 5(b). In computing adjustments under this
paragraph, fractional interests in Common Stock shall be taken into account to
the nearest one-thousandth of a share.
The provisions of this Section 5(b), including by operation of
paragraph (ii) or (iii) below, shall not operate to increase the Exercise Price
or reduce the number of shares of Common Stock subject to purchase upon
exercise of this Warrant.
(ii) If the Company shall issue, sell, distribute
or otherwise grant in any manner (including by assumption) any rights to
subscribe for or to purchase, or any warrants or options for the purchase of
Common Stock or any stock or securities convertible into or exchangeable for
Common Stock (such rights, warrants or options being herein called "Options"
and such convertible or exchangeable stock or securities being herein called
"Convertible Securities"), whether or not such Options or the rights to convert
or exchange any such Convertible Securities in respect of such Options are
immediately exercisable or exercisable prior to the Expiration Date, and the
price per share for which Common Stock is issuable upon the exercise of such
Options or upon conversion or exchange of such Convertible Securities in
respect of such Options (determined by dividing (x) the aggregate amount, if
any, received or receivable by the Company as consideration for the granting of
such options, plus the minimum aggregate amount of additional consideration
payable to the Company upon the exercise of all such Options, plus, in the case
of Options to acquire Convertible Securities, the minimum aggregate amount of
additional consideration, if any, payable upon issuance or sale of such
Convertible Securities and upon the conversion or exchange thereof, by (y) the
total maximum number of shares of Common Stock issuable upon the exercise of
such Options or upon the conversion or exchange of all such Convertible
Securities issuable upon the exercise of such options) shall be less than (A)
the Market Price immediately prior to the granting of such Options or (B) the
Exercise Price, then, for purposes of Section 5(b)(i), the total maximum number
of shares of Common Stock issuable upon the exercise of such Options or upon
conversion or exchange of the total maximum amount of such Convertible
Securities issuable upon the exercise of such Options shall be deemed to have
been issued as of the date of granting of such Options and thereafter shall be
deemed to be
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<PAGE> 7
outstanding and the Company shall be deemed to have received as consideration
of such price per share, determined as provided above, therefor. Except as
otherwise provided in paragraph (iv) below, no additional adjustment of the
Exercise Price shall be made upon the actual exercise of such Options or upon
conversion or exchange of such Convertible Securities.
(iii) If the Company shall issue, sell or otherwise
distribute (including by assumption) any Convertible Securities, whether or not
the rights to exchange or convert thereunder are immediately exercisable or
exercisable prior to the Expiration Date, and the price per share for which
Common Stock is issuable upon the conversion or exchange of such Convertible
Securities (determined by dividing (x) the aggregate amount received or
receivable by the Company as consideration for the issuance, sale or
distribution of such Convertible Securities, plus the minimum aggregate amount
of additional consideration, if any, payable to the Company upon the conversion
or exchange thereof, by (y) the maximum number of shares of Common Stock
issuable upon the conversion or exchange of all such Convertible Securities)
shall be less than (A) the Market Price immediately prior to such issuance,
sale or distribution or (B) the Exercise Price, then, for purposes of Section
5(b)(i), the total maximum number of shares of Common Stock issuable upon
conversion or exchange of all such Convertible Securities shall be deemed to
have been issued as of the date of the issuance, sale or distribution of such
Convertible Securities thereafter shall be deemed to be outstanding and the
Company shall be deemed to have received as consideration such price per share,
determined as provided above, therefor. Except as otherwise in paragraph (iv)
below, no additional adjustment of the Exercise, Price shall be made upon the
actual conversion or exchange of such Convertible Securities.
(iv) If (x) the purchase price provided for in any
Option referred to in Section 5(b)(ii) or the additional consideration, if any,
payable upon the conversion or exchange of any Convertible Securities referred
to in Sections 5(b)(ii) or 5(b)(iii) or the rate at which any Convertible
Securities referred to in Sections 5(b)(ii) or 5(b)(iii) are convertible into
or exchangeable for Common Stock shall change at any time (other than under or
by any reason of provisions designed to protect against dilution upon an event
which results in a related adjustment pursuant to this Section 5), or (y) any
of such Options or Convertible Securities shall have terminated, lapsed or
expired, the Exercise Price then in effect shall forthwith be readjusted
(effective only with respect to any exercise of this Warrant after such
readjustment) to the Exercise Price which would then be in effect had the
adjustment made upon the issuance, sale, distribution or grant of such Options
or Convertible Securities been made based upon such changed purchase price,
additional consideration or conversion rate, as the case may be (in the case of
any event referred to in clause (x) of this paragraph (iv)) or had such
adjustment not been made (in the case of any event referred to in clause (y) of
this paragraph (iv)).
(v) If the Company shall pay a dividend or make
any other distribution upon any capital stock of the Company payable in Common
Stock, Options or Convertible Securities, other than pursuant to a Common Stock
Reorganization (which is governed by Section 5(a)), then, for purposes of this
Section 5(b), such Common Stock, Options or Convertible Securities shall be
deemed to have been issued or sold without consideration.
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(vi) If any shares of Common Stock, Options or
Convertible Securities shall be issued, sold or distributed for cash, the
consideration received thereof shall be deemed to be the amount received by the
Company therefor without any deduction therefrom of any expenses incurred in
connection therewith. If any shares of Common Stock, Options or Convertible
Securities shall be issued, sold or distributed for a consideration other than
cash, the amount of the consideration other than cash received by the Company
shall be deemed to be the fair market value of such consideration at the time
of its receipt by the Company as determined in good faith by the Board of
Directors of the Company, without any deduction of any expenses incurred in
connection therewith. If any shares of Common Stock, Options or Convertible
Securities shall be issued in connection with any merger in which the Company
is the surviving corporation, the amount of consideration therefor shall be
deemed to be the fair market value of such portion of the assets and business
of the non-surviving corporation as shall be attributable to such Common Stock,
Options or Convertible Securities, as the case may be, at the time of the
merger as determined in good faith by the Board of Directors of the Company.
If any Options shall be issued in connection with the issuance and sale, of
other securities of the Company, together comprising one integral transaction
in which no specific consideration is allocated to such Options by the parties
thereto, such Options shall be deemed to have been issued without
consideration.
(c) Special Dividends. If the Company shall issue or
distribute to any holder or holders of shares of Common Stock evidences of
indebtedness, any other securities of the Company or any cash, property or
other assets (excluding (i) a Common Stock Reorganization, (ii) a Common Stock
Distribution, (iii) quarterly cash dividends paid in the ordinary course of
business, or (iv) any purchase, redemption or other acquisition by the Company
of shares of Common Stock owned by any individual shareholder owning fewer than
100 shares), whether or not accompanied by a purchase, redemption or other
acquisition of shares of Common Stock (any such nonexcluded event being herein
called a "Special Dividend"), the (x) the Exercise Price shall be decreased,
effective immediately after the effective date of such Special Dividend, to a
price determined by multiplying the Exercise Price then in effect by a
fraction, the numerator of which shall be the Market Price immediately prior to
such effective date less any cash and the then fair market value, as determined
in good faith by the Board of Directors of the Company, of any evidences of
indebtedness, securities or property or other assets issued or distributed in
such Special Dividend with respect to one share of Common Stock, and the
denominator of which shall be the Market Price immediately prior to such
effective date, and (y) the number of shares of Common Stock subject to
purchase upon exercise of this Warrant shall be increased to a number
determined by multiplying the number of shares of Common Stock subject to
purchase immediately before such Special Dividend by a fraction, the numerator
of which shall be the Exercise Price in effect immediately before such Special
Dividend and the denominator of which shall be the Exercise Price in effect
immediately after such Special Dividend. A reclassification of the Common
Stock (other than a change in par value, or from par value to no par value or
from no par value to par value) into shares of Common Stock and shares of any
other class of stock shall be deemed to be a distribution by the Company to the
holders of its Common Stock of such shares of such other class of stock and, if
the outstanding shares of Common Stock shall be changed into a larger or
smaller number of shares of Common Stock an part of such reclassification, a
Common Stock Reorganization.
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(d) Capital Reorganization. If there shall be any
consolidation or merger to which the Company is a party, other than a
consolidation or a merger of which the Company is the continuing corporation
and which does not result in any reclassification of, or change (other than a
Common Stock Reorganization) in, outstanding shares of Common Stock, or any
sale or conveyance of the property of the Company as an entirety or
substantially as an entirety, or any recapitalization of the Company (any such
event being called a "Capital Reorganization"), then, effective upon the
effective date of such Capital Reorganization, the Warrant holder shall no
longer have the right to purchase Common Stock, but shall have instead the
right to purchase, upon exercise of this Warrant, the kind and amount of shares
of stock and other securities and property (including cash) which the Warrant
Holder would have owned or have been entitled to receive pursuant to such
Capital Reorganization if the Warrant had been exercised immediately prior to
the effective date of such Capital Reorganization. As a condition to effecting
any Capital Reorganization, the Company or the successor or surviving
corporation, as the case may be, shall execute and deliver to each Warrant
Holder an agreement as to the Warrant Holder's rights in accordance with this
Section 5(d), providing, to the extent of any right to purchase equity
securities hereunder, for subsequent adjustments as nearly equivalent as may be
practicable to the adjustments provided for in this Section 5. The provisions
of this Section 5(d) shall similarly apply to successive Capital
Reorganizations.
(e) Adjustment Rules.
(i) Any adjustments pursuant to this Section 5
shall be made successively whenever any event referred to herein shall occur,
except that, notwithstanding any other provision of this Section 5, no
adjustment shall be made to the number of Warrant Shares to be delivered to the
Warrant Holder (or to the Exercise Price) if such adjustment represents less
than 1% of the number of Warrant Shares previously required to be so delivered,
but any lesser adjustment shall be carried forward and shall be made at the
time and together with the next subsequent adjustment which together with any
adjustments so carried forward shall amount to 1% or more of the number of
Warrant Shares to be so delivered.
(ii) No adjustments shall be made pursuant to this
Section 5 in respect of (x) the issuance of Warrant Shares upon exercise of the
Warrant or (y) the issuance, sale or grant before or after the date hereof by
the Company to any director, officer or employee of the Company or any
Affiliate of the Company of any Common Stock or of any option, bonus or other
award exercisable into Common Stock approved by the Board of Directors of the
Company or any duly authorized committee thereof; provided that the aggregate
amount of all such Common Stock and Common Stock for which such options,
bonuses and other awards are exercisable does not exceed [5]% of the Common
Stock outstanding on the date hereof.
(iii) If the Company shall take a record of the
holders of its Common Stock for any purpose referred to in this Section 5, then
(x) such record date shall be deemed to be the date of the issuance, sale,
distribution or grant in question and (y) if the Company shall
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<PAGE> 10
legally abandon such action prior to effecting such action, no adjustment shall
be made, pursuant to this Section 5 in respect of such action.
(f) Proceedings Prior to Any Action Requiring Adjustment.
As a condition precedent to the taking of any action which would require an
adjustment pursuant to this Section 5, the Company shall take any action which
may be necessary including obtaining regulatory approvals or exemptions, in
order that the Company may thereafter validly and legally issue as fully paid
and nonassessable all shares of Common Stock which the Warrant Holder is
entitled to receive upon exercise of the Warrant.
(g) Notice of Adjustment. Not less than 10 days prior to
the record date or effective date, an the case may be, of any action which
requires or might require an adjustment or readjustment pursuant to this
Section 5, the Company shall give notice to each Warrant Holder of such event,
describing such event in reasonable detail and specifying the record date or
effective date, as the case may be, and, if determinable, the required
adjustment and computation thereof. If the required adjustment is not
determinable as the time of such notice, the Company shall give notice to each
Warrant Holder of such adjustment and computation an soon an reasonably
practicable after such adjustment becomes determinable.
6. Registration of Warrant Shares.
Neither the Warrant nor the Warrant Shares have bass-registered with
the Commission under the Securities Act or qualified for sale pursuant to any
state blue sky law, and neither may be sold or transferred without such
registration or qualification, except pursuant to an exemption therefrom. No
rights shall be hereby granted which are in violation of applicable securities
laws or regulations.
(a) Demand Registration.
(i) At any time upon delivery to the Company by
the holder or holders of at least 50% of all Warrants and Warrant Shares (such
percentage determined by aggregating the number of Warrant Shares for which all
outstanding Warrants are then exercisable and the number of Warrant Shares then
outstanding) (the "Initiating Holders") of a written request (a "Registration
Request") that the Company effect a registration under the Securities Act of
Registrable Securities, which Registration Request shall specify the number of
shares of Registrable Securities proposed to be sold (which number of shares
for each such Initiating Holder must be at least 10,000 (when taken together
with any other shares of Common Stock as to which such Initiating Holder or any
of its Affiliates are at that time requesting such a registration pursuant to
any other registration rights which now have or hereafter may be granted to
them by the Company) and for all such Initiating Holders must have an aggregate
value, based on the Market Price on the date of the Registration Request, at
least equal to $1,000,000 (when taken together with any other shares of Common
Stock as to which such Initiating Holder or any of its Affiliates are at that
time requesting such a registration pursuant to any other registration rights
which now have
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<PAGE> 11
or hereafter may be granted to them by the Company)) and the intended method of
disposition thereof, the Company will
(x) promptly give written notice of such
Registration Request to all other holders of Warrants and to all other holders
of Registrable Securities, which holders shall be entitled to join such
Registration Request by delivering to the Company within 5 Business Days a
notice specifying the number of shares of Registrable Securities proposed to be
sold (which number of shares must be at least 5,000 for each such holder) and
the intended method of disposition thereof, in which case the term "Initiating
Holders" shall include such other holders and the Registration Request shall be
deemed to cover such holders and such number of shares of Registrable
Securities proposed to be sold by such holders; and
(y) will use its best efforts to effect, as
expeditiously as possible, the registration of all Registrable Securities
covered by such Registration Request;
provided that (A) the Company shall not be obligated to effect a registration
of Registrable Securities pursuant to this Section 6(a) on more than two
occasions and (B) notwithstanding any provision to the contrary herein, the
Company may delay the filing of a registration statement for such Registrable
Securities for a period of up to 45 days, measured from the date that the
Company receives the applicable Registration Request, by furnishing to each
Initiating Holder a certified resolution of the Board of Directors of the
Company or the Executive Committee thereof stating that in the good faith
judgment of the Board or the Executive Committee, as the case may be, it would
be detrimental or otherwise disadvantageous to the Company or its shareholders
for such a registration statement to be filed as expeditiously as possible. If
the Company furnishes such a certified resolution, the Initiating Holders may,
in their discretion, elect to relieve the Company of its obligation to proceed
to effect the requested registration of the Registrable Securities upon the
expiration of the 45-day period by withdrawing their Registration Request. A
Registration Request withdrawn pursuant to the previous sentence shall not be
counted as a Registration Request.
(ii) If the Initiating Holders so elect, the
offering of the Registrable Securities to be registered following a
Registration Request shall be in the form of an underwritten offering, in which
case (x) the Initiating Holders and the Company shall mutually agree upon and
select the managing underwriters and any additional investment bankers and
managers to be used in connection with the offering; provided that if the
Initiating Holders and the Company cannot mutually agree, the Initiating
Holders will be entitled to select the managing underwriters and additional
investment bankers, but the managing underwriters and additional investment
bankers so selected must be reasonably satisfactory to the Company, (y) the
right of any Initiating Holder to cause the Company to register its Registrable
Securities pursuant to this Section 6(a) shall be conditioned upon the
inclusion of such Initiating Holder's Registrable Securities in the
underwriting (unless other mutually agreed by such Initiating Holder and a
majority in interest of all Initiating Holders) to the extent provided herein
and (z) all Initiating Holders proposing to include their Registrable
Securities in the registration and underwritten offering shall enter into an
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<PAGE> 12
underwriting agreement in customary form with the representative(s) of the
underwriters for such underwritten offering.
(iii) Any registration statement filed pursuant to
a Registration Request may include other securities of the Company being sold
for the account of the Company or for the account of any other holders. If the
representative(s) of the underwriters for an offering which includes any such
other securities advises the Company that marketing factors require a
limitation on the amount of securities to be underwritten, the amount of
securities that shall be entitled to be included in the registration and
underwriting shall be allocated first to the Registrable Securities and second
to securities being sold for the account of the Company or for the account of
any other holders (as the Company and such other holders may agree).
(iv) In lieu of registering the Registrable
Securities proposed to be sold pursuant to a Registration Request, the Company
shall have the right, exercisable by the delivery of a written notice to the
Initiating Holders within, 10 Business Days after the Company receives the
applicable Registration Request, to purchase all but not part of the
Registrable Securities proposed to be sold in such Registration Request for
cash at a price per share equal to the Market Price on the date of such
Registration Request. Upon delivery by the Company of such written notice, the
Company and the Initiating Holders shall be legally obligated to consulate the
purchase contemplated hereby within 30 days after the Company delivers its
written notice, which period may be extended only with the consent of the
Company and each Initiating Holder. Without limiting the rights of the
Initiating Holders to pursue all other legal and equitable remedies, if the
Company shall fail to consummate the purchase within the requisite time period,
the Company shall remain obligated to effect a registration of such Registrable
Securities pursuant to this Section 6(a).
(b) Piggyback Registration.
(i) If the Company at any time proposes to file a
registration statement under the Securities Act with respect to an offering of
shares of Common Stock for cash (x) for the Company's own account (other than
registration statement on Form S-4 or S-8 (or any successor or similar form
that may be adopted by the Commission)) or (y) for the account of any holders
of shares of Common Stock other than Warrant Shares, then the Company at each
such time shall give prompt written notice of such proposed filing to each
Warrant Holder and to each holder of Registrable Securities (but in no event
less then 10 Business Days before the anticipated filing date), and such notice
shall offer each Warrant Holder and each holder of Registrable Securities the
opportunity to register such number of Registrable Securities as the Warrant
Holder or holder of Registrable Securities may request, by notice to the
Company within 5 Business Days, on the same terms and conditions as the other
shares of Common Stock to be included in such offering.
(ii) If the registration of which the Company
gives notice pursuant to this Section 6(b) is for an underwritten public
offering, (x) the notice provided by the Company shall so state, (y) the right
of any holder of Registrable Securities to cause the Company to
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<PAGE> 13
register such holders' Registrable Securities pursuant to this Section 6(b)
shall be conditioned upon the inclusion of such holder's Registrable Securities
in the underwriting to the extent provided herein and (z) all holders of
Registrable Securities proposing to include their Registrable Securities in the
registration shall enter into an underwriting agreement in customary form for
such an underwritten offering with the representative(s) of the underwriters
selected by the Company. The Company shall have no obligation to consult with
or obtain the consent of any Warrant Holder or any holder of Registrable
Securities in selecting any underwriters or investment bankers for an offering
registered pursuant to this Section 6(b).
(iii) Notwithstanding any other provision of this
Section 6(b), if an offering for which the Company gives notice pursuant to
Section 6(b)(i) is to be underwritten and the representative(s) of the
underwriters for the offering advises the Company that marketing factors
require a limitation on the amount of securities to be underwritten, (x) the
Company shall so advise all holders of Registrable Securities requesting
registration pursuant to this Section 6(b) and (y) the amount of Registrable
Securities requested to be offered may be excluded or reduced to the extent
necessary to reduce the total amount of securities to be included in such
offering to the amount recommended by such representative(s) of the
underwriters; provided that the amount of securities entitled to be included in
the registration and underwriting shall be allocated first to securities being
sold for the Company's own account and second to the Registrable Securities and
to any securities being offered for the account of any other holders (with the
proposed amount of each of such Registrable Securities and such other holders,
securities being reduced in the same proportion).
(iv) The Company may withdraw its notice of
proposed registration given pursuant to Section 6(b)(i) at any time by giving
written notice to each Warrant Holder and each holder of Registrable
Securities, whereupon the Company shall not be required to cause such proposed
registration to be affected.
(c) Registration Procedures. Upon receipt of a request
for registration of Registrable Securities pursuant to Section 6(a) or 6(b),
the Company will thereupon use its best efforts to effect the registration of
the Registrable Securities that are the subject of such request as
expeditiously as possible, subject to the provisions of 6(a) or 6(b), as the
case may be and in connection therewith:
(i) The Company will an expeditiously an possible
prepare and file with the Commission a registration statement on any form for
which the Company then qualifies and which counsel for the Company shall deem
appropriate and available for the sale of the Registrable Securities to be
registered thereunder in accordance with the intended method of distribution
thereof; the Company will include in such registration statement all
information that any holder of such Registrable Securities (collectively, the
"Selling Holders") shall reasonably request for the purpose of conforming such
registration statement to the requirements of applicable law or of correcting
any material misstatement or omission therein; and the Company will use its
best efforts to cause such filed registration statement to become and remain
effective until the securities covered by such registration statement are sold
but not for more than 120 days;
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<PAGE> 14
(ii) Prior to filing such registration statement
or any amendment or supplement thereto, the Company will furnish to the Selling
Holders, their counsel and to each managing underwriter, if any, copies
thereof, and thereafter furnish to the Selling Holders, their counsel and to
each managing underwriter, if any, such number of copies of such registration
statement, amendment and supplement thereto (in each case including all
exhibits thereto and documents incorporated by reference therein) in the
prospectus included in such registration statement (including each preliminary
prospectus) as the Selling Holders, their counsel or any managing underwriter
may reasonably request in order to facilitate the sale of the Registrable
Securities.
(iii) After the filing of the registration
statement, the Company will promptly notify each Selling Holder of any stop
order issued or, to the Company's Knowledge, threatened to be issued by the
Commission and take all reasonable actions as soon as reasonably practicable to
prevent the entry of such stop order or to remove it if entered.
(iv) The Company will use its best efforts to
register or qualify the Registrable Securities to be offered by the Selling
Holders for offer and sale under such other securities or blue sky laws of such
jurisdictions in the United States as any Seller Holder shall reasonably
request; provided that the Company will not be required to (x) qualify
generally to do business in any jurisdiction where it would not otherwise be
required to qualify but for this paragraph (iv), (y) subject itself to taxation
in any such jurisdiction or (z) consent to general service of process in any
such jurisdiction.
(v) At any time when a prospectus relating to a
sale of Registrable Securities in required by law to be delivered in connection
with sales by an underwriter or dealer, the Company will promptly notify each
Selling Holder of the occurrence of any event requiring the preparation of a
supplement or amendment to such prospectus so that, as thereafter delivered to
the purchasers of such Registrable Securities, such prospectus will not contain
an untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary to make the statements therein, in
the light of the circumstances under which they were made, not misleading, and
the Company will promptly make available to each Selling Holder and to the
underwriters any such supplement or amendment. The Warrant Holder agrees that,
upon receipt of any notice from the Company of the occurrence of any event of
the kind described in the preceding sentence, the Warrant Holder will forthwith
discontinue the offer and sale of Registrable Securities pursuant to the
registration statement covering such Registrable Securities until receipt by
the Warrant Holder and the underwriters of the copies of such supplemented or
amended prospectus and, if so directed by the Company, the Warrant Holder will
deliver to the Company all copies, other than permanent file copies then in the
Warrant Holder's possession, of the most recent prospectus covering such
Registrable Securities at the time of receipt of such notice. In the event the
Company shall give such notice, the 120-day period during which such
registration statement is required to be maintained effective as provided in
Section 6(c)(i) shall be extended by the number of days during the period from
and including the date of the giving of such notice to the date when the
Company shall make available to each Warrant Holder such supplemented or
amended prospectus.
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<PAGE> 15
(vi) The Company will enter into customary
agreements (including an underwriting agreement in customary form if the
offering is to be underwritten) and take such other actions as are reasonably
required in order to expedite or facilitate the sale of such Registrable
Securities.
(vii) The Company will furnish to each Selling
Holder and to each underwriter a signed counterpart, addressed to the Selling
Holder or underwriter, of (x) an opinion or opinions of counsel to the Company
and (y) a comfort letter or comfort letters from the Company's independent
public accountants, each in customary form and reasonably satisfactory in form
and substance to each Selling Holder and underwriter, and covering such matters
of the type customarily covered by opinions or comfort letters, as the case may
be, as any Selling Holder or the managing underwriter or underwriters
reasonably request.
(viii) The Company will use its beat efforts to
comply with all applicable rules and regulations of the Commission, and will
make available to its security holders, as soon as reasonably practicable, an
earnings statement covering a period of 12 months, beginning within three
months after the effective date of the registration statement, which earnings
statement shall satisfy the provisions of Section 11(a) of the Securities Act
and the rules and regulations of the Commission thereunder.
(ix) The Company will use its best efforts to
cause all Registrable Securities registered pursuant to this Section 6 to be
listed on each securities exchange on which securities issued by the Company of
the same class as such Registrable Securities are then listed or to cause such
Registrable Securities to be quoted on the NASDAQ National Market System it
other securities issued by the Company of the same class are quoted thereon.
(x) The Company will promptly notify each Selling
Holder and the managing underwriter or underwriters, if any, (A) when the
registration statement, the prospectus or any prospectus supplement related
thereto or post-effective amendment to the registration statement has been
filed, and, with respect to the registration statement or any post-effective
amendment thereto, when the same has become effective; (B) of any request by
the Commission for any amendment or supplement to the registration statement or
the prospectus or for additional information; and (C) of the receipt by the
Company of any notification with respect to the suspension of the qualification
of any Registrable Securities for sale under the securities or blue sky laws or
any jurisdiction or the initiation or threat of any proceeding for such
purpose.
