<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 5, 1998
REGISTRATION NO. 333-62971
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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AMENDMENT NO. 1
TO
FORM S-3
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
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OBJECTIVE COMMUNICATIONS, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 3669 54-1707962
(State or other jurisdiction of (Primary Standard Institutional (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
</TABLE>
<TABLE>
<S> <C>
OBJECTIVE COMMUNICATIONS, INC. ROBERT H. EMERY
50 INTERNATIONAL DRIVE 50 INTERNATIONAL DRIVE
PORTSMOUTH, NEW HAMPSHIRE 03801 PORTSMOUTH, NEW HAMPSHIRE 03801
(603) 334-6700 (603) 334-6700
(Address, including zip code, and (Name, address, including zip code,
telephone number, including area code, of and telephone number, including
Registrant's principal executive offices) area code, of agent for service)
</TABLE>
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Copy to:
ELLEN C. GRADY, ESQ.
SHAW PITTMAN POTTS & TROWBRIDGE
1501 FARM CREDIT DRIVE
MCLEAN, VIRGINIA 22102
(703) 790-7946
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
possible after the effective date of this registration statement.
If the only securities being registered on this form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [ ]
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, as amended, other than securities offered only in connection with dividend
or reinvestment plans, check the following box. [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act 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 number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
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CALCULATION OF REGISTRATION FEE
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AMOUNT PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF TO BE OFFERING PRICE AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED PER SHARE (1) OFFERING PRICE(1) REGISTRATION FEE(3)
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<S> <C> <C> <C> <C>
Common Stock, $.01 par value..... 1,179,753 shares(2) $4.438 $4,486,774 $1,304.09
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(1) Estimated solely for purposes of calculating the registration fee pursuant
to Rule 457(c) under the Securities Act, based upon the average of the high
and low prices for the Registrant's Common Stock on the Nasdaq National
Market on October 27, 1998.
(2) Represents (i) 993,323 shares of Common Stock issuable upon the conversion
of the $3,125,000 original aggregate principal amount of 5% Cumulative
Convertible Debentures due 2003 (the "5% Convertible Debentures") issued in
a private placement in July 1998, and 11,430 shares issuable upon conversion
of the $35,958.86 in interest on such Debentures for the period beginning
July 8, 1998 and ending September 30, 1998, which interest was paid by
increasing the original aggregate principal amount of such Debentures to
$3,160,958.86 (the "Conversion Shares"), and (ii) 125,000 shares and 50,000
shares of Common Stock issuable upon the exercise of warrants that may be
issued by the Registrant on or before October 6, 1998 and on January 5,
1999, upon the optional redemption by the Company of the 5% Convertible
Debentures on such dates (together with the Conversion Shares, the
"Shares"). The number of Conversion Shares is currently indeterminable.
However, for purposes of calculating the number of shares of Common Stock
included in this registration statement, the Company calculated the number
of Conversion Shares based on an assumed conversion price of $3.146, which
is the average of the three lowest closing prices of the Common Stock on the
Nasdaq National Market for the twelve trading days preceding October 27,
1998. The actual number of shares of Common Stock issuable upon conversion
of the 5% Convertible Debentures is not calculable until such conversion
occurs, and could be materially more or less than the number of shares
registered hereunder.
(3) Pursuant to Rule 457(a), the amount of the registration fee has been
calculated on the basis of the maximum offering price of the securities
being offered, computed in accordance with Rule 457(c). 921,242 of the
Shares were previously registered pursuant to this registration statement at
a proposed maximum offering price per share of $3.625 (for a maximum
aggregate offering price of $3,339,502), and the Company previously paid the
fee of $985.15, computed in accordance with Rule 457(c), for such portion of
the Shares. In accordance with Rule 457(a), a $318.94 fee for the remaining
258,511 Shares registered hereby is being paid herewith.
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THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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<PAGE> 2
EXPLANATORY NOTE
This Registration Statement on Form S-3 (Registration No. 333-62971) (the
"Registration Statement") of Objective Communications, Inc. (the "Company")
registers 1,179,753 shares of Common Stock for resale by the holders thereof.
