<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 13, 1997.
REGISTRATION NO. 333-20625
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------
AMENDMENT NO. 2
TO
FORM SB-2
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
------------------
OBJECTIVE COMMUNICATIONS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
DELAWARE 4825 54-1707962
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INSTITUTIONAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
OBJECTIVE COMMUNICATIONS, INC. STEVEN A. ROGERS
14100 PARK MEADOW DRIVE 14100 PARK MEADOW DRIVE
CHANTILLY, VIRGINIA 20151 CHANTILLY, VIRGINIA 20151
(703) 227-3000 (703) 227-3040
(ADDRESS, INCLUDING ZIP CODE, AND (NAME, ADDRESS, INCLUDING ZIP CODE, AND
TELEPHONE NUMBER, INCLUDING AREA CODE, OF TELEPHONE NUMBER, INCLUDING AREA CODE, OF
PRINCIPAL EXECUTIVE OFFICES AND PRINCIPAL AGENT FOR SERVICE)
PLACE OF BUSINESS)
------------------
Copy to:
ELLEN C. GRADY, ESQ. THOMAS E. CONSTANCE, ESQ.
SHAW, PITTMAN, POTTS & TROWBRIDGE SHARI K. KROUNER, ESQ.
1501 FARM CREDIT DRIVE KRAMER, LEVIN, NAFTALIS & FRANKEL
MCLEAN, VIRGINIA 22102 919 THIRD AVENUE
(703) 790-7900 NEW YORK, NEW YORK 10022
(212) 715-9100
</TABLE>
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. [ ]
------------------
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.
================================================================================
<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
PROSPECTUS
OBJECTIVE COMMUNICATIONS, INC.
1,800,000 SHARES
COMMON STOCK
------------------
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 Common Stock has been approved for quotation on the Nasdaq
SmallCap Market (the "Nasdaq SmallCap Market"), subject to notice of issuance,
under the symbol OCOM. The initial public offering price of the Common Stock has
been 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.
The Company has also registered on the registration statement of which this
Prospectus constitutes a part the offering by certain selling stockholders (the
"Selling Stockholders") from time to time of up to 1,280,000 shares of Common
Stock. Concurrently with the Offering, and subject to certain lock-up
arrangements, such Selling Stockholders may offer and sell such shares of Common
Stock on the Nasdaq SmallCap Market in negotiated transactions or otherwise. No
underwriting arrangements have been entered into by the Selling Stockholders.
The Company will not receive any proceeds from the sale of Common Stock by the
Selling Stockholders. See "Shares Eligible for Future Sale."
------------------
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.
<TABLE>
<CAPTION>
=========================================================================================================
UNDERWRITING
DISCOUNTS AND COMMISSIONS
PRICE TO PUBLIC (1) PROCEEDS TO COMPANY (2)
<S> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------
Per Share........................... $ $ $
- ---------------------------------------------------------------------------------------------------------
Total (3)........................... $ $ $
=========================================================================================================
</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 165% 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
March , 1997.
BARINGTON CAPITAL GROUP, L.P.
The date of this Prospectus is March , 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 THE NASDAQ SMALLCAP MARKET 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 on page 37. 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
The Company's VidPhone(R) system targets, in particular, the video
conferencing market. 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
6,200,000 shipped by 2000. Additionally, the Company intends to market the
VidPhone(R) system to potential users of 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.
3
<PAGE> 6
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 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
VidPhone(R) terminal, which is a user's desktop configured to provide one- and
two-way video communications within an office building using VidModem(TM)
technology, the Enterprise Video Switch ("EVS"), VidPhone(R) remote terminals,
which provide communications with remote locations, 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 has completed the development of the EVS-10 demonstration
VidPhone(R) system, a fully functional product with up to ten user ports
available designed for beta testing of the VidPhone(R) technology. Currently,
six such systems have been installed at beta sites at no cost to the end-user,
and additional units are in production and scheduled for installation at the
sites of potential resellers and customers early in the second quarter of 1997.
EVS-50, the commercial version of the VidPhone(R) system, is currently under
development and is expected to be completed in late 1997. The Company currently
expects to begin commercial production and installation of the first units in
late 1997. The EVS-50 system, when completed, is expected to accommodate up to
50 simultaneous conferees, and is designed by the Company to be highly reliable
and easily maintained. The Company intends to use a portion of the net proceeds
of the Offering to complete the initial production of the EVS-50 and to provide
technical support for its initial deployment. There can be no assurance that the
Company will complete development or manufacture of such systems or begin
installation of such systems on its current time schedule. See "Risk
Factors -- Development of New Products; Industry Acceptance," "Use of Proceeds"
and "Business -- Product Research and Development."
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
4
<PAGE> 7
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 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, at no cost to the user, EVS-10 switch VidPhone(R)
equipment in the facilities of one the three largest PBX manufacturers, two of
the five largest LEXCs, one of the four largest RBOCs and a potential end-user.
In addition, the Company has sold 13 VidPhone(R) remote terminals to Bell
Atlantic for use by the U.S. Navy. See "Business -- General." 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."
Nasdaq SmallCap Market Trading
Symbol (3).................... OCOM
- ---------------
(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) 495,382 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 Common Stock has been approved for quotation on the Nasdaq
SmallCap Market, subject to notice of issuance. There can be no assurance,
however, that such quotation 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,
---------------------------
1995 1996
--------- ---------
(IN THOUSANDS, EXCEPT PER
SHARE
DATA AND SHARE AMOUNTS)
<S> <C> <C>
SELECTED STATEMENTS OF OPERATIONS DATA:
Revenues................................................................... $ 225 $ 81
Operating expenses:
Research and development............................................... 1,232 1,107
General and administrative............................................. 814 1,041
Depreciation........................................................... 60 159
Other.................................................................. 152 64
--------- ---------
Total operating expenses.......................................... 2,258 2,371
Interest expense (1)....................................................... 13 404
Net loss (1)............................................................... $ (2,046) $ (2,694)
Net loss per common share.................................................. $(0.57) $(0.72)
Weighted average common shares and common share equivalents outstanding
(2)...................................................................... 3,611,659 3,757,634
</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)........................................... (1,330) (400) 7,082
Total assets........................................................ 1,681 2,611 7,901
Total current liabilities........................................... 2,582 2,582 604
Total long-term liabilities......................................... 26 26 26
Series A Convertible Preferred Stock (5)............................ 848 1,778 --
Deficit accumulated during development stage........................ (5,165) (5,826) (6,626)
Stockholders' equity (deficit)...................................... (1,775) (1,775) 7,271
</TABLE>
- ---------------
(1) Includes in 1996 a non-recurring, non-cash interest expense of $321,789
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 the 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," the write-off of the debt issuance costs associated with the
indebtedness to be repaid and the write-off of the unamortized debt
discounts related to the estimated fair value of the Bridge Warrants. 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.
7
<PAGE> 10
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
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. However, as a result of
product testing and technology demonstrations conducted by the Company, the
Company has received and is currently working on a limited number of customer
orders. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Overview." 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.
LOSSES SINCE INCEPTION; ACCUMULATED DEFICIT; EXPECTATION OF CONTINUING LOSSES
To date, the Company has incurred substantial losses from operations, had a
working capital deficit of $1,329,786 at December 31, 1996, and an accumulated
deficit of $5,164,910 through December 31, 1996. As a result, the Financial
Statements of the Company are qualified by a going concern opinion. The Company
believes that the net proceeds from the Offering will be sufficient to permit
the Company to continue as a going concern. See Note 1 of Notes to Financial
Statements.
The Company expects to continue to incur losses for the foreseeable future.
A significant portion of the $495,660 in revenues earned by the Company from its
inception through December 31, 1996 was 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 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
8
<PAGE> 11
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.
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 VidPhone(R) remote terminal,
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, for which the Company has received a notice of allowance
from the U.S. Patent and Trademark Office, which relates to a method and
apparatus for transmitting video information over telephone wires. The Company
has received notification from the U.S. Patent and Trademark Office that the
issue date for this patent will be April 15, 1997. 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
9
<PAGE> 12
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 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,
10
<PAGE> 13
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 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 EVS component of the Company's VidPhone(R) system and the VidModem(TM)
are required to comply with certain regulations promulgated by the FCC under
Parts 2, 15 and 68 of the FCC's regulations, which relate to radio frequency
devices and to terminal equipment that is connected to the public switched
telephone network ("PSTN"). Pursuant to Part 15 of the FCC's regulations, the
Company has determined that the VidModem(TM) is an unintentional radiator that
constitutes a Class A digital device that may be operated without an individual
license. Under Parts 2 and 15 of the FCC's regulations, the Company will be
required to follow a verification procedure consisting of a self-certification
by the Company that the radio frequency device complies with applicable Part 15.
The Company has already had the VidModem(TM) formally tested by a qualified,
independent testing facility, and such equipment was found to comply with such
regulatory requirements. Under Part 2 of the FCC's regulations, the Company has
the option of ensuring compliance with the applicable technical specifications
at the location of a business end-user after installation. Pursuant to Part 68
of the FCC's regulations, the Company will need to obtain equipment registration
from the FCC for certain VidPhone(R) system components that are connected to the
PSTN. The majority of the Company's products will not involve connection to the
PSTN. For those applications requiring connection to the PSTN, the Company will
be required to register the EVS as terminal equipment under Part 68 of the FCC's
11
<PAGE> 14
regulations. To date, the Company has not filed an application under Part 68 for
equipment registration. 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.
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
12
<PAGE> 15
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, 23.0% and 37.5%, respectively, of the outstanding shares of Common
Stock (approximately 21.7% and 35.5%, 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."
POTENTIAL INFLUENCE BY CERTAIN STOCKHOLDERS
After the Offering, pursuant to agreements with the Company or Mr. Steven
A. Rogers, three parties have the right to designate one nominee each for
election as a member of the Board of Directors. To the extent that such
contractual rights are exercised, such stockholders may be able to exercise
substantial influence over decisions of the Company's Board of Directors and the
Company's business. See "Management -- Executive Officers and Directors" and
"Underwriting."
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 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.
13
<PAGE> 16
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 DELISTING; LOW STOCK PRICE
The quotation of the Company's Common Stock on the Nasdaq SmallCap Market
will be conditioned upon the Company meeting certain asset, capital and surplus
earnings and stock price tests set forth by such exchanges. 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. If the
Company fails any of the tests, the Common Stock may be delisted from quotation
on such system. 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 the Common Stock were delisted from trading
on the Nasdaq SmallCap Market 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 on a shelf-registration pursuant to the registration statement of
which this Prospectus constitutes a part, will be freely transferable under the
14
<PAGE> 17
Securities Act without restriction or further registration, other than those
shares held by affiliates of the Company. Concurrent sales of securities by both
the Company and the Selling Stockholders would likely have an adverse effect on
the market price of the Common Stock. The remaining 2,061,844 shares of Common
Stock are, and the 395,382 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
995,382 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 certain specified periods after the date on which the
Offering closes, except in certain limited circumstances, without the prior
written consent of the Underwriter. In addition, the Underwriter has entered
into an agreement with the Nasdaq Stock Market, Inc. pursuant to which the
Underwriter has agreed that it will not release any warrantholder who received
warrants between October and January 1996, from such lock-up agreements for a
period of six months from the effective date of this Prospectus. See "Principal
Stockholders," "Description of Securities," "Shares Eligible for Future Sale"
and "Underwriting."
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 395,382 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
15
<PAGE> 18
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 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."
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 in 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, at the 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) system, 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 any applicable contractual
restrictions limiting the Company's ability to pay dividends, 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
$(1,807,698) or $(0.88) per share of Common Stock. Giving effect to 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, the pro forma net
tangible book value would increase by $0.87 per share. The pro forma net
tangible book value of the Company at December 31, 1996, giving as adjusted
effect to (and without taking into account any other changes in the pro forma
net tangible book value after December 31, 1996) (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 the 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," the write-off of
debt issuance costs associated with the indebtedness to be repaid and the
write-off of unamortized debt discounts related to the estimated fair value of
the Bridge Warrants, 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 $1.67 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>
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...................................... $(0.88)
Increase per share attributable to conversion of Series A
Preferred Stock to Common Stock................................ 0.87
Increase per share attributable to purchase of shares of Common
Stock by new investors......................................... 1.67
------
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 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
19
<PAGE> 22
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;
(ii) 495,382 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 the 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," the write-off of
the debt issuance costs associated with the indebtedness to be repaid and the
write-off of the unamortized discounts related to the estimated fair value of
the Bridge Warrants. 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)............................ $ 1,929 $ 1,929 $ 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 4,030 13,853
Accumulated deficit........................................ (5,165) (5,826) (6,626)
------- ------- -------
Total stockholders' equity (deficit).................. (1,775) (1,775) 7,271
------- ------- -------
Total capitalization............................. $ (901) $ 29 $ 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 the 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," the write-off of the debt issuance costs associated with the
indebtedness to be repaid and the write-off of the unamortized discounts
related to the estimated fair value of the Bridge Warrants. See "Use of
Proceeds."
(3) Does not include (i) 500,000 shares of Common Stock issuable upon exercise
of the Bridge Warrants; (ii) 495,382 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.
The Company has completed the development of the EVS-10 demonstration
VidPhone(R) system, a fully functional product with up to ten user ports
available designed for beta testing of the VidPhone(R) technology. Currently,
six such systems have been installed at beta sites at no cost to the end-user,
and additional units are in production and scheduled for installation at the
sites of potential resellers and customers early in the second quarter of 1997.
EVS-50, the commercial version of the VidPhone(R) system, is currently under
development and is expected to be completed in late 1997. The Company currently
expects to begin commercial production and installation of the first units in
late 1997. The EVS-50 system, when completed, is expected to accommodate up to
50 simultaneous conferees, and is designed by the Company to be highly reliable
and easily maintained. The Company intends to use a portion of the net proceeds
of the Offering to complete the initial production of the EVS-50 and to provide
technical support for its initial deployment. There can be no assurance that the
Company will complete development or manufacture of such systems or begin
installation of such systems on its current time schedule. See "Risk
Factors -- Development of New Products; Industry Acceptance," "Use of Proceeds"
and "Business -- Product Research and Development."
To date, the Company has not generated substantial revenues from the sale
of its products and services. Historically, a significant portion of the
Company's revenues have been derived from fees for consulting services. During
1996 and 1995, consulting services accounted for 44.2% and 42.2% of the
Company's revenues, respectively. 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
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. However, as a result of product
testing and technology demonstrations conducted by the Company, the Company has
received and 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
22
<PAGE> 25
Operating Results," "-- Limited Operating History; Dependence on Market for New
Products," and "Business -- Strategy."
To date, the Company has incurred substantial losses from operations, had a
working capital deficit of $1,329,786 at December 31, 1996, and an accumulated
deficit of $5,164,910 through December 31, 1996. As a result, the Financial
Statements of the Company are qualified by a going concern opinion. The Company
believes that the net proceeds from the Offering will be sufficient to permit
the Company to continue as a going concern. See Note 1 of Notes to Financial
Statements.
The Company 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" and "Risk Factors -- 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 is currently in discussions with several engineers from an engineering
concern regarding hiring such engineers. There can be no assurance, however,
that the Company will hire such engineering employees or that such employees
would accept an offer of employment from the Company, if such an offer is made.
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. Of the Company's revenues in 1996 and 1995, 55.8% and
57.8%, respectively, were derived from sales of VidPhone(R) remote terminals,
which are VidPhone(R) units with ISDN capabilities. The remainder of the
Company's revenues in both periods were derived 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
23
<PAGE> 26
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
for 1996 increased by $227,987, or 28.0%, to $1,041,840, from $813,853 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 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 increased by $391,138 to
$404,290 from $13,152 in 1995. The increase in interest expense is primarily due
to warrant issuance costs, $321,789 of 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 $648,320, or 31.7%, to $2,694,436 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. Of the Company's revenues in 1995, 57.8% were derived
from sales of VidPhone(R) remote terminals, which are VidPhone(R) units with
ISDN capabilities that are used for testing purposes, and the remainder were
derived 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
24
<PAGE> 27
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 $432,815, or 113.6%, for 1995 to $813,853, 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, from $3,762 in 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) Expense. The Company recorded interest income of $3,485
in 1994 related to interest earned on a note receivable from an investor. The
Company recorded interest expense of $13,152 in 1995.
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 $5,151,915, 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 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. Cash
from operations from the inception of the Company through December 31, 1996,
totaled $450,220, funding approximately 10% of the Company's cash requirements
during the period. 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." 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.
In October and November of 1996, the Company issued $2,000,000 aggregate
principal amount of Bridge Notes. Of the approximately $1,735,000 in net
proceeds from the sale of the Bridge Notes, the Company used an estimated
$990,000 for continued product development, an estimated $375,000 to pay general
and administrative expenses, an estimated $208,000 to purchase capital assets
used in product development and an estimated $162,000 for marketing and sales.
The Company intends to use a portion of the net proceeds from
25
<PAGE> 28
the Offering to repay in full the outstanding Bridge Notes. In December of 1996
and January of 1997, the Company issued 500,000 shares of Series A Preferred
Stock and 100,000 Series A Warrants for aggregate gross proceeds to the Company
of $2,000,000. Of the approximately $1,790,000 in net proceeds from the sale of
the Series A Preferred Stock and the Series A Warrants, the Company has used an
estimated $619,000 for continued product development, an estimated $372,000 to
pay general and administrative expenses, an estimated $204,000 to purchase
capital assets used in product development and an estimated $157,000 for
marketing and sales. The Company intends to use the remaining $438,000 in
estimated net proceeds for continued product development, general and
administrative expenses, to purchase capital assets and for sales and marketing,
in approximately the same proportion as set forth above. The 500,000 outstanding
shares of Series A Preferred Stock will automatically convert to 500,000 shares
of Common Stock at the time of the closing of the Offering. See Notes 5 and 6 of
Notes to Financial Statements.
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.
26
<PAGE> 29
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, at no cost to the user, test marketing VidPhone(R)
equipment in the facilities of one of the three largest PBX manufacturers, two
of the five largest LEXCs, one of the four largest RBOCs and at one end-user
customer location. See "-- The Objective Communications Solution -- VidPhone(R)
System" and "-- Products and Technology." 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. The Company's products target, in particular, the
video conferencing market. 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
27
<PAGE> 30
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 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
6,200,000 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 on 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.
28
<PAGE> 31
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. According to a November 1994 article in
Communications Week, some companies, such as Citicorp, are installing their own
fiber optic lines to connect their various offices directly. 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.
29
<PAGE> 32
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 a desktop computer (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."
30
<PAGE> 33
Figure 1 below demonstrates how the VidPhone(R) may be used in conjunction
with a customer's existing communications system.
[TYPICAL VIDPHONE SYSTEM CONFIGURATION GRAPHIC]
Software Applications. The Company has developed several software
applications for use with the VidPhone(R).
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.
31
<PAGE> 34
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) system 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 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 VidPhone(R)
system is comprised of four components. First is the VidPhone(R) terminal, which
is a user's desktop configured to provide 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, which
provides communications with remote locations. 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.
32
<PAGE> 35
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, speakers and a 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 T1 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 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,
33
<PAGE> 36
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 for use by the U.S. Navy 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, at no cost to the user, test marketing
VidPhone(R) terminals at one of the three largest PBX vendors, at two of the
five largest LEXCs, at one of the four largest RBOCs and at one end-user
customer location.
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, six EVS-10 products have been
installed. Others are in production and are scheduled for installation early in
the second 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).
34
<PAGE> 37
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. The Company also has received notification from the U.S. Patent
and Trademark Office that the issue date for the patent will be April 15, 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.
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 EVS component of the Company's VidPhone(R) system and the
VidModem(TM) are required to comply with certain regulations promulgated by the
FCC under Parts 2, 15 and 68 of the FCC's regulations, which relate to
35
<PAGE> 38
radio frequency devices and to terminal equipment that is connected to the
public, switched telephone network. Pursuant to Part 15 of the FCC's
regulations, the Company has determined that the VidModem(TM) is an
unintentional radiator that constitutes a Class A digital device that may be
operated without an individual license. Under Parts 2 and 15 of the FCC's
regulations, the Company will be required to follow a verification procedure
consisting of a self-certification by the Company that the radio frequency
device complies with applicable Part 15. The Company has already had the
VidModem(TM) formally tested by a qualified, independent testing facility, and
such equipment was found to comply with such regulatory requirements. Under Part
2 of the FCC's regulations, the Company has the option of ensuring compliance
with the applicable technical specifications at the location of a business
end-user after installation. Pursuant to Part 68 of the FCC's regulations, the
Company will need to obtain equipment registration from the FCC for certain
VidPhone(R) system components that are connected to the PSTN. The majority of
the Company's products will not involve connection to the PSTN. For those
applications requiring connection to the PSTN, the Company will be required to
register the EVS as terminal equipment under Part 68 of the FCC's regulations.