(xi) The Company will make available for
inspection by a representative of a Selling Holder, by any underwriter
participating in any disposition pursuant to the registration and by any
attorney or account retained by a Selling Holder or underwriters (each, an
"Inspector") such financial and other records, pertinent corporate documents
and properties of the Company as the Company may reasonably request (the
"Records"), and the Company will cause the officers, directors and employees of
the Company to supply all information reasonably requested by any such
Inspector in connection with such registration.
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<PAGE> 16
(xii) The Company may require any Warrant Holder or
any Selling Holder to furnish in writing to the Company such information
regarding the Warrant Holder or the Selling Holder, as the case may be, the
plan of distribution of the Registrable Securities and other information as may
be legally required as the Company may from time to time reasonably request in
writing.
(xiii) As a condition to the inclusion of
Registrable Securities owned by any Selling Holder in a registration pursuant
to Sections 6(a) or 6(b), each such Selling Holder shall, if reasonably
requested by the Company or by the representative(s) of the underwriters (if
any) for such registered offering, agree to deliver to the Company and such
representative(s) a legal opinion of such holder's counsel, covering such
matters customarily requested of selling shareholders in connection with a
public offering of shares as the Company or such representative(s) may
reasonably request and in a form reasonably satisfactory to the Company or such
representative(s), upon the closing of such offering.
(d) Registration Expenses. The entire costs and expenses
of any registration and qualification pursuant to this Section 6 shall be borne
by the Company. Such costs and expenses shall include (i) all costs and
expenses incident to the preparation, printing and filing of the registration
statement and all amendments and supplements thereto, including all reasonable
word processing, duplicating and printing expenses, (ii) all registration and
filing fees payable to the Commission or The National Association of Securities
Dealers, Inc., (iii) all fees and expenses (including reasonable fees and
expenses of counsel) of compliance with securities or blue sky laws, (iv) the
fees and expenses of counsel for the Company, of its independent accountants
and of any other experts retained by the Company, (v) the reasonable fees and
expenses of one firm of counsel to represent the Selling Holder in connection
with such registration and qualification, (vi) the cost of furnishing a
reasonable number of copies of each preliminary prospectus, each final
prospectus and each amendment or supplement thereto to underwriters, dealers
and other purchasers of the Registrable Securities, (vii) all necessary and
appropriate messenger and delivery expenses and (viii) all fees and expenses
incurred in connection with any listing of the Registrable Securities on any
securities exchange or providing for the quotation of the Registrable
Securities on the NASDAQ National Market System; provided that each Selling
Holder shall pay any underwriting fees, discounts or commissions attributable
to the sale of its Registrable Securities.
(e) Indemnification by the Company. In the event of any
registration pursuant to Section 6(a) or 6(b) hereof, the Company agrees to
indemnify and hold harmless each Selling Holder, its officers and directors,
and each Person, if any, who controls any Selling Holder within the meaning of
either Section 15 of the Securities Act or Section 20 of the Exchange Act, from
and against any and all losses, claims, damages and liabilities caused by any
untrue statement or alleged untrue statement of a material fact contained in
any registration statement or prospectus relating to the Registrable Securities
(as amended or supplemented if the Company shall have furnished any amendments
or supplements thereto) or any preliminary prospectus, or caused by any
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading,
except insofar as such losses,
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<PAGE> 17
claims, damages or liabilities are caused by any such untrue statement of
omission or alleged untrue statement or omission based upon information
relating to the Selling Holder or the plan of distribution furnished in writing
to the Company by the Selling Holder expressly for use therein; provided that
the foregoing indemnity agreement with respect to any preliminary prospectus
shall not inure to the benefit of the Selling Holder, its officers and
directors, and each Person, if any, who controls any Selling Holder within the
meaning of either Section 15 of the Securities Act or Section 20 of the
Exchange Act, if a copy of the most current prospectus at the time of the
delivery of the Registrable Securities was not provided to the purchaser
thereof and such current prospectus would have cured the defect giving rise to
such lose, claim, damage or liability. The Company also agrees to indemnify
any underwriters of the Registrable Securities, their officers and directors
and each person who controls such underwriters on substantially the same basis
as that of the indemnification of the Selling Holder provided in this Section
6(e).
(f) Indemnification by the Selling Holder. Each Selling
Holder agrees to indemnify and hold harmless the Company, its officers and
directors, and each Person, if any, who controls the Company within the meaning
of either Section 15 of the Securities Act or Section 20 of the Exchange Act to
the same extent as the foregoing indemnity from the Company to the Selling
Holder, but only with reference to information relating to such Selling Holder
or the plan of distribution furnished in writing by the Selling Holder
expressly for use in any registration statement or prospectus relating to the
Registrable Securities, or any amendment or supplement thereto, or any
preliminary prospectus. Each Selling Holder also agrees to indemnify and hold
harmless any underwriters of the Registrable Securities, their officers and
directors and each person who controls such underwriters on substantially the
same basis an that of the indemnification of the Company provided in this
Section 6(f).
(g) Conduct of Indemnification Proceedings. In case any
proceeding (including any governmental investigation shall be instituted
involving any Person in respect of which indemnity may be sought pursuant to
Section 6(e) or 6(f), such Person (the "Indemnified Party") shall promptly
notify this Person against whom such indemnity may be sought (the "Indemnifying
Party") in writing and the Indemnifying Party, upon the request of the
Indemnified Party, shall retain counsel reasonably satisfactory to such
Indemnified Party to represent such Indemnified Party and any others the
Indemnifying Party may designate in such proceeding and shall pay the fees and
disbursements of such counsel related to such proceeding. In any such
proceeding, any Indemnified Party shall have the right to retain its own
counsel, but the fees and expenses of such counsel shall be at the expense of
such Indemnified Party unless (i) the Indemnifying Party and the Indemnified
Party shall have mutually agreed to the retention of such counsel or (ii) the
named parties to any such proceeding (including any impleaded parties) include
both the Indemnified Party and the Indemnifying Party and representation of
both parties by the same counsel would be inappropriate due to actual or
potential differing interests between them. It is understood that the
Indemnifying Party shall not, in connection with any proceeding or related
proceedings in the same jurisdiction, be liable for the fees and expenses of
more than one separate firm of attorneys (in addition to any legal counsel) at
any time for all such Indemnified Parties, and that all such fees and expenses
shall be reimbursed an they are incurred. In the case of any such separate
firm for the Indemnified Parties, such firm shall be designated in writing by
the Indemnified Parties. The Indemnifying Parties shall not be liable for any
settlement of any
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<PAGE> 18
proceeding effected without its written consent (which shall not be
unreasonably withheld), but if settled with such consent, or if there by a
final judgment for the plaintiff, the indemnifying Party shall indemnify and
hold harmless such Indemnified Parties from and against any loss or liability
(to the extent stated above) by reason of such settlement or judgment.
(h) Contribution. If the indemnification provided for in
this Section 6 in unavailable to an Indemnified Party in respect of any losses,
claims, damages or liabilities referred to herein, then each Indemnifying
Party, in lieu of indemnifying such Indemnified Party, shall contribute to the
amount paid or payable by such Indemnified Party as a result of such losses,
claims, damages or liabilities (x) in such proportion an is appropriate to
reflect the relative benefits received by the Indemnifying Party on the one
hand and the Indemnified Party on the other from the offering of the
securities, including the Registrable Securities, or (y) if the allocation
provided by clause (x) above is not permitted by applicable laws, in such
proportion as is appropriate to reflect not only the relative benefits referred
to in clause (x) but also the relative fault of the Indemnifying Party on the
one hand and of the Indemnified Party on the other in connection with the
statements or omissions that resulted in such losses, claims, damages or
liabilities, as well as any other relevant equitable considerations. The
relative benefits received by the Company on the one hand and the Selling
Holder or underwriter, as the case may be, on the other shall be deemed to be
in the same respective proportions an the total proceeds from the offering (net
of underwriting discounts and commissions but before deducting expenses
attributable to securities sold for the Company's, account) received by the
Company from the offering of the Common Stock, including the Registrable
Securities, bear to the gain realized by the Selling Holder or to the
underwriting discounts and commissions received by the underwriter, as the case
may be. The relative fault of the Company, the Selling Holder and the
underwriters shall be determined by reference to, among other things, whether
the untrue or alleged untrue statement of a material fact or the omission or
alleged omission to state a material fact relates to information supplied by
such party and the parties' relative intent knowledge, access to information
and opportunity to correct or prevent such statement or omission.
The Company and each Selling Holder agrees that it would not be just
and equitable if contribution pursuant to this Section 6(h) were determined by
pro rata allocation (even if the Selling Holder and underwriters were treated
as one entity for such purpose) or by any other method of allocation that does
not take account of the equitable considerations referred to in the immediately
preceding paragraph. The amount paid or payable by an Indemnified Party as a
result of the losses, claims, damages or liabilities referred to in the
immediately preceding paragraph shall be deemed to include, subject to the
limitations set forth above, any legal or other expenses reasonably incurred by
Indemnified Party in connection with investigating or defending any such action
or claim.
Notwithstanding the provisions of this Section 6, no underwriter shall
be required to contribute any amount in excess of the amount by which the total
price at which the Common Stock, including the Registrable Securities,
underwritten by it and distributed to the public were offered to the public
exceeds the amount of any damages that such underwriter has otherwise been
required to pay by reason of such untrue or alleged untrue statement or
omission or alleged omission, and the Selling Holder shall not be required to
contribute any amount in excess of the
-18-
<PAGE> 19
amount by which the net proceeds of the offering (before deducting expenses)
received by the Selling Holder exceeds the amount of any damages which the
Selling Holder has otherwise been required to pay by reason of such untrue or
alleged untrue statement or omission or alleged omission. No person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any Person who was not
guilty of such fraudulent misrepresentation.
Notwithstanding the foregoing, to the extent that the provisions on
indemnification and contribution contained in an underwriting agreement entered
into in connection with a public offering registered pursuant to Section 6(a)
or 6(b) hereof are in conflict with the foregoing provisions of this Section
6(h), the provisions in the underwriting agreement shall control.
(i) Termination of Registration Rights. The rights contained
in this Section 6 to cause the Company to register any Registrable Securities
shall terminate with respect to any holder of Warrants or Warrant Shares on the
Expiration Date.
7. Transfer of Warrant.
This Warrant in freely transferable, in whole or in part, to any
Person; provided that no transfer shall be made that (a) transfers Warrants
exercisable into fewer than 5,000 Warrant Shares, (b) transfers any Warrants to
any Person primarily engaged in the business of manufacturing communications
devices, (c) does not comply with all applicable federal and state securities
laws or (d) would require registration or qualification of the Warrant pursuant
to the Securities Act or any applicable state blue sky law; and provided
further that the Warrant Holder upon transfer of the Warrant must deliver to
the Company a duly executed Warrant Assignment in the form of Annex B hereto,
with funds sufficient to pay any transfer tax imposed in connection with such
assignment (if any) and upon surrender of this Warrant Certificate to the
Company. The Company shall execute and deliver a new Warrant Certificate or
Certificates in the form of this Warrant Certificate with appropriate changes
to reflect such Assignment, in the name or names of the assignee or assignees
specified in the fully executed Warrant Assignment or other instrument of
assignment and, if the Warrant Holder's entire interest is not being
transferred to assigned, in the name of the Warrant Holder, and this Warrant
Certificate shall promptly be canceled. Any transfer or exchange of this
Warrant Certificate shall be without charge to the Warrant Holder (except as
provided above with respect to transfer taxes, if any) and any new Warrant
Certificate or Certificates issued shall be dated the date hereof. The terms
"Warrant" and "Warrant Holder" as used herein include all Warrants into which
this Warrant (or any successor Warrant) may be exchanged or issued in
connection with the transfer or assignment of this Warrant any successor
Warrant) and the holders of those Warrants, respectively.
8. Registration of Common Stock; Rule 144.
The Company hereby agrees that it will file any reports required to be
filed by it under the Securities Act, the Exchange Act or the rules and
regulations adopted by the Commission thereunder and that it will use all
reasonable efforts to cooperate with each Warrant Holder and each holder of
Warrant Shares in supplying such information concerning the Company as may be
-19-
<PAGE> 20
necessary for such Warrant Holder or holder to complete and file any
information reporting forms currently or hereafter required by the Commissions
as a condition to the availability of an exemption from the Securities Act for
the sale of any Warrants or Warrant Shares. This Company also agrees that it
will take such further action, and supply such information (including the
information specified by Rule 144A(d)(4) under the Securities Act) as any
Warrant Holder may reasonably request to the extent required from time to time
to enable the Warrant Holder to sell Warrant Shares without registration under
the Securities Act within the limitation of the exemptions provided by Rule 144
or 144A under the Securities Act, as such Rules may be amended from time to
time, or any similar rule or regulation hereafter adopted by the Commission.
Upon the request of the Warrant Holder, the Company will deliver to the Warrant
Holder a written statement as to whether it has complied with such reporting
requirements.
Any other provision of this Warrant notwithstanding, the Company shall
not be obligated under any circumstances to cause this Warrant to be listed or
quoted on NASDAQ National Market System, any national securities exchange or
any other trading system or market, or to be registered under the Securities
Act.
9. Lost, Mutilated or Missing Warrant Certificates.
Upon receipt by the Company of evidence satisfactory to it of the
loss, theft, destruction or mutilation of any Warrant Certificate, and, in the
case of loss, theft or destruction, upon receipt of indemnification
satisfactory to the Company, or, in the case of mutilation, upon surrender and
cancellation of the mutilated Warrant Certificate, the Company shall execute
and deliver a new Warrant Certificate of like tenor and representing the right
to purchase the same aggregate number of Warrant Shares. The recipient of any
such Warrant Certificate shall reimburse the Company for all reasonable
expenses incidental to the replacement of such lost, mutilated or missing
Warrant Certificate.
10. Successors and Assigns.
All the provisions of this Warrant by or for the benefit of the
Company or the Warrant Holder shall bind and inure to the benefit of their
respective successors and assigns.
11. Notices.
Any notice or other communication hereunder shall be in writing and
shall be sufficient if sent by first-class mail or courier, postage prepaid,
and addressed as follows: (a) if to the Company, addressed to Objective
Communications, Inc., 14100 Park Meadow Drive, Chantilly, Virginia 20151; (b)
if to the Warrant Holder, if the Warrant Holder is Adelson Investment Company,
addressed to it at 10880 Wilshire Boulevard, Suite 1400, Los Angeles,
California 90024; and (c) if to any party, addressed to such address as such
party may hereafter specify to the Company, in the case of any communication to
be provided by the Company, or to each Warrant Holder, in the case of any
communication to be provided by the Warrant Holder, for the purpose of notice
hereunder.
-20-
<PAGE> 21
12. Waivers; Amendments.
Any provision of this Warrant may be amended, modified or waived with
(but only with) the written consent of the Company and the holder or holders of
Warrants representing at least 66-2/3% of the shares of Common Stock issuable
upon exercise of all outstanding Warrants; provided that no such amendment,
modification or waiver shall, without the written consent of the Company and
each Warrant Holder, (a) change the number of Warrant Shares issuable upon
exercise of the Warrants or the Exercise Price or (b) amend, modify or waive
the provisions of this Section 12. Any amendment, modification or waiver
effected in compliance with this Section 12 shall be binding upon the Company
and each Warrant Holder. The Company shall give notice as soon as reasonably
practicable to each Warrant Holder of any amendment, modification or waiver
effected in compliance with this Section 12. No failure or delay of the
Company or any Warrant Holder in exercising any power or right hereunder shall
operate as a waiver thereof, nor shall any single or partial exercise of any
such right or power, or any abandonment or discontinuance of steps to enforce
such a right or power, preclude any other or further exercise thereon or the
exercise of any other right or power. No notice or demand on the Company in
any case shall entitle the Company to any other or future notice or demand in
similar or other circumstances. The rights and remedies of the Company and
each Warrant Holder hereunder are cumulative and not exclusive of any rights or
remedies which it would otherwise have.
13. Miscellaneous.
(a) The Warrant shall not entitle the Warrant Holder,
prior to the exercise of the Warrant, to any rights as a shareholder of the
Company.
(b) The Company shall pay all reasonable expenses of the
Warrant Holder, including reasonable fees and disbursements of counsel, in
connection with the preparation of the warrant, any waiver or consent hereunder
or any amendment or modification hereof.
(c) In case any one or more of the provisions contained
in this Warrant shall be invalid, illegal or unenforceable in any respect, the
validity, legality and enforceability of the remaining provisions contained
herein shall not in any way be affected or impaired thereby. The parties shall
endeavor in good faith negotiations to replace the invalid, illegal or
unenforceable provisions with valid provisions the economic effect of which
comes as close as possible to that of the invalid, illegal or unenforceable
provisions.
(d) Without limiting the rights of the Company and the
Warrant Holder to pursue all other legal and equitable rights available to such
party for the other parties' failure to perform its obligations hereunder, the
Company and the Warrant Holder each hereto acknowledge and agree that the
remedy at law for any failure to perform any obligations hereunder would be
inadequate and that each shall be entitled to specific performance, injunctive
relief or other equitable remedies in the event of any such failure.
-21-
<PAGE> 22
(e) THIS WARRANT SHALL BE CONSTRUED AND ENFORCED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF DELAWARE, EXCEPT AS OTHERWISE REQUIRED
BY MANDATORY PROVISIONS OF LAW.
(f) The Company (a) agrees that any legal suit, action or
proceeding arising out of or relating to this Warrant will be instituted
exclusively in the Delaware Court of Chancery, County of Dover, Delaware, or in
the United States District Court, District of Delaware, Wilmington, Delaware,
(b) waives any objection which the Company may have now or hereafter based upon
forum non conveniens or to the venue of any such suit, action or proceeding,
and (c) irrevocably consents to the jurisdiction of the Delaware State Court of
Chancery, County of Dover and the United States District Court for the District
of Delaware in any such suit, action or proceeding. The Company further agrees
to accept and acknowledge service of any and all process which may be served in
any such suit, action or proceeding in the Delaware State Court of Chancery
County of Dover or in the United States District Court for the District of
Delaware and agrees that service of process upon the Company, mailed by
certified mail to the Company's address, will be deemed in every respect
effective service of process upon the Company, in any suit, action or
proceeding. FURTHER, BOTH THE COMPANY AND THE WARRANT HOLDER HEREBY WAIVE
TRIAL BY JURY IN ANY ACTION TO ENFORCE THIS WARRANT.
(g) The section headings used herein are for convenience
of reference only and shall not be construed in any way to affect the
interpretation of any provisions of the Warrant.
-22-
<PAGE> 23
IN WITNESS WHEREOF, the Company has caused this Warrant to be duly
executed its authorized officer, and its corporate seal to be hereunto affixed,
and attested by its Secretary, all as of the day and year first above written.
OBJECTIVE COMMUNICATIONS, INC.
By:
---------------------------------
Name:
-------------------------------
Title:
------------------------------
[Seal]
Attest:
- -----------------------------
Title:
------------------------
-23-
<PAGE> 24
ANNEX A
FORM OF NOTICE OF EXERCISER
___________, 19__
To: Objective Communications, Inc.
Reference is made to the Common Stock Purchase Warrant dated August
14, 1996. Terms defined therein are used herein as therein defined.
The undersigned, pursuant to the provisions set forth in the Warrant,
hereby irrevocably elects and agrees to purchase _____________ shares of Common
Stock, and makes payment herewith in full therefor at the Exercise Price of
$_______ in the following form: _____________________________________________
______________________________________.
[If said number of shares is less than all of the shares purchasable hereunder,
the undersigned hereby requests that a new Warrant Certificate representing the
remaining balance of the shares be registered in the name of __________________
__________________________, whose address is
------------------------------
------------------------------
]
------------------------------
The undersigned hereby represents that it is exercising the warrant
for its own account or the account of an Affiliate for investment purposes and
not with the view to any sale or distribution and that the Warrant Holder will
not offer, sell or otherwise dispose of the Warrant or any underlying Warrant
Shares in violation of applicable securities laws.
[NAME OF WARRANT HOLDER]
By:
---------------------------------
Name:
-------------------------------
Title:
-------------------------------
[ADDRESS OF WARRANT HOLDER]
---------------------------------
---------------------------------
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<PAGE> 25
ANNEX B
FORM OF WARRANT ASSIGNMENT
Reference is made to the Common Stock Purchase Warrant dated August
14, 1996, issued by Objective Communications, Inc. Terms defined therein are
used herein as therein defined.
FOR VALUE RECEIVED __________________________ (the "Assignor") hereby
sells, assigns and transfers all of the rights of the Assignor as set forth in
the Common Stock Purchase Warrant dated August 14, 1996, with respect to the
number of Warrant Shares covered thereby as set forth below, to the Assignee(s)
an set forth below:
Name(s) of Assignee(s) Address(es) Number of Warrant Shares
- ---------------------- ----------- ------------------------
- -------------------------- --------------------- -------------------------
- -------------------------- --------------------- -------------------------
All notices to be given by the Company to the Assignor as Warrant
Holder shall be sent to the Assignee(s) at the above listed address(es), and,
if the number of shares being hereby assigned is less than all of the shares
covered by the Warrant held by the Assignor, then also to the Assignor.
In accordance with Section 7 of the Warrant Certificate, the Assignor
requests that the Company execute and deliver a new Warrant Certificate or
Warrant Certificates in the name or names of the assignee or assignees, as is
appropriate, or, if the number of shares being hereby assigned is less than all
of the shares covered by the Warrant held by the Assignor, new Warrant
Certificates in the name or names of the assignee or the assignees, as is
appropriate, and in the name of the Assignor.
-25-
<PAGE> 26
The undersigned represents that the Assignee has represented to the
Assignor that the Assignee is acquiring the Warrant for its own account or the
account of an Affiliate for investment purposes and not with the view to any
sale or distribution, and that the Assignee will not offer, sell or otherwise
dispose of the Warrant or the Warrant Shares except under circumstances as will
not result in a violation of applicable securities laws.
Dated: _____________, 19__
[NAME OF ASSIGNOR]
By:
----------------------------------
Name:
--------------------------------
Title:
-------------------------------
[ADDRESS OF ASSIGNOR]
--------------------------------------
--------------------------------------
-26-
<PAGE> 1
EXHIBIT 3.7
THE WARRANT REPRESENTED BY THIS CERTIFICATE HAS NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933 OR THE SECURITIES LAWS OF ANY STATE. THESE SECURITIES
HAVE BEEN ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO DISTRIBUTION OR
RESALE, AND MAY NOT BE SOLD, MORTGAGED, PLEDGED, HYPOTHECATED OR OTHERWISE
TRANSFERRED WITHOUT AN EFFECTIVE REGISTRATION STATEMENT FOR SUCH SECURITIES
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND APPLICABLE STATE SECURITIES
LAW, OR AN OPINION OF COUNSEL FOR THE CORPORATION THAT REGISTRATION IS NOT
REQUIRED UNDER SUCH LAWS . THE WARRANT REPRESENTED BY THIS CERTIFICATE IS
SUBJECT TO CERTAIN LOCK-UP PROVISIONS SET FORTH IN THAT CERTAIN SERIES A
CONVERTIBLE PREFERRED STOCK AND WARRANT PURCHASE AGREEMENT OF EVEN DATE
HEREWITH BETWEEN THE ORIGINAL HOLDER HEREOF AND OBJECTIVE COMMUNICATIONS, INC.
THE TRANSFER OF THIS WARRANT IS
RESTRICTED AS DESCRIBED HEREIN.
OBJECTIVE COMMUNICATIONS, INC.
Warrant for the Purchase of Shares of Common Stock,
$.01 par value per share
THIS WARRANT EXPIRES ON DECEMBER 19, 2001
No. 50,000 Shares
THIS CERTIFIES that, for value received, ______________ with an
address at ____________ (including any transferee, the "Holder"), is entitled
to subscribe for and purchase from Objective Communications, Inc., a Delaware
corporation (the "Company"), upon the terms and conditions set forth herein,
at any time or from time to time before 5:00 P.M. on December 19, 2001, New
York time (the "Exercise Period"), 50,000 shares of the Company's Common Stock,
$.01 par value per share ("Common Stock"), at a price equal to $4.00 per share
(the "Exercise Price").
This Warrant is issued pursuant to an offering (the "Offering") by the
Company of (i) Two Hundred Fifty Thousand (250,000) shares of the Series A
Convertible Preferred Stock of the Company, par value $.01 per share and (ii) a
warrant to purchase Fifty Thousand (50,000) shares of Common Stock, pursuant to
a Series A Convertible Preferred Stock and Warrant Purchase Agreement dated as
of December 19, 1996 (the "Stock and Warrant Agreement"). As used
<PAGE> 2
herein the term "this Warrant" shall mean and include this Warrant and any
Warrant or Warrants hereafter issued as a consequence of the exercise or
transfer of this Warrant in whole or in part.