Such shares represent (i) 993,323 shares of Common Stock issuable upon the
conversion of the $3,125,000 original aggregate principal amount of 5%
Cumulative Convertible Debentures due 2003 (the "5% Convertible Debentures")
issued in a private placement in July 1998, and 11,430 shares issuable upon
conversion of the $35,958.86 in interest on such Debentures for the period
beginning July 8, 1998 and ending September 30, 1998, which interest was paid by
increasing the original aggregate principal amount of such Debentures to
$3,160,958.86 (the "Conversion Shares"), and (ii) 125,000 shares and 50,000
shares of Common Stock issuable upon the exercise of warrants that may be issued
by the Company on or before October 6, 1998, and on January 5, 1999, upon the
optional redemption by the Company of the 5% Convertible Debentures on such
dates (together with the Conversion Shares, the "Shares"). The number of
Conversion Shares is not currently calculable and cannot be calculated until
conversion of the 5% Convertible Debentures, because it is based on a conversion
price that is equal to the lesser of (a) a "Fixed Conversion Price" of $10.87
per share, or (b) a "Floating Conversion Price" calculated based on the average
of the three lowest closing prices during the twelve trading days preceding the
date of conversion. The number of shares issuable upon such conversion will vary
inversely with the market price of the Common Stock. However, for purposes of
calculating the number of shares of Common Stock included in this registration
statement, the Company calculated the number of Conversion Shares based on an
assumed conversion price of $3.146, which is the average of the three lowest
closing prices of the Common Stock on the Nasdaq National Market for the twelve
trading days preceding October 27, 1998. The actual number of shares of Common
Stock issuable upon conversion of the 5% Convertible Debentures could be
materially more or less than the number of shares registered hereunder. All of
the Shares will be sold for the accounts of the selling stockholders and the
Company will receive no proceeds therefrom.
<PAGE> 3
PROSPECTUS
OBJECTIVE COMMUNICATIONS, INC.
1,179,753 SHARES
COMMON STOCK
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The Prospectus relates to the offering (the "Offering") by certain selling
stockholders identified herein (the "Selling Stockholders") of 1,179,753 shares
(the "Shares") of Common Stock, par value $.01 per share, of Objective
Communications, Inc. (the "Company"), which may be sold from time to time by the
Selling Stockholders on or after the date of this Prospectus. The 1,179,753
shares of Common Stock registered pursuant to the Registration Statement of
which this Prospectus constitutes a part consist of (i) 993,323 shares issuable
upon conversion of the $3,125,000 original aggregate principal amount of the
Company's outstanding 5% Cumulative Convertible Debentures due 2003 (the "5%
Convertible Debentures") issued in a private placement in July 1998, and 11,430
shares issuable upon conversion of the $35,958.86 in interest on such Debentures
for the period beginning July 8, 1998 and ending September 30, 1998, which
interest was paid by increasing the original aggregate principal amount of such
Debentures to $3,160,958.86 (the "Conversion Shares"), and (ii) 125,000 shares
and 50,000 shares of Common Stock (the "Debenture Warrant Shares," and, together
with the Conversion Shares, the "Shares") issuable upon the exercise of warrants
(the "Debenture Warrants") that may be issued by the Company on or before
October 6, 1998, and on January 5, 1999, upon the optional redemption by the
Company of the 5% Convertible Debentures on such dates. The number of Conversion
Shares offered hereby is an estimate based on an assumed conversion price of
$3.146 per share, which is the average of the three lowest closing prices of the
Common Stock on the National Market of the National Association of Securities
Dealers Automated Quotation System ("Nasdaq") for the twelve trading days
preceding October 27, 1998. This number is subject to adjustment and could be
materially more or less than the estimate depending on a variety of factors,
certain of which are outside the control of the Company, including, without
limitation, the future market price of the Common Stock and the decision of the
holders of the 5% Convertible Debentures as to when and in what amounts to
convert their 5% Convertible Debentures. The estimate set forth in this
Prospectus is not intended to constitute a prediction as to future market price
of the Common Stock or when and in what amounts holders of the 5% Convertible
Debentures will elect to convert such debentures. See "Risk Factors -- Effect of
Conversion of the 5% Convertible Debentures" and "Description of
Securities -- 5% Cumulative Convertible Debentures Due 2003." The actual number
of shares of Common Stock issuable upon conversion of the 5% Convertible
Debentures could be materially more or less than the number of shares registered
hereunder.
The Common Stock is traded on the Nasdaq National Market under the symbol
OCOM. On October 27, 1998, the closing price of the Common Stock as reported on
the Nasdaq National Market was $4.50 per share.
The Company will not receive any proceeds from sales of the Shares. See
"Selling Stockholders."
No underwriting arrangements have been entered into by the Selling
Stockholders. The distribution of the Shares by the Selling Stockholders may be
effected from time to time in transactions on the Nasdaq National 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 commissions may be paid by the Selling Stockholders in
connection with the 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, with
respect to the securities offered and any profits realized or commissions
received may be deemed underwriting compensation.
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 6 OF THIS PROSPECTUS.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The date of this Prospectus is November , 1998.
<PAGE> 4
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The documents listed below have been filed by the Company with the
Securities and Exchange Commission (the "Commission") (File No. 000-22235) and
are incorporated herein by reference and made a part hereof:
(1) The Company's Registration Statement on Form 8-A filed with the
Commission on March 13, 1997 registering the Common Stock of the Company
under Section 12(g) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act");
(2) The Company's Annual Report on Form 10-KSB for the year ended
December 31, 1997, as amended by Amendment No. 1 to the Form 10-KSB on Form
10-KSB/A, as filed with the Commission on October 30, 1998;
(3) The Company's Quarterly Report on Form 10-QSB for the quarter
ended March 31, 1998;
(4) The Company's Current Report on Form 8-K dated April 15, 1998;
(5) The Company's Proxy Statement dated April 23, 1998 for its 1998
Annual Meeting of Stockholders;
(6) The Company's Current Report on Form 8-K dated July 16, 1998;
(7) The Company's Quarterly Report on Form 10-QSB for the quarter
ended June 30, 1998, as amended by Amendment No. 1 to the Form 10-QSB on
Form 10-QSB/A, as filed with the Commission on October 30, 1998; and
(8) All documents filed by the Company with the Commission pursuant to
Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act subsequent to the
date of this Prospectus and prior to termination of the Offering of Shares
to which this Prospectus relates.