To date, the Company has not filed an application under Part 68 for equipment
registration. The Company has designed its initial line of products to conform
to all applicable guidelines and regulations. The Company believes that such
equipment will be found to be compliant with Parts 2, 15 and 68 of the FCC
regulations and does not believe that such approval requirements will materially
delay the manufacture or marketing of the VidPhone(R) system. However, there can
be no assurance that the Company's products will actually meet such
requirements, or 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 as currently contemplated.
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 April 1997 for 8,500 square feet of space for a monthly payment of
approximately $17,000. In 1997, the Company 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 were
full-time and two were 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.
In addition, the Company is currently in discussions with several engineers
from an engineering concern regarding hiring such engineers. There can be no
assurance, however, that the Company will hire such engineering employees or
that such employees would accept an offer of employment from the Company, if
such an offer is made.
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.
36
<PAGE> 39
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 (ISDN). 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."
CODEC. A coder-decoder transforms and compresses analog video and audio
signals into digital form.
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.
UTP. Unshielded twisted pair.
Wide Area Network ("WAN"). A network that extends beyond the distance that
can be accommodated by local cabling methods.
37
<PAGE> 40
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)(2).............. 65 Chairman of the Board of Directors
Mr. Anthony M. Agnello(3)................... 47 Director
Mr. Robert L. Barnett(3).................... 56 Director
Mr. Donald W. Barrett(4).................... 50 Director
Dr. Eugene R. Cacciamani (1)(3)............. 60 Director
Lt. Gen. Lincoln D. Faurer, USAF
(Ret.)(4)................................. 69 Director
Mr. Richard T. Liebhaber (1)(4)............. 61 Director
Mr. Roy C. Nash(2).......................... 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....................... 41 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
38
<PAGE> 41
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 and
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. Lt.
Gen. Faurer has served as President of LDF, Inc., a company providing consulting
services on intelligence and security matters, since 1991. From 1986 to 1991, he
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.
39
<PAGE> 42
FRANK M. GORE has served as Vice President, Sales since July 1994. From January
1990 to June 1994, he served as Director of Marketing 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 Company, now a division of GTE
Corporation. He received a B.S. and B.A. in Management, Economics and Political
Science 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
engineering 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."
40
<PAGE> 43
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 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 holders of 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 two (2) 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
41
<PAGE> 44
Company policies, including those related to accounting and internal control
matters. Messrs. Kendall and Nash 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 and approving executive
compensation policies, practices, salary levels and bonus programs and for
administering the Company's 1996 Plan. Messrs. Agnello, Barnett and Cacciamani
currently serve as members of the Compensation Committee.
The Board of Directors also has appointed a Preferred Stock Committee, on
which Messrs. Barrett, Faurer, Liebhaber and Rogers 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.
42
<PAGE> 45
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."
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.
43
<PAGE> 46
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 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 or consultant from disclosing any
confidential, proprietary information of the Company and a non-compete agreement
with the Company pursuant to which such employee or consultant 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 March 13, 1997 and is for an initial term of
one year with automatic one year renewals, unless 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.
44
<PAGE> 47
CERTAIN TRANSACTIONS
FOUNDER'S TRANSACTIONS
In October 1993, the Company issued 500 shares of Common Stock to Steven A.
Rogers, President and Chief Executive Officer of the Company, in exchange for
services rendered in connection with the formation of the Company and an initial
capital contribution of $1,000. In June 1994, the Company issued a stock
dividend of 1,299,500 shares of Common Stock to Mr. Rogers, who was then the
Company's sole stockholder. 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, 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.
As an inducement to extend the loan to the Company, the Company also issued to
such investor warrants to acquire 10,000 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.
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
45
<PAGE> 48
$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
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. As
an inducement to extend the loans to the Company, the Company also issued to Mr.
Rogers warrants to acquire an aggregate of 16,666 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. The Company
intends to use a portion of the net proceeds of the Offering to repay the loans
outstanding to Mr. Rogers 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
46
<PAGE> 49
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 $4.00 per share. The purpose of the warrant
exchange was to induce such investors to enter into lock-up arrangements with
the Underwriter and into agreements consolidating such investors' registration
rights with those granted by the Company to other investors, and 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 period. 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 Agreements," and "Underwriting." In addition, in the
original offering, certain investors purchased shares of Common Stock from Mr.
Steven A. Rogers at a purchase price of $2.00 per share at a time during which
other investors were purchasing shares of Common Stock from the Company at $6.00
per share. As part of the warrant exchange, such investors also were required to
pay Mr. Rogers $2.00 per share of Common Stock purchased from him in the
original offering, so as to cause such transactions to be consummated upon terms
and conditions more closely reflecting market conditions. Mr. Rogers received an
aggregate of $350,166 in connection with the warrant exchange. 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 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.
47
<PAGE> 50
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of Common Stock of the Company as of the date of this Prospectus, 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
(1) AFTER THE OFFERING (1)
----------------------- -----------------------
NAME OF BENEFICIAL OWNER NUMBER PERCENT NUMBER PERCENT
- ---------------------------------------------- --------- ------- --------- -------
<S> <C> <C> <C> <C>
Steven A. Rogers (2).......................... 1,006,582 39.0% 1,006,582 23.0%
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)........................ 460,661 16.9 460,661 10.2
Applewood Associates, L.P. (11)............... 425,000 15.5 425,000 9.4
Acorn Technology Partners, L.P. (12).......... 300,000 11.5 300,000 6.8
All directors and executive officers as a
group (14 persons) (13)..................... 1,775,576 60.5% 1,775,576 37.5%
</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 Lt. Gen. 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.
48
<PAGE> 51
(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) 258,041 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
Preferred Stock currently 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, a New York limited partnership, 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, 50,000 shares of Common Stock that may
be acquired by Applewood upon the exercise of currently exercisable Series
A Warrants and 125,000 shares of Common Stock that may be acquired by
Applewood upon the exercise of other currently exercisable warrants.
Applewood is beneficially owned by its three general partners, Barry
Rubenstein, Barry Fingerhut and Irwin Lieber, and by a number of limited
partners.
(12) The address of Acorn, a limited partnership organized under the laws of the
State of New Jersey, 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 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
beneficially owned by Princeton Growth Investments I, L.L.C. ("PGI"), the
general partner of Acorn, and The United Bank of Kuwait, PLC, the sole
limited partner. PGI is a limited liability company organized under the
laws of the State of New Jersey.
(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.
49
<PAGE> 52
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, and the Company has approximately 53 holders of
record of Common 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 995,382 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 (at 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 43,675 shares of Common Stock at an
exercise price of $6.88 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
50
<PAGE> 53
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 originally issued to the Adelson
Investment Company a warrant (the "Adelson Warrant") to purchase 33,750 shares
of Common Stock at an exercise price of $8.90 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. As a result of such adjustments, the Adelson Warrant
currently entitles the holder to purchase 43,675 shares of Common Stock at an
exercise price of $6.88 per share. 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 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
51
<PAGE> 54
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 December 2001. The shares of Common
Stock underlying the Bridge Warrants are being registered in the Offering, and
are subject to a 24 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 12 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.
52
<PAGE> 55
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 provides 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.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers or persons controlling the Company
pursuant to the foregoing provisions, the Company has been informed that in the
opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Securities Act and is therefore
unenforceable.
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, 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 Common Stock has been approved for quotation on the Nasdaq SmallCap
Market, subject to notice of issuance, under the symbol OCOM.
53
<PAGE> 56
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 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 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." Concurrently with the Offering and subject to
certain lock-up arrangements described below, certain Selling Stockholders may
offer and sell from time to time up to 1,280,000 shares of Common Stock on the
Nasdaq SmallCap Market in negotiated transactions or otherwise. No underwriting
arrangements have been entered into by the Selling Stockholders.
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 on a shelf registration 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.
Concurrent sales of securities by both the Company and the Selling Stockholders
would likely have an adverse effect on the market price of the Common Stock.
The remaining 2,061,844 shares of Common Stock are, and the 395,382 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, as of April
29, 1997, 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 one-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 two-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
54
<PAGE> 57
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
"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 43,675 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 395,382 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 43,675 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 989,916 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 exceptions 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 as of the
effective date of the Registration Statement, have agreed not to offer, issue,
sell, contract to
55
<PAGE> 58
sell, grant any option for the sale of or otherwise dispose of any securities of
the Company for a period of 24 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 the Company
for a period of 12 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. The remaining stockholders of the Company,
who hold an aggregate of 71,250 shares of Common Stock and warrants to purchase
43,675 shares of Common Stock, have agreed with the Underwriter not to offer,
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 six months from the
date of closing of the Offering, without the prior written consent of the
Underwriter. The Underwriter has no current or future plans, proposals,
arrangements or understandings to modify, shorten or waive the lock-up
arrangements. The Company will file a post-effective amendment to the
registration statement of which this Prospectus constitutes a part, in the event
that the Underwriter waives the lock-up agreements with respect to 10% or more
of the shares held by existing stockholders of the Company, or will revise the
Prospectus if the lock-up is waived with respect to 5% to 10% of the shares held
by existing stockholders of the Company. The Underwriter has entered into an
agreement with the Nasdaq Stock Market, Inc. pursuant to which the Underwriter
has agreed that it will not release any warrantholder who received warrants
between October and January 1996, from such lock-up agreements for a period of
six months from the effective date of this Prospectus.
56
<PAGE> 59
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 165% 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 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."
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
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.
57
<PAGE> 60
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 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 certain
specified periods from the date of closing of the Offering, without the prior
written consent of the Underwriter, subject to certain limited exceptions. In
addition, the Underwriter has entered into an agreement with the Nasdaq Stock
Market, Inc. pursuant to which the Underwriter has agreed that it will not
release any warrantholder who received warrants between October and January
1996, from such lock-up agreements for a period of six months from the effective
date of this Prospectus. See "Shares Eligible for Future Sale -- Lock-up
Arrangements."
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 has been determined by arms-length
negotiation between the Company and the Underwriter and does not necessarily
bear any relationship to the Company's book value, assets, past operating
results, financial condition, or other established criteria of value. Factors
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.
58
<PAGE> 61
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.
59
<PAGE> 62
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> 63
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 1 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> 64
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 $ 1,714,000 $ 1,714,000
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 2,582,357 2,582,357
Obligation under capital lease........................ -- 25,610 25,610
----------- ----------- -----------
Total liabilities........................... 1,229,713 2,607,967 2,607,967
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 4,030,531
Deficit accumulated during development stage..... (2,470,474) (5,164,910) (5,825,978)
----------- ----------- -----------
Total stockholders' deficit................. (895,229) (1,774,829) (1,774,829)
----------- ----------- -----------
$ 334,484 $ 1,681,578 $ 2,611,578
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE> 65
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......... 381,038 813,853 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 2,257,642 2,371,521 5,246,770
--------- ----------- ----------- ---------------
Loss from operations.................... (410,327) (2,032,964) (2,290,146) (4,751,110)
Interest (income) expense, net.......... (3,485) 13,152 404,290 400,805
--------- ----------- ----------- ---------------
Net loss................................ $(406,842) $(2,046,116) $(2,694,436) $(5,151,915)
========= ========== ========== =============
Net loss per common share............... $ (0.15) $ (0.57) $ (0.72) $ (1.37)
========= ========== ========== =============
Weighted average common shares and
common share equivalents
outstanding........................... 2,664,116 3,611,659 3,757,634 3,757,634
========= ========== ========== =============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE> 66
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............................ -- -- -- (2,694,436) (2,694,436)
--------- ------- ---------- ----------- -----------
Balance, December 31, 1996.......... 1,896,577 18,966 3,371,115 (5,164,910) (1,774,829)
Pro forma issuance of common stock
pursuant to warrant exchange
agreement (unaudited) (see Note
6)................................ 165,267 1,652 659,416 (661,068) --
--------- ------- ---------- ----------- -----------
Pro forma balance, December 31, 1996
(unaudited)....................... 2,061,844 $20,618 $4,030,531 $ (5,825,978) $(1,774,829)
========= ======= ========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE> 67
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) $(2,694,436) $ (5,151,915)
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................................ -- -- 321,789 321,789
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> 68
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> 69
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> 70
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> 71
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> 72
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 6).
In November 1995, the Company received a letter of intent from a potential
investor pursuant to which the potential investor agreed to pay $250,000 to the
Company as an initial installment of a larger investment which would be
finalized in early 1996. The letter of intent provided that in the event that a
final agreement was not reached within a specified period of time, the letter of
intent could be canceled by the Company or the potential investor and the
$250,000 investment would be converted to a note payable, with interest accruing
at 6% per annum, payable 90 days from the date of such cancellation. The letter
of intent was canceled by the investor in June 1996, and the Company repaid the
$250,000 note, together with $5,548 in accrued interest, from the proceeds of an
August 1996 loan (see below). Due to the uncertainty of the terms of the
expected investment, the Company classified the $250,000 paid by such potential
investor as a note payable as of December 31, 1995.
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 42,755 at an exercise price of
$7.03.
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
collateralized by substantially all of the assets of the Company. 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 8, 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. Based on an analysis utilizing the
Black-Scholes option-pricing model giving consideration to the features of the
warrants and the external economic environment provided by an independent
valuation firm, the Company estimated that the fair value of the warrants issued
in connection with these debt financings was approximately $782,000. This
aggregate amount has been recorded as a discount against the related notes
payable and an increase to additional paid-in-capital. The discount against the
related notes payable is being amortized to interest expense over the terms of
the related notes. As of December 31, 1996, approximately $196,000 had been
amortized to interest expense.
F-11
<PAGE> 73
OBJECTIVE COMMUNICATIONS, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
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.
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 111,667 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. In connection with this transaction,
holders of the converted notes were also issued an aggregate of warrants to
purchase 85,666 shares of common stock at an exercise price of $8.00 per share.
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 in consideration of
the services performed to assist the Company in obtaining equity financing.
Additionally, the Company issued to certain lenders as an inducement to make
loans to the Company, warrants to purchase 16,666 shares of common stock at
$8.00 per share.
F-12
<PAGE> 74
OBJECTIVE COMMUNICATIONS, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
6. CAPITAL STOCK TRANSACTIONS -- (CONTINUED)
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
42,755 7.03
50,000 4.00
550,000 3.30
---------
1,159,729
=========
</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.
The estimated fair value of such warrants was based on an analysis performed by
an independent valuation firm using a Black-Scholes option-pricing model giving
considerations to the features of the warrants and the external economic
environment.
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>
F-13
<PAGE> 75
OBJECTIVE COMMUNICATIONS, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
6. CAPITAL STOCK TRANSACTIONS -- (CONTINUED)
All stock options granted by the Company from its inception through
December 31, 1996 were granted with an exercise price per share equal to the
fair value per share of the Company's Common Stock on the date of grant. In
December of 1996, the Company repriced the exercise price of all options
previously granted to $4.00 per share, to reflect an exercise price consistent
with the price per share paid by outside investors of the Series A Preferred
Stock issued in December of 1996 and January of 1997 (see Note 7). 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) $(2,694,436)
Pro forma..................................... $(2,046,116) $(2,895,916)
</TABLE>
<TABLE>
<CAPTION>
1995 1996
------ ------
<S> <C> <C>
Net loss per common share
As reported............................................ $(0.57) $(0.72)
Pro forma.............................................. $(0.57) $(0.77)
</TABLE>
The fair value of each option granted in 1995 and 1996 was 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% 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 warrant exchange was to induce such investors to enter into
lock-up arrangements with the Underwriter and into agreements consolidating such
investors' registration rights with those granted by the Company to other
investors, and 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. In addition, in the
original offering, certain investors purchased shares of Common Stock from Mr.
Steven A. Rogers at a purchase price of $2.00 per share at a time during which
other investors were purchasing shares of Common Stock from the Company at $6.00
per share. As part of the warrant exchange, such investors also were required to
pay Mr. Rogers $2.00 per share of Common Stock purchased
F-14
<PAGE> 76
OBJECTIVE COMMUNICATIONS, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
6. CAPITAL STOCK TRANSACTIONS -- (CONTINUED)
from him in the original offering, so as to cause such transactions to be
consummated upon terms and conditions more closely reflecting market conditions.
Mr. Rogers received an aggregate of $350,166 as compensation in the warrant
exchange transaction. 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
43,675 6.88
500,000 3.30
15,000 8.00
-------
995,382
=======
</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 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.
F-15
<PAGE> 77
OBJECTIVE COMMUNICATIONS, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
7. PREFERRED STOCK -- (CONTINUED)
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-16
<PAGE> 78
[This page intentionally left blank.]
<PAGE> 79
================================================================================
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
OF 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............................... 27
Management............................. 38
Certain Transactions................... 45
Principal Stockholders................. 48
Description of Securities.............. 50
Shares Eligible for Future Sale........ 54
Underwriting........................... 57
Legal Matters.......................... 58
Experts................................ 58
Available Information.................. 59
Index to Financial Statements.......... F-1
</TABLE>
------------------
UNTIL APRIL , 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.
March , 1997
================================================================================
<PAGE> 80
PROSPECTUS
OBJECTIVE COMMUNICATIONS, INC.
1,280,000 SHARES
COMMON STOCK
------------------
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 Company."
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 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 Securities 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 8 OF THIS PROSPECTUS 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 March , 1997
Alt-1
<PAGE> 81
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."
Nasdaq SmallCap Market Trading
Symbol (4).................... OCOM
- ---------------
(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) 495,382 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) 495,382 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 option granted to the Underwriter 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 Common Stock has been approved for quotation on the Nasdaq
SmallCap Market, subject to notice of issuance. There can be no assurance,
however, that such quotation will be maintained. See "Risk
Factors -- Absence of Public Market; Negotiated Offering Price."
Alt-2
<PAGE> 82
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 "Risk Factors -- Shares Eligible for Future Sale,"
"Selling Stockholders -- Lock-up Arrangements" and "Description of Securities."
Alt-3
<PAGE> 83
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(1) NUMBER OF AFTER OFFERING
--------------------- SHARES -----------------------
NAME AND ADDRESS OF BENEFICIAL OWNER SHARES PERCENTAGE BEING SOLD SHARES PERCENTAGE
- ------------------------------------------- ------- ---------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C>
Acorn Technology Partners, L.P. (2)........ 300,000 11.7%
c/o Codan Services, Ltd.
Clarendon House
21 Church Street
Hamilton HMII, Bermuda
Mr. Leonard Adams (3)...................... 6,250 *
5030 Champion Boulevard
Boca Raton, FL 33496
Mr. Louis Alimena (3)...................... 6,250 *
58 St. George Place
Palm Beach Gardens, FL 33418
Mr. Paul Alter (3)......................... 6,250 *
111 Park Avenue
New York, NY 10128
Applewood Associates, L.P. (4)............. 425,000 16.6
c/o Barry Rubenstein
68 Wheatley Road
Brookville, NY 11545
Mr. David Babiarz (3)...................... 6,250 *
1665 East Birchwood
Des Plaines, IL 60018
Barington Capital Group, L.P. (3).......... 180,000 7.0
888 Seventh Avenue
New York, NY 10019
Mr. Marvin Barish (3)...................... 12,500 *
5227 Dumfries
Houston, TX 77096-5104
Baron Associates (3)....................... 6,250 *
341 E. 149 Street
Bronx, NY 10451
Mr. Gerald Benjamin (3).................... 6,250 *
650 Widgeon Lane
Atlanta, GA 30327
Mr. John Bykowsky (3)...................... 6,250 *
302 West 79th Street
New York, NY 10024
Mr. Vittorio Capotorto (3)................. 12,500 *
2 Renee Court
Woodcliff Lake, NJ 07675
</TABLE>
Alt-4
<PAGE> 84
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP BENEFICIAL OWNERSHIP
PRIOR TO OFFERING(1) NUMBER OF AFTER OFFERING
--------------------- SHARES -----------------------
NAME AND ADDRESS OF BENEFICIAL OWNER SHARES PERCENTAGE BEING SOLD SHARES PERCENTAGE
- ------------------------------------------- ------- ---------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C>
Mr. Dennis Drebsky (3)..................... 6,250 *
7 Glen Hill Ct.
Dix Hills, NY 11746
E&M RP Trust (3)........................... 25,000 *
655 Brea Canyon Road
Walnut, CA 91789
Edmund & Mary Shea Family Foundation (3)... 25,000 *
655 Brea Canyon Road
Walnut, CA 91789
Mr. Harry Friedman (3)..................... 12,500 *
19667 Turnberry Way
Aventura, FL 33180
Ms. Sara Hauser (3)........................ 6,250 *
25 W. 64th Street
Apartment 2D
New York, NY 10023-6719
Arthur Steinberg IRA R/O (3)............... 6,250 *
381 Park Avenue S.
Suite 5A
New York, NY 10015
Robert Jacobs IRA R/O (3).................. 6,250 *
40 Fifth Avenue
#5B
New York, NY 10011
Robert Steinberg IRA R/O (3)............... 6,250 *
145 E. 27 Street
New York, NY 10016
KGB Partners (3)........................... 6,250 *
c/o Barington Capital Group, L.P.