The number of shares of Common Stock issuable upon exercise of the
Warrants (the "Warrant Shares") and the Exercise Price may be adjusted from
time to time as hereinafter set forth.
1. (a) This Warrant may be exercised during the Exercise
Period, as to the whole or any lesser number of whole Warrant Shares, by the
surrender of this Warrant (with the election at the end hereof duly executed)
to the Company at its office at Objective Communications, Inc., 14100 Park
Meadow Drive, Chantilly, VA 20151, or at such other place as is designated in
writing by the Company. Subject to Section l(b) hereof, such executed election
must be accompanied by payment in an amount equal to the Exercise Price
multiplied by the number of Warrant Shares for which this Warrant is being
exercised. Such payment may be made by certified or bank cashier's check
payable to the order of the Company, or as provided in Section 1(b) hereof, or
as otherwise provided in Section 1(b) hereof.
(b) All or any part of this Warrant may be exercised on a
"cashless" basis, by stating in the Exercise Notice such intention and the
maximum number (the "Maximum Number") of shares of Common Stock the Holder
desires to purchase in consideration of cancellation of Warrants in payment for
such exercise. The number of shares of Common Stock the Holder shall receive
(the "Cashless Exercise Number") upon such exercise pursuant to this Section
1(b) shall equal the difference between the Maximum Number and the quotient
that is obtained when the product of the Maximum Number and the then current
Exercise Price is divided by the then Current Market Price per share (as
hereinafter defined).
2. Upon each exercise of the Holder's rights to purchase Warrant
Shares, the Holder shall be deemed to be the holder of record of the Warrant
Shares issuable upon such exercise, notwithstanding that the transfer books of
the Company shall then be closed or certificates representing such Warrant
Shares shall not then have been actually delivered to the Holder. As soon as
practicable after each such exercise of this Warrant, the Company shall issue
and deliver to the Holder a certificate or certificates for the Warrant Shares
issuable upon such exercise, registered in the name of the Holder or its
designee. If this Warrant should be exercised in part only, the Company shall,
upon surrender of this Warrant for cancellation, execute and deliver a new
Warrant evidencing the right of the Holder to purchase the balance of the
Warrant Shares (or portions thereof) subject to purchase hereunder.
3. (a) Any Warrants issued upon the transfer or exercise in
part of this Warrant shall be numbered and shall be registered in a Warrant
Register as they are issued. The Company shall be entitled to treat the
registered holder of any Warrant on the Warrant Register as the owner in fact
thereof for all purposes and shall not be bound to recognize any equitable or
other claim to or interest in such Warrant on the part of any other person, and
shall not be liable for any registration or transfer of Warrants which are
registered or to be registered in the name of a fiduciary or the nominee of a
fiduciary unless made with the actual knowledge that a fiduciary or nominee is
committing a breach of trust in requesting such registration or transfer, or
with the
2
<PAGE> 3
knowledge of such facts that its participation therein amounts to bad faith.
This Warrant shall be transferable only on the books of the Company upon
delivery thereof duly endorsed by the Holder or by his duly authorized attorney
or representative, or accompanied by proper evidence of succession, assignment,
or authority to transfer. In all cases of transfer by an attorney, executor,
administrator, guardian, or other legal representative, duly authenticated
evidence of his or its authority shall be produced. Upon any registration of
transfer, the Company shall deliver a new Warrant or Warrants to the person
entitled thereto. This Warrant may be exchanged, at the option of the Holder
thereof, for another Warrant, or other Warrants of different denominations, of
like tenor and representing in the aggregate the right to purchase a like
number of Warrant Shares (or portions thereof), upon surrender to the Company
or its duly authorized agent. Notwithstanding the foregoing, the Company shall
have no obligation to cause Warrants to be transferred on its books to any
person if, in the opinion of counsel to the Company, such transfer does not
comply with the provisions of the Securities Act of 1933, as amended (the
"Act"), and the rules and regulations thereunder.
(b) The Holder acknowledges that he has been advised by
the Company that neither this Warrant nor the Warrant Shares have been
registered under the Act, that this Warrant is being or has been issued and the
Warrant Shares may be issued on the basis of the statutory exemption provided
by Section 4(2) of the Act or Regulation D promulgated thereunder, or both,
relating to transactions by an issuer not involving any public offering, and
that the Company's reliance thereon is based in part upon the representations
made by the original Holder in the original Holder's Subscription Agreement
executed and delivered in accordance with the terms of the Offering (the "Stock
and Warrant Agreement"). The Holder acknowledges that he has been informed by
the Company of, or is otherwise familiar with, the nature of the limitations
imposed by the Act and the rules and regulations thereunder on the transfer of
securities. In particular, the Holder agrees that no sale, assignment or
transfer of this Warrant or the Warrant Shares issuable upon exercise hereof
shall be valid or effective, and the Company shall not be required to give any
effect to any such sale, assignment or transfer, unless (i) the sale,
assignment or transfer of this Warrant or such Warrant Shares is registered
under the Act, it being understood that neither this Warrant nor such Warrant
Shares are currently registered for sale and that the Company has no obligation
or intention to so register this Warrant or such Warrant Shares except as
specifically provided in that certain Registration Rights Agreement among the
Company , the Holder and Acorn Technology Partners, L.P., dated as of December
19, 1996 (the "Registration Rights Agreement"), or (ii) this Warrant or such
Warrant Shares are sold, assigned or transferred in accordance with all the
requirements and limitations of Rule 144 under the Act, it being understood
that Rule 144 is not available at the time of the original issuance of this
Warrant for the sale of this Warrant or such Warrant Shares and that there can
be no assurance that Rule 144 sales will be available at any subsequent time,
or (iii) such sale, assignment, or transfer is otherwise exempt from
registration under the Act.
(c) Following any assignment or other transfer resulting
in the issuance of warrants to purchase Warrant Shares purchasable hereunder to
more than one person or entity, all elections that may be made by the Holders
under such warrants shall be made by written notice of Holders representing
rights to purchase a majority of the Warrant Shares for which such warrants are
then exercisable.
3
<PAGE> 4
4. The Company shall at all times reserve and keep available out
of its authorized and unissued Common Stock, solely for the purpose of
providing for the exercise of the rights to purchase all Warrant Shares granted
pursuant to the Warrants, such number of shares of Common Stock as shall, from
time to time, be sufficient therefor. The Company covenants that all shares of
Common Stock issuable upon exercise of this Warrant, upon receipt by the
Company of the full Exercise Price therefor, shall be validly issued,
fully-paid, nonassessable, and free of preemptive rights.
5. (a) In case the Company shall at any time after the date
this Warrant is first issued (i) declare a dividend on the outstanding Common
Stock payable in shares of its capital stock, (ii) subdivide the outstanding
Common Stock, or (iii) combine the outstanding Common Stock into a smaller
number of shares, then, in each case, the Exercise Price, and the number of
Warrant Shares issuable upon exercise of this Warrant, in effect at the time of
the record date for such dividend or of the effective date of such subdivision,
or combination, shall be proportionately adjusted so that the Holder after such
time shall be entitled to receive the aggregate number and kind of shares for
such consideration which, if such Warrant had been exercised immediately prior
to such time at the then-current exercise price, he would have owned upon such
exercise and been entitled to receive by virtue of such dividend, subdivision,
or combination. Such adjustment shall be made successively whenever any event
listed above shall occur.
(b) In case the Company shall issue or fix a record date
for the issuance to all holders of Common Stock of rights, options, or warrants
to subscribe for or purchase Common Stock (or securities convertible into or
exchangeable for Common Stock) at a price per share (or having a conversion or
exchange price per share, if a security convertible into or exchangeable for
Common Stock) less than the Current Market Price per share of Common Stock on
such record date, then, in each case, the Exercise Price shall be adjusted by
multiplying the Exercise Price in effect immediately prior to such record date
by a fraction, the numerator of which shall be the number of shares of Common
Stock outstanding on such record date plus the number of shares of Common Stock
which the aggregate offering price of the total number of shares of Common
Stock so to be offered (or the aggregate initial conversion or exchange price
of the convertible or exchangeable securities so to be offered) would purchase
at such Current Market Price and the denominator of which shall be the number
of shares of Common Stock outstanding on such record date plus the number of
additional shares of Common Stock to be offered for subscription or purchase
(or into which the convertible or exchangeable securities so to be offered are
initially convertible or exchangeable); provided, however, that no such
adjustment shall be made which results in an increase in the Exercise Price.
Such adjustment shall become effective at the close of business on such record
date; provided, however, that, to the extent the. shares of Common Stock (or
securities convertible into or exchangeable for shares of Common Stock) are not
delivered, the Exercise Price shall be readjusted after the expiration of such
rights, options, or warrants (but only with respect to Warrants exercised after
such expiration), to the Exercise Price which would then be in effect had the
adjustments made upon the issuance of such rights, options, or warrants been
made upon the basis of delivery of only the number of shares of Common Stock
(or securities convertible into or exchangeable for shares of Common Stock)
actually issued. In case any subscription price may be paid in a consideration
part or all of which shall be in a form other than cash, the value of such
consideration shall be as determined in good faith by
4
<PAGE> 5
the board of directors of the Company, whose determination shall be conclusive
absent manifest error. Shares of Common Stock owned by or held for the account
of the Company or any majority-owned subsidiary shall not be deemed outstanding
for the purpose of any such computation.
(c) In case the Company shall distribute to all holders
of Common Stock (including any such distribution made to the stockholders of
the Company in connection with a consolidation or merger in which the Company
is the continuing corporation) evidences of its indebtedness, cash (other than
any cash dividend which, together with any cash dividends paid within the 12
months prior to the record date for such distribution, does not exceed 5% of
the Current Market Price at the record date for such distribution) or assets
(other than distributions and dividends payable in shares of Common Stock), or
rights, options, or warrants to subscribe for or purchase Common Stock, or
securities convertible into or exchangeable for shares of Common Stock
(excluding those with respect to the issuance of which an adjustment of the
Exercise Price is provided pursuant to Section 5(b) hereof), then, in each
case, the Exercise Price shall be adjusted by multiplying the Exercise Price in
effect immediately prior to the record date for the determination of
stockholders entitled to receive such distribution by a fraction, the numerator
of which shall be the Current Market Price per share of such class of Common
Stock on such record date, less the fair market value (as determined in good
faith by the board of directors of the Company, whose determination shall be
conclusive absent manifest error) of the portion of the evidences of
indebtedness or assets so to be distributed, or of such rights, options, or
warrants or convertible or exchangeable securities, or the amount of such cash,
applicable to one share, and the denominator of which shall be such Current
Market Price per share of Common Stock. Such adjustment shall become effective
at the close of business on such record date.
(d) In case the Company shall issue shares of Common
Stock or rights, options, or warrants to subscribe for or purchase Common
Stock, or securities convertible into or exchangeable for Common Stock
(excluding shares, rights, options, warrants, or convertible or exchangeable
securities issued or issuable (i) in any of the transactions with respect to
which an adjustment of the Exercise Price is provided pursuant to Sections
5(a), 5(b), or 5(c) above, (ii) upon any issuance of securities pursuant to the
Offering or the proposed initial public offering contemplated under the letter
of intent between the Company and Barington Capital Group, L.P. ("Barington")
dated October 7, 1996, or the exercise of securities so issued, (iii) upon
exercise of the Warrants, (iv) upon issuance or exercise of any warrants issued
to Barington or its designees in connection with the public offering of the
Company's Common Stock, (v) upon issuance or exercise of any warrants issued
pursuant to an offering by the Company of Two Million Dollars ($2,000,000) in
senior secured promissory notes and Five Hundred Thousand (500,000) warrants
pursuant to a Confidential Private Placement Memorandum dated October 9, 1996,
or (vi) upon issuance or exercise of up to 450,000 stock options granted or to
be granted to the directors, consultants or employees of the Company, other
than existing stockholders of the Company, pursuant to a stock option plan
reasonably acceptable to Barington) at a price per share (determined, in the
case of such rights, options, warrants, or convertible or exchangeable
securities, by dividing (x) the total amount received or receivable by the
Company in consideration of the sale and issuance of such rights, options,
warrants, or convertible or exchangeable securities, plus the minimum aggregate
consideration payable to the Company upon exercise,
5
<PAGE> 6
conversion, or exchange thereof, by (y) the maximum number of shares covered by
such rights, options, warrants, or convertible or exchangeable securities)
lower than the Current Market Price per share of Common Stock in effect
immediately prior to such issuance, then the Exercise Price shall be reduced on
the date of such issuance to a price (calculated to the nearest cent)
determined by multiplying the Exercise Price in effect immediately prior to
such issuance by a fraction, (1) the numerator of which shall be an amount
equal to the sum of (A) the number of shares of Common Stock outstanding
immediately prior to such issuance plus (B) the quotient obtained by dividing
the consideration received by the Company upon such issuance by such Current
Market Price, and (2) the denominator of which shall be the total number of
shares of Common Stock outstanding immediately after such issuance; provided,
however, that no such adjustment shall be made which results in an increase in
the Exercise Price. For the purposes of such adjustments, the maximum number
of shares which the holders of any such rights, options, warrants, or
convertible or exchangeable securities shall be entitled to initially subscribe
for or purchase or convert or exchange such securities into shall be deemed to
be issued and outstanding as of the date of such issuance, and the
consideration received by the Company therefor shall be deemed to be the
consideration received by the Company for such rights, options, warrants, or
convertible or exchangeable securities, plus the minimum aggregate
consideration or premiums stated in such rights, options, warrants, or
convertible or exchangeable securities to be paid for the shares covered
thereby. No further adjustment of the Exercise Price shall be made as a result
of the actual issuance of shares of Common Stock on exercise of such rights,
options, or warrants or on conversion or exchange of such convertible or
exchangeable securities. On the expiration or the termination of such rights,
options, or warrants, or the termination of such right to convert or exchange,
the Exercise Price shall be readjusted (but only with respect to Warrants
exercised after such expiration or termination) to such Exercise Price as would
have obtained had the adjustments made upon the issuance of such rights,
options, warrants, or convertible or exchangeable securities been made upon the
basis of the delivery of only the number of shares of Common Stock actually
delivered upon the exercise of such rights, options, or warrants or upon the
conversion or exchange of any such securities; and on any change of the number
of shares of Common Stock deliverable upon the exercise of any such rights,
options, or warrants or conversion or exchange of such convertible or
exchangeable securities or any change in the consideration to be received by
the Company upon such exercise, conversion, or exchange, including, without
limitation, a change resulting from the antidilution provisions thereof. In
case the Company shall issue shares of Common Stock or any such rights,
options, warrants, or convertible or exchangeable securities for a
consideration consisting, in whole or in part, of property other than cash or
its equivalent, then the "price per share" and the "consideration received by
the Company" for purposes of the first sentence of this Section 5(d) shall be
as determined in good faith by the board of directors of the Company, whose
determination shall be conclusive absent manifest error. Shares of Common
Stock owned by or held for the account of the Company or any majority-owned
subsidiary shall not be deemed outstanding for the purpose of any such
computation.
(e) For the purpose of any computation under this Section
5 or Section 1, the Current Market Price per share of Common Stock on any date
shall be deemed to be the average of the daily closing prices for the 30
consecutive trading days immediately preceding the date in question. The
closing price for each day shall be the last reported sales price regular way
or, in
6
<PAGE> 7
case no such reported sale takes place on such day, the closing bid price
regular way, in either case on the principal national securities exchange
(including, for purposes hereof, the NASDAQ National Market, NASDAQ Small Cap
and NASDAQ Bulletin Board) on which the Common Stock is listed or admitted to
trading or, if the Common Stock is not listed or admitted to trading on any
national securities exchange, the highest reported bid price for the Common
Stock as furnished by the National Association of Securities Dealers, Inc.
through NASDAQ or a similar organization if NASDAQ is no longer reporting such
information. If on any such date the Common Stock is not listed or admitted to
trading on any national securities exchange and is not quoted by NASDAQ or any
similar organization, the fair value of a share of Common Stock on such date,
as determined in good faith by the board of directors of the Company, whose
determination shall be conclusive absent manifest error, shall be used.
(f) No adjustment in the Exercise Price shall be required
if such adjustment is less than $.05; provided, however, that any adjustments
which by reason of this Section 5 are not required to be made shall be carried
forward and taken into account in any subsequent adjustment. All calculations
under this Section 5 shall be made to the nearest cent or to the nearest
one-thousandth of a share, as the case may be.
(g) In any case in which this Section 5 shall require
that an adjustment in the Exercise Price be made effective as of a record date
for a specified event, the Company may elect to defer, until the occurrence of
such event, issuing to the Holder, if the Holder exercised this Warrant after
such record date, the shares of Common Stock, if any, issuable upon such
exercise over and above the shares of Common Stock, if any, issuable upon such
exercise on the basis of the Exercise Price in effect prior to such adjustment;
provided, however, that the Company shall deliver to the Holder a due bill or
other appropriate instrument evidencing the Holder's right to receive such
additional shares upon the occurrence of the event requiring such adjustment.
(h) Upon each adjustment of the Exercise Price as a
result of the calculations made in Sections 5(b), 5(c), or 5(d) hereof, this
Warrant shall thereafter evidence the right to purchase, at the adjusted
Exercise Price, that number of shares (calculated to the nearest thousandth)
obtained by dividing (A) the product obtained by multiplying the number of
shares purchasable upon exercise of this Warrant prior to adjustment of the
number of shares by the Exercise Price in effect prior to adjustment of the
Exercise Price by (B) the Exercise Price in effect after such adjustment of the
Exercise Price.
(i) Whenever there shall be an adjustment as provided in
this Section 5, the Company shall promptly cause written notice thereof to be
sent by certified mail, postage prepaid, to the Holder, at its address as it
shall appear in the Warrant Register, which notice shall be accompanied by an
officer's certificate setting forth the number of Warrant Shares purchasable
upon the exercise of this Warrant and the Exercise Price after such adjustment
and setting forth a brief statement of the facts requiring such adjustment and
the computation thereof, which officer's certificate shall be conclusive
evidence of the correctness of any such adjustment absent manifest error.
7
<PAGE> 8
(j) The Company shall not be required to issue fractions
of shares of Common Stock or other capital stock of the Company upon the
exercise of this Warrant. If any fraction of a share would be issuable on the
exercise of this warrant (or specified portions thereof), the Company shall
purchase such fraction for an amount in cash equal to the same fraction of the
Current Market Price of such share of Common Stock on the date of exercise of
this Warrant.
6. (a) In case of any consolidation with or merger of the
Company with or into another corporation (other than a merger or consolidation
in which the Company is the surviving or continuing corporation), or in case of
any sale, lease, or conveyance to another corporation of the property and
assets of any nature of the Company as an entirety or substantially as an
entirety, such successor, leasing, or purchasing corporation, as the case may
be, shall (i) execute with the Holder an agreement providing that the Holder
shall have the right thereafter to receive upon exercise of this Warrant solely
the kind and amount of shares of stock and other securities, property" cash, or
any combination thereof receivable upon such consolidation, merger, sale,
lease, or conveyance by a holder of the number of shares of Common Stock for
which this Warrant might have been exercised immediately prior to such
consolidation, merger, sale, lease, or conveyance, and (ii) make effective
provision in its certificate of incorporation or otherwise, if necessary, to
effect such agreement. Such agreement shall provide for adjustments which
shall be as nearly equivalent as practicable to the adjustments in Section 5.
(b) In case of any reclassification or change of the
shares of Common Stock issuable upon exercise of this Warrant (other than a
change in par value or from no par value to a specified par value, or as a
result of a subdivision or combination, but including any change in the shares
into two or more classes or series of shares), or in case of any consolidation
or merger of another corporation into the Company in which the Company is the
continuing corporation and in which there is a reclassification or change
(including a change to the right to receive cash or other property) of the
shares of Common Stock (other than a change in par value, or from no par value
to a specified par value, or as a result of a subdivision or combination, but
including any change in the shares into two or more classes or series of
shares), the Holder shall have the right thereafter to receive upon exercise of
this Warrant solely the kind and amount of shares of stock and other
securities, property, cash, or any combination thereof receivable upon such
reclassification, change, consolidation, or merger by a holder of the number of
shares of Common Stock for which this Warrant might have been exercised
immediately prior to such reclassification, change, consolidation, or merger.
Thereafter, appropriate provision shall be made for adjustments which shall be
as nearly equivalent as practicable to the adjustments in Section 5.
(c) The above provisions of this Section 6 shall
similarly apply to successive reclassifications and changes of shares of Common
Stock and to successive consolidations, mergers, sales, leases, or conveyances.
7. In case at any time the Company shall propose to:
(a) pay any dividend or make any distribution on shares
of Common Stock in shares of Common Stock or make any other distribution (other
than regularly scheduled cash
8
<PAGE> 9
dividends which are not in a greater amount per share than the most recent such
cash dividend) to all holders of Common Stock; or
(b) issue any rights, warrants, or other securities to
all holders of Common Stock entitling them to purchase any additional shares of
Common Stock or any other rights, warrants, or other securities; or
(c) effect any reclassification or change of outstanding
shares of Common Stock, or any consolidation, merger, sale, lease, or
conveyance of property, described in Section 6 hereof; or
(d) effect any liquidation, dissolution, or winding-up
of the Company; or
(e) take any other action which would cause an adjustment
to the Exercise Price;
then, and in any one or more of such cases, the Company shall give written
notice thereof, by certified mail, postage prepaid, to the Holder at the
Holder's address as it shall appear in the warrant Register, mailed at least 15
days prior to (i) the date as of which the holders of record of shares of
Common Stock to be entitled to receive any such dividend, distribution, rights,
warrants, or other securities are to be determined, (ii) the date on which any
such reclassification, change of outstanding shares of Common Stock,
consolidation, merger, sale, lease, conveyance of property, liquidation,
dissolution, or winding-up is expected to become effective, and the date as of
which it is expected that holders of record of shares of Common Stock shall be
entitled to exchange their shares for securities or other property, if any,
deliverable upon such reclassification, change of outstanding shares,
consolidation, merger, sale, lease, conveyance of property, liquidation,
dissolution, or winding-up, or (iii) the date of such action which would
require an adjustment to the Exercise Price.
8. The issuance of any shares or other securities upon the
exercise of this Warrant, and the delivery of certificates or other instruments
representing such shares or other securities, shall be made without charge to
the Holder for any tax or other charge in respect of such issuance. The
Company shall not, however, be required to pay any tax which may be payable in
respect of any transfer involved in the issue and delivery of any certificate
in a name other than that of the Holder and the Company shall not be required
to issue or deliver any such certificate unless and until the person or persons
requesting the issue thereof shall have paid to the Company the amount of such
tax or shall have established to the satisfaction of the Company that such tax
has been paid.
9. This Warrant, the shares of the Company's Common Stock
issuable pursuant to exercise of this Warrant, and the Holder hereof are
subject to registration rights as set forth in the Registration Rights
Agreement.
9
<PAGE> 10
10. Unless registered pursuant to the provisions of the
Registration Rights Agreement, the Warrant Shares issued upon exercise of the
Warrants shall be subject to a stop transfer order and the certificate or
certificates evidencing such Warrant Shares shall bear the following legend:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR THE
SECURITIES LAWS OF ANY STATE. THESE SECURITIES HAVE BEEN
ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO DISTRIBUTION OR
RESALE, AND MAY NOT BE SOLD, MORTGAGED, PLEDGED, HYPOTHECATED
OR OTHERWISE TRANSFERRED WITHOUT AN EFFECTIVE REGISTRATION
STATEMENT FOR SUCH SECURITIES UNDER THE SECURITIES ACT OF
1933, AS AMENDED, AND APPLICABLE STATE SECURITIES LAW, OR AN
OPINION OF COUNSEL FOR THE CORPORATION THAT REGISTRATION IS
NOT REQUIRED UNDER SUCH LAWS ."
11. Upon receipt of evidence satisfactory to the Company of the
loss, theft, destruction, or mutilation of any Warrant (and upon surrender of
any Warrant if mutilated), including an affidavit of the Holder thereof that
this Warrant has been lost, stolen, destroyed or mutilated, together with an
indemnity against any claim that may be made against the Company on account of
such lost, stolen, destroyed or mutilated Warrant, and upon reimbursement of
the Company's reasonable incidental expenses, the Company shall execute and
deliver to the Holder thereof a new Warrant of like date, tenor, and
denomination.
12. The Holder of any Warrant shall not have solely on account of
such status, any rights of a stockholder of the Company, either at law or in
equity, or to any notice of meetings of stockholders or of any other
proceedings of the Company, except as provided in this Warrant.
13. This Warrant shall be construed in accordance with the laws of
the State of New York applicable to contracts made and performed within such
State, without regard to principles governing conflicts of law.
14. The Company irrevocably consents to the jurisdiction of the
courts of the State of New York and of any federal court located in such State
in connection with any action or proceeding arising out of or relating to this
Warrant, any document or instrument delivered pursuant to, in connection with
or simultaneously with this Warrant, or a breach of this Warrant or any such
document or instrument.