Any statement contained in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be supplemented, modified or
superseded for purposes of this Prospectus to the extent that a statement
contained herein or in any other subsequently filed document that also is or is
deemed to be incorporated by reference herein supplements, modifies or
supersedes such statement. Any such statement so modified or superseded shall
not be deemed, except as so supplemented, modified or superseded, to constitute
a part of this Prospectus.
This Prospectus incorporates documents by reference which are not included
herein or delivered herewith. Copies of these documents, except for the exhibits
to such documents (unless the exhibits are specifically incorporated by
reference in such documents), are available upon request without charge.
Requests should be directed to Objective Communications, Inc., 50 International
Drive, Portsmouth, New Hampshire 03801, Attention: Secretary, telephone: (603)
334-6700.
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PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and the financial statements and notes thereto set forth in and
incorporated by reference in this Prospectus. Certain statements contained in
this Prospectus constitute "forward-looking statements" within the meaning of
the Private Securities Litigation Reform Act of 1995. All such forward-looking
statements involve known and unknown risks, uncertainties or other factors which
may cause actual results, performance or achievement of the Company to be
materially different from any future results, performance or achievement
expressed or implied by such forward-looking statements. Factors that might
cause such a difference include the risks identified under "Risk Factors."
THE COMPANY
Objective Communications designs, develops and markets the first high
quality, cost-effective video network system that supports video broadcast,
retrieval of stored video and multi-party conferencing to and from desktop
personal computers and conference rooms over the same wire used by the
telephone. The Company's VidPhone(R) system enables simultaneous transmission of
full-duplex S-VHS quality full-motion video, stereo audio, and high speed data.
The VidPhone(R) system has imperceptible video and audio latency within an
enterprise. Because the VidPhone(R) system uses the same wiring to the desktop
as the telephone and is independent of the Local Area Network ("LAN"), no
additional wiring or LAN management is required. In addition, the VidPhone(R)
system requires minimal processing power. The Company introduced the VidPhone(R)
system in July 1997 and currently has arrangements with 13 resellers to market
and resell the VidPhone(R) system, including Sprint Communications Corporation,
L.P. ("Sprint"), Unisys Corp. ("Unisys") and Bell Atlantic Corp. ("Bell
Atlantic"). To date, the Company has recognized minimal revenues from the sale
of the VidPhone(R) system and its components.
The Company's operations prior to 1998 related primarily to organizational
activities, including research and development, the development of its initial
products, recruiting management and technical personnel, and raising capital.
During 1998, the Company has continued to focus on product development and
enhancing its sales and marketing capabilities, while continuing to recruit
management and technical personnel, particularly to support its sales and
marketing efforts.
The Company is marketing the VidPhone(R) system through telephone product
and service providers that will resell it as an enhancement to existing
telephone systems. These providers offer sales, service and support
organizations, have relationships with virtually every business telephone user
in the world, and enjoy a high level of customer loyalty. These distribution
channels have a mature customer base which is generally receptive to system
upgrades. In July 1998, Sprint renewed for an additional year an agreement
entered into with the Company in July 1997, under which agreement Sprint has
agreed to resell the Company's video network products worldwide. The Company
also has an arrangement with Bell Atlantic under which it will market and resell
the VidPhone(R) system to the U.S. Department of Defense (the "DOD") and related
agencies. Additionally, in October 1998 the Company announced a strategic
alliance with Unisys under which agreement Unisys becomes the preferred reseller
of the Company's products to the federal government, and will collaborate with
the Company on joint marketing initiatives. The agreement with Unisys has an
initial term of one year with automatic one-year renewals, unless terminated as
provided in the agreement.
In April 1997, the Company completed its initial public offering of
2,070,000 shares of Common Stock at an initial public offering price of $5.50
per share (the "Initial Offering"). The Company received approximately $9.5
million in net proceeds from the Initial Offering. In November 1997, the Company
completed a follow-on public offering of 1,000,000 shares of Common Stock at a
public offering price of $23.125 per share (the "Follow-On Offering") and
received approximately $21.0 million in net proceeds. In July 1998, the Company
completed a private placement of 5% Convertible Debentures with certain
institutional, affiliated and other investors, from which it received gross
proceeds of approximately $3.125 million. Conversion Shares issuable upon
conversion of the 5% Convertible Debentures and the Debenture Warrant Shares, if
any such shares are issuable, are being offered for resale by the holders
thereof pursuant to this Prospectus and the Registration Statement of which this
Prospectus constitutes a part. In August 1998, the Company completed a
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private placement of 209,091 shares of 5% Cumulative Convertible Series B
Preferred Stock, par value $.01 per share (the "Series B Preferred Stock"), at a
price of $5.50 per share, and warrants to purchase 52,273 shares of Common Stock
at an exercise price of $6.00 per share (the "Series B Warrants"). The Company
received $1.15 million in gross proceeds from such offering. See "Description of
Securities."