888 Seventh Avenue
New York, NY 10019
Mr. David Kohane (3)....................... 6,250 *
333 W. 86th Street
Apartment 902B
New York, NY 10024
Lyonshare Venture Capital (3).............. 25,000 *
P.O. Box 247
2521 Vestal Parkway E.
Vestal, NY 13851
Mr. William Maines (3)..................... 25,000 *
14 Terrace Drive
P.O. Box
Conklin, NY 13748
Mr. David Mitchell (3)..................... 12,500 *
c/o Mitchell & Co.
850 Third Avenue
New York, NY 10022
</TABLE>
Alt-5
<PAGE> 85
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP BENEFICIAL OWNERSHIP
PRIOR TO OFFERING(1) NUMBER OF AFTER OFFERING
--------------------- SHARES -----------------------
NAME AND ADDRESS OF BENEFICIAL OWNER SHARES PERCENTAGE BEING SOLD SHARES PERCENTAGE
- ------------------------------------------- ------- ---------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C>
Mr. Samuel Musnikow (3).................... 6,250 *
69-51 181 Street
Flushing, NY 11365
Mr. Dennis Mykytyn (3)..................... 6,250 *
22 Petersville Rd.
Mt. Kisco, NY 10549
Mr. Steven Ostner (3)...................... 12,500 *
420 West End Avenue
New York, NY 10024
Mr. Bruce H. Paul (3)...................... 6,250 *
1 Hampton Road
Purchase, NY 10577
Mr. Jerald Politzer (3).................... 12,500 *
2 Mayfair Circle
Purchase, NY 10577
Ms. Linda Saker (3)........................ 6,250 *
6860 Gulfport Boulevard S.
St. Petersburg, FL 33701
Mr. Paul Salsgiver (3)..................... 12,500 *
673 Varese Ct.
Pleasenton, CA 94566
Mr. Stewart A. Shiman (3).................. 12,500 *
c/o A/D/F
95 Revere Drive, Suite A
Northbrook, IL 60062
Siam Partners II (3)....................... 12,500 *
655 Brea Canyon Road
Walnut, CA 91789
Mr. Floyd Smith (3)........................ 6,250 *
191 Carlough Place
Mahwah, NJ 07430
C.M. Solomon (3)........................... 6,250 *
310 Vickamar Place
Roxboro, NC 27573
Mr. Gershon Stern (3)...................... 6,250 *
1171 E. Landis Avenue
Vineland, NJ 08360
Mr. Sy Stewart (3)......................... 6,250 *
5 Meadow Lane
Manhasset, NY 11030
Tahoe Partnership I (3).................... 12,500 *
655 Brea Canyon Road
Walnut, CA 91788
</TABLE>
Alt-6
<PAGE> 86
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP BENEFICIAL OWNERSHIP
PRIOR TO OFFERING(1) NUMBER OF AFTER OFFERING
--------------------- SHARES -----------------------
NAME AND ADDRESS OF BENEFICIAL OWNER SHARES PERCENTAGE BEING SOLD SHARES PERCENTAGE
- ------------------------------------------- ------- ---------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C>
Mr. Jack Threadgill (3).................... 6,250 *
1602 Brook Hollow Drive
Bryan, TX 77802
Mr. Steven Yavers (3)...................... 6,250 *
215 East 68th Street
New York, NY 10021
</TABLE>
- ---------------
* Denotes less than 1%.
(1) Percentage ownership before the Offering is based on 2,561,844 shares of
Common Stock outstanding immediately prior to the Company Offering,
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 the purposes of computing the
percentage ownership of such beneficial owner.
(2) Consists of 250,000 shares of Common Stock issuable upon conversion of the
Series A 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.
(3) Consists of shares of Common Stock issuable upon the exercise of currently
exercisable warrants.
(4) Consists of 250,000 shares of Common Stock issuable upon conversion of the
Series A Preferred Stock owned by Applewood, 50,000 shares of Common Stock
that may be acquired by Applewood upon exercise of currently exercisable
Series A Warrants and 125,000 shares of Common Stock that may be acquired by
Applewood upon the exercise of currently exercisable warrants.
LOCK-UP ARRANGEMENTS
Subject to the limited exceptions described below, and pursuant to the
Underwriting Agreement, each of the Selling Stockholders 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. The remaining stockholders of the Company,
who hold an aggregate of 71,250 shares of Common Stock and warrants to purchase
43,675 shares of Common Stock, have agreed with the Underwriter not to offer,
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 six months from the
date of closing of the Offering, without the prior written consent of the
Underwriter. The Underwriter has no current or future plans, proposals,
arrangements or understandings to modify, shorten or waive the lock-up
agreements. The Company will file a post-effective amendment to the registration
statement of which this Prospectus constitutes a part, in the event that the
Underwriter waives the lock-up agreements with respect to 10% or more of the
shares held by existing stockholders of the Company, or will revise the
Prospectus if the lock-up is waived with respect to 5% to 10% of the shares held
by existing stockholders of the Company. The Underwriter has entered into an
agreement with the Nasdaq Stock Market, Inc. pursuant to which the Underwriter
has agreed that it will not release any warrantholder who received warrants
between October and January 1996, from such lock-up
Alt-7
<PAGE> 87
agreements for a period of six months from the effective date of this
Prospectus. 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 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.
The Selling Stockholders and intermediaries through whom the Shares are
sold may be deemed "underwriters" within the meaning of the Securities 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-8
<PAGE> 88
================================================================================
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
OF 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............................... 27
Management............................. 38
Certain Transactions................... 45
Concurrent Sales by Company............
Selling Stockholders...................
Description of Securities.............. 50
Shares Eligible for Future Sale........ 54
Legal Matters.......................... 58
Experts................................ 58
Available Information.................. 59
Index to Financial Statements.......... F-1
</TABLE>
------------------
UNTIL APRIL , 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
------------------------
March , 1997
================================================================================
Alt-9
<PAGE> 89
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") of the
Registrant provides 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 provides 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, 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
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..................................................... 63,040
--------
TOTAL................................................... $545,000
========
</TABLE>
II-1
<PAGE> 90
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> 91
(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
43,675(3) $ 6.88
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 October 1993, the Registrant issued 500 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. In June 1994, the Company issued
a stock dividend of 1,299,500 shares of Common Stock to Mr. Rogers, who was then
the Company's sole stockholder.
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. The sale and issuance of such securities by the Company were effected in
reliance upon the exemption from registration afforded by Section 4(2) of the
Securities Act and Regulation D and Rule 506 promulgated thereunder. 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. As part of such aggregate issuance, 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 $322,166 in outstanding notes payable (and
accrued and unpaid interest thereon) into 53,694 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
II-3
<PAGE> 92
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.
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 to
accredited investors 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. The sale and issuance of such securities by the
Company were effected in reliance upon the exemption from registration afforded
by Section 4(2) of the Securities Act and Regulation D and Rule 506 promulgated
thereunder. 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 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 to two accredited investors. The sale and issuance of
such securities by the Company were effected in reliance upon the exemption from
registration afforded by Section 4(2) of the Securities Act and Regulation D and
Rule 506 promulgated thereunder.
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,
an accredited investor, 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 $6.88 per share for 43,675 shares of Common Stock. The warrant is exercisable
in whole or in part and expires on August 31, 2001. The sale and issuance of
such securities by the Company were effected in reliance upon the exemption from
registration afforded by Section 4(2) of the Securities Act and Regulation D and
Rule 506 promulgated thereunder.
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 sale and issuance of such securities by the Company were effected
in reliance upon the exemption from registration afforded by Section 3(a)(9) of
the Securities Act.
II-4
<PAGE> 93
ITEM 27. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
<TABLE>
<CAPTION>
EXHIBITS
- --------
<S> <C>
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 the Registrant, 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.
10.5 Letter Agreement, dated October 7, 1996, between Barington Capital Group and the
Registrant
10.6 Letter Agreement, dated December 5, 1995, by and among PVR Securities, Inc., the
Registrant, Steven A. Rogers and John B. Torkelsen
10.7 Voting Agreement, dated December 19, 1996, by and among the Registrant, Steven A.
Rogers, Applewood Associates, L.P. and Acorn Technology Partners, 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, L.L.P.
24* Power of Attorney (included on signature page to the Registration Statement)
27.1* Financial Data Schedule
</TABLE>
- ---------------
* Previously filed.
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;
(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
II-5
<PAGE> 94
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
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, 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 by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(b) 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.
(c) Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
(d) The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities
Act, the information omitted from the form of prospectus filed as part of
this registration statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be 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, 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> 95
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, 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 March 13, 1997.
OBJECTIVE COMMUNICATIONS, INC.
(Registrant)
By: /s/ Steven A. Rogers
------------------------------------
STEVEN A. ROGERS
PRESIDENT AND CHIEF EXECUTIVE
OFFICER
II-7
<PAGE> 96
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 March 13, 1997
- --------------------------------------------- Executive Officer, and
STEVEN A. ROGERS Director (Principal
Executive Officer)
/s/ Robert H. Emery Vice President of March 13, 1997
- --------------------------------------------- Administration and Finance
ROBERT H. EMERY (Principal Financial and
Accounting Officer)
/s/ Clifford M. Kendall* Chairman of the Board of March 13, 1997
- --------------------------------------------- Directors
CLIFFORD M. KENDALL
/s/ Anthony M. Agnello* Director March 13, 1997
- ---------------------------------------------
ANTHONY M. AGNELLO
/s/ Robert L. Barnett* Director March 13, 1997
- ---------------------------------------------
ROBERT L. BARNETT
/s/ Donald W. Barrett* Director March 13, 1997
- ---------------------------------------------
DONALD W. BARRETT
/s/ Eugene R. Cacciamani* Director March 13, 1997
- ---------------------------------------------
EUGENE R. CACCIAMANI
/s/ Lincoln D. Faurer* Director March 13, 1997
- ---------------------------------------------
LINCOLN D. FAURER
/s/ Richard T. Liebhaber* Director March 13, 1997
- ---------------------------------------------
RICHARD T. LIEBHABER
/s/ Roy C. Nash* Director March 13, 1997
- ---------------------------------------------
ROY C. NASH
/s/ John B. Torkelsen* Director March 13, 1997
- ---------------------------------------------
JOHN B. TORKELSEN
*By: /s/ Robert H. Emery
- ---------------------------------------------
ROBERT H. EMERY
ATTORNEY-IN-FACT
</TABLE>
II-8
<PAGE> 97
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- ---------------------------------------------------------------------------------
<S> <C>
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 the Registrant, 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.
10.5 Letter Agreement, dated October 7, 1996, between Barington Capital Group and the
Registrant
10.6 Letter Agreement, dated December 5, 1995, by and among PVR Securities, Inc., the
Registrant, Steven A. Rogers and John B. Torkelsen
10.7 Voting Agreement, dated December 19, 1996, by and among the Registrant, Steven A.
Rogers, Applewood Associates, L.P. and Acorn Technology Partners, 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>
- ---------------
* Previously filed.
<PAGE> 1
AMENDED AND RESTATED BYLAWS
OF
OBJECTIVE COMMUNICATIONS, INC.
(EFFECTIVE FEBRUARY 18, 1997)
ARTICLE I
OFFICES
Section 1. Registered Office. The registered office of the
Corporation shall be at 1209 Orange Street, Wilmington, Delaware 19801, County
of New Castle. The registered agent of the Corporation at such address is
Corporation Trust Company.
Section 2. Other Offices. The Corporation may also have offices at
such other places both within and without the State of Delaware as the board of
directors may from time to time determine or the business of the Corporation
may require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
Section 1. Place of Meetings. All meetings of the stockholders shall
be held at such places either within or without the State of Delaware as shall
be designated from time to time by the board of directors and stated in the
notice of the meeting or in a duly executed waiver of notice thereof.
Section 2. Annual Meetings. The annual meeting of stockholders for
the election of directors and the transaction of other business shall be held,
in each year, commencing with the year 1996, at such date and time as shall be
designated from time to time by the board of directors and stated in the notice
of the meeting.
Section 3. Notice of Annual Meetings. Written notice of the annual
meeting stating the place, date and hour of the meeting shall be given to each
stockholder entitled to vote at such meeting, either personally or by mail, not
less than ten nor more than sixty days before the date of the meeting. If
mailed, such notice shall be deemed to have been given when deposited in the
United States mail, postage prepaid, directed to the stockholder at his address
as it appears on the records of the Corporation.
Section 4. List of Stockholders. The officer who has charge of the
stock ledger of the Corporation shall prepare and make, at least ten days
before every meeting of stockholders, a complete list of the stockholders
entitled to vote at the meeting, arranged in alphabetical order, and showing
the address of each stockholder and the number of shares registered in the name
of each stockholder. Such list shall be open to the examination of any
stockholder, for any purpose germane to the meeting, during ordinary business
hours, for a period of at least ten days prior to the meeting, either at a
place within the city where the meeting is to be held, which place shall be
<PAGE> 2
specified in the notice of the meeting, or, if not so specified, at the place
where the meeting is to be held. The list shall also be produced and kept at
the meeting during the whole time thereof, and may be inspected by any
stockholder who is present at such meeting.
Section 5. Special Meetings. Special meetings of the stockholders for
any purpose or purposes, unless otherwise prescribed by statute or by the
Certificate of Incorporation, may be called by the president or by the board of
directors and shall also be called by the secretary at the request in writing
of the holders of, in the aggregate, not less than 51% of the outstanding
shares of the Corporation entitled to vote at such meeting, or of the board of
directors. Such request shall state the purpose or purposes of the proposed
meeting.
Section 6. Notice of Special Meetings. Written notice of a special
meeting stating the place, date and hour of the meeting, and the purpose or
purposes for which the meeting is called, shall be given not less than ten nor
more than sixty days before the date of the meeting, to each stockholder
entitled to vote at such meeting.
Section 7. Business of Special Meetings. Business transacted at any
special meeting of stockholders shall be limited to the purposes stated in the
notice.
Section 8. Quorum. The holders of at least a majority of the stock
issued and outstanding and entitled to vote at any meeting of the stockholders,
present in person or represented by proxy, shall constitute a quorum at all
meetings of the stockholders for the transaction of business except as
otherwise provided by statute or by the Certificate of Incorporation. If,
however, such quorum shall not be present or represented at any meeting of the
stockholders, the stockholders entitled to vote thereat, present in person or
represented by proxy, shall have the power to adjourn the meeting from time to
time, without notice other than announcement at the meeting of the time and
place of the adjourned meeting, until a quorum shall be present or represented.
At such adjourned meeting, at which a quorum shall be present or represented,
any business may be transacted which might have been transacted at the original
meeting. If the adjournment is for more than thirty days, or if after the
adjournment a new record date is fixed for the adjourned meeting, a notice of
the adjourned meeting shall be given to each stockholder of record entitled to
vote at the meeting.
Section 9. Vote Required for Action. When a quorum is present at any
meeting:
(1) In all matters other than the election of directors or as may
otherwise be required by statute or the Certificate of Incorporation, the
affirmative vote of the majority of shares present in person or represented by
proxy at the meeting and entitled to vote on the subject matter shall be the
act of the stockholders;
(2) Directors shall be elected by a plurality of the votes of the
shares present in person or represented by proxy at the meeting and entitled to
vote on the election of directors; and
2
<PAGE> 3
(3) Where a separate vote by a class or classes is required, a
majority of the outstanding shares of such class or classes, present in person
or represented by proxy, shall constitute a quorum entitled to take action with
respect to that vote on that matter and the affirmative vote of the majority of
shares of such class or classes present in person or represented by proxy at
the meeting shall be the act of such class.
Section 10. Voting Rights. Each stockholder shall at every meeting of
the stockholders be entitled to one vote in person or by proxy for each share
of stock having voting power held by such stockholder, but no proxy shall be
voted or acted upon after three years from its date, unless the proxy provides
for a longer period.
Section 11. Action Without Meeting.
(a) Unless otherwise restricted by the Certificate of Incorporation
or these Bylaws, any action required or permitted to be taken at any meeting of
the stockholders may be taken without a meeting and without a vote, if a
consent or consents in writing, setting forth the action so taken, shall be (i)
signed by the holders of outstanding stock having not less than the minimum
number of votes that would be necessary to authorize or take such action at a
meeting at which all shares entitled to vote thereon were present and voted and
(ii) delivered to the Corporation by delivery to its registered office in
Delaware, its principal place of business or an officer or agent of the
Corporation having custody of the book in which proceedings of meetings of
stockholders are recorded. Delivery made to the Corporation's registered office
shall be by hand or by certified or registered mail, return receipt requested.
(b) Following the taking of corporate action without a meeting,
prompt notice shall be given to all stockholders who did not consent in writing
to such action.
ARTICLE III
DIRECTORS
Section 1. Number Constituting Entire Board of Directors; Election.
The number of directors which shall constitute the entire board of directors
shall be no more than twelve (12) nor less than one (1), as determined by the
board of directors from time to time. Within such limits, the actual number of
directors which shall constitute the entire board of directors shall be as
fixed from time to time by the board of directors. The directors shall be
elected at the annual meeting of the stockholders, except as provided in
Section 3 of this Article III and except that the initial director of the
Corporation was elected by the incorporator of the Corporation, and the
director elected shall hold office until his successor is elected and qualifies
or until his earlier resignation or removal. Directors need not be
stockholders.
Section 2. Resignation and Removal. Any director may resign at any
time upon written notice to the Corporation. Any director may be removed, with
or without cause, by the holders of a majority of the shares then entitled to
vote at an election of directors.
3
<PAGE> 4
Section 3. Filling of Vacancies. Vacancies and newly created
directorships resulting from any increases in the authorized number of
directors elected by all of the stockholders having the right to vote as a
single class may be filled by a majority of the directors then in office,
though less than a quorum, or by a sole remaining director, and the directors
so chosen shall hold office until the next annual election and until their
successors are duly elected and shall qualify, or until their earlier
resignation or removal. If there are no directors in office, then an election
of directors may be held in the manner provided by statute.
Section 4. Management by Directors. The business and affairs of the
Corporation shall be managed by its board of directors, which may exercise all
such powers of the Corporation and do all such lawful acts and things as are
not by statute or by the Certificate of Incorporation or by these Bylaws
directed or required to be exercised or done by the stockholders.
Section 5. Place of Meetings. The board of directors of the
Corporation may hold meetings, both regular and special, either within or
outside the State of Delaware.
Section 6. Annual Meeting. The first meeting of each newly elected
board of directors shall be held immediately after the annual meeting of
stockholders and at the same place, and no notice of such meeting shall be
necessary to the newly elected directors in order legally to constitute the
meeting, provided a quorum shall be present. In the event such meeting is not
held at that time and place, the meeting may be held at such time and place as
shall be specified in a notice given as hereinafter provided for special
meetings of the board of directors, or as shall be specified in a written
waiver signed by all of the directors.
Section 7. Regular Meetings. Regular meetings of the board of
directors may be held without notice at such time and at such place as shall
from time to time be determined by the board.
Section 8. Special Meetings. Special meetings of the board may be
called by the president on one day's notice to each director, either personally
or by mail, telegram or express courier; special meetings shall be called by
the president or secretary in like manner and on like notice on the written
request of a majority of the directors.
Section 9. Quorum; Vote Required for Action. At all meetings of the
board, a majority of the total number of directors shall constitute a quorum
for the transaction of business and the act of a majority of the directors
present at any meeting at which there is a quorum shall be the act of the board
of directors, except as may be otherwise specifically provided by statute or by
the Certificate of Incorporation. If a quorum shall not be present at any
meeting of the board of directors, the directors present thereat may adjourn
the meeting from time to time, without notice other than announcement at the
meeting of the time and place of the adjourned meeting, until a quorum shall be
present.
Section 10. Participation By Conference Telephone. Members of the
board of directors, or any committee thereof, may participate in a meeting of
such board or committee by
4
<PAGE> 5
means of conference telephone or similar communications equipment by means of
which all persons participating in the meeting can hear each other, and
participation in a meeting pursuant to this subsection shall constitute
presence in person at such meeting.
Section 11. Action Without Meeting. Unless otherwise restricted by
the Certificate of Incorporation or these Bylaws, any action required or
permitted to be taken at any meeting of the board of directors or of any
committee thereof may be taken without a meeting, if all members of the board
or such committee consent thereto in writing, and the writing or writings are
filed with the minutes of proceedings of the board or such committee.
Section 12. Compensation. The directors may be paid their expenses,
if any, of attendance at each meeting of the board of directors and may be paid
a fixed sum for attendance at each meeting of the board of directors or a
stated salary as director. No such payment shall preclude any director from
serving the Corporation in any other capacity and receiving compensation
therefor. Members of standing or special committees may be allowed like
compensation for attending committee meetings.
Section 13. Committees.
(1) Creation.
The board of directors may, by resolution passed by a majority of the
whole board, designate one or more committees, each committee to consist of one
or more of the directors of the Corporation and may appoint such officers,
agents or employees of the Corporation to assist the committees of the board as
it deems necessary and appropriate.