15. Any notice or other communication required or permitted to be
given hereunder shall be in writing and shall be mailed by certified mail,
return receipt requested, or by Federal Express, Express Mail or similar
overnight delivery or courier service or delivered (in person or by facsimile
or similar telecommunications equipment) against receipt to the party to whom
it is to be given, (i) if to the Company, at Objective Communications, Inc.,
14100 Park Meadow
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<PAGE> 11
Drive, Chantilly, VA 20151, Attention: President, Fax No. (703) 227-3099, (ii)
if to the Holder, at its address set forth on the first page hereof, with a
copy to Joel M. Simon, Esq., Paul Hastings, Janofsky & Walker LLP, 399 Park
Avenue, 31st Floor, New York, New York 10022, Fax No. (212) 319-4090, or (iii)
in either case, to such other address as the party shall have furnished in
writing in accordance with the provisions of this Section 15. Notice to the
estate of any party shall be sufficient if addressed to the party as provided
in this Section 15. Any notice or other communication given by certified mail
shall be deemed given at the time of certification thereof, except for a notice
changing a party's address which shall be deemed given at the time of receipt
thereof. Any notice given by other means permitted by this Section 15 shall be
deemed given at the time of receipt thereof.
16. No course of dealing and no delay or omission on the part of
the Holder in exercising any right or remedy shall operate as a waiver thereof
or otherwise prejudice the Holder's rights, powers or remedies. No right,
power or remedy conferred by this Warrant upon the Holder shall be exclusive of
any other right, power or remedy referred to herein or now or hereafter
available at law, in equity, by statute or otherwise, and all such remedies may
be exercised singly or concurrently.
17. This Warrant may be amended or any of its provisions waived
only by a written consent or consents executed by the Company and Holders of
Warrants representing a majority of the Warrants pursuant to the Stock and
Warrant Agreement. Any amendment or waiver shall be binding upon all future
Holders.
Dated: December 19, 1996
OBJECTIVE COMMUNICATIONS, INC.
By:
----------------------------------
Name: Steven A. Rogers
Title: President & CEO
- ---------------------------------
Robert Emery, Secretary
11
<PAGE> 12
FORM OF ASSIGNMENT
(To be executed by the registered holder if such holder desires to transfer the
attached Warrant.)
FOR VALUE RECEIVED, _____________________________ hereby sells,
assigns, and transfers unto ____________________________________ a Warrant to
purchase __________ shares of Common Stock, $.01 par value per share, of
Objective Communications, Inc. (the "Company"), together with all right, title,
and interest therein, and does hereby irrevocably constitute and appoint
_______________________ as attorney to transfer such Warrant on the books of
the Company, with full power of substitution.
Dated:
Signature
-----------------------------
--------------------------------------
Signature Guarantee
NOTICE
The signature on the foregoing Assignment must correspond to the name
as written upon the face of this Warrant in every particular, without
alteration or enlargement or any change whatsoever.
12
<PAGE> 13
To: Objective Communications, Inc.
14100 Park Meadow Drive
Chantilly, VA 20151
ELECTION TO EXERCISE
The undersigned hereby exercises his or its rights to purchase Warrant
Shares covered by the within Warrant, and tenders payment herewith in the
aggregate amount of $_____________, including $____________ by certified or
bank cashier's check in accordance with the terms thereof, and requests that
certificates for such securities be issued in the name of, and delivered to:
---------------------------------------------------------------------
---------------------------------------------------------------------
---------------------------------------------------------------------
(Print Name, Address and Social Security
or Tax Identification Number)
and, if such number of Warrant Shares shall not be all the Warrant Shares
covered by the within Warrant and the remaining portion of the within warrant
be not cancelled in payment of the Exercise Price, that a new Warrant for the
balance of the Warrant Shares covered by the within Warrant be registered in
the name of, and delivered to, the undersigned at the address stated below.
---------------------------------------------------------------------
---------------------------------------------------------------------
---------------------------------------------------------------------
(Print Name, Address and Social Security
or Tax Identification Number)
Dated: Name:
---------------------- ----------------------------
(Print)
13
<PAGE> 14
Address:
-----------------------------------------------------------------
------------------------------------
(Signature)
------------------------------------
(Signature Guarantee)
------------------------------------
(Signature Guarantee)
14
<PAGE> 1
EXHIBIT 3.8
THE SHARES ISSUABLE UPON EXERCISE OF THE OPTION
REPRESENTED BY THIS CERTIFICATE HAVE BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, PURSUANT TO A REGISTRATION STATEMENT
FILED WITH THE SECURITIES AND EXCHANGE
COMMISSION. HOWEVER, NEITHER THIS OPTION NOR
SUCH SHARES MAY BE OFFERED OR SOLD EXCEPT
PURSUANT TO (i) A POST-EFFECTIVE AMENDMENT TO
SUCH REGISTRATION STATEMENT, (ii) A SEPARATE
REGISTRATION STATEMENT UNDER SUCH ACT, OR (iii)
AN EXEMPTION FROM REGISTRATION UNDER SUCH ACT.
THE TRANSFER OF THIS OPTION IS
RESTRICTED AS DESCRIBED HEREIN.
OBJECTIVE COMMUNICATIONS, INC.
Option for the Purchase of
Common Stock
No. _ 180,000 Shares
THIS CERTIFIES that, for receipt in hand of $180.00 and other value
received, BARINGTON CAPITAL GROUP, L.P., 888 Seventh Avenue, New York, New
York 10019 (the "Holder"), is entitled to subscribe for and purchase from
Objective Communications, Inc., a Florida corporation (the "Company"), upon
the terms and conditions set forth herein, at any time or from time to time
after the date hereof, and before 5:00 P.M. on _______________, New York time
(the "Exercise Period"), up to 180,000 shares (the "Option Shares") of the
Company's common stock, par value $.01 per share ("Common Stock") at a price
of $_____ (120% of the public offering price) per Option Share (the "Exercise
Price"). This Option is the option or one of the options (collectively,
including any options issued upon the exercise or transfer of any
<PAGE> 2
such options in whole or in part, the "Options") issued pursuant to the
Underwriting Agreement, dated ____________, 1997 between the Company,
Barington Capital Group, L. P., as Underwriter (the "Underwriting Agreement").
As used herein the term "this Option" shall mean and include this Option and
any Option or Options hereafter issued as a consequence of the exercise or
transfer of this Option in whole or in part. This Option may not be sold,
transferred, assigned or hypothecated until one year after the Effective Date
except that it may be transferred, in whole or in part, to (i) one or more
officers or partners of the Holder (or the officers or partners of any such
partner); (ii) any other underwriting firm or member of the selling group
which participated in the public offering of 1,800,000 shares of the Company's
Common Stock which commenced on ____________, 1997 (or the officers or
partners of any such firm); (iii) a successor to the Holder, or the officers
or partners of such successor; (iv) a purchaser of substantially all of the
assets of the Holder; or (v) by operation of law; and the term the "Holder" as
used herein shall include any transferee to whom this Option has been
transferred in accordance with the above.
1. (a) This Option may be exercised during the Exercise Period, as to
the whole or any lesser number of whole Option Shares, by the surrender of
this Option (with the election at the end hereof duly executed) to the Company
at its office at 14100 Park Meadow Drive, Chantilly, VA 20151, or at such
other place as is designated in writing by the Company, together with a
certified or bank cashier's check payable to the order of the Company in an
amount equal to the Exercise Price multiplied by the number of Option Shares
for which this Option is being exercised.
(b) All or any part of this Option may be exercised on a "cashless"
basis, by stating in the exercise notice such intention, and the maximum
number (the "Maximum Number") of shares of Common Stock the optionee elects to
purchase pursuant to such exercise. The number of shares of Common Stock the
optionee shall receive (the "Cashless Exercise Number") shall equal the
Maximum Number minus the quotient that is obtained when the product of the
Maximum Number and the then current Exercise Price is divided by the then
Current Market Price per share (as hereinafter defined).
2. Upon each exercise of the Holder's rights to purchase Option Shares,
the Holder shall be deemed to be the holder of record of the Option Shares
issuable upon such exercise, notwithstanding that the transfer books of the
Company shall then be closed or certificates representing such Option Shares
shall not then have been actually delivered to the Holder. As soon as
practicable after each such exercise of this Option, the Company shall issue
and deliver to the Holder a certificate or certificates for the Option Shares
issuable upon such exercise, registered in the name of the Holder or its
designee. If this Option should be exercised in part only, the Company shall,
upon
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<PAGE> 3
surrender of this Option for cancellation, execute and deliver a new Option
evidencing the right of the Holder to purchase the balance of the Option
Shares (or portions thereof) subject to purchase hereunder.
3. Any Options issued upon the transfer or exercise in part of this
Option shall be numbered and shall be registered in an Option Register as they
are issued. The Company shall be entitled to treat the registered holder of
any Option on the Option Register as the owner in fact thereof for all
purposes and shall not be bound to recognize any equitable or other claim to
or interest in such Option on the part of any other person, and shall not be
liable for any registration or transfer of Options which are registered or to
be registered in the name of a fiduciary or the nominee of a fiduciary unless
made with the actual knowledge that a fiduciary or nominee is committing a
breach of trust in requesting such registration or transfer, or with the
knowledge of such facts that its participation therein amounts to bad faith.
This Option shall be transferable only on the books of the Company upon
delivery thereof duly endorsed by the Holder or by his duly authorized
attorney or representative, or accompanied by proper evidence of succession,
assignment, or authority to transfer. In all cases of transfer by an
attorney, executor, administrator, guardian, or other legal representative,
duly authenticated evidence of his or its authority shall be produced. Upon
any registration of transfer, the Company shall deliver a new Option or
Options to the person entitled thereto. This Option may be exchanged, at the
option of the Holder thereof, for another Option, or other Options of
different denominations, of like tenor and representing in the aggregate the
right to purchase a like number of Option Shares (or portions thereof), upon
surrender to the Company or its duly authorized agent. Notwithstanding the
foregoing, the Company shall have no obligation to cause Options to be
transferred on its books to any person if, in the opinion of counsel to the
Company, such transfer does not comply with the provisions of the Securities
Act of 1933, as amended (the "Act"), and the rules and regulations thereunder.
4. The Company shall at all times reserve and keep available out of its
authorized and unissued Common Stock, solely for the purpose of providing for
the exercise of the Options, such number of shares of Common Stock as shall,
from time to time, be sufficient therefor. The Company covenants that all
shares of Common Stock issuable upon exercise of this Option, upon receipt by
the Company of the full payment therefor, shall be validly issued, fully paid,
nonassessable, and free of preemptive rights.
5. (a) Subject to the provisions of this Section 5, the Exercise Price
in effect from time to time shall be subject to adjustment, as follows:
- 3 -
<PAGE> 4
(i) In case the Company shall at any time after the date hereof (A)
declare a dividend on the outstanding Common Stock payable in shares of
its capital stock, (B) subdivide the outstanding Common Stock, (C)
combine the outstanding Common Stock into a smaller number of shares, or
(D) issue any shares of its capital stock by reclassification of the
Common Stock (including any such reclassification in connection with a
consolidation or merger in which the Company is the continuing
corporation), then, in each case, the Exercise Price, and the number of
shares of Common Stock issuable upon exercise of the Options in effect at
the time of the record date for such dividend or of the effective date of
such subdivision, combination, or reclassification, shall be
proportionately adjusted so that the holders of the Options after such
time shall be entitled to receive the aggregate number and kind of shares
which, if such Options had been exercised immediately prior to such time,
such holders would have owned upon such exercise and been entitled to
receive by virtue of such dividend, subdivision, combination or
reclassification, at such aggregate price as the holders of such Options
would have paid for such exercise immediately prior to such time. Such
adjustment shall be made successively whenever any event listed above
shall occur.
(ii) In case the Company shall issue or fix a record date for the
issuance to all holders of Common Stock of rights, options, or warrants
to subscribe for or purchase Common Stock (or securities convertible into
or exchangeable for Common Stock) at a price per share (or having a
conversion or exchange price per share, if a security convertible into or
exchangeable for Common Stock) less than the Current Market Price per
share of Common Stock (as determined pursuant to Subsection 5(b) hereof)
on such record date, then, in each case, the Exercise Price shall be
adjusted by multiplying the Exercise Price in effect immediately prior to
such record date by a fraction, the numerator of which shall be the
number of shares of Common Stock outstanding on such record date plus the
number of shares of Common Stock which the aggregate offering price of
the total number of shares of Common Stock so to be offered (or the
aggregate initial conversion or exchange price of the convertible or
exchangeable securities so to be offered) would purchase at such Current
Market Price and the denominator of which shall be the number of shares
of Common Stock outstanding on such record date plus the number of
additional shares of Common Stock to be offered for subscription or
purchase (or into which the convertible or exchangeable securities so to
be offered are initially convertible or exchangeable). Such adjustment
shall become effective at the close of business on such record date;
provided, however, that, to the extent the shares of Common Stock (or
securities convertible into or exchangeable for shares of Common Stock)
are not delivered, the Exercise
- 4 -
<PAGE> 5
Price shall be readjusted after the expiration of such rights, options,
or warrants (but only with respect to Options exercised after such
expiration), to the Exercise Price which would then be in effect had the
adjustments made upon the issuance of such rights, options, or warrants
been made upon the basis of delivery of only the number of shares of
Common Stock (or securities convertible into or exchangeable for shares
of Common Stock) actually issued. In case any subscription price may be
paid in a consideration part or all of which shall be in a form other
than cash, the value of such consideration shall be as determined in good
faith by the board of directors of the Company, whose determination shall
be conclusive absent manifest error. Shares of Common Stock owned by or
held for the account of the Company or any majority-owned subsidiary
shall not be deemed outstanding for the purpose of any such computation.
(iii) In case the Company shall distribute to all holders of Common
Stock (including any such distribution made to the shareholders of the
Company in connection with a consolidation or merger in which the Company
is the continuing corporation) evidences of its indebtedness, cash (other
than any cash dividend which, together with any cash dividends paid
within the 12 months prior to the record date for such distribution, does
not exceed 5% of the Current Market Price at the record date for such
distribution) or assets (other than distributions and dividends payable
in shares of Common Stock), or rights, options, or warrants to subscribe
for or purchase Common Stock, or securities convertible into or
exchangeable for shares of Common Stock (excluding those with respect to
the issuance of which an adjustment of the Exercise Price is provided
pursuant to Section 5(a)(ii) hereof), then, in each case, the Exercise
Price shall be adjusted by multiplying the Exercise Price in effect
immediately prior to the record date for the determination of
shareholders entitled to receive such distribution by a fraction, the
numerator of which shall be the Current Market Price per share of Common
Stock on such record date, less the fair market value (as determined in
good faith by the board of directors of the Company, whose determination
shall be conclusive absent manifest error) of the portion of the
evidences of indebtedness or assets so to be distributed, or of such
rights, options, or warrants or convertible or exchangeable securities,
or the amount of such cash, applicable to one share, and the denominator
of which shall be such Current Market Price per share of Common Stock.
Such adjustment shall become effective at the close of business on such
record date.
(iv) In case the Company shall issue shares of Common Stock or
rights, options, or warrants to subscribe for or purchase Common Stock,
or securities convertible into or exchangeable for Common Stock
(excluding shares, rights,
- 5 -
<PAGE> 6
options, warrants, or convertible or exchangeable securities issued or
issuable (A) in any of the transactions with respect to which an
adjustment of the Exercise Price is provided pursuant to Section 5(a)(i),
5(a)(ii) or 5(a)(iii) above, (B) upon any issuance of securities pursuant
to the Underwriting Agreement, (C) upon exercise of the Option, (D) the
issuance of up to 450,000 shares of Common Stock issuable upon exercise
of outstanding options under the Company's 199__ Stock Option Plan,
(E) upon issuance of up to _____ shares of Common Stock issuable upon
exercise of warrants issued in connection with the Company's October,
November and December 1996 bridge financing and (F) ____, at a price per
share (determined, in the case of such rights, options, warrants, or
convertible or exchangeable securities, by dividing (x) the total amount
received or receivable by the Company in consideration of the sale and
issuance of such rights, options, warrants, or convertible or
exchangeable securities, plus the minimum aggregate consideration payable
to the Company upon exercise, conversion, or exchange thereof, by (y) the
maximum number of shares covered by such rights, options, warrants, or
convertible or exchangeable securities) lower than the Current Market
Price per share of Common Stock in effect immediately prior to such
issuance, then the Exercise Price shall be reduced on the date of such
issuance to a price (calculated to the nearest cent) determined by
multiplying the Exercise Price in effect immediately prior to such
issuance by a fraction, (a) the numerator of which shall be an amount
equal to the sum of (A) the number of shares of Common Stock outstanding
immediately prior to such issuance plus (B) the quotient obtained by
dividing the aggregate consideration received by the Company upon such
issuance by such Current Market Price, and (b) the denominator of which
shall be the total number of shares of Common Stock outstanding
immediately after such issuance. For the purposes of such adjustments,
the maximum number of shares which the holders of any such rights,
options, warrants, or convertible or exchangeable securities shall be
entitled to initially subscribe for or purchase or convert or exchange
such securities into shall be deemed to be issued and outstanding as of
the date of such issuance, and the consideration received by the Company
for such rights, options, warrants, or convertible or exchangeable
securities, plus the minimum aggregate consideration or premiums stated
in such rights, options, warrants or convertible or exchangeable
securities to be paid for the shares covered thereby. No further
adjustment of the Exercise Price shall be made as a result of the actual
issuance of shares of Common Stock on exercise of such rights, options,
or warrants or on conversion or exchange of such convertible or
exchangeable securities. On the expiration or the termination of such
rights, options, or warrants, or the termination of such rights to
convert or exchange, the Exercise Price shall be readjusted (but only
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<PAGE> 7
with respect to Options exercised after such expiration or termination)
to such Exercise Price as would have been obtained had the adjustments
made upon the issuance of such rights, options, warrants, or convertible
or exchangeable securities been made upon the basis of the delivery of
only the number of shares of Common Stock actually delivered upon the
exercise of such rights, options, or warrants or upon the conversion or
exchange of any such securities; and on any change of the number of
shares of Common Stock deliverable upon the exercise of any such rights,
options, or warrants or conversion or exchange of such convertible or
exchangeable securities or any change in the consideration to be received
by the Company upon such exercise, conversion, or exchange, including,
but not limited to, a change resulting from the antidilution provisions
thereof, the Exercise Price, as then in effect, shall forthwith be
readjusted (but only with respect to Options exercised after such change)
to such Exercise Price as would have been obtained had an adjustment been
made upon the issuance of such rights, options, or warrants not exercised
prior to such change, on the basis of such change. In case the Company
shall issue shares of Common Stock or any such rights, options, warrants,
or convertible or exchangeable securities for a consideration consisting,
in whole or in part, of property other than cash or its equivalent, then
the "price per share" and the "consideration received by the Company" for
purposes of the first sentence of this Section 3(a)(iv) shall be as
determined in good faith by the board of directors of the Company, whose
determination shall be conclusive absent manifest error. Shares of
Common Stock owned by or held for the account of the Company or any
majority-owned subsidiary shall not be deemed outstanding for the purpose
of any such computation.
(b) For the purpose of any computation under this Section 5 the
Current Market Price per share of Common Stock on any date shall be deemed to
be the average of the daily closing prices for the 30 consecutive trading days
immediately preceding the date in question. The closing price for each day
shall be the last reported sales price regular way or, in case no such
reported sale takes place on such day, the closing bid price regular way, in
either case on the principal national securities exchange (including, for
purposes hereof, the NASDAQ National Market System) on which the Common Stock
is listed or admitted to trading or, if the Common Stock is not listed or
admitted to trading on any national securities exchange, the highest reported
bid price for the Common Stock as furnished by the National Association of
Securities Dealers, Inc. through NASDAQ or a similar organization if NASDAQ is
no longer reporting such information. If on any such date the Common Stock is
not listed or admitted to trading on any national securities exchange and is
not quoted by NASDAQ or any similar organization, the fair value of a share of
Common Stock on such date as determined in good faith by the board of
directors of the Company, whose
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<PAGE> 8
determination shall be conclusive absent manifest error shall be used.
(c) No adjustment in the Exercise Price shall be required if such
adjustment is less than $.05; provided, however, that any adjustments which by
reason of this Section 5 are not required to be made shall be carried forward
and taken into account in any subsequent adjustment. All calculations under
this Section 5 shall be made to the nearest cent or to the nearest one
thousandth of a share, as the case may be.
(d) In any case in which this Section 5 shall require that an
adjustment in the Exercise Price be made effective as of a record date for a
specified event, the Company may elect to defer, until the occurrence of such
event, issuing to the holders of the Option, if any holder has exercised an
Option after such record date, the shares of Common Stock, if any, issuable
upon such exercise over and above the shares of Common Stock, if any, issuable
upon such exercise on the basis of the Exercise Price in effect prior to such
adjustment; provided, however, that the Company shall deliver to such
exercising holder a due bill or other appropriate instrument evidencing such
holder's right to receive such additional shares upon the occurrence of the
event requiring such adjustment.
(e) Upon each adjustment of the Exercise Price as a result of the
calculations made in Sections 5(a)(ii), 5(a)(iii) or 5(a)(iv) hereof the
Option shall thereafter evidence the right to purchase, at the adjusted
Exercise Price, that number of shares (calculated to the nearest thousandth)
obtained by dividing (A) the product obtained by multiplying the number of
shares purchasable upon exercise of the Option prior to adjustment of the
number of shares by the Exercise Price in effect prior to adjustment of the
Exercise Price by (B) the Exercise Price in effect after such adjustment of
the Exercise Price.
(f) In case of any capital reorganization, other than in the cases
referred to in Section 5(a) hereof, or the consolidation or merger of the
Company with or into another corporation (other than a merger or consolidation
in which the Company is the continuing corporation and which does not result
in any reclassification of the outstanding shares of Common Stock or the
conversion of such outstanding shares of Common Stock into shares of other
stock or other securities or property), or the sale of the property of the
Company as an entirety or substantially as an entirety (collectively such
actions being hereinafter referred to as "Reorganizations"), there shall
thereafter be deliverable upon exercise of any Option (in lieu of the number
of shares of Common Stock theretofore deliverable) the number of shares of
stock or other securities or property to which a holder of the number of
shares of Common Stock which would otherwise have been deliverable upon the
exercise of such Option would have been entitled upon such Reorganization if
such Option had been exercised in
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<PAGE> 9
full immediately prior to such Reorganization. In case of any Reorganization,
appropriate adjustment, as determined in good faith by the board of directors
of the Company, shall be made in the application of the provisions herein set
forth with respect to the rights and interests of Option holders so that the
provisions set forth herein shall thereafter be applicable, as nearly as
possible, in relation to any shares or other property thereafter deliverable
upon exercise of Options. Any such adjustment shall be made by and set forth
in a supplemental agreement between the Company, or any successor thereto, and
______________ and shall for all purposes hereof conclusively be deemed to be
an appropriate adjustment. The Company shall not effect any such
Reorganization, unless upon or prior to the consummation thereof the successor
corporation, or if the Company shall be the surviving corporation in any such
Reorganization and is not the issuer of the shares of stock or other
securities or property to be delivered to holders of shares of the Common
Stock outstanding at the effective time thereof, then such issuer, shall
assume by written instrument the obligation to deliver to the registered
holder of the Options such shares of stock, securities, cash or other property
as such holder shall be entitled to purchase in accordance with the foregoing
provisions. In the event of sale or conveyance or other transfer of all or
substantially all of the assets of the Company as a part of a plan for
liquidation of the Company, all rights to exercise any Option shall terminate
30 days after the Company gives written notice to each registered holder of a
Option Certificate that such sale or conveyance of other transfer has been
consummated.
(g) In case of any reclassification or change of the shares of
Common Stock issuable upon exercise of the Options (other than a change in par
value or from no par value to a specified par value, or as a result of a
subdivision or combination, but including any change in the shares into two or
more classes or series of shares), the holders of the Options shall have the
right thereafter to receive upon exercise of the Options solely the kind and
amount of shares of stock and other securities, property, cash, or any
combination thereof receivable upon such reclassification or change by a
holder of the number of shares of Common Stock for which the Options might
have been exercised immediately prior to such reclassification or change.
Thereafter, appropriate provision shall be as nearly equivalent as practicable
to the adjustments in Section 5. The above provisions of this subsection 5(a)
shall similarly apply to successive reclassifications and changes of shares of
Common Stock.
(h) Whenever the Exercise Price is adjusted as provided in this
Section 5, the Company will promptly obtain a certificate of a firm of
independent public accountants of recognized standing selected by the Board of
Directors (who may be the regular auditors of the Company) setting forth the
exercise price as so adjusted and a brief statement of the facts accounting
for such adjustment, and will make available a brief
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<PAGE> 10
summary thereof to the holders of the Option Certificates, at their addresses
listed on the register maintained for the purpose by the Company.
(i) Whenever any adjustment is made pursuant to this Section 5, the
Company shall cause notice of such adjustment to be mailed to each registered
holder of an Option Certificate within 15 Business Days (as hereinafter
defined) thereafter, such notice to include in reasonable detail (i) the
events precipitating the adjustment, (ii) the computation of any adjustments,
and (iii) the Exercise Price, the number of shares or the securities or other
property purchasable upon exercise of each Option after giving effect to such
adjustment. For purposes hereof, "Business Day" shall mean any day other than
a Saturday, a Sunday, or a day on which banking institutions in the State of
New York are authorized or obligated by law or executive order to close.