The Company was incorporated in Delaware on October 5, 1993 by Steven A.
Rogers, its founder, Vice President of Engineering and Chief Technology Officer.
The Company's executive offices are located at 50 International Drive,
Portsmouth, New Hampshire, 03801. The Company's telephone number is (603)
334-6700.
RECENT DEVELOPMENTS
The Company believes, based upon its current plan of operations, that its
existing resources will only be sufficient to fund operations through late
November 1998. Thus, the Company will require significant additional financing
in the near term to continue operations beyond that date. The Company is
currently exploring several potential sources of financing. These include
ongoing discussions regarding a strategic alliance with a significant
multi-vendor reseller and information service provider, which relationship would
include an equity investment in the Company by the service provider. In
addition, the Company is considering several potential alternative sources of
equity financing. The Company recently retained a brokerage services firm to act
as a non-exclusive placement agent for a private offering of the Company's
equity securities, on a best efforts basis. In addition, the Company is in
discussions with a second brokerage firm regarding a possible private placement
of convertible securities for which the firm would act as the placement agent,
again on a best efforts basis.
Although the Company believes that it will be successful in its efforts to
raise additional capital, there can be no assurance that it will be able to do
so, particularly given the Company's current cash position. The Company has been
diligently pursuing financing alternatives for a number of months and, to date,
its efforts to obtain additional debt or equity financing have resulted in
financings with gross proceeds to the Company of approximately $4.275 million in
July and August. The Company's ability to attract capital has been hampered by a
number of adverse conditions which are beyond the Company's control, including
uncertainty regarding economic conditions generally, the decline in the market
for technology stocks, and concern about the stock market in general. In
addition, adverse conditions in the Company's operations have impeded financing
efforts, including the Company's inability to secure substantial additional
orders for its products, concern about product reliability and customer
acceptance, and concern about the market for video conferencing products
generally. Accordingly, there can be no assurance the Company will be successful
in its efforts to secure additional debt or equity financing through a strategic
alliance, private placement, or otherwise, on terms acceptable to the Company,
or at all.
With respect to the Company's plan of operations, the Company intends to
continue to focus on seeking to operate efficiently and preserve cash by closely
monitoring expenditures and payments to vendors on outstanding payables,
reviewing appropriate staffing levels without sacrificing product performance,
and continuing to increase product functionality and promote customer acceptance
of the VidPhone(R) system, the Company's principal product. If the Company is
not successful in securing additional financing, the Company will be forced to
consider alternative methods of maximizing shareholder value, which could
include sales of the Company's assets, a sale of the Company, or workout
alternatives.
The Company's current cash position is, in part, as a result of the absence
of any substantial cash being generated by operations. The Company did not earn
any revenues from operations in 1997, and recognized only $110,505 in revenues
from the sale of products during the first half of 1998. The Company expects to
recognize some revenue in the third and fourth quarters of 1998 from prior sales
of VidPhone(R) systems; however, the Company is not certain whether such
revenues will be recognized or, if recognized, the amount, which will depend on
customer acceptance of products shipped to date and other factors, including the
timing of customer payments, which are beyond the control of the Company.
To promote product functionality and customer acceptance of the VidPhone(R)
system, the Company announced the introduction of Release 1.4 in August 1998,
which added features to the VidPhone(R) system,
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<PAGE> 7
including ISDN and ATM wide area connectivity. The Company debuted Release 1.5
in October 1998. Release 1.5, which the Company intends to release in December
1998, further enhances the functionality of the VidPhone(R) system through the
addition of the VidServer Gateway, the VidPhone(R) Gateway, and new laptop and
headset implementations. The VidServer Gateway enables video playback and video
on demand and the VidPhone Gateway allows control of other vendor's CODECs. To
date in the fourth quarter, the Company has sold two VidPhone(R) systems. Both
systems were sold through Unisys, a strategic partner reseller of the Company,
to the U.S. Second Circuit Court of Appeals. The Company expects to recognize a
small amount of revenue in the third quarter of 1998 from earlier direct sales
of the VidPhone(R) to end-users and sales to resellers, and expects to recognize
additional revenues in the fourth quarter of 1998.