(2) Powers; Voting.
Any committee shall have and may exercise the powers of the board of
directors in the management of the business and affairs of the Corporation to
the extent provided in the resolution, and may authorize the seal of the
Corporation to be affixed to all papers that require it. In the absence or
disqualification of any member of any committee, the member or members thereof
present at any meeting and not disqualified from voting, whether or not
constituting a quorum, may unanimously appoint another member of the board of
directors to act at the meeting in the place of the absent or disqualified
member.
(3) Notice and Meetings.
Meetings of the committees may be called by the chairman of the
committees on one (1) day's notice to each committee member, either personally
by mail, telegram, facsimile, overnight courier service or similar means and
shall be alled by the chairman of the committee in like manner and on like
notice on the written request of a committee member.
5
<PAGE> 6
(4) Minutes.
Each committee shall keep regular minutes of its meetings and shall
file them with the minutes of the proceedings of the board of directors.
Section 14. Standing Committees
The board of directors may appoint the following standing committees,
the members of which shall serve at the pleasure of the board: an Executive
Committee, a Compensation Committee and an Audit Committee.
(1) Executive Committee
The board of directors may, by resolution adopted by a majority of the
whole board, designate an Executive Committee to exercise, subject to
applicable provisions of law, all the powers of the board in the management of
the business and affairs of the Corporation when the board is not in session,
except for the power to declare dividends and to authorize the issuance of the
Corporation's capital stock. The Executive Committee shall consist of two or
more directors of the Corporation. The Executive Committee shall keep written
minutes of its proceedings and shall report such proceedings to the board of
directors when required.
A majority of the Executive Committee may determine its action and fix
the time and place of its meetings, unless the board of directors shall
otherwise provide. Notice of such meetings shall be given to each member of
the Executive Committee in the manner provided for in Section 13(3) of this
Article III. The board of directors shall have power at any time to fill
vacancies in, to change the membership of, or to dissolve the Executive
Committee.
(2) Compensation Committee
Two or more directors of the Corporation shall be appointed to act as a
Compensation Committee, each of whom shall be non-employee directors (as
defined in Rule 16b-3 under the Securities Exchange Act of 1934) and who are
not also officers or employees of the Corporation or its subsidiaries or any
other individual having a relationship which, in the opinion of the board of
directors, would interfere with the exercise of independent judgment in
carrying out the responsibilities of a member of the Compensation Committee.
The Compensation Committee shall be responsible for establishing salaries,
bonuses and other compensation for the executive officers of the Corporation
and for administering the Corporation's benefit plans, and shall possess and
may exercise such additional powers and authority as may be delegated to it by
the board of directors from time to time. The Compensation Committee shall
report its actions to the board of directors at the next meeting of the board
following such actions. Vacancies in the membership of the Compensation
Committee shall be filled by the board of directors.
6
<PAGE> 7
(3) Audit Committee
The Company shall appoint and maintain an Audit Committee with one or
more independent directors of the Corporation, as defined by the requirements
of any automated quotation system or exchange on which the Company's common
stock shall be listed. The Audit Committee shall have general oversight
responsibility with respect to the Corporation's financial reporting. In
performing its oversight responsibility, the Committee shall make
recommendations to the board of directors as to the selection, retention, or
change in the independent accountants of the Corporation, review with the
independent accountants the scope of their examination and other matters
(relating to both audit and non-audit activities), and review generally the
internal auditing procedures of the Corporation. In undertaking the foregoing
responsibilities, the Audit Committee shall have unrestricted access, if
necessary, to personnel of the Corporation and documents and shall be provided
with the resources and assistance necessary to discharge its responsibilities,
including periodic reports from management assessing the impact of regulation,
accounting and reporting of other significant matters that may affect the
Corporation. The Audit Committee shall review the financial reporting and
adequacy of internal controls of the Corporation, consult with the internal
auditors and certified public accountants, and from time to time, but not less
than annually, report to the board of directors. Vacancies in the membership
of the Audit Committee shall be filled by the board of directors.
ARTICLE IV
NOTICES
Section 1. Manner of Giving Notice. Whenever, under the provisions of
the statutes or of the Certificate of Incorporation or of these Bylaws, notice
is required to be given to any director or stockholder, it shall not be
construed to require personal notice, but such notice may be given in writing,
by mail, addressed to such director or stockholder, at his address as it
appears on the records of the Corporation, with postage thereon prepaid, and
such notice shall be deemed to be given at the time when the same shall be
deposited in the United States mail. Notice may also be given by telegram or
by express courier.
Section 2. Waiver of Notice. Whenever any notice is required to be
given under the provisions of the statutes or of the Certificate of
Incorporation or of these Bylaws, a waiver thereof in writing, signed by the
person or persons entitled to said notice, whether before or after the time
stated therein, shall be deemed equivalent to notice. Attendance of a person
at a meeting of stockholders, directors, or members of a committee of
directors, shall constitute a waiver of notice of such meeting, except when the
stockholder, director or committee member attends a meeting for the express
purpose of objecting, at the beginning of the meeting, to the transaction of
any business because the meeting is not lawfully called or convened. Neither
the business to be transacted at, nor the purpose of, any regular or special
meeting of the stockholders, directors, or members of a committee of directors
need be specified in any written waiver of notice unless so required by the
certificate of Incorporation or these Bylaws.
7
<PAGE> 8
ARTICLE V
OFFICERS
Section 1. Required Officers. The officers of the Corporation shall
be chosen by the board of directors and shall include a president and a
secretary. Any number of offices may be held by the same person unless the
Certificate of Incorporation or these Bylaws otherwise provide.
Section 2. Additional Officers. The board of directors may appoint
one or more vice presidents and such other officers and agents as it shall deem
necessary, who shall hold their offices for such terms and shall exercise such
powers and perform such duties as shall be determined from time to time by the
board.
Section 3. Election of Officers. The board of directors at its first
meeting after each annual meeting of stockholders shall choose the officers of
the Corporation, except that the first officers of the Corporation shall be
chosen by the board of directors at the organizational meeting of the board of
directors following Incorporation.
Section 4. Compensation. The salaries of all officers and agents of
the Corporation shall be fixed by or in the manner prescribed by the board of
directors.
Section 5. Tenure. Each officer of the Corporation shall hold office
until his successor is elected and qualifies or until his earlier resignation
or removal. Any officer elected or appointed by the board of directors may be
removed at any time by the affirmative vote of a majority of the total number
of directors. Any officer may resign at any time upon written notice to the
Corporation. Any vacancy occurring in any office of the Corporation shall be
filled by or in the manner prescribed by the board of directors.
Section 6. President. The president shall be the chief executive
officer and chief operating officer of the Corporation and shall have general
and active supervision and management of the business of the Corporation, shall
see to it that all resolutions and orders of the board of directors and of the
shareholders are carried into effect, and in connection therewith, shall be
authorized to delegate to the other officers of the Corporation such of his
powers and duties as he may deem to be advisable. In the absence or disability
of the chairman of the board, the president shall preside at all meetings of
the Corporation's shareholders and board of directors. The president may sign,
on behalf of the Corporation, certificates for shares of the Corporation, any
deeds, mortgages, bonds, contracts or other instruments which the board of
directors has authorized to be executed, except in cases where the signing and
execution thereof shall be expressly delegated by the board of directors or by
these Bylaws to some other officer or agent of the Corporation, or shall be
required by law to be otherwise signed or executed, and, in general, shall
perform all duties incident to the office of president and such other duties as
may be prescribed by the board of directors from time to time.
8
<PAGE> 9
Section 7. Vice President. In the absence of the president, the vice
president, if any, or in the event there be more than one vice president, the
vice presidents in the order designated, or in the absence of any designation,
then in the order of their election, shall perform the duties of the president,
and when so acting, shall have all the powers of and be subject to all the
restrictions upon the president. The vice president shall generally assist the
president and shall perform such other duties and have such other powers as the
board of directors may from time to time prescribe.
Section 8. Secretary. The secretary shall attend all meetings of the
board of directors and all meetings of the stockholders and shall record all
the proceedings of the meetings of the stockholders and of the board of
directors in a book to be kept for that purpose, and shall perform like duties
for the standing committees when requested by such committees. The secretary
shall give, or cause to be given, required notice of all meetings of the
stockholders and the board of directors, and shall perform such other duties as
may be prescribed by the board of directors. The secretary shall have custody
of the stock certificate books and stockholder records and such other books and
records as the board of directors may direct. The secretary shall have custody
of the corporate seal of the Corporation and shall have authority to affix the
same to any instrument requiring it and when so affixed, it may be attested by
the secretary's signature. The board of directors may give general authority
to any other officer to affix the seal of the Corporation and to attest the
affixing thereof by his signature.
Section 9. Chairman of the Board of Directors. The chairman of the
board shall preside at all meetings of the Corporation's stockholders and board
of directors, and he shall have such other powers and duties as the board of
directors may from time to time prescribe.
9
<PAGE> 10
ARTICLE VI
CERTIFICATES OF STOCK; STOCK TRANSFERS; RECORD DATE
Section 1. Certificates. Every holder of stock in the Corporation
shall be entitled to have a certificate, signed by, or in the name of, the
Corporation by the president or the vice president and by the treasurer or the
secretary certifying the number of shares owned by him in the Corporation. Any
or all of the signatures on the certificate may be a facsimile. In case any
officer, transfer agent or registrar who has signed or whose facsimile
signature has been placed upon a certificate shall have ceased to be such
officer, transfer agent or registrar before such certificate is issued, it may
be issued by the Corporation as if he were such officer, transfer agent or
registrar at the date of issue.
Section 2. Lost Certificates. The board of directors may direct a new
stock certificate or certificates to be issued in place of any certificate or
certificates theretofore issued by the Corporation alleged to have been lost,
stolen or destroyed, upon the making of an affidavit of that fact by the owner
claiming the certificate of stock to be lost, stolen or destroyed. When
authorizing such issue of a new certificate, the board of directors may, in its
discretion and as a condition precedent to the issuance thereof, require the
owner of such lost, stolen or destroyed certificate or certificates, or his
legal representative, to give the Corporation a bond in such sum as it may
direct as indemnity against any claim that may be made against the Corporation
with respect to the certificate alleged to have been lost, stolen or destroyed.
Section 3. Transfers of Stock. Upon surrender to the Corporation or
the transfer agent of the Corporation of a certificate for shares accompanied
by proper evidence of authority to transfer, the Corporation shall issue a new
certificate to the person entitled thereto, cancel the old certificate and
record the transaction upon its books.
Section 4. Fixing Record Date.
(a) In order that the Corporation may determine the stockholders
entitled to notice of or to vote at any meeting of stockholders or any
adjournment thereof, the board of directors may fix a record date, which record
date shall not precede the date upon which the resolution fixing the record
date is adopted by the board of directors, and which record date shall not be
more than sixty nor less than ten days before the date of such meeting. If no
record is fixed by the board of directors, the record date for determining
stockholders entitled to notice of or to vote at a meeting of stockholders
shall be at the close of business on the day next preceding the day on which
notice is given, or, if notice is waived, at the close of business on the day
next preceding the next day on which the meeting is held. A determination of
stockholders of record entitled to notice of or to vote at a meeting of
stockholders shall apply to any adjournment of the meeting; provided, however,
that the board of directors may fix a new record date for the adjourned
meeting.
(b) In order that the Corporation may determine the stockholders
entitled to consent to corporate action in writing without a meeting, the board
of directors may fix a record date, which record date shall not precede the
date upon which the resolution fixing the record date is
10
<PAGE> 11
adopted by the board of directors, and which date shall not be more than ten
days after the date upon which the resolution fixing the record date is adopted
by the board of directors. If no record date has been fixed by the board of
directors, the record date for determining stockholders entitled to consent to
corporate action in writing without a meeting, when no prior action by the
board of directors is required by the General Corporation Law of Delaware,
shall be the first date on which a signed written consent setting forth the
action taken or proposed to be taken is delivered to the Corporation by
delivery to its registered office in Delaware, its principal place of business
or an officer or agent of the Corporation having custody of the book in which
proceedings of meetings of stockholders are recorded. Delivery made to the
Corporation's registered office shall be by hand or by certified or registered
mail, return receipt requested. If no record date has been fixed by the board
of directors and prior action by the board of directors is required by the
General Corporation Law of Delaware, the record date for determining
stockholders entitled to consent to corporate action in writing without a
meeting shall be at the close of business on the day on which the board of
directors adopts the resolution taking such prior action.
(c) In order that the Corporation may determine the stockholders
entitled to receive payment of any dividend or other distribution or allotment
of any rights or the stockholders entitled to exercise any rights in respect of
any change, conversion or exchange of stock, or for the purpose of any other
lawful action, the board of directors may fix a record date, which record date
shall not precede the date upon which the resolution fixing the record date is
adopted, and which record date shall be not more than sixty days prior to such
action. If no record date is fixed, the record date for determining
stockholders for any such purpose shall be at the close of business on the day
on which the board of directors adopts the resolution relating thereto.
Section 5. Registered Stockholders. The Corporation shall be entitled
to treat the record holder of any shares of stock of the Corporation as the
owner thereof for all purposes, including all rights deriving from such shares,
and except as required by law shall not be bound to recognize any equitable or
other claim to, or interest in, such shares or rights deriving from such
shares, on the part of any other person, including, but without limiting the
generality thereof, a purchaser, assignee or transferee of such shares or
rights deriving from such shares, unless and until such purchaser, assignee,
transferee or other person becomes the record holder of such shares, whether or
not the Corporation shall have either actual or constructive notice of the
interest of such purchaser, assignee, transferee or other person. Any such
purchaser, assignee, transferee or other person shall not be entitled to
receive notice of the meetings of stockholders, to vote at such meetings, to
examine a complete list of the stockholders entitled to vote at meetings, or to
own, enjoy, and exercise any other property or rights deriving from such shares
against the Corporation, until such purchaser, assignee, transferee or other
person has become the record holder of such shares.
11
<PAGE> 12
ARTICLE VII
GENERAL PROVISIONS
Section 1. Fiscal Year. The fiscal year of the Corporation shall be
determined by the board of directors and the board of directors shall have the
power to change the fiscal year of the Corporation from time to time.
Section 2. Execution of Instruments. Contracts, deeds, documents and
instruments shall be executed by the president, unless the board of directors
shall, in a particular situation or as a general direction, designate another
procedure for their execution.
Section 3. Checks and Drafts. The Corporation shall establish a bank
account for deposit of the funds of the Corporation and the drawing of checks
or drafts thereon. All checks or drafts drawn on such account shall require
the signature of only one officer of the Corporation. The appointment of
additional signatories of the bank account and the opening of additional bank
accounts shall require the approval of the board of directors.
Section 4. Corporate Seal. The corporate seal, if the directors shall
adopt one, shall have inscribed thereon the name of the Corporation, the year
of its organization and the words "Corporate Seal, Delaware." The seal may be
used by causing it or a facsimile thereof to be impressed, affixed, or
reproduced in any other manner.
Section 5. Voting Shares in Other Corporations. In the absence of
other arrangements by the board of directors, shares of stock issued by any
other Corporation and owned or controlled by this Corporation may be voted at
any shareholders' meeting of the other Corporation by the president of this
Corporation or, if he is not present at the meeting, by any vice president of
this Corporation, and in the event neither the president nor any vice president
is to be present at a meeting, the shares may be voted by such person as the
president and secretary of this Corporation shall by duly executed proxy
designate to represent this Corporation.
ARTICLE VIII
AMENDMENTS
Section 1. Power of Directors. As specified in the Corporation's
Certificate of Incorporation, the board of directors shall have the power to
amend or repeal these Bylaws or to adopt new Bylaws.
12
<PAGE> 1
CERTIFICATE OF DESIGNATIONS,
PREFERENCES AND RIGHTS OF
SERIES A CONVERTIBLE PREFERRED STOCK
OF
OBJECTIVE COMMUNICATIONS, INC.
I. Creation of Series A Convertible Preferred Stock.
I, Steven A. Rogers, Chief Executive Officer and President of
Objective Communications, Inc., a Delaware corporation (the "Corporation"),
pursuant to the provisions of Section 151 of the General Corporation Law of the
State of Delaware, do hereby make this Certificate of Designations, Preferences
and Rights (the "Certificate") and do hereby state and certify that, at a
meeting duly convened and held on December 9, 1996, pursuant to the authority
expressly vested in the Board of Directors of the Corporation by the Articles
of Incorporation, as amended and restated, (the "Charter"), the Board of
Directors duly adopted the following resolutions and, by Action by Unanimous
Written Consent of the Preferred Stock Committee of the Board (the "Preferred
Stock Committee") dated December __, 1996, and pursuant to authority conferred
upon the Committee by the Board of Directors of the Corporation (the "Board")
pursuant to Section 141(c) of the General Corporation Law of the State of
Delaware by resolutions of the Board of Directors adopted at a meeting duly
convened and held on December 9, 1996, the Preferred Stock Committee duly
adopted the following resolutions:
1. The Board of Directors on December 9, 1996 adopted the
following resolutions authorizing a Preferred Stock Committee of the Board
of Directors to act on behalf of the Board of Directors in connection with
the issuance of the Preferred Stock:
RESOLVED, that the Board of Directors deems it in the best
interests of the Corporation to designate a Preferred Stock
Committee and to delegate to the Preferred Stock Committee those
powers and duties set forth below;
RESOLVED, that, pursuant to Section 13 of the Bylaws of the
Corporation and Section 141(c) of
<PAGE> 2
the DGCL, the following directors of the Corporation be and hereby
are appointed to serve as the Preferred Stock Committee, each such
director to serve in such capacity until his successor has been
duly elected and qualified:
Richard T. Liebhaber
Steven A. Rogers
RESOLVED, that the Preferred Stock Committee may, without any
further action by the Board of Directors, from time to time
authorize the issuance and sale from time to time of one or more
series of Preferred Stock for cash or other property, as shall be
determined by the Preferred Stock Committee, subject to the
limitations above, and any such Preferred Stock may be sold
through agents, through underwriters, through dealers and directly
to purchasers, in one or more offerings registered under the
Securities Act of 1933, as amended (the "Securities Act"), or in
transactions not required to be registered under the Securities
Act, all as shall be determined by the Preferred Stock Committee;
and such issuance and sale of Preferred Stock, including the
issuance and sale from time to time of warrants for such Preferred
Stock, common or preferred stock of the Corporation into which any
series of Preferred Stock may be convertible or exchangeable
(unless the context otherwise requires, when used in these
resolutions the term "Preferred Stock" shall also include any
warrants related thereto) related to the Preferred Stock be and
hereby is authorized and approved;
RESOLVED, that the Preferred Stock Committee be and hereby is
authorized and empowered to act on behalf and in the stead of the
Board of Directors 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 and
exchangeable and, in connection therewith, is hereby authorized,
to the fullest extent permitted by the DGCL as it now exists or is
hereafter amended, to determine the price at which the Preferred
Stock of each such series or class will be sold by the
Corporation, to declare dividends payable on the Preferred Stock,
to reserve for issuance on the books of the Corporation or
-2-
<PAGE> 3
otherwise a sufficient number of shares of any common stock or
preferred stock of the Corporation 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 thereof;
RESOLVED, that without limiting the generality of the
preceding resolution, the Preferred Stock Committee is hereby
expressly authorized:
(i) to determine whether the Preferred
Stock will be issued in one or more class or series and
the number of shares of any such class or series;
(ii) to fix the dividend rate or rates of
such shares and/or the methods of determining dividends
and the dates on which dividends shall be payable;
(iii) to determine whether dividends of
any series or class of Preferred Stock shall be cumulative
or noncumulative and, if cumulative, the dates from which
dividends shall commence to cumulate;
(iv) to determine the conversion or
exchange provisions, if any, of the shares of any series
or class of the Preferred Stock, including, without
limitation, the class or series of capital stock of the
Corporation into which such shares shall be convertible or
exchangeable;
(v) to determine whether the Corporation
shall elect to offer warrants for such Preferred Stock
representing a fraction (to be determined by the Preferred
Stock Committee) of a share of a particular series or
class of Preferred Stock, in lieu of offering full shares
of such series of Preferred Stock;
(vi) to fix the liquidation preference of
the shares of any series or class of the Preferred Stock;
-3-
<PAGE> 4
(vii) to determine whether the shares of
any series or class of the Preferred Stock shall be
subject to redemption, optional or mandatory, or pursuant
to a sinking fund, and, if such series shall be subject to
redemption, the redemption provisions of such series or
class; and
(viii) to fix or determine any additional
dividend, liquidation, redemption, sinking fund and other
rights, preferences, privileges, limitations and
restrictions thereof;
RESOLVED, that the Preferred Stock Committee be and hereby
is authorized and empowered to authorize, approve and take such
other action as is deemed advisable in connection with the
issuance of one or more series of the Preferred Stock, including,
without limitation, the following:
(i) selecting the underwriters, dealers
and agents, if any, to or through which the Preferred
Stock will be offered and sold;
(ii) approving the form and substance,
and the execution and delivery, of any underwriting
agreement, agency agreement, placement agreement or other
agreement to be entered into by the Corporation in
connection with the issuance and sale of the Preferred
Stock, including, without limitation, setting the amount
of any underwriters' compensation and any discounts and
commissions allowed or paid to dealers or agents; and
(iii) appointing a registrar and transfer
agent for the registration, transfer and exchange of the
Preferred Stock; and
RESOLVED, that for each series or class of Preferred Stock
a certificate shall be prepared and filed on behalf of the
Corporation with the Secretary of State of the State of Delaware
pursuant to Section 151 of the General Corporation Law of the
State of Delaware (a "Certificate of Designations"), that each
such Certificate of Designations be in such form as is approved by
action of the Board of Directors or the Preferred
-4-
<PAGE> 5
Stock Committee; and that the proper officers of the Corporation
be and hereby are authorized to execute and file each such
Certificate of Designations pursuant to the General Corporation of
the State of Delaware.