(j) Irrespective of any adjustments pursuant to this Section 5,
Option Certificates theretofore or thereafter issued need not be amended or
replaced, but certificates thereafter issued shall bear an appropriate legend
or other notice of any adjustments.
(k) The Company shall not be required upon the exercise of any
Option to issue fractional shares of Common Stock which may result from
adjustments in accordance with this Section 5 to the Exercise Price or number
of shares of Common Stock purchasable under each Option. If more than one
Option is exercised at one time by the same registered holder, the number of
full shares of Common Stock which shall be deliverable shall be computed based
on the number of shares deliverable in exchange for the aggregate number of
Options exercised. With respect to any final fraction of a share called for
upon the exercise of any Option or Options, the Company shall pay a cash
adjustment in respect of such final fraction in an amount equal to the same
fraction of the Current Market Price of a share of Common Stock calculated in
accordance with Subsection 5(b).
6. (a) In case of any consolidation with or merger of the Company with
or into another corporation (other than a merger or consolidation in which the
Company is the surviving or continuing corporation), or in case of any sale,
lease, or conveyance to another corporation of the property and assets of any
nature of the Company as an entirety or substantially as an entirety, such
successor, leasing, or purchasing corporation, as the case may be, shall (i)
execute with the Holder an agreement providing that the Holder shall have the
right thereafter to receive upon exercise of this Option solely the kind and
amount of shares of stock and other securities, property, cash, or any
combination thereof receivable upon such consolidation, merger, sale, lease,
or conveyance by a holder of the number of shares of Common Stock for which
this Option might have been exercised immediately prior to such consolidation,
merger, sale, lease, or conveyance and (ii) make effective provision in its
certificate of incorporation
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<PAGE> 11
or otherwise, if necessary, to effect such agreement. Such agreement shall
provide for adjustments which shall be as nearly equivalent as practicable to
the adjustments provided for in Section 5.
(b) In case of any reclassification or change of the shares of
Common Stock issuable upon exercise of this Option (other than a change in par
value or from no par value to a specified par value, or as a result of a
subdivision or combination, but including any change in the shares into two or
more classes or series of shares), or in case of any consolidation or merger
of another corporation into the Company in which the Company is the continuing
corporation and in which there is a reclassification or change (including a
change to the right to receive cash or other property) of the shares of Common
Stock (other than a change in par value, or from no par value to a specified
par value, or as a result of a subdivision or combination, but including any
change in the shares into two or more classes or series of shares), the Holder
shall have the right thereafter to receive upon exercise of this Option solely
the kind and amount of shares of stock and other securities, property, cash,
or any combination thereof receivable upon such reclassification, change,
consolidation, or merger by a holder of the number of shares of Common Stock
for which this Option might have been exercised immediately prior to such
reclassification, change, consolidation, or merger. Thereafter, appropriate
provision shall be made for adjustments which shall be as nearly equivalent as
practicable to the adjustments in Section 5.
(c) The above provisions of this Section 6 shall similarly apply to
successive reclassifications and changes of shares of Common Stock and to
successive consolidations, mergers, sales, leases, or conveyances.
7. In case at any time the Company shall propose:
(a) to pay any dividend or make any distribution on shares of
Common Stock in shares of Common Stock or make any other distribution (other
than regularly scheduled cash dividends which are not in a greater amount per
share than the most recent such cash dividend) to all holders of Common Stock;
or
(b) to issue any rights, warrants, or other securities to all
holders of Common Stock entitling them to purchase any additional shares of
Common Stock or any other rights, warrants, or other securities; or
(c) to effect any reclassification or change of outstanding shares
of Common Stock, or any consolidation, merger, sale, lease, or conveyance of
property, described in Section 6; or
(d) to effect any liquidation, dissolution, or winding-up of the
Company; or
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<PAGE> 12
(e) to take any other action which would cause an adjustment to the
Exercise Price;
then, and in any one or more of such cases, the Company shall give written
notice thereof, by registered mail, postage prepaid, to the Holder at the
Holder's address as it shall appear in the Option Register, mailed at least 15
days prior to (i) the date as of which the holders of record of shares of
Common Stock to be entitled to receive any such dividend, distribution,
rights, warrants, or other securities are to be determined, (ii) the date on
which any such reclassification, change of outstanding shares of Common Stock,
consolidation, merger, sale, lease, conveyance of property, liquidation,
dissolution, or winding-up is expected to become effective, and the date as of
which it is expected that holders of record of shares of Common Stock shall be
entitled to exchange their shares for securities or other property, if any,
deliverable upon such reclassification, change of outstanding shares,
consolidation, merger, sale, lease, conveyance of property, liquidation,
dissolution, or winding-up, or (iii) the date of such action which would
require an adjustment to the Exercise Price pursuant to Section 5 hereof.
8. The issuance of any shares or other securities upon the exercise of
this Option, and the delivery of certificates or other instruments
representing such shares or other securities, shall be made without charge to
the Holder for any tax or other charge in respect of such issuance. The
Company shall not, however, be required to pay any tax which may be payable in
respect of any transfer involved in the issue and delivery of any certificate
in a name other than that of the Holder and the Company shall not be required
to issue or deliver any such certificate unless and until the person or
persons requesting the issue thereof shall have paid to the Company the amount
of such tax or shall have established to the satisfaction of the Company that
such tax has been paid.
9. (a) If, at any time prior to __________, 2004 (seven years from the
"Effective Date", as such term is defined in the Underwriting Agreement), the
Company shall file a registration statement (other than on Form S-4, Form S-8,
or any successor form) with the Securities and Exchange Commission (the
"Commission") while this Option or any Underwriter's Securities (as
hereinafter defined) are outstanding, the Company shall give all the then
holders of this Option or any Underwriter's Securities (collectively, the
"Eligible Holders") at least 45 days prior written notice of the filing of
such registration statement. If requested by any Eligible Holder in writing
within 30 days after receipt of any such notice, the Company shall, at the
Company's sole expense (other than the fees and disbursements of counsel for
the Eligible Holders and the underwriting discounts, if any, payable in
respect of the Underwriter's Securities sold by any Eligible Holder), register
or qualify all or, at each Eligible Holder's option, any portion of the
Underwriter's Securities of any Eligible Holders who shall have
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<PAGE> 13
made such request, concurrently with the registration of such other
securities, all to the extent requisite to permit the public offering and sale
of the Underwriter's Securities through the facilities of all appropriate
securities exchanges and the over-the-counter market, and will use its best
efforts through its officers, directors, auditors, and counsel to cause such
registration statement to become effective as promptly as practicable.
Notwithstanding the foregoing, if the managing underwriter of any such
offering shall advise the Company in writing that, in its opinion, the
distribution of all or a portion of the Underwriter's Securities requested to
be included in the registration concurrently with the securities being
registered by the Company would materially adversely affect the distribution
of such securities by the Company for its own account, then any Eligible
Holder who shall have requested registration of his or its Underwriter's
Securities shall delay the offering and sale of such Underwriter's Securities
(or the portions thereof so designated by such managing underwriter) for such
period, not to exceed 90 days (the "Delay Period"), as the managing
underwriter shall request, provided that no such delay shall be required as to
any Underwriter's Securities if any securities of the Company are included in
such registration statement and eligible for sale during the Delay Period for
the account of any person other than the Company and any Eligible Holder
unless the securities included in such registration statement and eligible for
sale during the Delay Period for such other person shall have been reduced pro
rata to the reduction of the Underwriter's Securities which were requested to
be included and eligible for sale during the Delay Period in such
registration. As used herein, "Underwriter's Securities" shall mean the
Option Shares, which have not been previously sold pursuant to a registration
statement or Rule 144 promulgated under the Act.
(b) If, at any time during the five-year period commencing one year
after the Effective Date, the Company shall receive a written request, from
Eligible Holders who in the aggregate own (or upon exercise of all Options
then outstanding would own) a majority of the total number of shares of Common
Stock then included (or upon such exercises that would be included) in the
Underwriter's Securities (the "Majority Holders"), to register the sale of all
or part of such Underwriter's Securities, the Company shall, as promptly as
practicable, prepare and file with the Commission a registration statement
sufficient to permit the public offering and sale of the Underwriter's
Securities through the facilities of all appropriate securities exchanges and
the over-the-counter market, and will use its best efforts through its
officers, directors, auditors, and counsel to cause such registration
statement to become effective as promptly as practicable; provided, however,
that the Company shall only be obligated to file one such registration
statement for which all expenses incurred in connection with such registration
(other than the fees and disbursements of counsel for the Eligible Holders and
under-
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<PAGE> 14
writing discounts, if any, payable in respect of the Underwriter's
Securities sold by the Eligible Holders) shall be borne by the Company and one
additional such registration statement for which all such expenses shall be
paid by the Eligible Holders. Within three business days after receiving any
request contemplated by this Section 9(b), the Company shall give written
notice to all the other Eligible Holders, advising each of them that the
Company is proceeding with such registration and offering to include therein
all or any portion of any such other Eligible Holder's Underwriter's
Securities, provided that the Company receives a written request to do so from
such Eligible Holder within 30 days after receipt by him or it of the
Company's notice.
(c) In the event of a registration pursuant to the provisions of
this Section 9, the Company shall use its best efforts to cause the
Underwriter's Securities so registered to be registered or qualified for sale
under the securities or blue sky laws of such jurisdictions as the Holder or
such holders may reasonably request; provided, however, that the Company shall
not be required to qualify to do business in any state by reason of this
Section 9(c) in which it is not otherwise required to qualify to do business.
(d) The Company shall keep effective any registration or
qualification contemplated by this Section 9 and shall from time to time amend
or supplement each applicable registration statement, preliminary prospectus,
final prospectus, application, document, and communication for such period of
time as shall be required to permit the Eligible Holders to complete the offer
and sale of the Underwriter's Securities covered thereby. The Company shall
in no event be required to keep any such registration or qualification in
effect for a period in excess of nine months from the date on which the
Eligible Holders are first free to sell such Underwriter's Securities;
provided, however, that, if the Company is required to keep any such
registration or qualification in effect with respect to securities other than
the Underwriter's Securities beyond such period, the Company shall keep such
registration or qualification in effect as it relates to the Underwriter's
Securities for so long as such registration or qualification remains or is
required to remain in effect in respect of such other securities.
(e) In the event of a registration pursuant to the provisions of
this Section 9, the Company shall furnish to each Eligible Holder such number
of copies of the registration statement and of each amendment and supplement
thereto (in each case, including all exhibits), such reasonable number of
copies of each prospectus contained in such registration statement and each
supplement or amendment thereto (including each preliminary prospectus), all
of which shall conform to the requirements of the Act and the rules and
regulations thereunder, and such other documents, as any Eligible Holder may
reasonably request to
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<PAGE> 15
facilitate the disposition of the Underwriter's Securities included in such
registration.
(f) In the event of a registration pursuant to the provisions of
this Section 9, the Company shall furnish each Eligible Holder of any
Underwriter's Securities so registered with an opinion of its counsel
(reasonably acceptable to the Eligible Holders) to the effect that (i) the
registration statement has become effective under the Act and no order
suspending the effectiveness of the registration statement, preventing or
suspending the use of the registration statement, any preliminary prospectus,
any final prospectus, or any amendment or supplement thereto has been issued,
nor has the Commission or any securities or blue sky authority of any
jurisdiction instituted or threatened to institute any proceedings with
respect to such an order, (ii) the registration statement and each prospectus
forming a part thereof (including each preliminary prospectus), and any
amendment or supplement thereto, complies as to form with the Act and the
rules and regulations thereunder, and (iii) such counsel has no knowledge of
any material misstatement or omission in such registration statement or any
prospectus, as amended or supplemented. Such opinion shall also state the
jurisdictions in which the Underwriter's Securities have been registered or
qualified for sale pursuant to the provisions of Section 9(c).
(g) In the event of a registration pursuant to the provision of
this Section 9, the Company shall enter into a cross-indemnity agreement and a
contribution agreement, each in customary form, with each underwriter, if any,
and, if requested, enter into an underwriting agreement containing
conventional representations, warranties, allocation of expenses, and
customary closing conditions, including, but not limited to, opinions of
counsel and accountants' cold comfort letters, with any underwriter who
acquires any Underwriter's Securities.
(h) The Company agrees that until all the Underwriter's Securities
have been sold under a registration statement or pursuant to Rule 144 under
the Act, it shall keep current in filing all reports, statements and other
materials required to be filed with the Commission to permit holders of the
Underwriter's Securities to sell such securities under Rule 144.
(i) Except for rights granted to holders of the Options and rights
existing prior to the issuance of the Options, the Company will not, without
the written consent of the Majority Holders, grant to any persons the right to
request the Company to register any securities of the Company, provided that
the Company may grant such registration rights to other persons so long as
such rights are subordinate to the rights of the Eligible Holders.
10. (a) Subject to the conditions set forth below, the Company agrees
to indemnify and hold harmless each Eligible
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<PAGE> 16
Holder, its officers, directors, partners, employees, agents, and counsel, and
each person, if any, who controls any such person within the meaning of
Section 15 of the Act or Section 20(a) of the Securities Exchange Act of 1934,
as amended (the "Exchange Act"), from and against any and all loss, liability,
charge, claim, damage, and expense whatsoever (which shall include, for all
purposes of this Section 10, but not be limited to, attorneys' fees and any
and all reasonable expense whatsoever incurred in investigating, preparing, or
defending against any litigation, commenced or threatened, or any claim
whatsoever, and any and all amounts paid in settlement of any claim or
litigation), as and when incurred, arising out of, based upon, or in
connection with (i) any untrue statement or alleged untrue statement of a
material fact contained (A) in any registration statement, preliminary
prospectus, or final prospectus (as from time to time amended and
supplemented), or any amendment or supplement thereto, relating to the sale of
any of the Underwriter's Securities, or (B) in any application or other
document or communication (in this Section 10 collectively called an
"application") executed by or on behalf of the Company or based upon written
information furnished by or on behalf of the Company filed in any jurisdiction
in order to register or qualify any of the Underwriter's Securities under the
securities or blue sky laws thereof or filed with the Commission or any
securities exchange; or any omission or alleged omission to state a material
fact required to be stated therein or necessary to make the statements therein
not misleading, unless such statement or omission was made in reliance upon
and in conformity with written information furnished to the Company with
respect to such Eligible Holder by or on behalf of such person expressly for
inclusion in any registration statement, preliminary prospectus, or final
prospectus, or any amendment or supplement thereto, or in any application, as
the case may be, or (ii) any breach of any representation, warranty, covenant,
or agreement of the Company contained in this Option. The foregoing agreement
to indemnify shall be in addition to any liability the Company may otherwise
have, including liabilities arising under this Option. The Company shall not
be liable for losses based on untrue statements or omissions contained in
Preliminary Prospectuses if an Underwriter failed to deliver a final
Prospectus prior to or simultaneously with the delivery of written
confirmation of any public sale of the Underwriter's Securities and a court of
competent jurisdiction in a judgment not subject to appeal or final would have
corrected such untrue statement or omission.
If any action is brought against any Eligible Holder or any of its
officers, directors, partners, employees, agents, or counsel, or any
controlling persons of such person (an "indemnified party") in respect of
which indemnity may be sought against the Company pursuant to the foregoing
paragraph, such indemnified party or parties shall promptly notify the Company
in writing of the institution of such action (but the failure so to notify
shall not relieve the Company from any liability other than pursuant to this
Section 10(a)) and the Company shall
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<PAGE> 17
promptly assume the defense of such action, including the employment of
counsel (reasonably satisfactory to such indemnified party or parties) and
payment of expenses. Such indemnified party or parties shall have the right
to employ its or their own counsel in any such case, but the fees and expenses
of such counsel shall be at the expense of such indemnified party or parties
unless the employment of such counsel shall have been authorized in writing by
the Company in connection with the defense of such action or the Company shall
not have promptly employed counsel reasonably satisfactory to such indemnified
party or parties to have charge of the defense of such action or such
indemnified party or parties shall have reasonably concluded that there may be
one or more legal defenses available to it or them or to other indemnified
parties which are different from or additional to those available to the
Company, in any of which events such fees and expenses shall be borne by the
Company and the Company shall not have the right to direct the defense of such
action on behalf of the indemnified party or parties. Anything in this
Section 10 to the contrary notwithstanding, the Company shall not be liable
for any settlement of any such claim or action effected without its written
consent, which shall not be unreasonably withheld. The Company shall not,
without the prior written consent of each indemnified party that is not
released as described in this sentence, settle or compromise any action, or
permit a default or consent to the entry of judgment in or otherwise seek to
terminate any pending or threatened action, in respect of which indemnity may
be sought hereunder (whether or not any indemnified party is a party thereto),
unless such settlement, compromise, consent, or termination includes an
unconditional release of each indemnified party from all liability in respect
of such action. The Company agrees promptly to notify the Eligible Holders of
the commencement of any litigation or proceedings against the Company or any
of its officers or directors in connection with the sale of any Underwriter's
Securities or any preliminary prospectus, prospectus, registration statement,
or amendment or supplement thereto, or any application relating to any sale of
any Underwriter's Securities.
(b) The Holder agrees to indemnify and hold harmless the Company,
each director of the Company, each officer of the Company who shall have
signed any registration statement covering Underwriter's Securities held by
the Holder, each other person, if any, who controls the Company within the
meaning of Section 15 of the Act or Section 20(a) of the Exchange Act, and its
or their respective counsel, to the same extent as the foregoing indemnity
from the Company to the Holder in Section 10(a), but only with respect to
statements or omissions, if any, made in any registration statement,
preliminary prospectus, or final prospectus (as from time to time amended and
supplemented), or any amendment or supplement thereto, or in any application,
in reliance upon and in conformity with written information furnished to the
Company with respect to the Holder by or on behalf of the Holder expressly for
inclusion in any such
- 17 -
<PAGE> 18
registration statement, preliminary prospectus, or final prospectus, or any
amendment or supplement thereto, or in any application, as the case may be.
If any action shall be brought against the Company or any other person so
indemnified based on any such registration statement, preliminary prospectus,
or final prospectus, or any amendment or supplement thereto, or in any
application, and in respect of which indemnity may be sought against the
Holder pursuant to this Section 10(b), the Holder shall have the rights and
duties given to the Company, and the Company and each other person so
indemnified shall have the rights and duties given to the indemnified parties,
by the provisions of Section 10(a).
(c) To provide for just and equitable contribution, if (i) an
indemnified party makes a claim for indemnification pursuant to Section 10(a)
or 10(b) (subject to the limitations thereof) but it is found in a final
judicial determination, not subject to further appeal, that such
indemnification may not be enforced in such case, even though this Agreement
expressly provides for indemnification in such case, or (ii) any indemnified
or indemnifying party seeks contribution under the Act, the Exchange Act or
otherwise, then the Company (including for this purpose any contribution made
by or on behalf of any director of the Company, any officer of the Company who
signed any such registration statement, any controlling person of the Company,
and its or their respective counsel), as one entity, and the Eligible Holders
of the Underwriter's Securities included in such registration in the aggregate
(including for this purpose any contribution by or on behalf of an indemnified
party), as a second entity, shall contribute to the losses, liabilities,
claims, damages, and expenses whatsoever to which any of them may be subject,
on the basis of relevant equitable considerations such as the relative fault
of the Company and such Eligible Holders in connection with the facts which
resulted in such losses, liabilities, claims, damages, and expenses. The
relative fault, in the case of an untrue statement, alleged untrue statement,
omission, or alleged omission, shall be determined by, among other things,
whether such statement, alleged statement, omission, or alleged omission
relates to information supplied by the Company or by such Eligible Holders,
and the parties' relative intent, knowledge, access to information, and
opportunity to correct or prevent such statement, alleged statement, omission,
or alleged omission. The Company and the Holder agree that it would be unjust
and inequitable if the respective obligations of the Company and the Eligible
Holders for contribution were determined by pro rata or per capita allocation
of the aggregate losses, liabilities, claims, damages, and expenses (even if
the Holder and the other indemnified parties were treated as one entity for
such purpose) or by any other method of allocation that does not reflect the
equitable considerations referred to in this Section 10(c). In no case shall
any Eligible Holder be responsible for a portion of the contribution
obligation imposed on all Eligible Holders in excess of its pro rata share
based on the number of shares of Common
- 18 -
<PAGE> 19
Stock owned (or which would be owned upon exercise of all Underwriter's
Securities) by it and included in such registration as compared to the number
of shares of Common Stock owned (or which would be owned upon exercise of all
Underwriter's Securities) by all Eligible Holders and included in such
registration. No person guilty of a fraudulent misrepresentation (within the
meaning of Section 11(f) of the Act) shall be entitled to contribution from
any person who is not guilty of such fraudulent misrepresentation. For
purposes of this Section 10(c), each person, if any, who controls any Eligible
Holder within the meaning of Section 15 of the Act or Section 20(a) of the
Exchange Act and each officer, director, partner, employee, agent, and counsel
of each such Eligible Holder or control person shall have the same rights to
contribution as such Eligible Holder or control person and each person, if
any, who controls the Company within the meaning of Section 15 of the Act or
Section 20(a) of the Exchange Act, each officer of the Company who shall have
signed any such registration statement, each director of the Company, and its
or their respective counsel shall have the same rights to contribution as the
Company, subject in each case to the provisions of this Section 10(c).
Anything in this Section 10(c) to the contrary notwithstanding, no party shall
be liable for contribution with respect to the settlement of any claim or
action effected without its written consent. This Section 10(c) is intended
to supersede any right to contribution under the Act, the Exchange Act or
otherwise.
11. Unless registered pursuant to the provisions of Section 9 hereof,
the Option Shares issued upon exercise of the Options shall be subject to a
stop transfer order and the certificate or certificates evidencing such
securities shall bear the following legend:
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
PURSUANT TO A REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. HOWEVER, SUCH SHARES
MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO (i) A
POST-EFFECTIVE AMENDMENT TO SUCH REGISTRATION STATEMENT,
(ii) A SEPARATE REGISTRATION STATEMENT UNDER SUCH ACT, OR
(iii) AN EXEMPTION FROM REGISTRATION UNDER SUCH ACT."
12. Upon receipt of evidence satisfactory to the Company of the loss,
theft, destruction, or mutilation of any Option (and upon surrender of any
Option if mutilated), and upon reimbursement of the Company's reasonable
incidental expenses, the Company shall execute and deliver to the Holder
thereof a new Option of like date, tenor, and denomination.
13. The Holder of any Option shall not have, solely on account of such
status, any rights of a stockholder of the
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<PAGE> 20
Company, either at law or in equity, or to any notice of meetings of
stockholders or of any other proceedings of the Company, except as provided in
this Option.
14. This Option shall be construed in accordance with the laws of the
State of New York applicable to contracts made and performed within such
State, without regard to principles of conflicts of law.
15. The Company irrevocably consents to the jurisdiction of the courts
of the State of New York and of any federal court located in such State in
connection with any action or proceeding arising out of or relating to this
Option, any document or instrument delivered pursuant to, in connection with
or simultaneously with this Option, or a breach of this Option or any such
document or instrument. In any such action or proceeding, the Company waives
personal service of any summons, complaint or other process and agrees that
service thereof may be made in accordance with Section 12 of the Underwriting
Agreement.
Within 30 days after such service, or such other time as may be mutually
agreed upon in writing by the attorneys for the parties to such action or
proceeding, the Company shall appear to answer such summons, complaint or
other process.
Dated: _________, 1997
OBJECTIVE COMMUNICATIONS, INC.
By:
-----------------------
Steven A. Rogers
- ---------------------- Chief Executive Officer
Secretary
- 20 -
<PAGE> 21
FORM OF ASSIGNMENT
(To be executed by the registered holder if such holder desires to transfer
the attached Option.)
FOR VALUE RECEIVED, ______________________ hereby sells, assigns, and
transfers unto _________________ an Option to purchase __________ shares of
common stock of the Company, par value $0.01 per share, together with all
right, title, and interest therein, and does hereby irrevocably constitute and
appoint ___________ attorney to transfer such Option on the books of the
Company, with full power of substitution.
Dated:
-----------------
Signature
-----------------------
<PAGE> 22
NOTICE
The signature on the foregoing Assignment must correspond to the name as
written upon the face of this Option in every particular, without alteration
or enlargement or any change whatsoever.
To: Objective Communication, Inc.
14100 Park Meadow Drive
Chantilly, VA 20151
<PAGE> 23
ELECTION TO EXERCISE
The undersigned hereby exercises his or its rights to purchase
_______ Option Shares covered by the within Option and tenders payment
herewith in the aggregate amount of $_________ including (i) $_________ by
certified or bank cashier's check, and (ii) cancellation of Options to
purchase Option Shares, based upon a Maximum Number (as therein defined) of
________, in accordance with the terms thereof, and requests that certificates
for such securities be issued in the name of, and delivered to:
(Print Name, Address and Social Security
or Tax Identification Number)
and, if such number of Option Shares shall not be all the Option Shares
covered by the within Option, that a new Option for the balance of the Option
Shares covered by the within Option be registered in the name of, and
delivered to, the undersigned at the address stated below.