In July 1998, the Company implemented new cash management practices and
reduced its personnel in an effort to decrease corporate expenses. The Company
has continued its focus on cash management in the fourth quarter. In addition,
in July 1998, James F. Bunker was elected the new President and Chief Executive
Officer of the Company. Mr. Bunker is an experienced industry executive who has
driven successful corporate turnarounds at several technology companies
including General Instrument and M/A-COM. Mr. Steven A. Rogers, who founded the
Company and formerly acted as its President and CEO, was elected as the
Company's Chief Technology Officer and Vice President, Engineering, as the
Company continues to focus on product development and meeting customer
expectations regarding functionality.
Objective Communications(R), VidPhone(R) and TeleDraw(R) are registered
trademarks of the Company and ObjectiveView(TM), TeleShare(TM), TeleWord(TM) and
VidModem(TM) are trademarks of the Company. This Prospectus also contains
trademarks and trade names of other companies.
5
<PAGE> 8
RISK FACTORS
An investment in the shares of Common Stock offered by this Prospectus
involves a high degree of risk. Prospective purchasers of the Common Stock
offered hereby should carefully review the following risk factors as well as
other information set forth in this Prospectus. 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.
LACK OF LIQUIDITY; NEED FOR ADDITIONAL FINANCING
The Company anticipates that its existing financial resources will only be
sufficient to fund its operating and capital requirements through late November
1998. Cash flows from operations are not currently expected to be sufficient to
fund the Company's operations until at least the latter half of 1999. Management
anticipates that the Company will continue to experience negative cash flows
from operations for the foreseeable future until its products achieve commercial
acceptance. As reflected in the financial statements of the Company for the year
ended December 31, 1997, and the report of the Company's independent auditors
thereon, the Company has suffered recurring losses from operations and has a
working capital and an accumulated deficit that raise doubt about its ability to
continue as a going concern. As a result of the Company's recurring losses and
current cash position, the Company is currently exploring several potential
sources of financing. These include ongoing discussions regarding a strategic
alliance with a significant multi-vendor reseller and information service
provider, which relationship would include an equity investment in the Company
by the service provider. In addition, the Company is considering several
potential alternative sources of equity financing, and has recently retained a
brokerage services firm to act as a non-exclusive placement agent for a private
offering of the Company's equity securities, on a best efforts basis.
Although the Company believes that it will be successful in its efforts to
raise additional capital, there can be no assurance that it will be able to do
so, particularly given the Company's current cash position. The Company has been
diligently pursuing financing alternatives for a number of months and, to date,
its efforts to obtain additional debt or equity financing have resulted in
financings with gross proceeds to the Company of approximately $4.275 million in
July and August. The Company's ability to attract capital has been hampered by a
number of adverse conditions which are beyond the Company's control, including
uncertainty regarding economic conditions generally, the decline in the market
for technology stocks, and concern about the stock market in general. In
addition, adverse conditions in the Company's operations have impeded financing
efforts, including the Company's inability to secure substantial additional
orders for its products, concern about product reliability and customer
acceptance, and concern about the market for video conferencing products
generally.
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. These changes could create the need to raise additional moneys
earlier than expected in order to fund its operations or expansion, to develop
new or enhanced products or to respond to competitive pressures. 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 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 successful in its efforts to secure
additional debt or equity financing through a strategic alliance, private
placement, or otherwise, on terms acceptable to the Company, or at all. 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's
business, financial condition and operating results.
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LIMITED OPERATING HISTORY; ABSENCE OF OPERATING REVENUES
The Company was incorporated in October 1993 and has a limited operating
history. The Company's operations prior to 1998 related primarily to
organizational activities, including research and development, the development
of its initial products, recruiting management and technical personnel, and
raising capital. During 1998, the Company has continued to focus on product
development and enhancing its sales and marketing capabilities, while continuing
to recruit management and technical personnel, particularly to support its sales
and marketing efforts. The VidPhone(R) system has been offered for sale to
customers only since July of 1997, and limited deliveries of the VidPhone(R)
system have been made to date. In November 1997, the Company shipped its first
VidPhone(R) system, fulfilling part of an outstanding purchase order from a
reseller, and continued commercial production and installation of the initial
VidPhone(R) systems in the first quarter of 1998. Through June 30, 1998, the
Company has recognized revenue from the sale of only two VidPhone(R) systems.
The Company does not currently have any additional orders for the VidPhone(R)
system and cannot predict when and in what quantities such orders, if any, will
be made.
The Company has not generated substantial revenues from the sale of the
VidPhone(R) system or its components. The Company did not earn any revenues from
operations in 1997, and recognized only $110,505 in revenues from the sale of
products during the first half of 1998. The Company expects to recognize a small
amount of revenue in the third quarter of 1998 from earlier direct sales of the
VidPhone(R) to end-users and sales to resellers, and expects to recognize
additional revenues in the fourth quarter of 1998; however, the Company is not
certain whether such revenues will be recognized or, if recognized, the amount,
which will depend on customer acceptance of products shipped to date and other
factors, including the timing of customer payments, which are beyond the control
of the Company. The Company's business strategy is to sell its products,
particularly the VidPhone(R) system, to resellers and end-users and intends to
continue to devote substantially all of its efforts to product development,
production, sales and support of the VidPhone(R) system. The Company's business
and its growth may continue to 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 and
had an accumulated deficit of approximately $29.1 million through June 30, 1998.