2. The Preferred Stock Committee of the Board, pursuant to
authority conferred upon the Preferred Stock Committee of the Board of
Directors pursuant to Section 141(c) of the General Corporation Law of the
State of Delaware and Section 13 of the Bylaws of the Corporation and by
resolutions of the Board of Directors set forth above, adopted the
following resolutions by unanimous written consent dated December __, 1996:
RESOLVED, that, pursuant to the Charter (which authorizes
2,500,000 shares of preferred stock, par value $.01 per share,
none of which shares of preferred stock are presently issued and
outstanding), the Bylaws of the Corporation, Section 151 of the
DGCL, and resolutions duly adopted by the Board of Directors of
the Corporation on December 9, 1996, the Preferred Stock Committee
of the Board is authorized, within the limitations and
restrictions stated in the Charter and in the resolutions of the
Board establishing the Preferred Stock Committee, to fix by
resolution or resolutions the designation of each series of
preferred stock and the powers, preferences and relative
participating, optional, or other special rights, and
qualifications, limitations, and restrictions thereof; and
RESOLVED, that the Corporation hereby fixes the
designations and preferences and relative, participating,
optional, and other special rights, and qualifications,
limitations, and restrictions of the preferred stock consisting of
five hundred thousand (500,000) shares to be designated Series A
Convertible Preferred Stock, par value $.01 per share (the "Series
A Preferred Stock"), such designations and preferences and
relative, participating, optional and other special rights, and
qualifications, limitations and restrictions to be as set forth in
the Certificate of Designations, Preferences and Rights of Series
A Convertible Preferred Stock of Objective Communications, Inc.,
in the form attached hereto as Exhibit A; and
-5-
<PAGE> 6
RESOLVED, that the issuance of the Series A Preferred
Stock is hereby authorized on the terms and with the provisions
herein set forth:
II. Provisions Relating to the Series A Preferred Stock.
1. Rank. The Series A Preferred Stock shall, with respect to
rights upon liquidation, winding up or dissolution, rank senior and prior
in right to (i) each class of common stock of the Corporation (the "Common
Stock"), (ii) any series of preferred stock whether now existing or
hereafter created and (iii) any other equity interest (including, without
limitation, warrants, stock appreciation rights, phantom stock rights,
profit participation rights in debt instruments or other rights with equity
features, calls or options exercisable for or convertible into such capital
stock or equity interests) in the Corporation that by its terms ranks
junior to the Series A Preferred Stock (all of such classes or series of
capital stock and other equity interests referred to in Clauses (i), (ii)
and (iii) hereof are collectively referred to as "Junior Securities").
With respect to dividend rights, the Series A Preferred Stock shall rank
pari passu with each class of Common Stock of the Corporation, any series
of preferred stock hereafter created, and any Junior Securities.
2. Dividends. (a) The holders of Series A Preferred Stock
shall not be entitled to receive cumulative dividends; provided, however,
the holders of the Series A Preferred Stock shall be entitled to dividends
declared on the Common Stock as though such holders had converted their
shares of Series A Preferred Stock into shares of Conversion Stock (as
hereinafter defined).
(b) The dividends, if any, referred to in Subsection
(a) hereof, shall be paid in the manner, form and at such time as dividends
are paid on the Common Stock.
(c) If at any time the Corporation pays less than the
total amount of dividends then declared and payable with respect to the
Series A Preferred Stock and required to be paid at such time, such payment
shall be distributed ratably among the holders thereof
-6-
<PAGE> 7
so that the amount of dividends paid per share of the Series A Preferred
Stock is equal.
(d) So long as any shares of Series A Preferred Stock
are outstanding, the Corporation will not declare, pay or set apart for
payment any dividends (except dividends payable in Common Stock of the
Corporation) or make any other distribution on or redeem, purchase or
otherwise acquire any Junior Securities and will not permit any Affiliate
(using funds of the Company) to redeem, purchase or otherwise acquire for
value, any Junior Securities. Notwithstanding the foregoing provisions of
this Section 2(d), the Corporation may (i) make payments in respect of
fractional shares of Junior Securities and (ii) repurchase, redeem or
otherwise acquire for value any Junior Securities from any employee or
former employee of the Corporation in connection with the termination of
employment by the Corporation or by such employee or former employee,
whether by reason of death, disability, retirement or otherwise.
3. Repurchase. (a) Shares of Series A Preferred Stock shall
be entitled to the rights set forth below in this Section 3 (with all
references in this Section 3 to a repurchase price per share to be adjusted
proportionally in respect of fractional shares, rounded to the nearest cent
for each holder or group of affiliated holders).
(b) At any time or from time to time on or after the
date five (5) years after the Issue Date (as hereinafter defined), or upon
the earlier occurrence of a Liquidation Event (as defined in Section 4), a
merger pursuant to which the Corporation is not the surviving entity or the
sale of all or substantially all of the assets of the Corporation, the
holder or holders of at least fifty percent (50%) of the Series A Preferred
Stock shall have the right to request the Corporation to purchase all or
any portion of the shares of Series A Preferred Stock held by such holder
or holders, and upon the exercise of such right, the Corporation shall
purchase such shares of Series A Preferred Stock (such rights being
referred to as the "Put"). Such holder or holders may exercise the Put by
providing the Corporation with notice of the exercise thereof specifying
the number of shares of Series A Preferred Stock with respect to which it
is exercising the Put (such notice being referred to as a "Request
Notice"). The Corporation shall, no later than sixty (60) days
-7-
<PAGE> 8
after the date of receipt of such Request Notice, redeem all of the shares
of Series A Preferred Stock held by such holder and with respect to which
the Put has been exercised, paying to the holder or holders of the Series A
Preferred Stock exercising the Put an amount in cash for each such share
equal to the Repurchase Price (as defined in Subsection (c) hereof).
(c) The "Repurchase Price" for each share of Series A
Preferred Stock repurchased pursuant to this Section 3 shall be the
Liquidation Value (as hereinafter defined) plus all declared but unpaid
dividends on such shares from the Issue Date to the date of the Request
Notice, calculated as of the relevant time.
(d) Upon the surrender of the certificate or
certificates representing (or a lost certificate affidavit together with
indemnity reasonably satisfactory to the Corporation relating to) the
shares of Series A Preferred Stock to be repurchased by the Corporation
pursuant to this Section 3 duly endorsed for transfer or accompanied by
stock powers duly executed in blank, the applicable Repurchase Price in
respect of such shares shall be paid to the order of the person whose name
appears on such certificate or certificates in immediately available funds.
Each surrendered certificate shall be canceled and retired.
4. Liquidation. Upon a liquidation, dissolution or winding
up of the affairs of the Corporation, whether voluntary or involuntary, a
sale of all or substantially all of the assets of the Corporation (whether
in a single transaction or a series of related transactions), or a merger
or consolidation (and the Corporation is not the surviving entity) of the
Corporation (a "Liquidation Event"), the holders of the Series A Preferred
Stock shall be entitled, before any assets of the Corporation shall be
distributed among or paid over to the holders of Junior Securities, to
receive from the assets of the Corporation available for distribution to
stockholders, to be paid in cash by wire transfer of immediately available
funds, an amount per share equal to (a) the amount such holders would be
entitled to receive had they converted their shares of Series A Preferred
Stock into shares of Conversion Stock, immediately prior to such
Liquidation Event, in accordance with Section 6 hereof, plus all declared
but
-8-
<PAGE> 9
unpaid dividends on such shares from the Issue Date to the date of the
Liquidation Event or (b) if the holders of the Series A Preferred Stock
would not, upon liquidation, achieve an annual compound internal rate of
return of at least thirty percent (30%) (i.e. for each $4.00 invested, a
return one (1) year after the Issue Date of $5.20, two (2) years after the
Issue Date of $6.76, three (3) years after the Issue Date of $8.79, etc.),
the holders shall be entitled to the sum of the amount described in
Subsection (a) above, plus the Liquidation Value. For purposes hereof, the
term "Liquidation Value" shall mean $4.00 per share. The Liquidation Value
shall be proportionally adjusted from time to time to reflect stock
dividends, stock splits, recapitalization or any other stock subdivision or
combination. If the assets of the Corporation legally available for
distribution shall be insufficient to permit the payment in full to the
holders of the Series A Preferred Stock of the Liquidation Value, then the
entire assets of the Corporation legally available for distribution shall
be distributed ratably among such holders and all other classes and series
of preferred stock, if any, ranking (as to any such distribution) on a
parity with the Series A Preferred Stock.
5. Voting. (a) Except as otherwise provided by law or by
subsection 5(b), the holders of the Series A Preferred Stock shall be
entitled to vote on all matters submitted to the stockholders for a vote
together with the holders of the Common Stock voting together as a single
class, with each holder of Common Stock entitled to one (1) vote for each
share of Common Stock held by such holder and each holder of Series A
Preferred Stock entitled to one (1) vote for each share of Conversion Stock
issuable upon conversion of the Series A Preferred Stock held by such
holder at the time the vote is taken.
(b) At any time as there are shares of Series A Preferred
Stock outstanding, the holders of the Series A Preferred Stock shall vote
as a separate class in all matters which may adversely affect, in any
material respect, the Series A Preferred Stock, including, but not limited
to (i) any amendment to the Charter or Bylaws, (ii) the creation of any new
series of preferred stock of the Corporation ranking pari passu with or
senior to the Series A Preferred Stock, (iii) the issuance of bank loans or
debt securities in excess of $500,000, (iv) the declaration and payment of
any dividend or distribution or repurchase of any
-9-
<PAGE> 10
shares of capital stock of the Corporation, (v) any merger, combination,
recapitalization, reconsolidation, acquisition or sale of all or
substantially all of the assets of the Corporation, and (vi) the issuance
of 10% or more of the outstanding capital stock (on a fully diluted basis)
of the Corporation in a single transaction (or a series of transactions to
related individuals or entities) other than pursuant to a Qualified Public
Offering or the Barington Offering (in each case, as defined below).
6. Conversion of Series A Preferred Stock into Common Stock.
(a) Conversion Procedure.
(i) At any time and from time to time, any holder of
Series A Preferred Stock may convert all or any portion of the
Series A Preferred Stock, which shall include declared but unpaid
dividends on such shares, held by such holder into a number of
shares of Conversion Stock computed by multiplying the number of
shares to be converted by $4.00 and dividing the result by the
Series A Preferred Stock Conversion Price (as defined below) then
in effect.
(ii) Each conversion of Series A Preferred Stock
shall be deemed to have been effected as of the close of business
on the date on which notice of election of such conversion is
delivered to the Corporation by such holder. Until the
certificates representing the shares of Series A Preferred Stock
which are being converted have been surrendered and new
certificates representing shares of the Conversion Stock shall
have been issued by the Corporation, such certificate(s) formerly
evidencing the shares of Series A Preferred Stock being converted
shall be evidence of the issuance of such shares of Conversion
Stock. At such time as such conversion has been effected, the
rights of the holder of such Series A Preferred Stock as such
holder shall cease and the Person or Persons in whose name or
names any certificate or certificates for shares of Conversion
Stock are to be issued upon such conversion shall be deemed to
have become the holder or holders of record of the shares of
Conversion Stock represented thereby.
-10-
<PAGE> 11
(iii) Notwithstanding any other provision hereof,
if a conversion of shares is to be made in connection with a
Public Offering, the conversion of such shares may, at the
election of the holder thereof, be conditioned upon the
consummation of the Public Offering, in which case such conversion
shall not be deemed to be effective until the consummation of the
Public Offering.
(iv) As soon as practicable after a conversion
has been effected in accordance with Clause (ii) above (but in any
event within five (5) Business Days in the case of Subparagraph
(I) below), the Corporation shall deliver to the converting
holder:
(I) a certificate or certificates
representing, in the aggregate, the number of shares of
Conversion Stock issuable by reason of such conversion, in
the name or names and in such denomination or
denominations as the converting holder has specified; and
(II) a certificate representing any
shares of Series A Preferred Stock which were represented
by the certificate or certificates delivered to the
Corporation in connection with such conversion but which
were not converted.
(v) The issuance of certificates for shares of
Conversion Stock upon conversion of Series A Preferred Stock shall
be made without charge to the holders of such Series A Preferred
Stock for any issuance tax in respect thereof or other cost
incurred by the Corporation in connection with such conversion and
the related issuance of shares of Conversion Stock. Upon
conversion of any shares of Series A Preferred Stock, the
Corporation shall take all such actions as are necessary in order
to insure that the Conversion Stock issuable with respect to such
conversion shall be validly issued, fully paid and nonassessable.
(vi) The Corporation shall not close its books
against the transfer of Series A Preferred Stock or of Conversion
Stock issued or issuable upon conversion of Series A Preferred
Stock in any manner which interferes with the timely conversion
-11-
<PAGE> 12
of Series A Preferred Stock. The Corporation shall assist and
cooperate with any holder of shares of Series A Preferred Stock
required to make any governmental filings or obtain any
governmental approval prior to or in connection with any
conversion of shares hereunder (including, without limitation,
making any filings reasonably required to be made by the
Corporation).
(vii) No fractional shares of Common Stock or
scrip representing fractional shares shall be issued upon
conversion of shares of Series A Preferred Stock. If more than
one share of Series A Preferred Stock shall be surrendered for
conversion at one time by the same record holder, the number of
full shares of Common Stock issuable upon the conversion thereof
shall be computed on the basis of the aggregate number of shares
of Series A Preferred Stock so surrendered by such record holder.
Instead of any fractional share of Common Stock otherwise issuable
upon conversion of any shares of the Series A Preferred Stock, the
Corporation shall pay a cash adjustment in respect of such
fraction in an amount equal to the same fraction of current per
share fair market value of the Common Stock as determined in good
faith by the Board of Directors on such basis as it considers
appropriate.
(viii) The Corporation shall at all times reserve
and keep available out of its authorized but unissued shares of
Conversion Stock, solely for the purpose of issuance upon the
conversion of the Series A Preferred Stock, such number of shares
of Conversion Stock as are issuable upon the conversion of all
outstanding Series A Preferred Stock. All shares of Conversion
Stock which are so issuable shall, when issued, be duly and
validly issued, fully paid and nonassessable and free from all
taxes, liens and charges. The Corporation shall take all such
actions as may be necessary to assure that all such shares of
Conversion Stock may be so issued without violation of any
applicable law or governmental regulation or any requirements of
any domestic securities exchange upon which shares of Conversion
Stock may be listed (except for official notice of issuance which
shall be
-12-
<PAGE> 13
immediately delivered by the Corporation upon each such issuance).
(b) Conversion Price.
(i) The initial "Series A Conversion Price" for
the Series A Preferred Stock shall be $4.00 per share.
(ii) If and whenever on or after the Issue Date the
Corporation issues or sells, or in accordance with Section 6(c) is
deemed to have issued or sold, any shares of its Common Stock or
other instrument or security convertible into or exchangeable for
Common Stock for a consideration per share less than the initial
or applicable Series A Conversion Price, then forthwith upon such
issue or sale the applicable Series A Conversion Price shall be
reduced to a price (calculated to the nearest cent) determined by
multiplying the Series A Conversion Price by a fraction. The
fraction shall be determined as follows: (x) the numerator shall
be (1) the number of shares of Common Stock Deemed Outstanding
immediately prior to such issue or sale, plus (2) the number of
shares of Common Stock which the aggregate consideration received
or deemed received by the Corporation in accordance with Section
6(c) for the total number of shares of Common Stock issued and
sold or deemed issued and sold in accordance with Section 6(c)
would purchase at such Series A Conversion Price as in effect
immediately prior to such issue and sale, and (y) the denominator
shall be the number of shares of Common Stock Deemed Outstanding
immediately after such issue or sale.
(c) Effect on Conversion Price of Certain Events. For purposes
of determining the applicable adjusted Series A Conversion Price under
Section 6(b), the following shall be applicable:
(i) Issuance of Rights or Options. If the Corporation
in any manner grants any rights or options to subscribe for or to
purchase Common Stock ("Options") or any stock or other securities
convertible into or exchangeable for Common Stock ("Convertible
Securities"), and the price per share for which Common Stock is
issuable upon the exercise of such Options or upon conversion or
-13-
<PAGE> 14
exchange of such Convertible Securities is less than the Series A
Conversion Price in effect immediately prior to the time of the
granting of such Options, then 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 shall be deemed to be outstanding and to
have been issued and sold by the Corporation at the time of the
granting of such Options for such price per share. For purposes
of this paragraph, the "price per share for which Common Stock is
issuable" shall be determined by dividing (a) the total amount, if
any, received or receivable by the Corporation as consideration
for the granting of such Options, plus the minimum aggregate
amount of additional consideration payable to the Corporation upon
exercise of all such Options, plus in the case of such Options
which relate to Convertible Securities, the minimum aggregate
amount of additional consideration, if any, payable to the
Corporation upon the issuance or sale of such Convertible
Securities and the conversion or exchange thereof (such amount is
the consideration "deemed received" for purposes of Section 6(b)
above), by (b) 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. Upon the expiration of any Option or
termination of any conversion right of any Convertible Security
issuable upon exercise of any Option, the issuance of which
resulted in an adjustment of the Series A Conversion Price, if any
such Option shall expire or conversion right of any Convertible
Security shall terminate and shall not have been exercised or
converted, as applicable, the Series A Conversion Price shall be
recalculated immediately upon such expiration and effective
immediately upon such expiration shall be increased to the price
it would have been (but reflecting any other adjustments to the
Series A Conversion Price made pursuant to the provisions of this
Section 6 after the issuance of such Options) had the adjustment
of the Series A Conversion Price made upon the issuance of such
Options been made on the basis of the issuance of only those
Options actually exercised or Convertible Securities issuable upon
exercise of such Options actually converted, as
-14-
<PAGE> 15
applicable. No further adjustment of the Series A Conversion
Price shall be made when Convertible Securities are actually
issued upon the exercise of such Options or when Common Stock is
actually issued upon the exercise of such Options or the
conversion or exchange of such Convertible Securities.
(ii) Issuance of Convertible Securities. If the
Corporation in any manner issues or sells any Convertible
Securities and the price per share for which Common Stock is
issuable upon conversion or exchange thereof is less than the
Series A Conversion Price in effect immediately prior to the time
of such issue or sale, then the maximum number of shares of Common
Stock issuable upon conversion or exchange of such Convertible
Securities shall be deemed to be outstanding and to have been
issued and sold by the Corporation at the time of the issuance or
sale of such Convertible Securities for such price per share. For
the purposes of this paragraph, the "price per share for which
Common Stock is issuable" shall be determined by dividing (a) the
total amount received or receivable by the Corporation as
consideration for the issue or sale of such Convertible
Securities, plus the minimum aggregate amount of additional
consideration, if any, payable to the Corporation upon the
conversion or exchange thereof (such amount is the consideration
"deemed received" for purposes of Section 6(b) above), by (b) the
total maximum number of shares of Common Stock issuable upon the
conversion or exchange of all such Convertible Securities. Upon
the termination of any conversion right of any Convertible
Security, the issuance of which resulted in an adjustment of the
Series A Conversion Price, if any such conversion right of any
Convertible Security shall terminate and shall not have been
converted, the Series A Conversion Price shall be recalculated
immediately upon such termination and effective immediately upon
such termination shall be increased to the price it would have
been (but reflecting any other adjustments to the Series A
Conversion Price made pursuant to the provisions of this Section 6
after the issuance of such Convertible Securities) had the
adjustment of the Series A Conversion Price made upon the issuance
of such Convertible Securities been made on the basis of the
issuance
-15-
<PAGE> 16
of only those Convertible Securities actually converted. No
further adjustment of the Series A Conversion Price shall be made
when Common Stock is actually issued upon the conversion or
exchange of such Convertible Securities, and if any such issue or
sale of such Convertible Securities is made upon exercise of any
Options for which adjustments of the Series A Conversion Price had
been or are to be made pursuant to other provisions of this
Section 6, no further adjustment of the Series A Conversion Price
shall be made by reason of such issue or sale.
(iii) Change in Option Price or Conversion Rate.