Dated:
------------------
Name
------------------------
(Print)
Address:
(Signature)
<PAGE> 1
EXHIBIT 10.1
OBJECTIVE COMMUNICATIONS, INC.
1994 STOCK OPTION PLAN
1. PURPOSE OF THE PLAN.
The purpose of the 1994 Stock Option Plan (the "Plan") of Objective
Communications, Inc. (the "Company") is to give the Company a significant
advantage in attracting, retaining and motivating officers and key employees
and to provide the Company and its Subsidiaries with the ability to provide
incentives more directly linked to the profitability of the Company's
businesses and increases in stockholder value.
2. DEFINITIONS.
(a) "Board" means the Board of Directors of the Company.
(b) "Cause" has the meaning set forth in the optionee's Option
agreement.
(c) "Change in Control" has the meaning set forth in Sections
8(b).
(d) "Code" means the Internal Revenue Code of 1986, as amended
from time to time, and any successor legislation thereto.
(e) "Common Stock" means the common shares, $0.01 par value per
share, of the Company.
(f) "Company" means Objective Communications, Inc.
(g) "Date of Grant" means the date on which an Option is approved
by the Board.
(h) "Director" means a member of the Company's Board of Directors.
(i) "Fair Market Value" shall mean, with respect to a share of
Common Stock, (i) if the Common Stock is listed on a national
securities exchange or traded on the National Market System,
the mean of the high and low selling prices of the Common
Stock on the determination date or if there are no sales on
such date, then on the next preceding date on which there were
sales of Common Stock, all as published in the Eastern Edition
of The Wall Street Journal, (ii) if the Common Stock is not
listed on a national securities exchange or traded on the
National Market System, the mean of the high and low selling
prices last reported by the National Association of Securities
Dealers, Inc. for the over-the-counter market on the
determination date or, if no sales are reported on such date,
then on the next preceding date on which there were such
quotations, or (iii) if the Common Stock is not listed on a
national securities exchange or
<PAGE> 2
traded on the National Market System and quotations for the
Common Stock are not reported by the National Association of
Securities Dealers, Inc., the Fair Market Value determined by
the Board on the basis of available prices for the Common
Stock or in such manner as the Board shall agree.
Notwithstanding the preceding, the Fair Market Value on a
given determination date of Common Stock subject to Incentive
Stock Options or Common Stock valued in connection with the
exercise of Incentive Stock Options shall be an amount which
is equal to the Board's good faith determination of the Common
Stock's value on the given determination date and the Board
shall for all purposes of this Plan have the authority to
determine Fair Market Value using methods other than those
described in this Section, if the Board determines that such
alternative methods more properly reflect the Fair Market
Value of the Common Stock. In all cases, the Fair Market
Value shall not be less than the par value of the Common Stock
(k) "Incentive Stock Option" means an Option qualifying for
special tax treatment under Section 422 of the Code.
(l) "Key Employee" means any employee, including employees who are
also officers or directors, but not including directors who
are not also employees, of the Company or any Subsidiary
Company who have substantial responsibility in the direction
and management of the Company or a Subsidiary Company as
determined by the Board.
(m) "Nonqualified Stock Option" means an Option that is not an
Incentive Stock Option.
(n) "Option" means an Incentive Stock Option or a Nonqualified
Stock Option granted under this Plan.
(o) "Parent Company" has the same meaning used in Section 424(e)
of the Code.
(p) "Plan" means the Objective Communications, Inc. 1994 Stock
Option Plan as set forth herein, which may be amended from
time to time.
(q) "Subsidiary" or "Subsidiary Company" has the same meaning used
in Section 424(f) of the Code.
(r) "Termination of Employment" means the termination of the
Participant's employment with the Company or any Subsidiary.
In addition, certain other terms used herein have definitions given to
them in the first place in which they are used.
3. SHARES OF COMMON STOCK SUBJECT TO THE PLAN.
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<PAGE> 3
Subject to the provisions of Section 10 of the Plan, the aggregate
number of authorized but unissued shares of Common Stock that may be issued
pursuant to Options granted under the Plan will not exceed six hundred thousand
(600,000) shares. Shares that by reason of expiration of an Option or
otherwise are no longer subject to purchase pursuant to an Option granted under
the Plan may again be available for issuance pursuant to Options under the
Plan.
4. ADMINISTRATION OF THE PLAN.
The Plan shall be administered by the Board. The Board shall have
authority to grant awards pursuant to the terms of the Plan to Key Employees of
the Company and its Subsidiaries.
Among other things, the Board shall have the authority, subject to the
terms of the Plan:
(a) to select the eligible employees to whom awards may from
time to time be granted;
(b) to determine whether and to what extent Incentive Stock
Options and Nonqualified Stock Options or any combination
thereof are to be granted hereunder;
(c) to determine the number of shares of Common Stock to be
covered by each award granted hereunder;
(d) to determine the terms and conditions of any award
granted hereunder (including, but not limited to, subject
to Section 6, the option price, any vesting restrictions
or limitation and any vesting acceleration or forfeiture
waiver regarding any award and the shares of Common Stock
relating thereto, based on such factors as the Board shall
determine); and
(e) to modify, amend or adjust the terms and conditions of
any award, at any time or from time to time, including,
but not limited to, the performance goals and measurements
applicable to performance-based awards pursuant to the
terms of the Plan.
The Board shall have the authority to adopt, alter and repeal such
administrative rules, guidelines and practices governing the Plan as it shall
from time to time deem advisable, to interpret the terms and provisions of the
Plan and any award issued under the Plan (and any agreement relating thereto),
and to otherwise supervise the administration of the Plan.
The Board may act with respect to the Plan only by a majority of its
members then in office, except that the members thereof may authorize any one
or more of their number or any officer of the Company to execute and deliver
documents on behalf of the Board.
Any determination made by the Board or pursuant to delegated authority
under this Plan with respect to any award shall be made in the sole discretion
of the Board at the time of the
- 3 -
<PAGE> 4
grant of the award or, unless in contravention of any express term of the Plan,
at any time thereafter. All decisions made by the Board pursuant to the
provisions of the Plan shall be final and binding on all persons, including the
Company and Plan participants. No Board member shall vote on any matter
relating to this Plan which affects, or relates to, him or her.
5. ELIGIBILITY.
Key Employees will be eligible to participate in the Plan, as approved
by the Board.
6. TERMS AND CONDITIONS OF OPTIONS.
Options granted under the Plan may be of two types: Incentive Stock
Options and Nonqualified Stock Options. Any Option granted under the Plan
shall be in such form as the Board may from time to time approve.
The Board shall have the authority to grant any optionee Incentive
Stock Options, Nonqualified Stock Options, or both types of Options. To the
extent that any Option is not designated as an Incentive Stock Option, or even
if so designated does not qualify as an Incentive Stock Option, it shall
constitute a Nonqualified Stock Option.
Each Option granted under this Plan will be evidenced by an Option
agreement between the Company and the recipient which sets forth the exercise
price of the Option, the vesting schedule (if any) of the Option, the
expiration date of the Option, and any other terms or conditions approved by
the Board subject to the following terms and conditions:
(a) Option Price.
(i) Incentive Options. The exercise price per share for
the shares subject to an Incentive Stock Option will
be no less than one hundred percent (100%) of the
Fair Market Value of the Common Stock on the Date of
Grant. However, the exercise price per share for
shares subject to an Incentive Stock Option granted
to an individual who on the Date of Grant owns (or
who is treated as owning under Section 424(d) of the
Code) more than ten percent (10%) of the total
combined voting power of all classes of stock of the
Company (or of a Parent Company or a Subsidiary
Company) will not be less than one hundred and ten
percent (110%) of the Fair Market Value of the Common
Stock on the Date of Grant.
(ii) Nonqualified Options. The exercise price per share
for the shares subject to a Nonqualified Stock Option
shall not be less than eighty percent (80%) of the
Fair Market Value of the Common Stock on the Date of
Grant.
(b) Term of Options. Notwithstanding any other provisions of the
Plan or any Option agreement, no Option will be exercisable
after the expiration of ten (10) years from the Date of Grant.
Furthermore, no Incentive Stock Option granted to an
individual who on the Date of Grant owns (or is treated as
owning under Section 424(d) of the
- 4 -
<PAGE> 5
Code) more than ten percent (10%) of the total combined voting
power of all classes of stock of the Company (or of a Parent
Company or a Subsidiary Company) will be exercisable after the
expiration of five (5) years from the Date of Grant.
(c) Maximum Value of Options which are Incentive Options. To the
extent that the aggregate Fair Market Value of the Common
Stock with respect to which Incentive Stock Options granted to
any person are exercisable for the first time during any
calendar year (under all stock option plans of the Company, a
Parent Company and any Subsidiary Company) exceeds $100,000,
the options are not Incentive Stock Options. For purposes of
this paragraph, the Fair Market Value of the Common Stock will
be determined as of the time the Incentive Stock Option with
respect to the Common Stock is granted. This paragraph will
be applied by taking Incentive Stock Options into account in
the order in which they are granted.
(d) Vesting of Options and Termination of Employment. An Option
will be exercisable only to the extent that it is vested on
the date of exercise. Unless provided otherwise in the Option
agreement, Options shall vest at a rate of twenty percent
(20%) each year beginning the first anniversary date of the
Date of Grant. Vesting of an Option will cease on the date
that an optionee is no longer an employee of the Company or a
Parent Company or Subsidiary Company (the "date of
termination"), and the Option will be exercisable only to the
extent the Option is vested on the date of termination.
(i) Termination by Death. If an optionee's employment
terminates by reason of death or the optionee's death
occurs within three (3) months after Termination of
Employment (provided the option is exercisable during
such three (3) month period), any Option held by such
optionee may thereafter be exercised, to the extent
then exercisable, or on such accelerated basis as the
Board may determine, for a period of one year (or
such other period as the Board may specify in the
option agreement) from the date of such death or
until the expiration of the stated term of such
Option, whichever period is the shorter.
(ii) Other Termination. Unless otherwise determined by
the Board, if there occurs a Termination of
Employment for any reason other than death, Cause or
in violation of an employment agreement, any Option
held by such Optionee may thereafter be exercised by
the optionee, to the extent it was exercisable at the
time of such termination or on such accelerated basis
as the Board may determine, for a period of three (3)
months (or such shorter period as the Board may
specify in the option agreement) from the date of
such termination of employment or until the
expiration of the stated term of such Option,
whichever period is shorter.
(iii) In the event of Termination of Employment for Cause
or in violation of an employment agreement, any
unexercised Option held by such optionee shall expire
immediately upon the giving of notice of such
Termination of Employment for Cause to the optionee.
- 5 -
<PAGE> 6
(e) Exercise. Except as otherwise provided herein, Options shall
be exercisable at such time or times and subject to such terms
and conditions as shall be determined by the Board. If the
Board provides that any Option is exercisable only in
installments, the Board may at any time waive such installment
exercise provisions, in whole or in part, based on such
factors as the Board may determine. In addition, the Board
may at any time, in whole or in part, accelerate the
exercisability of any Option.
Subject to the provisions of this Section 6, Options may be
exercised, in whole or in part, at any time during the option
term by giving written notice of exercise to the secretary of
the Company at its principal office specifying the number of
shares of Common Stock subject to the Option to be purchased.
(g) Payment.
(i) Cash Payment. Options may be exercised by the
optionee's written notice to the secretary of the
Company (the "exercise notice") and only if the
exercise notice is accompanied by payment in cash, by
certified or bank check or such other instrument as
the Company may accept of the fall exercise price for
the shares with respect to which the Option is
exercised, except as otherwise provided herein.
(ii) Noncash Payment. The Board may approve payment of
the exercise price in the form of (i) Common Stock of
the Company other than stock acquired upon exercise
of the Option, (ii) a combination of cash and such
Common Stock, or (iii) Common Stock acquired upon
exercise of the Option. The value of any Common
Stock used to pay the exercise price or any portion
thereof will be the Fair Market Value of Common Stock
on the date of exercise.
(iii) Full Payment. No shares of Common Stock shall be
issued until full payment therefor has been made. An
optionee shall have all of the rights of a
stockholder of the Company holding the Common Stock
that is subject to such Option (including, if
applicable, the right to vote the shares and the
right to receive dividends), when the optionee has
given written notice of exercise, has paid in full
for such shares, and, if requested, has given the
representation described in Section 12(a).
(h) Nontransferability. No Option granted under the Plan,
contingent or otherwise, will be transferable, assignable or
subject to any encumbrance, pledge, or charge of any nature,
except by will or the laws of descent and distribution.
During the lifetime of an optionee, an Option will be
exercisable only by the optionee or by the optionee's legal
representative. The executor or administrator of the estate
of the optionee may transfer any rights with respect to such
Option to the person or persons or entity (including a trust)
entitled thereto under the will of the optionee or under the
laws of intestacy.
- 6 -
<PAGE> 7
7. STOCK LEGEND.
The Company may require that certificates evidencing shares of Common
Stock purchased upon the exercise of Incentive Stock Options issued under the
Plan be endorsed with a legend in substantially the following form:
The shares evidenced by this certificate may not be sold or
transferred prior to ____________, 19__, in the absence of a written statement
from Objective Communications, Inc. to the effect that the Company is aware of
the fact of such sale or transfer.
The blank contained in such legend shall be filled in with the date
that is the later of (i) one year and one day after the date of exercise of
such Incentive Stock Option or (ii) two years and one day after the date of
grant of such Incentive Stock Option. Upon delivery to the Company, at its
principal executive office, of a written statement to the effect that such
shares have been sold or transferred prior to such date, the Company does
hereby agree to promptly deliver to the transfer agent for such shares a
written statement to the effect that the Company is aware of the fact of such
sale or transfer. The Company may also require the inclusion of any additional
legend which may be necessary or appropriate.
8. CHANGE IN CONTROL PROVISIONS.
(a) Impact of Event. Notwithstanding any other provision of the
Plan to the contrary, in the event of a Change in Control, any
Options outstanding as of the date such Change in Control is
determined to have occurred and not then exercisable and
vested shall become fully exercisable and vested to the full
extent of the original grant unless such Option has already
lapsed.
(b) Definition of Change in Control. For purposes of the Plan,
"Change in Control" means the sale of substantially all of the
Company's assets or the acquisition, whether directly,
indirectly, beneficially, or of record, of securities of the
Company representing twenty-five percent (25%) or more in the
aggregate voting power of the Company's then-outstanding
Common Stock by any person, including any individual,
partnership, corporation or group of associated persons acting
in concert, other than (i) the Company or its Subsidiaries
and/or (ii) any employee pension benefit plan (within the
meaning of Section 3(2) of the Employee Retirement Income
Security Act of 1974) of the Company or of its Subsidiaries,
including a trust established pursuant to any such plan.
9. TERMINATION AND AMENDMENT OF THE PLAN AND OPTIONS.
The Board may terminate the Plan at any time except with respect to
any outstanding Options. The Board may amend the Plan in any manner with
respect to future grants of Options and may amend outstanding Options in any
manner consistent with the Plan subject to the following limitations. No
amendment will be effective if the amendment changes the manner of determining
the exercise price of Incentive Stock Options, makes individuals who are not
employees of
- 7 -
<PAGE> 8
the Company or of any Parent or Subsidiary Company eligible to be granted
Incentive Stock Options, changes the nontransferability of the Options, or
alters or impairs any fights or obligations of any outstanding Option without
the written consent of the optionee.
10. CHANGE IN CAPITAL STRUCTURE.
(a) The existence of outstanding Options shall not affect in any
way the right or power of the Company or its stockholders to
make or authorize any or all adjustments, recapitalizations,
reorganizations or other changes in the Company's capital
structure or its business, or any merger or consolidation of
the Company, or any issue of bonds, debentures, preferred or
prior preference stock ahead of or affecting the Common Stock
or the rights thereof, or the dissolution or liquidation of
the Company, or any sale or transfer of all or any part of its
assets or business, or any other corporate act or proceeding,
whether of a similar character or otherwise.
(b) If the Company shall effect a subdivision or consolidation of
shares or other capital readjustment, the payment of a stock
dividend, or other increase or reduction of the number of
shares of the Common Stock outstanding, without receiving
compensation therefore in money, services or property, then
(i) the number, class, and per share price of shares of Common
Stock subject to outstanding Options hereunder shall be
appropriately adjusted in such a manner as to entitle an
optionee to receive upon exercise of an Option, for the same
aggregate cash consideration, the same total number and class
of shares as he would have received had the optionee exercised
his or her Option in full immediately prior to the event
requiring the adjustment; and (ii) the number and class of
shares then reserved for issuance under the Plan shall be
adjusted by substituting for the total number and class of
shares of Common Stock then reserved that number and class of
shares of Common Stock that would have been received by the
owner of an equal number of outstanding shares of each class
of Common Stock as the result of the event requiring the
adjustment.
(c) After a merger of one or more corporations into the Company or
after a consolidation of the Company and one or more
corporations in which the Company shall be the surviving
corporation, each optionee shall, at no additional cost, be
entitled upon exercise of such Option to receive (subject to
any required action by stockholders) in lieu of the number and
class of shares as to which such Option shall then be so
exercisable, the number and class of shares of stock or other
securities to which such optionee would have been entitled
pursuant to the terms of the agreement of merger or
consolidation if, immediately prior to such merger or
consolidation, such optionee had been the holder of record of
the number and class of shares of Common Stock equal to the
number and class of shares as to which such Option shall be so
exercised.
(d) If the Company is merged into or consolidated with another
corporation under circumstances where the Company is not the
surviving corporation, or if the Company is liquidated, or
sells or otherwise disposes of substantially all of its assets
to another corporation while unexercised Options remain
outstanding under the Plan, unless
- 8 -
<PAGE> 9
provisions are made in connection with such transaction for
the continuance of the Plan and/or the assumption or
substitution of such Options with new options covering the
stock of the successor corporation, or parent or subsidiary
thereof, with appropriate adjustments as to the number and
kind of shares and prices, then all outstanding Options shall
be canceled as of the effective date of any such merger,
consolidation or sale provided that (i) notice of such
cancellation shall be given to each optionee and (ii)
each optionee shall have the right to exercise such Option in
full (without regard to any vesting or other limitations on
exercise imposed on such Option) during the 30-day period
preceding the effective date of such merger, consolidation,
liquidation, or sale (the "corporate event").
(e) Except as hereinbefore expressly provided, the issue by the
Company of shares of stock of any class, or securities
convertible into shares of stock of any class, for cash,
property, labor or services, either upon direct sale, the
exercise of rights or warrants to subscribe therefor, or upon
conversion of shares or obligations of the Company convertible
into such shares or other securities, shall not affect, and no
adjustment by reason thereof shall be made with respect to,
the number, class or price of shares of Common Stock then
subject to outstanding Options.
(f) Adjustment under the preceding provisions of this Section 10
will be made by the Board, whose determination as to what
adjustments will be made and the extent thereof will be final,
binding, and conclusive. No fractional interest will be
issued under the Plan on account of any such adjustment. No
adjustment will be made in a manner that causes an Incentive
Stock Option to fail to continue to qualify as an Incentive
Stock Option under the Code.
11. TAXES.
(a) Automatic Withholding. When any portion of a Nonqualified
Stock Option is exercised, the Company either shall require
the Optionee to pay cash or the Company shall withhold from
the Common Stock acquired upon such exercise the number of
shares sufficient to satisfy the Company's obligations, if
any, to withhold taxes under Federal, state, or local law as a
result of such exercise. The Fair Market Value of the Common
Stock withheld must, as of the date the Nonqualified Stock
Option is exercised, at least equal the aggregate unsatisfied
withholding obligations for the portion of the Option that is
exercised.
(b) Tax Qualification. Incentive Stock Options granted under the
Plan are intended to qualify as Incentive Stock Options within
the meaning of Section 422 of the Code, and the terms of the
Plan and Options granted hereunder shall be so construed.
Notwithstanding the foregoing, nothing in the Plan shall be
interpreted as a representation, guarantee or other
undertaking on the part of the Company that any Options are,
or will be, determined to qualify as incentive stock options
within the meaning of the Code.
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<PAGE> 10
12. GENERAL PROVISIONS.
(a) The Company shall not be required to sell or issue any shares
under any Option if the issuance of such shares shall
constitute a violation by the optionee or the Company of any
provision of any law, statute, or regulation of any stock
exchange upon which the Common Stock may be listed or any
governmental authority whether it be Federal or State. Unless
a registration statement is in effect under the Securities Act
of 1933, as amended (the "Securities Act") with respect to the
shares of Common Stock covered by an Option, the Company shall
not be required to issue shares upon exercise of any Option
(i) unless the Board has received evidence satisfactory to it
to the effect that the optionee is acquiring such shares for
investment and not with a view to the distribution thereof or
(ii) unless an opinion of counsel to the Company has been
received by the Company, in a form and substance which is
deemed acceptable by the Board, to the effect that a
registration statement is not required. Any determination in
this connection by the Board shall be final, binding and
conclusive. In the event the shares issuable on exercise of
an Option are not registered under the Securities Act, the
Company may imprint the following legend or any other legend
which counsel for the Company considers necessary or advisable
to comply with the Securities Act:
"The shares of stock represented by this
certificate have not been registered under
the Securities Act of 1933 or under the
securities laws of any State and may not be
sold or transferred except pursuant to an
effective registration statement or upon
receipt by the Company of any opinion of
counsel, in form and substance satisfactory
to the Company, that registration is not
required for such sale or transfer."
(b) The Company may, but shall in no event be obligated to,
register any securities covered hereby pursuant to the
Securities Act and, in the event any shares are so registered,
the Company may remove any legend on certificates representing
such shares. The Company shall not be obligated to take any
affirmative action in order to cause the exercise of an Option
or the issuance of shares pursuant thereto to comply with any
law or regulation of any governmental authority.
(c) No optionee and no beneficiary or other person claiming under
or through an optionee will have any right, title or interest
in or to any shares of Common Stock allocated or reserved
under the Plan or subject to any Option except as to such
shares of Common Stock, if any, that have been issued or
transferred to such optionee or beneficiary.
(d) The Plan and all determinations made and actions taken
pursuant thereto will be governed by the laws of the
Commonwealth of Virginia and construed in accordance
therewith.
(e) Options may be granted under this Plan from time to time in
substitution for stock options held by employees of other
corporations who become employees of the
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<PAGE> 11
Company or a Subsidiary Company as a result of a merger or
consolidation of the employing corporation with the Company or
a Subsidiary Company or the acquisition by the Company or a
Subsidiary Company of the assets of the employing corporation,
or the acquisition by the Company or a Subsidiary Company of
at least 50% of the issued and outstanding stock of the
employing corporation as the result of which it becomes a
Subsidiary Company of the Company. The terms and conditions
of the substitute options so granted may vary from the terms
and conditions set forth in this Plan to such extent as the
Board at the time of grant may deem appropriate to conform, in
whole or in part, to the provisions of the stock options in
substitution for which they are granted, but with respect to
stock options which are Incentive Stock Options, no such
variation shall be such as to affect the status of any such
substitute option as an Incentive Stock Option under Section
422 of the Code.
(f) At the time of grant, the Board may provide in connection with
any grant made under the Plan that the shares of Common Stock
received as a result of such grant shall be subject to a
either repurchase agreement or a right of first refusal
pursuant to which the optionee shall be required to offer to
the Company any shares that the optionee wishes to sell at the
then Fair Market Value of the Common Stock, subject to such
other terms and conditions as the Board may specify at the
time of grant, or to any other restriction on transfer the
Board shall impose.
(g) All headings in this Plan are for convenience of reference
only and are to be ignored in construing the Plan. Any
masculine pronoun shall include the feminine and the singular
shall include the plural, and vice versa.
13. INDEMNIFICATION OF BOARD.
The members of the Board of Directors will be indemnified by the
Company against the reasonable expenses, including attorneys' fees, actually
and necessarily incurred in connection with the defense of any action, suit or
proceeding, or in connection with any appeal therein, to which they or any of
them may be a party by reason of any action taken or failure to act under or in
connection with the Plan or Option agreements, and against all amounts paid by
them in settlement thereof (provided such settlement is approved by legal
counsel selected by the Company) or paid by them in satisfaction of a judgment
in any such action, suit or proceeding, except in relation to matters as to
which it is adjudged in such action, suit or proceeding that the member is
liable for negligence or misconduct in the performance of the member's duties;
provided that within sixty (60) days after institution of any such action, suit
or proceeding a member will in writing offer the Company the opportunity, at
its own expense, to defend the same. The foregoing right of indemnification
shall inure to the benefit of the heirs, executors or administrators of each
such member of the Board of Directors and shall be in addition to any and all
other rights of indemnification to which such members may be entitled to as a
matter of law, contract, or otherwise.
14. LIMITATION OF RIGHTS.
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<PAGE> 12
Neither the adoption and maintenance of the Plan nor the grant of
Options will:
(a) limit the right of the Company, Parent Company or Subsidiary
Company to discharge or discipline any employee, or otherwise
terminate or modify the terms of any employment agreement, or
(b) confer upon any optionee any contract or other right or
interest other than as specifically provided in the Plan and
the Option agreement.