As a result of recurring losses from operations, negative cash flows from
operations and the accumulated deficit, the report of the independent
accountants on the Financial Statements of the Company contains an explanatory
paragraph related to the Company's ability to continue as a going concern. The
Company is currently pursuing additional debt and equity financing alternatives.
The Company has required substantial funding through debt and equity financings
since its inception and, historically, has been successful in obtaining debt and
equity financing from unaffiliated third parties. However, the Company does not
currently have any commitments for debt or equity financing and accordingly,
there can be no assurance that it will be successful in its efforts to secure
additional financing on terms acceptable to the Company, or at all.
The Company expects to continue to incur operating losses until the
Company's products achieve commercial acceptance. Most of the revenues earned by
the Company from its inception through December 31, 1997 were generated by
consulting services provided by the Company, not by its primary business. The
Company has not generated substantial revenues from sales of its products,
including the VidPhone(R) system. The Company did not earn any revenues from
operations in 1997, and recognized only $110,505 in revenues from the sale of
products during the first half of 1998. The Company's ability to recognize
operating revenues in the future will depend on a number of factors, including
customer acceptance of products shipped and installed to date, the Company's
ability to generate new sales of products and secure customer acceptance, and
the timing of customer payments, certain of which are beyond the control of the
Company.
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EFFECT OF CONVERSION OF THE 5% CONVERTIBLE DEBENTURES
Potential Dilution. The exact number of shares of Common Stock issuable
upon conversion of the 5% Convertible Debentures depends on the conversion price
in effect at the time of the conversion. Because the conversion price is equal
to the lesser of (i) a fixed conversion price of $10.87 per share (the "Fixed
Conversion Price"), or (ii) a floating conversion price equal to the average of
the three lowest closing prices of the Common Stock over the twelve trading days
preceding the date of conversion (the "Floating Conversion Price"), the number
of shares issuable upon such conversion will vary inversely with the market
price of the Common Stock. Holders of the Common Stock will be diluted by any
issuances of Common Stock upon conversion of the 5% Convertible Debentures and
may be substantially diluted depending upon the market price of the Common
Stock. See "Description of Securities -- 5% Cumulative Convertible Debentures
due 2003."
$2.5 million original aggregate principal amount of 5% Convertible
Debentures first become convertible on October 6, 1998, and the remaining
$625,000 original aggregate principal amount of 5% Convertible Debentures first
become convertible on January 5, 1999. In October 1998, the Company elected to
pay all of the $35,958.86 in interest on such Debentures for the period
beginning July 8, 1998 and ending September 30, 1998 by increasing the original
aggregate principal amount of such Debentures to $3,160,958.86. Subject to
certain conditions, the Company has the right to redeem the 5% Convertible
Debentures during the period preceding the first date upon which such debentures
can be converted, at a redemption price equal to 110% of the face value. If the
Company exercises its right to redeem the 5% Convertible Debentures, then it is
obligated to issue to the holders thereof the Debenture Warrants. As noted
above, the exact number of shares of Common Stock issuable upon conversion of
the 5% Convertible Debentures cannot currently be determined and will vary
inversely with the market price of the Common Stock. The extent to which the
current holders of the Common Stock will be diluted by issuances of Common Stock
upon conversion of the 5% Convertible Debentures will depend on a number of
factors, including without limitation the future market price of the Common
Stock and the timing of conversion of the 5% Convertible Debentures. The
potential effects of any such dilution on the existing stockholders of the
Company include the significant diminution of the current stockholders' economic
and voting interests in the Company. In addition, pursuant to the terms of the
Subscription Agreements relating to the 5% Convertible Debentures and depending
upon the conversion price, the Company may be required to register additional
shares of Common Stock to cover conversion of the 5% Convertible Debentures. The
registration and sale of such additional shares of Common Stock of the Company
or the prospect thereof could have a material adverse effect on the market price
of the Common Stock.
Potential Liquidated Damages Claims. Pursuant to the Subscription
Agreements relating to the issuance of the 5% Convertible Debentures and the
Registration Rights Agreements by and between the Company and the holders of the
5% Convertible Debentures, the Company has agreed to use its best efforts to
have the registration statement of which this Prospectus constitutes a part
declared effective by October 6, 1998, or if the registration statement is
subject to review by the Commission, as soon as possible thereafter and in any
event by October 28, 1998. If the registration statement is not declared
effective within such time, then in addition to other rights of the holders, the
Company will be required to make a cash payment to the holders of the 5%
Convertible Debentures equal to 2% of the stated value of the 5% Convertible
Debentures (as defined in the debentures), in cash, for each 30-day period after
such period that such registration statement is not effective (which payment
shall be pro-rated for any period of less than 30 days). In addition to the
foregoing, if after December 27, 1998, the registration statement has not been
declared effective, then upon demand of any holder of the 5% Convertible
Debentures, the Company shall redeem all or any specified portion of the
debentures held by such holder at a redemption price equal to 130% of the sum of
(x) the principal amount thereof, plus (y) accrued but unpaid interest thereon.