If the purchase price provided for in any Options, the additional
consideration, if any, payable upon the conversion or exchange of
any Convertible Securities, or the rate at which any Convertible
Securities are convertible into or exchangeable for Common Stock
change at any time, the Series A Conversion Price in effect at the
time of such change shall be readjusted to the Series A Conversion
Price which would have been in effect at such time had such
Options or Convertible Securities still outstanding provided for
such changed purchase price, additional consideration or changed
conversion rate, as the case may be, at the time initially
granted, issued or sold.
(iv) No Change in Certain Events. Notwithstanding
anything to the contrary in this Section 6, the applicable Series
A Conversion Price shall not be reduced in the event of or as a
result of (i) the issuance of shares of Common Stock, or options
or rights to acquire Common Stock, to employees, directors or
consultants pursuant to the Company's existing 1994 Stock Option
Plan, its 1996 Stock Incentive Plan or any future stock option
plan that may be approved by the Board of Directors in the future,
regardless of the price at which such shares, options or rights
are issued, (ii) the issuance or exercise of the Warrants, or
(iii) the exercise of the Bridge Warrants.
(d) Subdivision or Combination of Common Stock. If the
Corporation at any time subdivides (by any stock split, stock dividend,
recapitalization or otherwise) one or more classes of its outstanding
shares of Common
-16-
<PAGE> 17
Stock into a greater number of shares, or if the Corporation at any time
combines (by reverse stock split or otherwise) one or more classes of its
outstanding shares of Common Stock into a smaller number of shares, the
Series A Conversion Price in effect immediately prior to such subdivision
or combination shall be proportionately adjusted.
(e) Reorganization, Reclassification, Consolidation, Merger or
Sale. Any recapitalization, reorganization, reclassification,
consolidation, merger, sale of all or substantially all of the
Corporation's assets to another Person or other transaction which is
effected in such a manner that holders of Common Stock are entitled to
receive (either directly or upon subsequent liquidation) stock, securities
or assets with respect to or in exchange for Common Stock is referred to
herein as an "Organic Change." Prior to the consummation of any Organic
Change, the Corporation shall make appropriate provisions (in form and
substance reasonably satisfactory to the holders of a majority of the
shares of the Series A Preferred Stock then outstanding) to insure that
each of the holders of Series A Preferred Stock shall thereafter have the
right to acquire and receive, in lieu of or in addition to (as the case may
be) the shares of Conversion Stock immediately theretofore acquirable and
receivable upon the conversion of such holder's Series A Preferred Stock,
such shares of stock, securities or assets as such holder would have
received in connection with such Organic Change if such holder had
converted its Series A Preferred Stock immediately prior to such Organic
Change. In each such case, the Corporation shall also make appropriate
provisions (in form and substance reasonably satisfactory to the holders of
a majority of the shares of each class of the Series A Preferred Stock then
outstanding) to insure that the provisions of this Section 6 shall
thereafter be applicable to the Series A Preferred Stock and to the shares
of stock, securities or assets received by each holder upon such Organic
Change. The Corporation shall not effect any Organic Change unless prior
to the consummation thereof, the successor corporation (if other than the
Corporation) resulting from consolidation or merger or the corporation
purchasing such assets assumes by written instrument (in form and substance
reasonably satisfactory to the holders of a majority of the shares of the
Series A Preferred Stock then outstanding), the obligation to deliver to
each such holder such shares
-17-
<PAGE> 18
of stock, securities or assets as, in accordance with the foregoing
provisions, such holder may be entitled to acquire.
(f) Certain Events. If an event not specifically enumerated
in this Section 6 occurs which has substantially the same economic effect
on the Series A Preferred Stock as those specifically enumerated shall
occur, then this Section 6 shall be construed liberally, mutatis mutandis,
in order to give the Series A Preferred Stock the benefit of the
protections provided under this Section 6. The Corporation's Board of
Directors shall make an appropriate adjustment in the Series A Conversion
Price so as to protect the rights of the holders of Series A Preferred
Stock; provided that no such adjustment shall increase the Series A
Conversion Price as otherwise determined pursuant to this Section 6 or
decrease the number of shares of Conversion Stock issuable upon conversion
of each share of Series A Preferred Stock.
(g) Notices.
(i) Immediately upon any adjustment of the
Series A Conversion Price, the Corporation shall give written
notice thereof to all holders of Series A Preferred Stock, setting
forth in reasonable detail and certifying the calculation of such
adjustment.
(ii) The Corporation shall give written notice to
all holders of Series A Preferred Stock at least ten (10) days
prior to the date on which the Corporation closes its books or
takes a record (a) with respect to any dividend or distribution
upon Common Stock, (b) with respect to any pro rata subscription
offer to holders of Common Stock or (c) for determining rights to
vote with respect to any Organic Change, dissolution or
liquidation.
(iii) The Corporation shall also give written
notice to the holders of Series A Preferred Stock at least twenty
(20) days prior to the date on which any Organic Change shall take
place.
(h) Mandatory Conversion. All of the outstanding shares of
Series A Preferred Stock will be automatically converted in accordance with
the terms of this Section 6 (i) at the time of the closing of a Qualified
Public Offering or the Barington Offering,
-18-
<PAGE> 19
provided that the shares of Common Stock have then been approved for
quotation or listing on the NASDAQ Small-Cap System, the NASDAQ National
Market, the NASDAQ Bulletin Board, the American Stock Exchange or the New
York Stock Exchange. Any such mandatory conversion shall be effected only
at the time of and subject to the closing of the sale of such shares
pursuant to such public offering and upon written notice of such mandatory
conversion delivered to all holders of Series A Preferred Stock at least
three (3) business days prior to such closing.
7. DEFINITIONS. The following terms have the meanings
specified below:
Affiliate. The term "Affiliate" shall mean (a) any Person
directly or indirectly controlling, controlled by or under direct or
indirect common control with the Corporation (or other specified Person)
and shall, (b) any Person who is a beneficial owner of at least 10% of the
then outstanding voting capital stock (or options, warrants or other
securities which, after giving effect to the exercise thereof, would
entitle the holder thereof to hold at least 10% of the then outstanding
voting capital stock) of the Corporation, (c) any director or officer of
the Corporation or Person of which the Corporation shall, directly or
indirectly, either beneficially or of record own at least 10% of the then
outstanding equity securities of such Person, and (d) in the case of
Persons specified above who are individuals, Family Members of such Person;
provided, however, that no holder of Series A Preferred Stock nor any of
their designated members of the Board of Directors shall be an Affiliate of
the Corporation for purposes hereof.
Barington Offering. The term "Barington Offering" shall mean the
currently contemplated initial public offering of Common Stock by the
Company for not less than $5.00 per share in an underwriting with Barington
Capital as the lead underwriter.
Board of Directors. The term "Board of Directors" shall mean the
Board of Directors of the Corporation.
Business Day. The term "Business Day" shall mean any day (other
than a day which is a Saturday, Sunday or legal holiday in the State of New
York) on which banks are authorized to be open for business in New York
City.
-19-
<PAGE> 20
Common Stock. The term "Common Stock" shall mean the common
stock, par value $.01 per share, of the Corporation.
Common Stock Deemed Outstanding. The term "Common Stock Deemed
Outstanding" shall mean, at any given time, the number of shares of Common
Stock actually outstanding at such time, plus the number of shares of
Common Stock issuable upon conversion of the Series A Preferred Stock plus
the number of shares of Common Stock deemed to be outstanding with respect
to Options and Convertible Securities pursuant to Section 6 hereof whether
or not the Options or Convertible Securities are actually exercisable at
such time.
Conversion Stock. The term "Conversion Stock" shall mean the
shares of Common Stock issuable upon conversion of shares of Series A
Preferred Stock; provided that if there is a change such that the
securities issuable upon conversion of the Series A Preferred Stock are
issued by an entity other than the Corporation or there is a change in the
class of securities so issuable, then the term "Conversion Stock" shall
mean shares of the security issuable upon conversion of the Series A
Preferred Stock if such security is issuable in shares, or shall mean the
smallest unit in which such security is issuable if such security is not
issuable in shares.
Fair Market Value. The term "Fair Market Value" shall mean the
amount which a bona fide willing buyer not Affiliated with the Corporation
with access to any necessary financing would pay a willing seller in an
arm's-length transaction.
Family Members. The term "Family Members" shall mean, as applied
to any individual, any spouse, child, grandchild, parent, brother or sister
thereof or any spouse of any of the foregoing, and each trust created for
the benefit of one or more of such Persons (other than any trust
administered by an independent trustee) and each custodian of property of
one or more such Persons.
Issue Date. The term "Issue Date" shall mean December 19, 1996.
Person. The term "Person" shall mean an individual, corporation,
partnership, association, trust, joint venture or unincorporated
organization or
-20-
<PAGE> 21
any government, governmental department or any agency or political
subdivision thereof.
Public Offering. The term "Public Offering" shall mean any
offering by the Corporation of its equity securities to the public pursuant
to an effective registration statement under the Securities Act or any
comparable statement under any similar federal statute then in force, other
than an offering in connection with an employee benefit plan.
Qualified Public Offering. The term "Qualified Public Offering"
shall mean the consummation of the Corporation's issuance and sale of its
Common Stock in a bona fide firm commitment underwriting pursuant to a
registration statement under the Securities Act of 1933, as amended, the
public offering shall be at least $10,000,000 and a price per share to the
public of which is not less than 150% of the initial or applicable Series A
Conversion Price (as appropriately adjusted to reflect subsequent stock
issuances, stock splits, stock dividends, mergers, combinations,
reclassifications, reorganizations, recapitalizations, and similar events)
provided, however, that if no shares of Series A Preferred Stock remain
outstanding, no per share price limitation shall apply.
Securities Act. The term "Securities Act" shall mean the
Securities Act of 1933, as amended, or any successor federal statute, and
the rules and regulations of the Securities and Exchange Commission
promulgated thereunder, all as the same shall be in effect from time to
time.
-21-
<PAGE> 22
IN WITNESS WHEREOF, Objective Communications, Inc. has caused this
Certificate of Designations, Preferences and Rights of the Series A Convertible
Preferred Stock to be signed by Steven A. Rogers, its Chief Executive Officer
and President, as of the 19th day of December 1996.
OBJECTIVE COMMUNICATIONS, INC.
By: /s/ STEVEN A. ROGERS
---------------------------------
Name: Steven A. Rogers
Title: Chief Executive Officer
and President
-22-
<PAGE> 1
<TABLE>
- ------------------------------------------------------- -----------------------------------------------------------------
<S> <C>
AMERICAN BANKNOTE COMPANY PRODUCTION COORDINATOR-ALBERT DERMOVSESIAN: 215-830-2103
680 BLAIR MILL ROAD PROOF OF FEBRUARY 18, 1997
HORSHAM, PA 19044 OBJECTIVE COMMUNICATIONS, INC.
215-657-3480 H49078fc
- ------------------------------------------------------- -----------------------------------------------------------------
SALESPERSON- C. SHARKEY - 215-830-2153 Opr. koshy/lr NEW
- ------------------------------------------------------- -----------------------------------------------------------------
/home/koshy/inprogress/home14/Objective49078 /net/banknote/home46/O
- ------------------------------------------------------- -----------------------------------------------------------------
</TABLE>
<TABLE>
<S> <C> <C>
OBJECTIVE SHARES
COMMUNICATIONS
NUMBER
OBJECTIVE COMMUNICATIONS, INC.
OC
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE CUSIP 674421 10 2
COMMON STOCK (subject to restrictions noted on reverse side) SEE REVERSE FOR CERTAIN DEFINITIONS
</TABLE>
THIS CERTIFIES that
is the owner of
FULLY PAID AND NON-ASSESSABLE SHARES OF COMMON STOCK, PAR VALUE $0.01 OF
OBJECTIVE COMMUNICATIONS, INC., transferable on the books of the Corporation by
the holder hereof in person or by his duly authorized attorney upon surrender of
this certificate properly endorsed. This certificate and the shares represented
hereby are issued and shall be held subject to all the provisions of the
Certificate of Incorporation and Bylaws of the Corporation as from time to time
amended, to all of which the holder by acceptance hereof assents. This
certificate is not valid until countersigned and registered by the Transfer
Agent and Registrar.
Witness the facsimile seal of the Corporation and the facsimile
signatures of its duly authorized officers.
OBJECTIVE COMMUNICATIONS, INC.
CORPORATE
SEAL
1993
DELAWARE
Dated:
[SIG] [SIG]
Secretary President and Chief Executive Officer
Countersigned and Registered:
CONTINENTAL STOCK TRANSFER AND TRUST COMPANY
(Jersey City, N.J.) Transfer Agent
and Registrar,
By
Authorized Signature
<PAGE> 2
OBJECTIVE COMMUNICATIONS, INC.
The following abbreviations, when used in the inscription on the face
of this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
<TABLE>
<S> <C>
TEN COM -- as tenants in common UNIF GIFT MIN ACT--.............Custodian..............
TEN ENT -- as tenants by the entireties (Cust) (Minor)
JT TEN -- as joint tenants with right under Uniform Gifts to Minors
of survivorship and not as Act..............................
tenants in common (State)
</TABLE>
Additional abbreviations may also be used though not in the above list.
For value received,........................hereby, sell, assign and
transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
- --------------------------------------
- --------------------------------------......................................
............................................................................
Please print or typewrite name and address including
postal zip code of assignee
............................................................................
............................................................................
......................................................................Shares
of the Capital Stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint..........................................
............................................................................
Attorney to transfer the said stock on the books of the within-named
Corporation with full power of substitution in the premises.
Dated,..................
..................................
NOTICE: The signature to this assignment must correspond with the name
as written upon the face of the Certificate, in every particular, without
alteration or enlargement, or any change whatever.
<TABLE>
- ------------------------------------------------------- -----------------------------------------------------------------
<S> <C>
AMERICAN BANKNOTE COMPANY PRODUCTION COORDINATOR-ALBERT DERMOVSESIAN: 215-830-2103
680 BLAIR MILL ROAD PROOF OF FEBRUARY 18, 1997
HORSHAM, PA 19044 OBJECTIVE COMMUNICATIONS, INC.
215-657-3480 H49078bk
- ------------------------------------------------------- -----------------------------------------------------------------
SALESPERSON- C. SHARKEY - 215-830-2153 Opr. koshy NEW
- ------------------------------------------------------- -----------------------------------------------------------------
/home/koshy/inprogress/home14/Objective49078 /net/banknote/home46/O
- ------------------------------------------------------- -----------------------------------------------------------------
</TABLE>
<PAGE> 1
EXHIBIT 5
March 13, 1997
Objective Communications, Inc.
14100 Park Meadow Drive
Chantilly, Virginia 20151
Ladies and Gentlemen:
We have acted as counsel for Objective Communications, Inc., a Delaware
corporation (the "Company"), in connection with the registration of 2,070,000
shares (including 270,000 shares to cover the underwriter over-allotment
options, if exercised) (the "Shares") of the Company's common stock, par value
$.01 per share (the "Common Stock"), pursuant to a Registration Statement on
Form SB-2 under the Securities Act of 1933, as amended (No. 333-20625) (the
"Registration Statement"), and with the proposed sale of the Shares to the
public through Barington Capital Group, L.P., the underwriter of the offering.
Of the maximum of 2,070,000 total Shares of Common Stock to be offered and
sold, 1,800,000 Shares of Common Stock are to be offered by the Company on a
firm commitment underwritten basis, and 270,000 Shares will be offered by the
Company pursuant to a 45-day option granted to the underwriter solely to cover
over-allotments.
Based upon our examination of the originals or copies of such documents,
corporate records, certificates of officers of the Company and such other
instruments as we have deemed necessary, and upon the laws as presently in
effect, we are of the opinion that the Shares of Common Stock to be offered by
the Company pursuant to the Registration Statement have been duly authorized
for issuance by the Company and, upon issuance and delivery in accordance with
the terms of the underwriting agreement referred to in the Registration
Statement, will be validly issued, fully paid and non-assessable.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to our firm under the caption
"Legal Matters" in the prospectus that constitutes part of the Registration
Statement.
Very truly yours,
/s/ Shaw, Pittman, Potts & Trowbridge
Shaw, Pittman, Potts & Trowbridge
<PAGE> 1
EXHIBIT 10.3
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "Agreement") is made this ___ day of
March, 1997 by and between Objective Communications, Inc., a Delaware
corporation with its principal place of business at 14100 Park Meadow Drive,
Chantilly, Virginia 20151 (the "Company"), and Steven A. Rogers, an individual
residing in Alton, New Hampshire (the "Executive").
WHEREAS, the Company or its predecessor has employed the Executive
since inception; and
WHEREAS, the parties wish to set forth the terms and conditions upon
which the Company will continue to employ the Executive;
NOW THEREFORE, in consideration of the mutual covenants and promises
contained herein, and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged by the parties hereto, the parties
agree as follows:
1. Term of Employment.
The Company hereby employs the Executive, and the Executive hereby
accepts employment with the Company, upon the terms set forth in this
Agreement, commencing on the date hereof. The Company shall employ the
Executive for a period of one (1) year, unless sooner terminated in accordance
with the provisions of this Agreement (the "Employment Period"), commencing on
the date hereof. This Agreement shall renew automatically for successive one
(1) year terms unless either party provides the other with written notice of
termination at least ninety (90) days before the end of the applicable term.
2. Title; Duties.
The Executive shall serve as the President and Chief Executive Officer
of the Company during the Employment Period. The Executive shall report to the
Board of Directors of the Company (the "Board of Directors"), which shall have
the authority to generally oversee the activities of the Executive. The
Executive shall perform such services consistent with his position as may be
assigned to him from time to time by the Board of Directors. The Executive
shall work at the principal office of the Company.
3. Base Salary.
The Company shall pay the Executive a base annual salary of
$120,000.00, subject to such increases as may be approved by the Board of
Directors or the Compensation Committee of the Board of Directors (the
"Compensation Committee"). The salary shall be payable in semi-monthly
installments, minus such deductions as may be required by law or reasonably
requested by the Executive. The Executive shall also be eligible to receive
such bonuses as may be approved by the Board of Directors of the Company or the
Compensation Committee. The Board of Directors or the Compensation Committee
will review the Executive's base salary, bonus and award of stock options no
less often than annually in conjunction with its regular review of the
compensation of executive officers of the Company.
<PAGE> 2
4. Fringe Benefits.
The Executive shall be entitled to all benefits generally available to
senior executive officers of the Company, including, without limitation,
pension, bonus, stock options, individual life insurance, medical and health
benefits and other plans of the Company to the extent such benefits are
generally made available by the Company to its senior executive officers from
time to time, or such additional benefits as may be established by the Company
for its senior executive officers from time to time. The Executive shall be
entitled to four weeks of vacation during each year of employment, to be taken
in accordance with the Company's corporate policies for its senior executive
officers. The Executive shall be entitled to personal leave and holidays in
accordance with the policy of the Company as to its senior executive officers.
5. Reimbursement of Business Expenses.
The Company shall reimburse the Executive for all reasonable
out-of-pocket costs incurred or paid by the Executive in connection with, or
related to, the performance of his duties, responsibilities or services under
this Agreement, upon presentation by the Executive of documentation, expense
statements, vouchers, and/or such other supporting information as the Company
may reasonably request
6. Non-Solicitation and Non-Competition.
(a) Except as provided in paragraph (e) below, the Executive
agrees that while the Executive is employed pursuant to this Agreement and for
a period of two years following termination of this Agreement (the
"Non-Competition Period"), the Executive will not, except as otherwise provided
herein, engage or participate, directly or indirectly, as principal, agent,
employee, employer, consultant, stockholder, partner or in any other individual
capacity whatsoever, in the conduct or management of, or own any stock or any
other equity investment in or debt of, any business which is competitive with
any business conducted by the Company. Notwithstanding the foregoing, Executive
shall not be subject to the restrictions of this Section 6(a) following
termination of his employment, in the event that the Company terminates his
employment other than for "cause" or the Executive resigns for "good reason."
For the purpose of this Agreement, a business shall be considered to be
competitive with the business of the Company if such business is engaged in
developing, manufacturing or selling video conferencing applications hardware
or software (or any other business in which the Company is engaged at the time
of termination of the Executive's employment).
(b) Non-Solicitation of Employees. During the Non-Competition
Period, the Executive will not (for his own benefit or for the benefit of any
person or entity other than the Company) solicit or assist any person or entity
other than the Company to solicit, any officer, director, executive or employee
of the Company to leave his/her employment.
(c) Non-Solicitation of Customers. During the Non-Competition
Period, the Executive will not solicit, or assist any person or entity other
than the Company to solicit, any person or entity that is a customer of the
Company or has been a customer of the Company during the
2
<PAGE> 3
prior twelve months, to purchase video conferencing applications hardware or
software (or any other products or services the Company provides to a
customer).