15. EFFECTIVE DATE OF THE PLAN, DURATION OF THE PLAN.
On October 4, 1994, the Board adopted this Plan subject to approval by
the Shareholders. The Plan shall become effective at the next meeting of
Shareholders or by the written consent of the Shareholders, provided that it is
approved by a majority of the Shareholders of the Company at that time or
within one year of the Board's approval, whichever is shorter. No Options
granted prior to Shareholder approval shall be exercisable unless and until the
Shareholders of the Company approve, this Plan and the Options granted prior to
such approval.
Unless previously terminated, the Plan will terminate ten (10) years
after the earlier of (i) the date the Plan is adopted by the Board, or (ii) the
date the Plan is approved by the shareholders, except that Options that are
granted under the Plan before its termination will continue to be administered
under the terms of the Plan until the Options terminate or are exercised.
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<PAGE> 1
EXHIBIT 10.2
OBJECTIVE COMMUNICATIONS, INC.
1996 STOCK INCENTIVE PLAN
1. PURPOSES.
The purposes of the Objective Communications, Inc. 1996 Stock
Incentive Plan are to promote the long-term growth of Objective Communications,
Inc. and its affiliates by rewarding officers, directors and key employees of,
and consultants to Objective Communications, Inc. and its affiliates with a
proprietary interest in Objective Communications, Inc. for outstanding
long-term performance and to attract, motivate and retain highly qualified and
capable officers, directors, key employees and consultants.
2. DEFINITIONS.
Unless the context clearly indicates otherwise, the following terms
shall have the following meanings:
2.1 "Affiliate" means any "subsidiary" or "parent" corporation
(within the meaning of Section 424 of the Code) of the Corporation.
2.2 "Award" means an award granted to a Participant under the Plan
in the form of an Option, Restricted Stock, a Stock Appreciation Right, or any
combination of the foregoing.
2.3 "Board" means the Board of Directors of the Corporation.
2.4 "Cause" has the meaning set forth in the Participant's
employment or consulting agreement.
2.5 "Code" means the Internal Revenue Code of 1986, as amended, or
any successor law.
2.6 "Commission" means the Securities and Exchange Commission or
any successor agency.
2.7 "Committee" means the committee administering the Plan as set
forth in Section 3, or, if such a committee has not been appointed, the Board.
2.8 "Consultant" means any person performing consulting or
advisory services for the Corporation or any Affiliate, with or without
compensation, to whom the Corporation chooses to grant a Non-Qualified Stock
Option, Restricted Stock or Stock Appreciation Right in accordance with the
Plan, provided that bona fide services must be rendered by such person and such
services are not rendered in connection with the sale of securities in a
capital raising transaction.
2.9 "Corporation" means Objective Communications, Inc., a Delaware
corporation, or any successor thereto.
2.10 "Corresponding SAR" means a Stock Appreciation Right that is
granted in relation to a particular Option and that can be exercised only upon
the surrender to the Company, unexercised, of that portion of the Option to
which the Stock Appreciation Right relates.
2.11 "Director" means a member of the Corporation's Board of
Directors.
2.12 "Disability" means total disability as defined in Section
22(e)(3) of the Code.
2.13 "Exchange Act" means the Securities Exchange Act of 1934, as
amended.
<PAGE> 2
2.14 "Fair Market Value" means, on any given date, the current fair
market value of shares as determined below:
(a) If the Shares are listed upon an established stock
exchange or exchanges, or the Shares are traded on the Nasdaq National Market
System, "Fair Market Value" means the closing price of the Shares on the
determination date, or, if there are no sales on such date, then on the next
preceding date on which there were sales of Shares.
(b) If the Shares are not traded on the National Market
System or listed on a national securities exchange, "Fair Market Value" means
the mean of the high and low selling prices reported by the National
Association of Securities Dealers, Inc. for the over-the-counter market on the
determination date, or, if no sales are reported on such date, then on the next
preceding date on which there where such quotations.
(c) In all other cases, "Fair Market Value" shall be
determined by the Committee using any reasonable method in good faith.
2.15 "Incentive Stock Option" means an Option which meets the
requirements of Section 422 of the Code.
2.16 "Non-Employee Director" means a director that qualifies as a
non-employee director within the meaning of Rule 16b-3 under the Exchange Act.
2.17 "Non-Qualified Stock Option" means an Option which does not
meet the requirements of Section 422 of the Code.
2.18 "Option" means an option awarded under Section 7 to purchase
Shares. An Option may be either an Incentive Stock Option or a Non-Qualified
Stock Option.
2.19 "Option Grant Date" means the date upon which the Committee
grants an Option to an Optionee.
2.20 "Optionee" means an employee, Director or Consultant of the
Corporation or any Affiliate to whom an Option has been granted.
2.21 "Outside Director" means a Director who is neither an employee
nor an officer of the Company or its Affiliates and who qualifies as an outside
director within the meaning of Section 162(m)(4) of the Code, and the
applicable Treasury regulations thereunder.
2.22 "Participant" means an officer, Director, key employee or
Consultant of the Corporation or any Affiliate to whom an Award has been
granted which has not terminated, expired or been fully exercised.
2.23 "Plan" means this Objective Communications, Inc. 1996 Stock
Incentive Plan, as it may be amended and restated from time to time.
2.24 "Restricted Period" means the period of time, which may be a
single period or multiple periods, during which Restricted Stock awarded to a
Participant remains subject to the Restrictions imposed on such Shares, as
determined by the Committee.
2.25 "Restricted Stock" means an award of Shares on which are
imposed Restricted Periods and Restrictions which subject the Shares to a
"substantial risk of forfeiture" as defined in Section 83 of the Code.
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<PAGE> 3
2.26 "Restricted Stock Agreement" means a written agreement between
a Participant and the Corporation evidencing an award of Restricted Stock.
2.27 "Restricted Stock Award Date" means the date on which the
Committee awards Restricted Shares to the Participant.
2.28 "Restrictions" means the restrictions and conditions imposed
on Restricted Stock award to a Participant, as determined by the Committee,
which must be satisfied in order for the Restricted Stock award to vest, in
whole or in part, in the Participant.
2.29 "Shares" means shares of the voting common stock, par value
$0.01 per share, of the Corporation.
2.30 "Stock Appreciation Right" or "SAR" means a right that in
accordance with the terms of an Stock Appreciation Rights Agreement entitles
the holder to receive, the spread or difference between the Fair Market Value
on the date of grant and the date of exercise of the Shares encompassed by the
exercise of such right. References to Stock Appreciation Rights or SARs
include both Corresponding SARs and SARs granted independently of Options,
unless the context requires otherwise. SARs may be payable in shares in cash,
or in a combination thereof.
2.31 "Stock Appreciation Rights Agreement" means a written
agreement between a Participant and the Corporation evidencing an award of
Stock Appreciation Rights.
2.32 "Stock Option Agreement" means a written agreement between a
Participant and the Corporation evidencing an award of an Option.
2.33 "Ten Percent Shareholder" means an Optionee who, at the time
an Incentive Stock Option is granted, owns or is deemed to own stock possessing
more than 10% of the total voting power of all classes of stock of the
Corporation or any Affiliate. For purposes of determining whether an Optionee
is a Ten Percent Shareholder, the ownership attribution rules of Section 424(d)
of the Code (or its successor) shall apply.
3. ADMINISTRATION OF THE PLAN.
3.1 Administrator of Plan. The Plan shall be administered by the
committee of the Board composed of at least two directors, each of whom
qualifies as a Non-Employee Director and an Outside Director. With respect to
an Award granted to a Non-Employee Director, the Plan shall be administered by
the Board and the Board shall constitute the Committee. However, if no
committee of the Board is appointed to administer the Plan, the Board shall
constitute the Committee.
3.2 Authority of Committee. The Committee shall have full power
and authority to:
(a) designate the Participants to whom Options, Restricted
Stock, or Stock Appreciation Rights may be awarded from time to time;
(b) determine the type of Award to be granted to each
Participant under the Plan and the number of Shares subject thereto;
(c) determine the duration of the Restricted Period and the
Restrictions to be imposed with respect to each Award;
(d) interpret and construe the Plan and adopt such rules and
regulations as it shall deem necessary and advisable to implement and
administer the Plan;
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<PAGE> 4
(e) approve the form and terms and conditions of the
Restricted Stock Agreement, Stock Option Agreement, or Stock Appreciation
Rights Agreement, as the case may be, between the Corporation and the
Participant; and
(f) designate persons other than members of the Committee to
carry out its responsibilities, subject to such limitations, restrictions and
conditions as it may prescribe, provided that the Committee may not delegate
its authority with respect to the granting of Awards to persons subject to
Sections 16(a) and 16(b) of the Exchange Act if such delegation would cause a
grant of an Award under the Plan not qualify as an exempt transaction under
Rule 16b-3 under the Exchange Act or any successor rule of the Commission.
The foregoing determinations shall be made in accordance with the Committee's
best business judgment as to the best interests of the Corporation and its
stockholders and in accordance with the purposes of the Plan.
3.3 Determinations of Committee. A majority of the Committee
shall constitute a quorum at any meeting of the Committee, and all
determinations of the Committee shall be made by a majority of its members.
Any action which the Committee shall take through a written instrument signed
by all of its members shall be as effective as though it had been taken at a
meeting duly called and held. The Committee shall report all actions taken by
it to the Board.
3.4 Delegation. The Committee may delegate such non-discretionary
administrative duties under the Plan to one or more agents as it shall deem
necessary and advisable.
3.5 Effect of Committee Determinations. No member of the
Committee or the Board shall be personally liable for any action or
determination made in good faith with respect to the Plan, any Award or any
settlement of any dispute between a Participant and the Corporation. Any
decision made or action taken by the Committee with respect to an Award or the
administration or interpretation of the Plan shall be conclusive and binding
upon all persons.
3.6 Indemnification. The members of the Committee will be
indemnified by the Corporation against the reasonable expenses, including
attorneys' fees, actually and necessarily incurred in connection with the
defense of any action, suit or proceeding, or in connection with any appeal
therein, to which they or any of them may be a party by reason of any action
taken or failure to act under or in connection with the Plan or an Award, and
against all amounts paid by them in settlement thereof (provided such
settlement is approved by legal counsel selected by the Corporation) or paid by
them in satisfaction of a judgment in any such action, suit or proceeding,
except in relation to matters as to which it is adjudged in such action, suit
or proceeding that the member is liable for negligence or misconduct in the
performance of the member's duties; provided that within sixty (60) days after
institution of any such action, suit or proceeding a member will in writing
offer the Corporation the opportunity, at its own expense, to defend the same.
The foregoing right of indemnification shall inure to the benefit of the heirs,
executors or administrators of each such member of the Committee and shall be
in addition to any and all other rights of indemnification to which such
members may be entitled to as a matter of law, contract, or otherwise.
4. AWARDS UNDER THE PLAN.
Awards to a Participant under the Plan may be in the form of a
Non-Qualified Stock Option, an Incentive Stock Option, Restricted Stock, a
Stock Appreciation Right, or a combination thereof, at the discretion of the
Committee. If an Option is designated as an Incentive Stock Option, the terms
of such Option shall be in conformance with Section 422 of the Code.
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<PAGE> 5
5. ELIGIBILITY.
The Participants in the Plan shall be the officers, Directors, key
employees, and Consultants of the Corporation and its Affiliates designated by
the Committee. A Participant who has been granted an Award under the Plan may
be granted additional Awards under the Plan under such circumstances, and at
such times, as the Committee may determine. Incentive Stock Options may be
granted only to employees of the Corporation and its Affiliates. Directors,
who are not also employees of the Corporation or an Affiliate, and Consultants
may not be granted Incentive Stock Options.
6. SHARES SUBJECT TO PLAN.
Subject to adjustment as provided in Section 14, the aggregate number
of Shares which may be issued upon the exercise of Options or Stock
Appreciation Rights and the award of Restricted Stock shall not exceed four
hundred fifty thousand (450,000) Shares. Any portion of such Shares may be
issued under Incentive Stock Options pursuant to the Plan. Subject to
adjustment as provided in Section 14, the aggregate number of Shares which may
be granted pursuant to Options or Stock Appreciation Rights under this Plan to
any one Participant during any calendar year under this Plan shall be one
hundred thousand (100,000) Shares. For purposes of the preceding sentence, an
Option and Corresponding SAR shall be treated as a single award. If all or any
portion of any outstanding Award under the Plan for any reason expires or is
terminated, the Shares allocable to the unexercised or forfeited portion of
such Award may again be subject to an Award under the Plan.
7. OPTIONS.
7.1 Terms of Options. Options granted under the Plan shall be
subject to the following terms and conditions:
(a) Option Price. The option price per Share under each Option
granted by the Committee may not be less than 100% (110% in the case of an
individual who is or is deemed to be a Ten Percent Shareholder) of the Fair
Market Value per Share on the Option Grant Date. In no event shall the option
price be less than the par value of such Share on the Option Grant Date.
(b) Incentive Stock Options. In the case of an Incentive Stock
Option granted under the Plan, the aggregate Fair Market Value (determined at
the Option Grant Date) of the Shares with respect to which Incentive Stock
Options are exercisable for the first time by an Optionee during any calendar
year under all incentive stock option plans of the Corporation and its
Affiliates may not exceed $100,000
(c) Vesting of Options. Except as provided in this Section 7.1,
Options granted by the Committee shall vest in accordance with the terms
provided by the Committee in the Option Agreement. The Committee may
accelerate the vesting of any Option in its discretion.
(d) Exercise of Options. An Option will be exercisable only to
the extent that it is vested on the date of exercise. Each Option shall be
exercisable on the dates and for the number of Shares as shall be provided in
the related Stock Option Agreement, provided that (i) unless provided
otherwise in the Option Agreement, an Option shall not be exercisable earlier
than six months after the Option Grant Date, and (ii) in no event shall the
Option be subject to exercise after ten years from the Option Grant Date (five
years in the case of an Incentive Stock Option granted to an individual who is
or is deemed to be a Ten Percent Shareholder).
Options may be exercised (in full or in part) only by written notice
delivered to the Corporation at its principal executive office, accompanied by
payment of the option exercise price for the Shares as to which such Option is
exercised. The option exercise price of each Share shall be paid in full at the
time of
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<PAGE> 6
exercise (i) in cash, (ii) with Shares owned by the Participant, (iii) by
delivery to the Corporation of (x) irrevocable instructions to deliver directly
to a broker the stock certificates representing the Shares for which the Option
is being exercised, and (y) irrevocable instructions to such broker to sell
such Shares and promptly deliver to the Corporation the portion of the proceeds
equal to the option exercise price and any amount necessary to satisfy the
Corporation's obligation for withholding taxes, or (iv) any combination
thereof. For purposes of making payment in Shares, such Shares shall be valued
at their Fair Market Value on the date of exercise of the Option and shall have
been held by the Participant for at least six (6) months.
(e) Termination of Employment or Service of Optionee.
The Committee shall have authority to determine the circumstances under which
an Option will vest upon termination of the employment or service of the
Optionee for any reason. Unless otherwise provided by the Committee, except
in the case of death or Disability, vesting of an Option shall cease on the
date of termination of employment or service.
(i) Termination by Death or Disability. If an Optionee's
employment or service terminates by reason of
death or Disability, the Option shall become fully
vested. If an Optionee's employment or service
terminates by reason of death or Disability or the
Optionee's death occurs within three (3) months after
termination of employment or service (provided the
option is exercisable during such three (3) month
period), any Option held by such Optionee may
thereafter be exercised, to the extent then
exercisable, or on such accelerated basis as the
Committee may determine, for a period of one year (or
such other period as the Committee may specify in the
Option Agreement) from the date of such death or
Disability, or until the expiration of the stated term
of such Option, whichever period is the shorter.
(ii) Other Termination. Unless otherwise determined
by the Committee, if there occurs a termination of
employment or service for any reason other than death,
Disability, Cause or in violation of an employment
agreement, any Option held by such Optionee may
thereafter be exercised by the Optionee, to the extent
it was exercisable at the time of such termination or
on such accelerated basis as the Committee may
determine, for a period of three (3) months (or such
shorter period as the Committee may specify in the
Option Agreement) from the date of such termination of
employment or service, or until the expiration of the
stated term of such Option, whichever period is
shorter.
(iii) Termination for Cause. In the event of termination
of employment or service for Cause or in violation of
an employment agreement, any unexercised Option held
by such optionee shall expire immediately upon the
giving of notice of such termination of employment or
service for Cause to the Optionee.
(f) Rights as a Stockholder. An Optionee or a
transferee of an Option shall have no rights as a stockholder with respect to
any Shares covered by any Option until the date of the issuance of a stock
certificate to such person evidencing such Shares. No adjustment shall be made
for dividends (ordinary or extraordinary, whether in cash, securities or other
property) or distributions or other rights for which the record date is prior
to the date such stock certificate is issued, except as provided in Section 14.
(g) Investment Purpose. The Corporation shall not be
obligated to sell or issue any Shares pursuant to any Option unless the
Shares with respect to which the Option is being exercised are at that time
registered or exempt from registration under the Securities Act of 1933, as
amended.
(h) Assumption of Options. The Corporation may issue or
assume any stock option in any transaction or transactions upon such terms and
conditions and, in the case of any option so assumed, with such modifications
or adjustments therein, as shall be determined by the Committee. Any such
option so issued or assumed shall be deemed to be an Option granted under this
Plan, notwithstanding
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<PAGE> 7
that any provision of this Plan would not, except for this Section 7, permit
the grant of an option having the terms and conditions, including the option
price, of such option as so issued or assumed.
(i) Forfeiture of Options for Misconduct. If the
Committee reasonably believes an Optionee has committed an act of misconduct
described in this subparagraph (i), Committee, may suspend the Optionee's
rights to exercise any Option pending a determination by the Committee. If the
Committee determines an Optionee has committed an act of embezzlement, fraud,
dishonesty, nonpayment of any obligation owed to the Corporation, breach of
fiduciary duty or deliberate disregard of Corporation policy resulting in loss,
damage, or injury to the Corporation, or if an Optionee makes any unauthorized
disclosure of any trade secret or confidential information, breaches any
written agreement with the Corporation, engages in any conduct constituting
unfair competition, induces any customer to breach a contract with the
Corporation, or solicits or attempts to solicit any employee of the Corporation
to terminate employment with the Corporation, neither the Optionee nor the
Optionee's estate shall be entitled to exercise any Option whatsoever. In
making such determination, the Committee shall act fairly and shall give the
Optionee an opportunity to appear and present evidence on his or her behalf at
a hearing before the Committee.
(j) Transferability of Options. Section 10 to the
contrary notwithstanding, if the Committee so provides in the Option Agreement,
an Option that is not an Incentive Stock Option may be transferred by a
Optionee to the Optionee's children, grandchildren, spouse, one or more trusts
for the benefit of such family members or a partnership in which such family
members are the only partners; provided, however, that Optionee may not receive
any consideration for the transfer. The holder of an Option transferred
pursuant to this section shall be bound by the same terms and conditions that
governed the Option during the period that it was held by the Participant. In
the event of any such transfer, the Option and any SAR that relates to such
Option must be transferred to the same person or persons or entity or entities.
(k) Notice of Disposition of Shares. An Optionee shall
give written notice to the Corporation of the Optionee's intent to make any
disposition of the Shares acquired upon the exercise of an Incentive Stock
Option if such disposition occurs within two years of the Option Grant Date or
within one year of the date the Incentive Stock Option was exercised. If the
Corporation or Affiliate is required to withhold federal, state or local taxes
as a result of such disposition, the Optionee shall be required to make
appropriate arrangements with the Corporation or Affiliate, as the case may be,
for satisfaction of any federal, state or local taxes the Corporation or
Affiliate is required to withhold as a condition precedent to the transfer of
the Shares by the Corporation's transfer agent. Any Shares issued to a
Participant upon exercise of an Incentive Stock Option shall bear a legend
reflecting this restriction.
8. Restricted Stock.
8.1 Terms of Restricted Stock Awards. Subject to and consistent
with the provisions of the Plan, with respect to each Award of Restricted Stock
to a Participant, the Committee shall determine:
(a) the terms and conditions of the Restricted Stock Agreement
between the Corporation and the Participant evidencing the Award;
(b) the Restricted Period for all or a portion of the Award;
(c) the Restrictions applicable to the Award, including, but not
limited to, continuous employment or service with the Corporation or any of its
Affiliates for a specified term or the attainment of specific corporate,
divisional or individual performance standards or goals, which Restricted
Period and Restrictions may differ with respect to each Participant;
(d) whether the Participant shall receive the dividends and
other distributions paid with respect to an Award of Restricted Stock as
declared and paid to the holders of the Shares during the Restricted
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Period or shall be withheld by the Corporation for the account of the
Participant until the Restricted Periods have expired or the Restrictions have
been satisfied, and whether interest shall be paid on such dividends and other
distributions withheld, and if so, the rate of interest to be paid, or whether
such dividends may be reinvested in Shares;
(e) the percentage of the Award which shall vest in the
Participant in the event of such Participant's death or Disability prior to the
expiration of the Restricted Period or the satisfaction of the Restrictions
applicable to an award of Restricted Stock; or
(f) notwithstanding the Restricted Period and the Restrictions
imposed on the Restricted Shares, as set forth in a Restricted Stock Agreement,
whether to shorten the Restricted Period or waive any Restrictions, if the
Committee concludes that it is in the best interests of the Corporation to do
so.
8.2 Delivery of Shares. Upon an Award of Restricted Stock to a
Participant, the stock certificate representing the Restricted Stock shall be
issued and transferred to and in the name of the Participant, whereupon the
Participant shall become a stockholder of the Corporation with respect to such
Restricted Stock and shall be entitled to vote the Shares. Such stock
certificate shall be held in custody by the Corporation, together with stock
powers executed by the Participant in favor of the Corporation, until the
Restricted Period expires and the Restrictions imposed on the Restricted Stock
are satisfied.
9. STOCK APPRECIATION RIGHTS.
9.1 Grants of Stock Appreciation Rights. The Committee will
designate each individual to whom SARs are to be granted and will specify the
number of shares covered by such Awards. No Participant may be granted
Corresponding SARs (under all Incentive Stock Option plans of the Corporation
and its Affiliates) that are related to Incentive Stock Options which are first
exercisable in any calendar year for stock having an aggregate Fair Market
Value (determined as of the date the related Option is granted) that exceeds
$100,000. Corresponding SARs may be granted either at the time of the grant of
such Option or at any subsequent time prior to the expiration of such Option;
provided, however, that Corresponding SARs shall not be offered or granted in
connection with a prior Option without the consent of the holder of such
Option.
9.2 Terms of Stock Appreciation Rights. All SARs shall be
subject to the following terms and conditions:
(a) The maximum period in which an SAR may be exercised shall be
determined by the Committee on the date of grant, except that no Corresponding
SAR that is related to an Incentive Stock Option shall be exercisable after the
expiration of ten years from the date such related Option was granted. In the
case of a Corresponding SAR that is related to an Incentive Stock Option
granted to a Participant who is or is deemed to be a Ten Percent Shareholder,
such Corresponding SAR shall not be exercisable after the expiration of five
years from the date such related Option was granted. The terms of any
Corresponding SAR that is related to an Incentive Stock Option may provide that
it is exercisable for a period less than such maximum period.
(b) Except as provided in Section 9.2(c), each SAR granted under
this Plan shall be nontransferable except by will or by the laws of descent and
distribution. In the event of any such transfer, a Corresponding SAR and the
related Option must be transferred to the same person or persons or entity or
entities. During the lifetime of the Participant to whom the SAR is granted,
the SAR may be exercised only by the Participant. No right or interest of a
Participant in any SAR shall be liable for, or subject to, any lien,
obligation, or liability of such Participant.
(c) Section 9.2(b) to the contrary notwithstanding, the
Committee may grant transferable SARs to the extent, and on such terms, as may
be permitted by, Rule 16b-3 under the Exchange Act as in effect
8
<PAGE> 9
from time to time. In the event of any such transfer, a Corresponding SAR and
the related Option must be transferred to the same person or persons or entity
or entities. The holder of an SAR transferred pursuant to this section shall
be bound by the same terms and conditions that governed the SAR during the
period that it was held by the Participant.
9.3 Exercise of Stock Appreciation Rights. Subject to the
provisions of this Plan and the applicable Agreement, an SAR may be exercised
in whole at any time or in part from time to time at such times and in
compliance with such requirements as the Committee shall determine; provided,
however, that a Corresponding SAR that is related to an Incentive Stock Option
may be exercised only to the extent that the related Option is exercisable and
only when the Fair Market Value exceeds the option price of the related Option.
An SAR granted under this Plan may be exercised with respect to any number of
whole shares less than the full number for which the SAR could be exercised. A
partial exercise of an SAR shall not affect the right to exercise the SAR from
time to time in accordance with this Plan and the applicable Stock Appreciation
Rights Agreement with respect to the remaining shares subject to the SAR. The
exercise of a Corresponding SAR shall result in the termination of the related
Option to the extent of the number of shares with respect to which the SAR is
exercised.