The Company cannot predict when the registration statement will be declared
effective by the Commission, which will depend on a number of factors many of
which are beyond the control of the Company. The payment to the holders of the
5% Convertible Debentures of the cash penalty described above, or the obligation
to redeem the 5% Convertible Debentures at 130% of the principal amount thereof,
plus accrued interest, would have a material adverse effect on the Company's
business, financial condition and future prospects.
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DEVELOPMENT OF NEW PRODUCTS; INDUSTRY ACCEPTANCE
Because of the technological complexity of its products, the Company may
experience delays from time to time in completing the development of existing
and introducing new or enhanced products. The inability of the Company to
complete product development, 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 has completed initial development and production of the basic
VidPhone(R) system, but continues to develop system enhancements and new product
functions. VidPhone(R) systems also are being used as demonstration units to
support sales and marketing initiatives. However, the VidPhone(R) system is
newly introduced and has not yet achieved customer acceptance. There can be no
assurance that the Company will be successful in achieving customer and
commercial acceptance of the VidPhone(R) system, or that its development
initiatives will be successful. The failure of the Company to achieve success in
such initiatives would have a material adverse effect on the Company's business,
financial condition and operating results. The Company's ability to design,
develop, test, introduce and support new products 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 depend 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
products or services uncompetitive or obsolete.
RISKS OF DISTRIBUTION; RELIANCE ON THIRD-PARTY RESELLERS
The Company's distribution strategy is to establish relationships with
major resellers of telephony products. Because these distributors generally have
large, captive customer bases, the Company believes that they will be able to
resell VidPhone(R) systems in large volume, without competing with one another.
However, to date the Company has arrangements with only 13 resellers. In July
1997, the Company entered into a one-year agreement with Sprint pursuant to
which Sprint has agreed to use commercially reasonable efforts to resell the
Company's video networking products worldwide. In July 1998, this agreement was
renewed for one year. The Company also has an arrangement with Bell Atlantic
pursuant to which Bell Atlantic will offer the Company's products to customers
under certain telecommunications contracts that Bell Atlantic has with the DOD
and related contracting agencies. Additionally, in October 1998 the Company
announced a strategic alliance with Unisys, under which agreement Unisys becomes
the preferred reseller of the Company's products to the federal government and
will collaborate with the Company on joint marketing initiatives. The agreement
with Unisys has an initial term of one year with automatic one-year renewals,
unless terminated as provided in the agreement. The Company has sold only a
limited number of VidPhone(R) system components under such reseller
arrangements, and to date has recognized minimal revenues from such sales. The
Company does not currently have any additional orders for VidPhone(R) systems.
The process of developing and maintaining reseller relationships is complex, and
there can be no assurance that the Company will be able to maintain existing
relationships or establish relationships with other major resellers of telephony
products. Further, there can be no assurance that the resellers of telephony
products with which the Company contracts will be successful in marketing and
reselling the Company's products, maintaining their customer bases, or competing
with other resellers.
A significant portion of the Company's future revenues is expected to be
attributable to sales to third-party resellers, particularly telephone product
and service providers. The Company's future performance will depend to a
significant degree upon the extent to which these resellers incorporate the
Company's products
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and services as part of their product and service offerings to end users and
succeed in marketing and reselling the Company's products. The failure of these
resellers to succeed in the marketplace, or the failure of the Company's
products to perform favorably in and become an accepted component of the product
and service offerings of resellers, will have a material adverse effect on the
Company's business, financial condition and operating results.
DEPENDENCE ON EMERGING MARKET FOR VIDEO APPLICATIONS TECHNOLOGY
The market for video communications 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, the video applications market has thus far not developed
as rapidly as predicted by some and it is not known whether this market will
continue to develop such that sufficient demand for the Company's products and
services will emerge and become sustainable. The Company expects that
substantially all of its future revenues will be derived from sales of the
VidPhone(R) system and related software sales and customer service to businesses
or government organizations. However, as of December 31, 1997, the Company had
not recognized any revenues from sales of the VidPhone(R) system, and through
June 30, 1998, the Company has recognized only $110,505 in operating revenues.
There can be no assurance the Company will be successful in its efforts to
market and sell its products and services. Further, corporations or government
agencies that have already invested substantial resources in video conferencing
systems may be resistant to or slow to adopt a new suite of products. If the
market for video applications fails to develop or develops more slowly than
expected, or if the Company's products, in particular the VidPhone(R) system, 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.
UNCERTAIN PROTECTION OF INTELLECTUAL PROPERTY
The Company's success will depend, in part, on its ability to protect the
hardware and software products that it develops with patents, licenses and other
intellectual property rights. Toward that end, the Company intends to continue
to seek patents, trademarks and copyrights on certain of its inventions and
proprietary processes. The Company relies in part on trademark, copyright and
trade secret law to protect its intellectual property in the U.S. and abroad.