(d) Reasonableness. The Executive acknowledges that (i) the
markets served by the Company are national in scope and are not dependent on
the geographic location of the executive personnel or the businesses by which
they are employed; and (ii) the above covenants are manifestly reasonable on
their face, and the parties expressly agree that such restrictions have been
designed to be reasonable and no greater than is required for the protection of
the Company. The Company and the Executive agree that in the event any of the
restrictions in this Section 6 are found to be unreasonable by a court of
competent jurisdiction, such court shall determine the limits allowable by law
and shall enforce the same.
(e) Investment. Nothing in this Agreement shall be deemed to
prohibit the Executive from owning equity or debt investments in any
corporation, partnership or other entity which is competitive with the Company,
provided that such investments (i) are passive investments and constitute five
percent (5%) or less of the outstanding equity securities of such an entity the
equity securities of which are traded on a national securities exchange or
other public market, or (ii) are approved by the Board of Directors or the
Compensation Committee.
(f) Change in Control. The restrictions on Executive contained in
this Section 6 shall cease to apply in the event of a Change in Control of the
Company. Upon a Change in Control, Executive shall no longer be restricted
with respect to competition with or solicitation of the Company, the Company's
employees and the Company's customers. For purposes of this Agreement, a
"Change in Control" shall mean any of the following events: (i) the merger or
consolidation of the Company with and into another corporation in a transaction
in which the Company is not the surviving entity and in which a individual,
entity or group who does not currently "control" the Company acquires control
of the Company; or (ii) if any individual, entity or group (within the meaning
of Sections 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act")) (a "Person"), other than those Persons who of the
date hereof beneficially own 20% or greater of the outstanding shares of the
Company's common stock, becomes the beneficial owner (within the meaning of
Rule 13d-3 promulgated under the Exchange Act), directly or indirectly, of 20%
or more of the outstanding shares of the Company's common stock, or (iii) a
sale by the Company of all or substantially all of its assets.
7. Confidential Information.
(a) The Executive shall not (for his own benefit or the benefit of
any person or entity other than the Company) use or disclose any of the
Company's trade secrets or other confidential information; provided, however,
that the term "trade secrets or other confidential information" shall not
include the general knowledge, skills or personal experience of Executive
relating to the development or manufacture of video conferencing applications
hardware or software. The term "trade secrets or other confidential
information" includes, by way of example, matters of a technical nature,
"know-how," computer programs (including documentation of such programs),
research projects, and matters of a business nature, such as proprietary
information about costs, profits, markets, sales, customers, and other
information of a similar nature to the extent not
3
<PAGE> 4
available to the public, and plans for future development. After termination
of this Agreement, the Executive shall not use or disclose trade secrets or
other confidential information unless such information becomes a part of the
public domain other than through a breach of this Agreement or is disclosed to
the Executive by a third party who is entitled to receive and disclose such
information.
(b) Upon the effective date of notice of the Executive's or the
Company's election to terminate this Agreement, or at any time upon the request
of the Company, the Executive (or his heirs or personal representatives) shall
deliver to the Company all documents and materials containing trade secrets and
confidential information relating to the Company's business and all documents,
materials and other property belonging to the Company, which in either case are
in the possession or under the control of the Executive (or his heirs or
personal representatives).
(c) All discoveries and works made or conceived by the Executive
during his employment by the Company, jointly or with others, that relate to
the Company's activities shall be owned by the Company. The terms "discoveries
and works" include, by way of example, inventions, computer programs (including
documentation of such programs), technical improvements, processes, drawings,
and works of authorship, including sales materials which relate to video
applications hardware or software. The Executive shall promptly notify and
make full disclosure to, and execute and deliver any documents requested by,
the Company to evidence or better assure title to such discoveries and works by
the Company, assist the Company in obtaining or maintaining for itself at its
own expense United States and foreign patents, copyrights, trade secret
protection and other protection of any and all such discoveries and works, and
promptly execute, whether during his employment or thereafter, all applications
or other endorsements necessary or appropriate to maintain patents and other
rights for the Company and to protect its title thereto. Any discoveries and
works which, within six months after the termination of the Executive's
employment by the Company, are made, disclosed, reduced to a tangible or
written form or description, or are reduced to practice by the Executive and
which pertain to work performed by the Executive while with the Company shall,
as between the Executive and the Company, be presumed to have been made during
the Executive's employment by the Company.
8. Enforcement.
The Executive agrees that the Company's remedies at law for any breach
or threat of breach by him of the provisions of Sections 6 and 7 hereof will be
inadequate, and that the Company shall be entitled to an injunction or
injunctions to prevent breaches of the provisions of Sections 7 and 8 hereof
and to enforce specifically the terms and provisions thereof, in addition to
any other remedy to which the Company may be entitled at law or equity. The
Executive hereby waives any and all defenses on the grounds of lack of
jurisdiction or competence of a court to grant such an injunction.
9. Termination.
(a) The Company may at any time terminate the Executive's
employment under this Agreement for cause, upon written notice by the Company
to the Executive and the Executive may resign for "good reason upon written
notice to the Company by the Executive. For the
4
<PAGE> 5
purposes of this Agreement, "cause" for termination shall mean (i) the
conviction of the Executive of, or the entry of a guilty (or nolo contendre)
plea by the Executive to, any felony; (ii) fraud, misappropriation or
embezzlement by the Executive; or (iii) the Executive's willful failure or
gross negligence in the performance of his assigned duties for the Company; or
(iv) the Executive's material breach of this Agreement. For purposes of this
Agreement, "good reason" shall mean (i) without the express written consent of
the Executive, the continuing failure of the Company to make any payment due to
the Executive hereunder for a period of 30 days after written notice to the
Board of Directors of the Company by the Executive, other than a failure of the
Company to make such payments which constitutes a general failure on the part
of the Comapny to make payments to its senior executive officers; (ii) without
the express written consent of the Executive, any change in the Executive's
title or material change in the responsibilities and duties of the Executive
that demotes Executive or significantly reduces the Executive's
responsibilities, which change continues for a period of thirty (30) days after
the Executive has given the Board of Directors written notice specifying in
detail the change and the Executive's objection to the change; (iii) without
the express written consent of the Executive, any material decrease in the
Executive's base salary, other than a decrease in base salary which is part of
a general decrease in salaries provided or payable to the senior executive
officers of the Company generally; and (iv) any failure by the Company to
obtain the assumption of this Agreement by any successor or assign of the
Company. If the Company terminates the Executive's employment under this
Agreement for "cause" or if the Executive resigns without "good reason," the
Company shall pay to the Executive only the salary and benefits otherwise
payable to him under this Agreement through the last day of his employment by
the Company. If the Company terminates the Executive's employment under this
Agreement for "cause" or if the Executive resigns without "good reason," the
Executive shall not be entitled to receive any unpaid bonus for any period
prior to his termination even if the performance objectives have been attained.
(b) Either party may terminate this Agreement at any time without
cause, upon giving the other party ninety (90) days written notice. In the
event of a termination by either party without cause, the Executive shall be
entitled to receive his salary and benefits in accordance with this Agreement
through the last date of his employment. If the Executive is terminated by the
Company other than for "cause" during the term of this Agreement, or if the
Executive resigns for "good reason," then, in addition to salary and benefits
through the last day of the Executive's employment, the Executive shall be
entitled to receive severance equal to one and one-half years' base salary and
shall be entitled to receive benefits through the date that is the earlier of
(i) one and one-half years from the date on which the employment is
terminated, or (ii) the date on which the Executive accepts employment with
another company (regardless of whether such company offers the Executive the
same benefits as the Company) or the Executive otherwise replaces such
benefits, whichever occurs first. Such severance pay shall be payable over
such one and one-half-year period in accordance with the Company's usual
payroll practices.
(c) The Executive's employment shall terminate immediately upon
the Executive's death or disability. As used in this Agreement, the term
"disability" shall mean the inability of the Executive, due to a physical or
mental disability, to perform the services contemplated under this Agreement
for a period of one hundred eighty (180) days in any consecutive twelve-month
period. If the Executive's employment is terminated by the Executive's death
or disability, the
5
<PAGE> 6
Company shall pay to the estate of the Executive or to the Executive, as the
case may be, the salary and benefits which would otherwise be payable to the
Executive through the end of the month in which his employment is terminated
because of death or disability.
(d) This Agreement shall terminate at the end of the Employment
Period, unless sooner terminated as provided herein. If the Executive's
employment is terminated at the end of the Employment Period, the Company shall
have no further obligation to the Executive.
10. Miscellaneous.
(a) Notices. All notices required or permitted under this
Agreement shall be in writing and shall be deemed effective upon personal
delivery or upon deposit with the United States Postal Service, by registered
or certified mail, postage prepaid, addressed to the other party at the address
shown above, or at such other address or addresses as either party shall
designate to the other in writing from time to time.
(b) Pronouns. Whenever the context may require, any pronouns used
in this Agreement shall include the corresponding masculine, feminine or neuter
forms, and the singular forms of nouns and pronouns shall include the plural,
and vice versa.
(c) Entire Agreement. This Agreement constitutes the entire
agreement between the parties and supersedes all prior agreements and
understandings, whether written or oral, relating to the subject matter of this
Agreement.
(d) Amendment. This Agreement may be amended or modified only by
a written instrument executed by both the Company and the Executive.
(e) Governing Law. This Agreement shall be construed, interpreted
and enforced in accordance with the laws of the Commonwealth of Virginia,
without regard to its conflicts of laws principles.
(f) Successors and Assigns. This Agreement shall be binding upon
and inure to the benefit of both parties and their respective successors and
assigns; provided, however, that the obligations of the Executive are personal
and shall not be assigned or delegated by him.
(g) Waiver. No delays or omission by the Company or the Executive
in exercising any right under this Agreement shall operate as a waiver of that
or any other right. A waiver or consent given by the Company or the Executive
on any one occasion shall be effective only in that instance and shall not be
construed as a bar or waiver of any right on any other occasion.
(h) Captions. The captions appearing in this Agreement are for
convenience of reference only and in no way define, limit or affect the scope
or substance of any section of this Agreement.
6
<PAGE> 7
(i) Severability. In case any provision of this Agreement shall
be held by a court with jurisdiction over the parties to this Agreement to be
invalid, illegal or otherwise unenforceable, the validity, legality and
enforceability of the remaining provisions shall in no way be affected or
impaired thereby.
7
<PAGE> 8
IN WITNESS WHEREOF, the parties have executed this Agreement on the day
and year first above written.
OBJECTIVE COMMUNICATIONS, INC. EXECUTIVE
By: /s/ Robert H. Emery /s/ Steven A. Rogers
- ------------------------------------------ -------------------------------
Name: Robert H. Emery Steven A. Rogers
Title: Vice President, Administration and
Finance
8
<PAGE> 1
EXHIBIT 10.5
October 7, 1996
Objective Communications, Inc.
14100 Park Meadow Drive
Chantilly, VA 20151
Gentlemen:
The purpose of this letter is to outline our agreement in principle
pursuant to wh ch Barington Capital Group, L.P. ("Barington") will act as
Underwriter in connection with a public offering (the "Offering") of Common
Stock (the "Common Stock") of Objective Communications, Inc. (the "Company").
The terms of our agreement in principle are as follow:
1. The Offering shall consist of the sale of approximately $9,900,000 of
Common Stock (the "Shares"). Barington will act as sole underwriter of the
Offering or as managing underwriter of an underwriting syndicate, subject to
among other things, completion of our due diligence examination and execution
of a definitive underwriting agreement (the "Underwriting Agreement").
2. The actual size of the Offering, the promise number of Shares to be
offered by the Company, and the offering price per Share shall be the subject
of continuing negotiations between the Company and Barington and will depend
upon those capitalization of the Company at the time of the Offering, market
and general economic conditions, changes in the prospects or forecasts of the
Company, Verification of the Company's revenue and not Income projections, as
well as other factors, Prior to the effective date (the "Effective Date") of
the Offering, the capitalization of the Company shall be satisfactory to
Barington and shall consist of (i) no more than an aggregate of 3,000,000
shares of Common Stock outstanding on a fully diluted basis other than as set
forth in (ii), (iii) and (iv) below, (ii) between 225,000 and 450,000 shares of
Common Stock (on a fully-diluted basis) to be issued in connection with a
$1.0-$2.0 million equity private placement to be consummated on terms
(including valuation and the aggregate amount of such investment) acceptable to
the Company and Barington prior to the Offering; (iii) options to purchase no
more than 450,000 shares of Common Stock pursuant to an employee stock option
plan satisfactory to Barington to be adopted prior to the Offering; (iv)
warrants to purchase approximately between 250,000 and 500,000 shares of Common
Stock (the "Bridge Shares") pursuant to warrants issued in connection with a
bridge financing in which Barington acted as placement agent (the "Bridge
Financing"), and (v) no indebtedness other than trade payables, certain capital
lease obligations, and no more than approximately $800,000 outstanding under
existing notes payable. Except as provided herein, there shall be no other
outstanding shares of common or preferred stock, options, warrants, convertible
securities or rights to acquire
<PAGE> 2
any equity security of the Company and no outstanding indebtedness. Based on
this capitalization, it is currently contemplated that approximately
1,800,000 Shares will be offered at an offering price of between $5.00 and
$6.00 per Share. Barington may rely on soliciting dealers who are members of
the NASD to participate in placing a portion of the Offering and may offer
Shares to dealers at less than the public offering price.
3. The Company will grant to Barington an option, exercisable within 45
days after the closing of the Offering, to acquire up to an additional 15% of
the total number of Shares to be offered by the Company, solely for the purpose
of covering overallotments (the "Overallotment Shares").
4. The underwriting discount or spread shall be 10% of the public offering
price. Barington shall also be entitled to a no-accountable expense allowance
equal to 3% of the gross proceeds of the Offering (including proceeds from the
sale of the Overallotment Shares). Upon the closing of the first tranche of the
Bridge Financing, the Company shall deliver to Barington a check in the amount
of $25,000, and upon the filing of the Registration Statement with the
Commission, the Company shall deliver to Barington a check in the amount of
$15,000, which amounts shall be applied against the non-accountable expense
allowance.
5. The Company shall, as soon as practicable, have its legal counsel
(which counsel shall be a recognized law firm reasonably acceptable to
Barington) prepare and file with the Securities and Exchange Commission (the
"Commission") and the appropriate state securities authorities, a Registration
Statement on Form S-1 or SB-2 (the "Registration Statement") under the
Securities Act of 1933, as amended (the "Act"), covering the Shares, the
Overallotment Shares, the Bridge Shares, the Representative's Options (as
hereinafter defined) and the shares of Common Stock underlying the
Representative's Options. The Registration Statement, and all amendments and
supplements thereto, will be in form satisfactory to Barington and counsel to
Barington and will contain audited financial statements for the fiscal year
ending December 31, 1996, audited by a nationally recognized firm of certified
public accountants reasonably acceptable to Barington, and such interim and
other financial statements and schedules as may be required by the Act and the
rules and regulations of the Commission thereunder. Barington and its counsel
shall be given the opportunity to make such review and investigation in
connection with the Registration Statement as it deems desirable.
6. The Registration Statement filing will include as an exhibit a proposed
form of Underwriting Agreement. The final Underwriting Agreement will be in
form satisfactory to the Company and Barington and will include indemnification
provisions and other terms and conditions customarily found in underwriting
agreements. Without limiting the generality of the foregoing, the Underwriting
Agreement shall provide that for a period of 24 months from and after the
Effective Date, neither the Company nor any person or entity who beneficially
owns, as of the effective date of the Registration Statement, any shares of the
Common Stock, shall offer, issue, sell, contract to sell, grant any option for
the sale of or otherwise dispose of any securities
<PAGE> 3
of the Company without Barington's prior written consent, except for (i) shares
issued pursuant to the overallotment option referred to in paragraph 3 hereof,
(ii) the Representative's Options referred to in paragraph 11 hereof, (iii) the
issuance of any shares of Common Stock underlying the Representative's Options,
(iv) the granting of any options described in paragraph 2(iii) above and the
issuance of shares of Common Stock upon the exercise of such options, (v) the
issuance of any Bridge Shares, (vi) the issuance of any securities in
connection with any merger or acquisition, and (vii) the issuance of any
securities to unaffiliated third parties at fair market value approved by the
Board of Directors. Notwithstanding the foregoing 24-month lock-up, any such
shareholder may sell up to 30% of their 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 its principal exchange has been at lest 200% of the
initial public offering price 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 the initial public offering price.
7. Concurrently with or as soon as practicable after the filing of the
Registration Statement with the Commission, the necessary state securities law
filings will be made with respect to the Shares and the Overallotment Shares.
The Company and Barington will cooperate in obtaining the necessary approvals
and qualifications in such states as Barington deems desirable.
8. The Company shall be responsible for and pay all expenses relating to
the Offering, including, without limitation, all filing fees and other expenses
relating to the registration of the Shares, the Bridge Shares and the
Overallotment Shares with the Commission and the filing of the offering
material with the NASD; all fees and expenses relating to the listing of the
Shares and the Overallotment Shares on such stock exchanges as Barington shall
reasonably determine; all fees, expenses and disbursements relating to the
registration or qualification of such Shares and the Overallotment Shares under
the securities laws of such state and other jurisdictions as Barington may
reasonably designate (including, without imitation, all filing and registration
fees, and the reasonable fees and disbursements of Barington's counsel); the
costs of all mailing and printing of the underwriting documents (including the
Underwriting Agreement, any Blue Sky Surveys and, if appropriate, any Agreement
Among Underwriters, Selected Dealers Agreement, Underwriter's Questionnaire and
Power of Attorney), Registration Statements and all amendment's supplements and
exhibits thereto and as many preliminary and final prospectuses as Barington
may reasonably deem necessary; the cost of preparing, printing and delivering
certificates representing the Shares; fees and expenses of the transfer agent
for the Shares; stock transfer of securities form the Company to Barington; the
fees and expenses of the Company's accountants and legal counsel; the costs of
advertising the Offering in the national edition of The Wall Street Journal and
other publications up to a maximum of $10,000 and the costs of preparing a
reasonable number of transaction "bibles" or "mementos."
9. While the Commission is reviewing the Registration Statement, Barington
may plan and arrange a marketing trip for the Company's management to meet with
prospective investors.
<PAGE> 4
Such a trip will include visits to a number of prospective institutional and
retail investors. On such trip, the Company shall pay for its own travel
and lodging expenses.
10. At such time as the Company and Barington are mutually satisfied that
it is appropriate to commence the Offering, the final terms of the Underwriting
Agreement will be negotiated and the Company and Barington will request the
Commission to make the Registration Statement effective.
11. Concurrent with the closing of the Offering, the Company shall sell to
Barington (or its designated affiliate) Common Stock purchase options (the
"Representatives Options") covering a number of Shares equal to 10% of the
total number of Shares being sold in the Offering (not including the
Overallotment Shares). The price of the Representative's Options shall be one
mil $(0.001) per option. Such options will expire five years after such date.
The Representative's Options will be exercisable at a price equal to 120% of
the public offering price and such Representative's Options shall not be
redeemable. The Company will register the Representative's Options and
underlying shares of Common Stock under the Act and will file all necessary
undertakings in connection therewith. Neither the Representative's Options nor
the underlying shares of Common Stock may be transferred, assigned or
hypothecated for a period of one year, except that they may be assigned, in
whole or in part, to any successor, officer or partner of Barington (or to
officers or partners of any such successor or partner). Notwithstanding the
foregoing, no holder shall sell or otherwise dispose of any of the shares
underlying the Representative's Options prior to any release of the lock-up set
forth in paragraph 6 above. The Representative's Options may be exercised as to
allot a lesser number of Shares and will contain provisions for one demand
registration of the sale of the underlying shares of Common Stock at the
Company's expense and an additional demand registration at the optionholders'
expense for a period of five years after the closing of the Offering, and
"piggyback" registration rights for a period of seven years after the closing
of the Offering. The Representative's Option shall further provide for
adjustment in the number and price of such options to prevent dilution.
12. The Company agrees that if the Shares are sold in accordance with the
terms of the Underwriting Agreement or Barington is prepared to offer the
Shares substantially on the terms set forth herein or in the Underwriting
Agreement, Barington shall have an irrevocable preferential right for a period
of three years from the later of the date hereof or the date the Offering is
completed to purchase for its account or to sell for the account of the Company
or any subsidiary of or successor to the Company, or any of the Company's
stockholders owning at least two percent of the capital stock of the Company
(the "Principal Stockholders"), any securities of the Company or any such
subsidiary or successor which the Company, any such subsidiary or successor or
any of the Company's Principal Stockholders may seek to sell (other than sales
of small amounts of securities by Principal Stockholders through brokers in
open market transactions), whether pursuant to registration under the Act or
otherwise. The Company, any such subsidiary or successor and the Company's
Principal Stockholders will consult Barington
<PAGE> 5
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 mail addressed to Barington, then Barington
shall have not 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 future
proposal relates to an underwritten public offering to lead managed by an
institutionally-based major bracket or large regional underwriting firm,
Barington agrees that it shall only have the right to co-manage such offering
(right hand side of prospectus) provided Barington receives at least 33% of the
total economics and 33% of the total number of shares to be issued or sold in
such offering.