9.4 Employee Status. If the terms of any SAR provide that it
may be exercised only during employment or while in service of the Corporation
or an Affiliate (or within a specified period of time after termination of
employment or service), the Committee may decide to what extend leaves of
absence for governmental or military service, illness, temporary disability or
other reasons shall not be deemed interruptions of continuous employment.
9.5 Settlement. At the Committee's discretion, the amount
payable as a result of the exercise of an SAR may be settled in cash, Shares,
or a combination of cash and Shares. No fractional share will be deliverable
upon the exercise of an SAR but a cash payment will be made in lieu thereof.
9.6 Stockholder Rights. No Participant shall, as a result of
receiving an SAR award, have any rights as a shareholder of the Company or any
Affiliate until the date that the SAR is exercised and then only to the extent
that the SAR is settled by the issuance of Shares.
10. NON-TRANSFERABILITY OF AWARDS.
Except as may be provided by the Committee in accordance with
Sections 7.1(j) and 9.2(b), Awards granted under the Plan shall not be
transferable by the Participant during the Participant's lifetime and may not
be assigned, exchanged, pledged, transferred or otherwise encumbered or
disposed of except pursuant to a qualified domestic relations order, by will or
by the applicable laws of descent and distribution. Except as may be provided
by the Committee in accordance with Sections 7.1(j) and 9.2(b), Options and
Stock Appreciation Rights shall be exercisable during the Participant's
lifetime only by the Participant or by the Participant's guardian or legal
representative.
11. WITHHOLDING OF TAXES.
Federal, state or local law may require the withholding of taxes
applicable to income resulting from an Award. A Participant shall be required
to make appropriate arrangements with the Corporation or Affiliate, as the case
may be, for satisfaction of any federal, state or local taxes the Corporation
or Affiliate is required to withhold. The Committee may, in its discretion
and subject to such rules as it may adopt, permit the Participant to pay all or
a portion of the federal, state or local withholding taxes arising in
connection with an Award by electing to (i) have the Corporation withhold
Shares, (ii) tender back Shares received in connection with such Award or (iii)
deliver other previously owned Shares, under each election such Shares having a
Fair Market Value on the date specified in the rules adopted by the Committee
equal to the amount to be withheld. The Corporation shall be under no
obligation to issue Shares to the
9
<PAGE> 10
Participant unless the Participant has made the necessary arrangements for
payment of the applicable withholding taxes.
12. NO RIGHT TO CONTINUED EMPLOYMENT.
Neither the establishment of the Plan nor the granting of an Award
shall confer upon any Participant any right to continue in the employ or
service of the Corporation or any of its Affiliates or interfere in any way
with the right of the Corporation or any of its Affiliates to terminate such
employment at any time. No Award shall be deemed to be salary or compensation
for the purpose of computing benefits under any employee benefit, pension or
retirement plans of the Corporation or any of its Affiliates, unless the
Committee shall determine otherwise.
13. AMENDMENT.
13.1 Amendment and Termination of Awards. The terms and
conditions applicable to any Award may thereafter be amended or modified by
mutual agreement between the Corporation and the Participant or such other
persons as may then have an interest therein. Also, by mutual agreement
between the Corporation and a Participant in the Plan or under any other
present or future plan of the Corporation, Options or other Awards may be
granted to a Participant in substitution and exchange for, and in cancellation
of, any Awards previously granted to the Participant under the Plan, or under
any other future plan of the Corporation.
13.2 Amendment and Termination of Plan. The Board may amend the
Plan from time to time, except that, without approval of the stockholders of
the Corporation, no such revision or amendment shall change the number of
Shares that may be granted as Incentive Stock Options under the Plan or change
the designation of the classes of employees eligible to receive Incentive Stock
Options. Unless sooner terminated as provided herein, the Plan shall terminate
on the tenth anniversary of its effective date. The Board may terminate this
Plan at any time it deems advisable, except that Options, Restricted Stock and
Stock Appreciation Rights granted under the Plan before its termination shall
continue to be administered under the Plan until such Options and Stock
Appreciation Rights are canceled, terminated, or are exercised and the
Restricted Stock is canceled, vested or is forfeited.
14. CHANGES IN CAPITALIZATION.
The grant of any Award pursuant to the Plan shall not affect in any
way the right or power of the Corporation (i) to make adjustments,
reclassifications, reorganizations or changes of its capital or business
structure, (ii) to merge or consolidate, (iii) to dissolve, liquidate, or sell
or transfer all or any part of its business or assets or (iv) to issue any
bonds, debentures, preferred or other preference stock ahead of or affecting
the Shares.
Subject to any required action by the stockholders, the number of
Shares covered by each outstanding Award and the exercise price per each such
Share subject to an Option or Stock Appreciation Right shall be proportionately
adjusted for any increase or decrease in the number of issued Shares of the
Corporation resulting from a subdivision or consolidation of Shares or the
payment of a stock dividend (but only on the Shares) or any other increase or
decrease in the number of such Shares effected without receipt of consideration
by the Corporation.
If the Corporation merges or is consolidated with another
corporation, whether or not the Corporation is a surviving corporation, or if
the Corporation is liquidated or sells or otherwise disposes of substantially
all of its assets while unexercised Options remain outstanding under the Plan,
(i) after the effective date of the merger, consolidation, liquidation, sale or
other disposition, as the case may be, each holder of an outstanding Option or
SAR shall be entitled, upon exercise of that Option, to receive, in lieu of
Shares, the number and class or classes of shares of stock or other securities
or property to which the holder would
10
<PAGE> 11
have been entitled if, immediately prior to the merger, consolidation,
liquidation, sale or other disposition, the holder had been the holder of
record of a number of Shares equal to the number of Shares as to which that
Option may be exercised; or (ii) if Options have not already become
exercisable, the Committee may waive any limitations set forth in or imposed
pursuant to the Plan so that all Options, from and after a date prior to the
effective date of that merger, consolidation, liquidation, sale or other
disposition, as the case may be, specified by the Committee, shall be
exercisable in full.
If the Corporation is merged into or consolidated with another
corporation under circumstances where the Corporation is not the surviving
corporation (other than circumstances involving a mere change in the identity,
form or place of organization of the Corporation), or if the Corporation is
liquidated or dissolved, or sells or otherwise disposes of substantially all of
its assets to another entity while unexercised Options remain outstanding under
the Plan, unless provisions are made in connection with the transaction for the
continuance of the Plan and/or the assumption or substitution of Options with
new options covering the stock of the successor corporation, or the parent or
subsidiary thereof, with appropriate adjustments as to the number and kind of
shares and exercise prices, then all outstanding Options shall be canceled as
of the effective date of such merger, consolidation, liquidation, dissolution,
or sale provided that (i) notice of such cancellation shall be given to each
optionee and (ii) each optionee shall have the right to exercise such Option in
full (without regard to any vesting or other limitations on exercise imposed on
such Option) during the 30-day period preceding the effective date of such
merger, consolidation, liquidation, or sale.
In the event of a change of all of the Corporation's authorized
Shares with par value into the same number of Shares with a different par value
or without par value, the Shares resulting from any such change shall be deemed
to be the Shares within the meaning of the Plan.
To the extent that the foregoing adjustments relate to stock or
securities of the Corporation, such adjustments shall be made by the Committee,
whose determination in that respect shall be final, binding and conclusive;
provided, that each Option which, upon grant of the Option, is specifically
designated as an Incentive Stock Option shall not be adjusted in a manner that
causes the Option to fail to continue to qualify as an Incentive Stock Option.
No fractional Shares will be issued under the Plan as a result of an
adjustment.
Except as thereinbefore expressly provided in this Section 14, the
Participant shall have no rights (i) by reason of any subdivision or
consolidation of shares of stock of any class, the payment of any stock
dividend or any other increase or decrease in the number of shares of stock of
any class, or (ii) by reason of any dissolution, liquidation, merger, or
consolidation, spin-off of assets or stock of another corporation, or any issue
by the Corporation of shares of stock of any class, nor shall any of these
actions affect, or cause an adjustment to be made with respect to, the number
or price of Shares subject to any Option.
15. GOVERNING LAW.
The Plan and each Stock Option Agreement, Restricted Stock Agreement
and Stock Appreciation Rights Agreement shall be governed by, and construed in
accordance with, the laws of the Commonwealth of Virginia.
11
<PAGE> 12
16. EFFECTIVE DATE.
The Plan shall be effective on ________________, , 1997, subject to
the approval of the Plan within one year of such date by a majority of the
voting shares represented and entitled to vote.
OBJECTIVE COMMUNICATIONS, INC.
By:
---------------------------------------
title:
12
<PAGE> 1
EXHIBIT 10.4
BARINGTON CAPITAL GROUP, L.P
888 Seventh Avenue
New York, New York 10019
(212) 974-5700
_________, 1997
Objective Communications, Inc.
14100 Park Meadow Drive
Chantilly, VA 20151
Attention: Steven A. Rogers
Chairman and Chief Executive Officer
Gentlemen:
This letter, when executed by the parties hereto, will constitute an
agreement between Objective Communications, Inc. (the "Company") and Barington
Capital Group, L.P. ("Barington"), pursuant to which the Company agrees to
retain Barington and Barington agrees to be retained by the Company under the
terms and conditions set forth below:
1. The Company hereby retains Barington to perform consulting
services related to corporate finance and other financial services matters, and
Barington hereby accepts such retention, for a term commencing on the date
hereof and ending on __________, 1999. In this regard, subject to the terms
set forth below, Barington shall furnish to the Company advice and
recommendations with respect to such aspects of the business and affairs of the
Company as the Company shall, from time to time, reasonably request upon
reasonable notice.
2. As compensation for the services described in paragraph 1
above, the Company shall pay to Barington (i) a fee of $80,000 (exclusive of
any accountable out of pocket expenses) payable on the date hereof and (ii) a
fee equal to five percent of the first one million dollars of the consideration
paid or received by the Company (or any stockholder, subsidiary or affiliate)
in any Transaction (as hereinafter defined), four percent of the next million
dollars of consideration so paid or received, three percent of the next million
dollars of consideration so paid or received, two percent of the next million
dollars so paid or received and one percent of any consideration so paid or
received in excess of four million dollars. Except as provided in the
penultimate sentence of this Section 2, such fee shall be paid in cash or in
the same form as the consideration received by the Company in the Transaction,
if other than cash, at the closing of the Transaction to which it relates. The
amount of consideration paid in a Transaction
<PAGE> 2
Objective Communcations, Inc.
_______________, 1997
Page 2
shall include, for purposes of calculating such fee, all forms of consideration
paid by the Company or any subsidiary or affiliate, or received by the Company,
its stockholders, or any subsidiary or affiliate of the Company, including, but
not limited to, cash, stock or evidence of indebtedness, or any combination
thereof. In addition, if within two years immediately following the
termination or expiration of this Agreement, the Company consummates a
Transaction with any party introduced by Barington to the Company prior to such
termination or expiration, the Company shall pay to Barington a fee with
respect to such Transaction calculated in accordance with this paragraph.
Notwithstanding the foregoing, Barington shall not be entitled to receive a fee
pursuant to this Section 2 for any Transaction which is identified, negotiated
and consummated by the Company without the assistance or participation of
Barington or any other investment banking firm or other intermediary. A
"Transaction" shall mean any transaction in which the Company or any subsidiary
or affiliate of the Company may be involved, including, but not limited to,
mergers, acquisitions, joint ventures, sales of securities of the Company or
its subsidiaries or affiliates or sales of all or substantially all of the
assets of the Company or any subsidiary or affiliate of the Company, sales or
other issuances of any securities in connection with an acquisition or
disposition or other business combination transaction, to which the provisions
of Section 5 do not apply.
3. In addition, Barington shall hold itself ready to assist the
Company in evaluating and negotiating particular contracts or projects, if
requested to do so by the Company, upon reasonable notice, and will undertake
such evaluations and negotiations under prior written agreement as to
additional compensation to be paid by the Company to Barington with respect to
such evaluations and negotiations.
4. All obligations of Barington contained herein shall be subject
to Barington's reasonable availability for such performance, in view of the
nature of the requested service and the amount of notice received. Barington
shall devote such time and effort to the performance of its duties hereunder as
Barington shall determine is reasonably necessary for such performance.
Barington may look to such others for such factual information, investment
recommendations, economic advice and/or research, upon which to base its advice
to the Company hereunder, as it shall deem appropriate. The Company shall
furnish to Barington all information relevant to the performance by Barington
of its obligations under this Agreement, or particular projects as to which
Barington is acting as advisor, which will permit Barington to know all facts
material to the advice to be rendered, and all materials or information
<PAGE> 3
Objective Communcations, Inc.
_______________, 1997
Page 3
reasonably requested by Barington. In the event that the Company fails or
refuses to furnish any such material or information reasonably requested by
Barington, and thus prevents or impedes Barington's performance hereunder, any
inability of Barington to perform shall not be a breach of its obligations
hereunder.
5. For a period of three years from the date hereof, Barington
shall have an irrevocable preferential right of first refusal to purchase for
its account or to sell for the account of the Company or any subsidiary of or
successor to the Company, any securities of the Company or any such subsidiary
or successor of the Company which the Company, any such subsidiary or successor
may seek to sell, whether pursuant to registration under the Securities Act of
1933, as amended (the "Act") or otherwise. The Company and any such subsidiary
or successor will consult Barington with regard to any such offering and will
offer Barington the opportunity to purchase or sell any such securities on
terms not more favorable to the seller of such securities than it or he can
secure elsewhere. If Barington fails to accept such offer within 20 business
days after the mailing of a notice containing such offer by registered or
overnight mail addressed to Barington, then Barington shall have no further
claim or right with respect to the proposal contained in such notice. If,
however, the terms of such proposal are subsequently modified in any material
respect, the preferential right referred to herein shall apply to such modified
proposal as if the original proposal had not been made. Barington's failure to
exercise its preferential right with respect to any particular proposal shall
not affect its preferential rights relative to future proposals.
Notwithstanding the foregoing, in the event that such offer relates to an
underwritten public offering, private placement offering or offering pursuant
to Section 144A of the Act (and the rules and regulations promulgated
thereunder) of the Company's securities to be lead managed by an
institutionally- based major bracket or large regional underwriting firm, the
Company shall be deemed to have satisfied the right of first refusal contained
herein if Barington is given the right to participate in such offering as a
co-manager (right hand side) with at least 33% of the total economics and 33%
of the allocation of such offering.
6. Subject to Section 7, nothing contained in this Agreement
shall limit or restrict the right of Barington or of any partner, employee,
agent or representative of Barington, to be a partner, director, officer,
employee, agent or representative of, or to engage in, any other business,
whether or not of a similar nature to the Company's business, nor to limit or
restrict the right of Barington to render services of
<PAGE> 4
Objective Communcations, Inc.
_______________, 1997
Page 4
any kind to any other corporation, firm, individual or association.
7. Barington will hold, and will use its commercially reasonable
efforts to cause its officers, directors, employees, consultants, advisors, and
agents to hold, in confidence any confidential information which the Company
provides to Barington pursuant to this Agreement. Barington may disclose such
information to its officers, directors, employees, consultants, advisors and
agents, in connection with the services to be rendered as contemplated by this
Agreement, so long as such persons are informed by Barington of the
confidential nature of such information and are directed by Barington to treat
such information confidentially in accordance herewith. Notwithstanding the
foregoing, Barington shall not be required to maintain confidentiality with
respect to information (i) which is or becomes part of the public domain; (ii)
of which Barington had independent knowledge prior to disclosure to it by the
Company; (iii) which comes into the possession of Barington in the normal and
routine course of its own business from and through independent
non-confidential sources; or (iv) which is required to be disclosed by
Barington by governmental requirements. If Barington is requested or required
(by oral questions, interrogatories, requests for information or document
subpoenas, civil investigative demands, or similar process) to disclose any
confidential information supplied to it by the Company, or the existence of
other negotiations in the course of its dealings with the Company or its
representatives, Barington shall, unless prohibited by law, promptly notify the
Company of such request(s) so that the Company may seek an appropriate
protective order.
8. Because Barington will be acting on your behalf, it is its
practice to receive indemnification. A copy of Barington's standard
indemnification provisions (the "Indemnification Provisions") is attached to
this Agreement and is incorporated herein and made a part hereof.
9. This Agreement may not be transferred, assigned or delegated
by any of the parties hereto without the prior written consent of the other
party hereto.
10. The failure or neglect of the parties hereto to insist, in any
one or more instances, upon the strict performance of any of the terms or
conditions of this Agreement, or their waiver of strict performance of any of
the terms or conditions of this Agreement, shall not be construed as a waiver
or relinquishment in the future of such term or condition, but the same shall
continue in full force and effect.
<PAGE> 5
Objective Communcations, Inc.
_______________, 1997
Page 5
11. This Agreement may not be terminated by the Company. This
Agreement may be terminated by Barington at any time upon 30 days' written
notice, without liability or continuing obligation to you or to us (except for
any compensation earned by us up to the date of termination, including
compensation to be paid subsequent to such termination), except as set forth in
this Section 11. Neither termination nor completion of this assignment shall
affect the provision of Section 2 hereof or the Indemnification Provisions
which are incorporated herein, which shall remain operative and in full force
and effect.
12. Any notices hereunder shall be sent to the Company and to
Barington at their respective addresses set forth above. Any notice shall be
given by hand delivery, facsimile transmission or overnight delivery or courier
service, against receipt therefor, and shall be deemed to have been given when
received. Either party may designate any other address to which notice shall be
given, by giving written notice to the other of such change of address in the
manner herein provided.
13. This Agreement has been made in the State of New York and
shall be construed and governed in accordance with the laws thereof without
giving effect to principles governing conflicts of law.
14. This Agreement contains the entire agreement between the
parties, may not be altered or modified, except in writing and signed by the
party to be charged thereby, and supersedes any and all previous agreements
between the parties relating to the subject matter hereof.
15. This Agreement shall be binding upon the parties hereto and
their respective heirs, administrators, successors and permitted assigns.
<PAGE> 6
Objective Communcations, Inc.
_______________, 1997
Page 6
If you are in agreement with the foregoing, please execute two copies
of this letter in the space provided below and return them to the undersigned.
Yours truly,
BARINGTON CAPITAL GROUP, L.P.
By: LNA CAPITAL CORP.,
General Partner
By:
-------------------------------
Marc Cooper, Executive Vice
President
ACCEPTED AND AGREED
TO AS OF THE DATE FIRST
ABOVE WRITTEN:
Objective Communications, Inc.
By:
--------------------------------
Steven A. Rogers
Chairman and Chief Executive Officer
<PAGE> 7
INDEMNIFICATION PROVISIONS
Objective Communications, Inc. (the "Company") agrees to indemnify and
hold harmless Barington Capital Group, L.P. ("Barington") against any and all
losses, claims, damages, obligations, penalties, judgments, awards,
liabilities, costs, expenses and disbursements (and any and all actions, suits,
proceedings and investigations in respect thereof and any and all legal and
other costs, expenses and disbursements in giving testimony or furnishing
documents in response to a subpoena or otherwise), including, without
limitation, the costs, expenses and disbursements, as and when incurred, of
investigating, preparing or defending any such action, suit, proceeding or
investigation (whether or not in connection with litigation in which Barington
is a party), directly or indirectly, caused by, relating to, based upon,
arising out of, or in connection with Barington's acting for the Company,
including, without limitation, any act or omission by Barington in connection
with its acceptance of or the performance or non performance of its obligations
under the Agreement, dated ___________, 1997, between the Company and Barington
to which these indemnification provisions are attached and form a part (the
"Agreement"), except to the extent that any such liability is found in a final
judgment by a court of competent jurisdiction (not subject to further appeal)
to have resulted primarily and directly from Barington's gross negligence or
willful misconduct. The Company also agrees that Barington shall not have any
liability (whether direct or indirect, in contract or tort or otherwise) to the
Company for or in connection with the engagement of Barington under the
Agreement, except to the extent that any such liability is found in a final
judgment by a court of competent jurisdiction (not subject to further appeal)
to have resulted primarily and directly from Barington's gross negligence or
willful misconduct.
These indemnification provisions shall be in addition to any liability
which the Company may otherwise have to Barington or the persons indemnified
below in this sentence and shall extend to the following: Barington, its
affiliated entities, partners, employees, legal counsel, agents and controlling
persons (within the meaning of the federal securities laws), and the officers,
directors, employees, legal counsel, agents and controlling persons of any of
them. All references to Barington in these indemnification provisions shall be
understood to include any and all of the foregoing.
If any action, suit, proceeding or investigation is commenced, as to
which Barington proposes to demand indemnification, it shall notify the Company
with reasonable promptness; provided, however, that any failure by Barington to
notify the Company shall not relieve the Company from its obligations
hereunder. Barington shall have the right to retain counsel of its own choice
to represent it, and the Company shall
<PAGE> 8
pay the fees, expenses and disbursements of such counsel; and such counsel
shall, to the extent consistent with its professional responsibilities,
cooperate with the Company and any counsel designated by the Company. The
Company shall be liable for any settlement of any claim against Barington made
with the Company's written consent, which consent shall not be unreasonably
withheld. The Company shall not, without the prior written consent of
Barington, settle or compromise any claim, or permit a default or consent to
the entry of any judgment in respect thereof, unless such settlement,
compromise or consent includes, as a unconditional term thereof, the giving by
the claimant to Barington of an unconditional release from all liability in
respect of such claim. In order to provide for just and equitable
contribution, if a claim for indemnification pursuant to these indemnification
provisions is made but it is found in a final judgment by a court of competent
jurisdiction (not subject to further appeal) that such indemnification may not
be enforced in such case, even though the express provisions hereof provide for
indemnification in such case, then the Company, on the one hand, and Barington,
on the other hand, shall contribute to the losses, claims, damages,
obligations, penalties, judgments, awards, liabilities, costs, expenses and
disbursements to which the indemnified persons may be subject in accordance
with the relative benefits received by the Company, on the one hand, and
Barington, on the other hand, and also the relative fault of the Company, on
the one hand, and Barington, on the other hand, in connection with the
statements, acts or omissions which resulted in such losses, claims, damages,
obligations, penalties, judgments, awards, liabilities, costs, expenses or
disbursements and the relevant equitable considerations shall also be
considered. No person found liable for a fraudulent misrepresentation shall be
entitled to contribution from any person who is not also found liable for such
fraudulent misrepresentation. Notwithstanding the foregoing, Barington shall
not be obligated to contribute any amount hereunder that exceeds the amount of
fees previously received by Barington pursuant to the Agreement.
Neither termination nor completion of the engagement of Barington
referred to above shall affect these indemnification provisions which shall
then remain operative and in full force and effect.
- 2 -
<PAGE> 1
Objective Communications, Inc. Exhibit 11
Calculation of net loss per share
<TABLE>
<CAPTION>
Period October 5, 1993
Years ended December 31, (date of inception) of
1994 1995 1996 December 31, 1996
<S> <C> <C> <C> <C>
Net loss ($406,842) ($2,046,116) ($3,280,436) ($5,737,915)
=================================================== ===============
Weighted average common shares
outstanding 617,895 1,565,438 1,711,413 1,711,413
Shares issued within one year of
filing of initial public offering 350,431 350,431 350,431 350,431
Options issued within one year of
filing of initial public offering 138,000 138,000 138,000 138,000
Warrants issued within one year of
filing of initial public offering 1,059,094 1,059,094 1,059,094 1,059,094
Converible securities issued within one year of
filing of initial public offering 500,000 500,000 500,000 500,000
--------------------------------------------------- ---------------
Weighted average common shares
and common share equivalents 2,665,420 3,612,963 3,758,938 3,758,938
=================================================== ===============
Net loss common share ($0.15) ($0.57) ($0.87) ($1.53)
=================================================== ===============
</TABLE>
<PAGE> 1
EXHIBIT 21
SUBSIDIARIES
The Company has no subsidiaries.
<PAGE> 1
Exhibit 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this registration statement on Form SB-2 of our
report, dated January 10, 1997, on our audits of the financial statements of
Objective Communications, Inc. (a development stage enterprise) as of December
31, 1995 and 1996, and for each of the three years in the period ended December
31, 1996 and for the period October 5, 1993 (date of inception) to December 31,
1996. We also consent to the reference to our firm under the caption "Experts"
and "Summary Financial Information."
COOPERS & LYBRAND L.L.P.
Washington, D.C.
January 29, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 623,241
<SECURITIES> 0
<RECEIVABLES> 84,855
<ALLOWANCES> 0
<INVENTORY> 366,099
<CURRENT-ASSETS> 1,252,571
<PP&E> 355,157
<DEPRECIATION> (173,085)
<TOTAL-ASSETS> 1,681,578
<CURRENT-LIABILITIES> 3,168,357
<BONDS> 25,610
848,440
0
<COMMON> 18,966
<OTHER-SE> (2,379,795)
<TOTAL-LIABILITY-AND-EQUITY> 1,681,578
<SALES> 45,440
<TOTAL-REVENUES> 81,375
<CGS> 44,579
<TOTAL-COSTS> 62,353
<OTHER-EXPENSES> 2,309,168
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 990,290
<INCOME-PRETAX> (2,290,146)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,290,146)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,280,436)
<EPS-PRIMARY> (0.93)
<EPS-DILUTED> 0
</TABLE>