13. At or prior to the closing of the Offering, the Company will enter
into an agreement with Barington pursuant to which for a period of two years
the Company shall agree to employ Barington as its non-exclusive investment
Banker and Financial Consultant at a fee of $80,000 (exclusive of any
accountable out-of-pocket expenses) payable on the closing date of the
Offering.
14. The Company shall use its best efforts (which shall include, but shall
not be limited to, the solicitation or proxies, if necessary) to elect one
designee of Barington to the Company's Board of Directors for a period of five
years following the completion of the Offering.
15. The Company agrees that it shall use its best efforts to seek and
thereafter maintain the quotation on NASDAQ and such other national stock
exchange as Barington shall designate of price information for the Shares. In
addition, the Company agrees, prior to the Effective Date and for a period of
five years thereafter, to be registered with the Corporation Records Service
published by Standard & Poor's Corporation.
16. The Company shall supply Barington, at the Company's cost, with three
bound volumes of the public offering materials within a reasonable time after
the closing of the Offering.
17. The Company agrees that it shall procure Director and Officer
Liability insurance with a reputable insurance carrier prior to and effective
as of the Effective Date.
18. The Company shall retain a transfer agent acceptable to Barington for
the Common Stock for a period of three years following the Effective Date. Upon
Barington's request, the Company shall provide Barington with copies of the
Company's daily stock transfer sheets and
<PAGE> 6
lists of the beneficial and record holders of the Company's securities from such
transfer agent and from the Depository Trust Company, at the Company's sole cost
and expense.
19. The Company shall retain an investor relations firm reasonably
acceptable to Barington for a period of three years from the Effective Date.
20. Except as provided in this paragraph, this letter is not intended to
be a binding legal document, as the agreement between the parties hereto on
these matters will be embodied in the Underwriting Agreement referred to above.
As long as Barington is proceeding in good faith with the preparations for the
Offering, the Company agrees not to negotiate or enter into any agreement with
or solicit any underwriter, potential underwriter or other person in connection
with an offering of the Company's securities. It is our intention to enter into
the Underwriting Agreement on the Effective Date; however, Barington reserves
the right not to proceed with the Offering if, prior to the execution of the
Underwriting Agreement, in its sole judgment, (i) market conditions are
unsuitable for such Offering at the price per Share set forth in paragraph 2
hereof and the Company and Barington cannot agree on another price or
structure; (ii) information comes to Barington's attention relating to the
Company, its products or services, its management, its position in the industry
in which it competes, or to any laws, rules or regulations which govern or
affect the Company's business which in Barington's sole reasonable judgment
would preclude a successful public Offering; (iii) a material adverse change
has occurred in the financial condition, results of operations, business or
prospects of the Company; (iv) the NASD determines that any payment (including
cash and/or securities) paid by the Company to any investment banker (other
than Barington), consultant or to any other person is "underwriter
compensation" in connection with the proposed public Offering; (v) as a result
of the review of the Company's financial statements by the Company's
independent accountants approved by Barington, it is determined that the
Company's historical financial statements must be restated and that, as
restated, the Company's earnings, revenues, assets and/or net worth is
materially less than as previously presented; or (vi) the Company has breached
any of its representations, warranties or obligations hereunder, or failed to
expeditiously proceed with the Offering or to cooperate with Barington in
requesting effectiveness of the Registration Statement at such time as
Barington may deem appropriate. If, prior to the execution of the Underwriting
Agreement, Barington elects not to proceed with the Offering as a result of the
condition enumerated in clause (i) above, the Company shall reimburse Barington
in full for its out-of-pocket expenses (including, without limitation, its
legal fees and disbursements), up to the amounts previously paid pursuant to
paragraph 4 above. If, prior to the execution of the Underwriting Agreement,
Barington elects not to proceed with the Offering as a result of any of the
conditions enumerated in any of clauses (ii)-(vi) above or the Company
elects not to proceed with the Offering for any reason, the Company shall
reimburse Barington in full for its out-of-pocket expenses (including, without
limitation, its legal fees and disbursements), up to an aggregate of $125,000
less amounts previously paid pursuant to paragraph 4 above, and the provisions
of paragraph 12 shall remain in full force and effect. In addition, if
Barington elects not to proceed with the proposed Offering as a result of any
of the conditions enumerated in any of clauses (ii)-(vi) above or the Company
<PAGE> 7
elects not to proceed with the proposed Offering for any reason and
subsequently engages in any private placement, merger, acquisition or sale of
securities, joint venture or other similar transaction ("Subsequent
Transaction") within twelve (12) months following Barington's or the Company's
election not to proceed, then Barington shall be paid a "Lehman formula" based
on the total amount of any consideration received by the Company or its
subsidiaries, affiliates or shareholders in any Subsequent Transaction. For
purposes hereof, the "Lehman formula" fee shall equal 5% of the first $5
million of consideration so paid or received, plus 4% of the next $2 million of
such consideration, plus 3% of the next $2 million of such consideration, plus
2% of the next $2 million of such consideration, plus 1% of all such
consideration in excess of $11 million.
This letter agreement supersedes any prior written agreements between the
parties hereto with respect to the matters set forth herein.
We are delighted at the prospect of working with you and look forward to a
successful Offering.
If you are in agreement with the foregoing, please execute and return two
copies of this letter to the undersigned.
Yours truly,
BARINGTON CAPITAL GROUP, L.P.
By: LNA CAPITAL CORP.,
General Partner
By:
------------------------------
Name:
Title:
ACCEPTED AND AGREED TO
AS OF THE DATE FIRST
ABOVE WRITTEN:
OBJECTIVE COMMUNICATIONS, INC.
By: /s/ Robert Emery
----------------------------------------
Name: Robert Emery
Title: Vice President Administration
<PAGE> 1
EXHIBIT 10.6
December 5, 1995
Mr. Steven A. Rogers
President
Objective Communications, Inc.
15000 Conference Center Drive
Chantilly, VA 22021
Dear Steven:
This letter of understanding sets forth th agreement that we have reached
today concerning the relationship between PVR Securities, Inc., Objective
Communications, Inc., Steven A. Rogers, and John B. Torkelsen.
CURRENT OFFERING
We will continue the existing offering of $30,000 units, on essentially
the existing terms and conditions, with a goal of raising at least $500,000 by
the end of the year (17 units) with a maximum offering, subject to acceptance
by Objective Communication , of $1,500,000 (50 units). Steven A. Rogers will
offer any purchaser of units, including those who purchased the 27 units
previously sold, the opportunity, for each unit purchased, to purchase 5,000
shares of his stock at $1 per share with the closing to occur in January, 1996.
LOAN WARRANTS
In consideration of PVR's agreement to lend $120,000 to Objective
Communications prior to the General DataComms Letter of Intent (subsequently
con erted into offering units) PVR or its Designees will receive five year
warrants to purchase 40,000 shares of common stock (the shares underlying four
units) at an exercise price of $4 per share.
PURCHASE OF SHARES FROM STEVEN A. ROGERS
In addition to any shares which PVR or John B. Torkelsen might be entitled
to purchase due to the purchase of units in the offering, Steven A. Rogers
offers to sell $75,000 shares of his common stock at $1 per share to PVR/John
B. Torkelsen in February 1996.
VOTING AGREEMENT
Steven A. Rogers and John B. Torkelsen mutually agree to enter into a five
year voting agreement obligating each party to vote any shares that he controls
for the election of the other party to the Board of Directors. In addition,
both parties will agree to use their best effort to obtain shareholder votes
for the other party from third party shareholders. Finally, J hn B. Torkelsen
will agree, subject to his fiduciary obligations, to vote for Steven A. Rogers
to continue his position as President and Chief Executive Officer during the
term of the voting agreement.
<PAGE> 2
Page 2
December 5, 1995
EXTENSION OF INVESTMENT BANKING AGREEMENT
Objective Communications and Steven A. Rogers agree that if PVR obtains
subscriptions for 17 units by January 15, 1996, its investment banking contract
with Objective Communications, dated December 22, 1994, will be renewed or
extended for six months. A subscription will be deemed to be obtained by Decem
er 31, 1995 if a signed subscription agreement is received by mail or facsimile
transmission. Any investment from GDC is specifically excluded from this
agreement (investment banking contract).
Sincerely,
/s/ John B. Torkelsen
John B. Torkelsen, CFA
President
PVR Securities, Inc.
/s/ John B. Torkelsen
-------------------------------
John B. Torkelsen, Individually
ACCEPTED AND AGREED TO:
/s/ Steven A. Rogers
- -------------------------------------
Steven A. Rogers
President and Chief Executive Officer
/s/ Steven A. Rogers
- ------------------------------
Steven A. Rogers, Individually
<PAGE> 1
EXHIBIT 10.7
VOTING AGREEMENT
This Voting Agreement (the "Agreement") is entered into as of
December 19, 1996 by and among Objective Communications, Inc., a Delaware
corporation (the "Company"), Steven A. Rogers (the "Holder"), Applewood
Associates, L.P. ("Applewood") and Acorn Technology Partners, L.P. ("Acorn,"
and, together with Applewood, the "Investors").
R E C I T A L S
WHEREAS, contemporaneously with the execution and delivery of this
Agreement, the Investors are purchasing shares of Series A Convertible
Preferred Stock (the "Series A Preferred Stock") and warrants (the "Warrants")
of the Company pursuant to that certain Series A Convertible Preferred Stock
and Warrant Purchase Agreement of even date herewith (the "Stock Purchase
Agreement"); and
WHEREAS, the Company and the Investors wish to enter into an
agreement whereby, among other things, the Investors would be entitled to
designate one (1) person to be elected as a member of the Company's Board of
Directors;
WHEREAS, in order to induce the Investors to consummate their
purchases of the Series A Preferred Stock and the Warrants pursuant to the
Stock Purchase Agreement, the Company, the Holder and the Investors agree to
enter into and be bound by this Agreement;
NOW, THEREFORE, in consideration of the foregoing recitals and the
mutual covenants set forth below, the parties hereto agree as follows:
1. Election of Director.
(a) For so long as the Investors hold in the aggregate at least
five percent (5%) of the outstanding voting securities of the Company (on a
fully diluted, as converted basis), the Investors shall be entitled to nominate
one (1) person for election to the Company's Boar of Directors (it being agreed
Among the Investors that for so long as Applewood shall hold any shares of
Series A Preferred Stock, such person to be nominated for election shall be
selected by Applewood).
(b) The Holder will, during the term of this Agreement:
(i) vote(or cause to be voted) all shares of capital stock
of the Company then held by him so as always to elect as a director the nominee
designated by the Investors and vote in opposition to any attempt to remove
such director without the consent of the Investors unless (x) such removal is
for cause and (y) the vacancy caused thereby is immediately filled, in
accordance with Section 1(a) above at any annual or special meeting called for
such purpose; in the event of any vacancy on the Board of Directors as a result
of the resignation or removal of a director originally nominated by the
Investors, the Holder will vote
<PAGE> 2
all such shares to fill such vacancy with a nominee designated in the same
manner as the person who held the directorship so vacated; and
(ii) vote(or cause to be voted) all such shares of stock
necessary to cause the total number of authorized directors of the Company to
be not less than three (3).
(iii) The Investors will, during the term of this
Agreement, vote (or cause to be voted) all such shares of stock necessary to
cause the total number of authorized directors of the Company to be not less
than three (3).
2. Authorization of Additional Shares.
The Holder will vote (or cause to be voted) all shares of capital
stock of the Company then held by him so as to authorize the issuance of any
additional securities required for the conversion or exercise of all or any
portion of the Series A Preferred Stock and the Warrants.
3. Other Matters.
This Agreement shall not extend to voting upon questions and
matters (other than the election of directors and the authorization of
additional shares) upon which stockholders of the Company have a right to vote
under the Charter or Bylaws of the Company or under the laws of the State of
Delaware.
4. Representative at Board of Director Meetings.
In addition to such person as the Investors are entitled to
nominate for election to the Company's Board of Directors as provided herein,
for so long as the Investors hold in the aggregate at least five percent (5%)
of the outstanding voting securities of the Company (on a fully diluted, as
converted basis) the holders of a majority in interest of all shares of capital
stock of the Company then held by the Investors may also designate one (1)
representative to receive notice of and attend all meetings of the Board of
Directors of the Company and such representative shall be permitted to attend
and observe all such meetings (it being agreed among the investors that for so
long as Applewood shall hold any shares of Series A Preferred Stock such
representative to be designated shall be selected by Applewood).
5. Reimbursement of Expenses.
The Company shall reimburse the reasonable out-of-pocket expenses
(including, without limitation, travel expenses) of (i) any director nominated
by the Investors pursuant to Section 1 hereof and (ii) any representative
designated by the Investors pursuant to Section 4 hereof, related to attending
meetings of the Board of Directors of the Company.
-2-
<PAGE> 3
6. Voting Proxy.
(a) Acorn hereby appoints Applewood as Proxy with full power of
substitution and resubstitution and grants to such Proxy all rights and powers
to vote all shares of Series A Preferred Stock of record in the name of or held
for the benefit of Acorn at any time and from time to time. The Proxy and grant
of such authority shall include the right and power to vote the Stock on any
and all matters as to which the Investors shall have the right to vote under
this Agreement at any regular or special meeting of stockholders or otherwise,
and the right and power to give written or verbal consents with respect to any
corporate action and to waive notice of or attendance at any meeting.
(b) This Proxy is irrevocable (subject to the limitations set
forth in the next paragraph) and grants to Applewood all rights and powers to
vote the above referenced shares in any manner, in Applewood's sole discretion,
that Applewood believes is appropriate, without regard to the interests of any
other person or entity.
(c) This Proxy shall terminate with respect to any and all matters
upon the first to occur of (i) six (6) months from the date of execution of
this Agreement and (ii) the completion of the currently contemplated initial
public offering of Common Stock by the Company for not less than $5.00 in an
underwriting with Barington Capital Group, L.P. as the lead underwriter (the
"Barington Offering") ; provided, however, that notwithstanding the foregoing,
the Proxy with respect to the nomination and election of a director as set
forth in Section 1 hereof shall not terminate prior to the termination of this
Agreement.
7. Termination.
This Agreement shall terminate and be of no further force or
effect upon the first to occur of (i) the tenth anniversary of this Agreement,
(ii) the completion of the Barington Offering or (iii) the consummation of the
Company's issuance and sale of its Common Stock in a bona fide, firm commitment
underwriting pursuant to a registration statement under the Securities Act of
1933, as amended, covering the offer and sale of the Company's Common Stock to
the general public (a "Qualified Public Offering") which shall result in gross
proceeds to the Company of at least $10,000,000 in the aggregate and be at a
price per share to the public which is not less than 150% of the then effective
"Series A Conversion Price" as defined in the Charter (all as appropriately
adjusted to reflect subsequent stock issuances, stock splits, stock dividends,
mergers, combinations, reclassifications, reorganizations, recapitalizations
and similar events), provided further, however, that in the event no shares of
Series A Preferred Stock are outstanding, no per share price limitation shall
apply.
8. Entire Agreement; Modifications and Amendments.
(a) This Agreement constitutes the entire agreement of the parties
with respect to the subject matter hereof and may not be modified, amended or
terminated (other than in
-3-
<PAGE> 4
accordance with its terms) except by a written agreement specifically referring
to this Agreement and signed by (i) the Company, (ii) the Investors and (iii)
the Holder.
(b) To the extent any term or other provision of any other
indenture, agreement, instrument or oral understanding by which any party
hereto is bound conflicts with this Agreement, this Agreement shall have
precedence over such conflicting term or provision.
9. Waivers.
No waiver of any breach or default hereunder shall be considered
valid unless in writing and signed by the party granting such waiver, and no
such waiver shall be deemed a waiver of any subsequent breach or default of the
same or similar nature.
10. Successors and Assigns; Assignability of Rights.
This Agreement shall be binding upon and inure to the benefit of
each party hereto, its successors and permitted assigns. Otherwise, this
agreement shall not confer any rights, remedies, obligations or liabilities
upon any third party. The rights granted to the investors herein shall be
assignable only to an assignee or transferee who, as a result of such
assignment, holds, in the aggregate, at least ten percent (10%) of the
aggregate of the then outstanding shares of Series A Preferred Stock.
11. Legends.
Each certificate issued after the date hereof evidencing
securities subject to the provisions of this Agreement (including any shares
issued upon a transfer, stock split, stock dividend, recapitalization, merger
or other similar event) shall at all times during the term of this Agreement
bear the following legend:
THE SECURITIES EVIDENCED BY THIS CERTIFICATE ARE
SUBJECT TO THE PROVISIONS OF A VOTING
AGREEMENT DATED AS OF DECEMBER 19, 1996. BY
ACCEPTING ANY INTEREST IN SUCH SECURITIES THE
PERSON ACCEPTING THE INTEREST SHALL BE DEEMED
TO AGREE TO AND SHALL BECOME BOUND BY ALL THE
PROVISIONS OF SAID VOTING AGREEMENT. THE
CORPORATION WILL FURNISH A COPY OF SUCH
AGREEMENT TO THE HOLDER OF THIS CERTIFICATE
UPON REQUEST AND WITHOUT CHARGE.
12. Headings.
The section and subsection headings contained herein are for
convenience only and are not intended to define or limit the contents of said
sections or subsections.
-4-
<PAGE> 5
13. Cooperation.
Each party hereto shall take such further action and shall execute
and deliver such further documents as may be reasonably requested by any other
party in order to carry out the provisions and purposes of this Agreement.
14. Counterparts.
This Agreement may be executed in one or more counterparts, each
of which shall be deemed an original, but all of which taken together shall
constitute one and the same instrument.
15. Governing Law.
This Agreement and all amendments hereof shall be governed by and
construed in accordance with the laws of the State of New York, disregarding
any New York principles of choice or conflict of laws that would otherwise
provide for the application of the substantive laws of another jurisdiction.
16. Specific Performance.
Without limiting the rights of each party hereto to pursue all
other legal and equitable rights and remedies available to such party for any
other party's failure to perform its obligations under this Agreement, each
such party acknowledges and agrees that the remedy at law for any failure to
perform obligations hereunder would be inadequate and all such parties shall be
entitled to specific performance, injunctive relief or other equitable remedies
in the event of any such failure.
17. Severability
If any provision of this Agreement shall be held to be illegal,
invalid or unenforceable, such illegality, invalidity or unenforceability shall
attach only to such provision and shall not in any manner affect or render
illegal, invalid or unenforceable any other provision of this Agreement, and
this Agreement shall be carried out as if any such illegal, invalid or
unenforceable provision were not contained herein.
-5-
<PAGE> 6
IN WITNESS WHEREOF, the parties hereto have caused this Voting
Agreement to be duly executed as of the day and year first above written.
COMPANY:
OBJECTIVE COMMUNICATIONS, INC.
By: /s/ Steven A. Rogers
----------------------------
Name: Steven A. Rogers
Title: President and CEO
Address: 14100 Park Meadow Drive
Chantilly, Virginia 20151
HOLDER:
By: /s/ Steven A. Rogers
---------------------------
Steven A. Rogers
Address:
INVESTORS:
APPLEWOOD ASSOCIATES, L.P.
By: APPLEWOOD CAPITAL CORP.,
its General Partner
By:
----------------------------------
Name: Barry Rubenstein
Title:
Address: c/o Maureen Wilson
80 Cuttermill Road
Suite 311
Great Neck, New York 11021
-6-
<PAGE> 7
IN WITNESS WHEREOF, the parties hereto have caused this Voting
Agreement to be duly executed as of the day and year first above written.
COMPANY:
OBJECTIVE COMMUNICATIONS, INC.
By:
---------------------------
Name:
Title:
Address: 14100 Park Meadow Drive
Chantilly, Virginia 20151
HOLDER:
By:
--------------------------
Steven A. Rogers
Address:
INVESTORS:
APPLEWOOD ASSOCIATES, L.P.
By: BARRY RUBENSTEIN,
a General Partner
By: /s/ Barry Rubenstein
--------------------------
Barry Rubenstein
Address: c/o Barry Rubenstein
68 Wheatley Road
Brookville, New York 11545
-7-
ACORN TECHNOLOGY PARTNERS, L.P.
By: PRINCETON GROWTH INVESTMENTS I,
L.L.C., its General Partner
By: /s/ John B. Torkelsen
-----------------------------
Name: John B. Torkelsen
Title: President and Manager
Address: c/o Chadian Services, Limited
Clarendon House
2 Church Street
Hamilton, HM II, Bermuda
-8-
<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) ($2,694,436) ($5,151,915)
=================================================== ===============
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 1,057,790 1,057,790 1,057,790 1,057,790
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 2,664,116 3,611,659 3,757,634 3,757,634
=================================================== ===============
Net loss per common share ($0.15) ($0.57) ($0.72) ($1.37)
=================================================== ===============
</TABLE>
<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.
March 13, 1997