The degree of protection provided by patents is uncertain and involves complex
legal and factual questions for which important legal principles are largely
unresolved.
Part of the Company's proprietary VidPhone(R) system technology is covered
by a U.S. patent (No. 5,621,455) issued in April 1997, which relates to a method
and apparatus for transmitting video information over telephone wires.
Corresponding foreign patent applications on the VidPhone(R) system technology
are pending in China, Canada, Mexico, Europe, Japan and Taiwan. Additionally,
variations of the basic VidPhone(R) system technology are covered by a U.S.
patent (No. 5,786,844) issued in July 1998. The Company is also currently
prosecuting a patent application covering the VidPhone(R) system's networking
and switching technology. The Company cannot currently predict when it will
receive a dispositive ruling from the U.S. Patent and Trademark Office
concerning this patent application. The Company is in the process of preparing
additional U.S. patent applications directed to various improvements in the
field of video conferencing. The Company expects to file approximately six to
nine new U.S. patent applications in 1998 covering these improvements, but it
does not expect to receive any notice from the U.S. Patent and Trademark Office
for at least one year after filing. The Company also has registered its
trademarks Objective Communications(R), VidPhone(R) and TeleDraw(R) and the
registration for the trademark for VidModem(TM) is pending.
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. 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
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aware of any basis for such claims. Litigation, which could result in
substantial cost to and diversion of efforts 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 involvement in
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 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. 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's business,
financial condition and operating results.
LIMITED MARKETING EXPERIENCE; NEED TO ESTABLISH PARTNERING RELATIONSHIPS; NEED
FOR ADDITIONAL PERSONNEL
As of October 27, 1998, the Company had only 12 full-time sales and
marketing employees. The Company's Vice President of Sales and Marketing
resigned in September 1998, and James F. Bunker, the Company's President and
Chief Executive Officer, has assumed responsibility for the Company's sales and
marketing department. The Company will have to further develop its sales and
marketing 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 resellers, would have a
material adverse effect on the Company's business, financial condition and
operating results. Further, there can be no assurance that the development of
such marketing capabilities will lead to 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 the third
parties' 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.
The success of the Company will depend on its ability to hire, train and
retain additional qualified sales and marketing personnel. The Company will
compete with other companies with greater financial and other resources to
attract such qualified personnel. There can be no assurance that the Company
will be able to hire personnel to support the Company's sales and marketing
efforts.
RISKS ASSOCIATED WITH RAPID GROWTH AND WITH THE COMPANY'S BUSINESS PLAN AND
STRATEGY
Execution of the Company's business plan and strategy could place
significant strain on its limited management, administrative, operational,
financial and other resources. There can be no assurance that the Company will
be able to implement its strategy or manage its operations successfully. The
inability of the Company to manage its growth would have a material adverse
effect on the Company's business, financial condition and operating results.
The Company has formulated its business plan and strategy based upon
certain assumptions of management regarding the size of the video communications
market and the estimated price of and level of acceptance of the Company's
products and services. There can be no assurance that these assumptions 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
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<PAGE> 14
other applicable U.S. federal and state regulatory authorities; and reduced
margins caused by competitive pressures and other factors.
DEPENDENCE ON THIRD PARTIES FOR MANUFACTURING
The Company entered into a manufacturing agreement in February 1998 with
Sanmina Corporation to outsource the manufacture and assembly of components used
in its VidPhone(R) system. Several other manufacturers are producing smaller
sub-assemblies and components for the Company pursuant to arrangements that the
Company enters into on a per-project basis. There can be no assurance that the
Company will be able to continue 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 with
third-party manufacturers could result in product defects, production delays,
cost overruns, or the inability to fulfill orders on a timely basis, which could
have a material adverse effect on the Company's business, financial condition
and operating results.
COMPETITION
The market for the Company's products and services is new, highly
competitive and rapidly evolving. The Company's principal competitors in the
video conferencing market are PictureTel Corporation, VTEL Corp., Intel, and
Polycom. The Company believes that PictureTel currently has the largest market
share in both the group video conferencing and desktop segments of the video
conferencing market. In addition, in the market for desktop video conferencing,
the Company also expects to compete with Multi Media Access Corporation ("MMAC")
and First Virtual, each of which is a relatively new market entrant focusing on
enterprise video networking. The Company also believes that other entrants will
continue to emerge in this market. Competitors in the video broadcast market
include cable television and direct satellite broadcast system providers. The
Company is not aware of any current significant competitors in the video
retrieval market. The Company competes with each of the companies listed above
and also expects to compete with new market entrants. Most of the companies with
which the Company will compete have longer operating histories, greater name
recognition, larger customer bases and significantly greater financial,
technical and marketing resources than the Company. 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.
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. There can be no assurance that the Company will have the resources
required to respond effectively to market or technological changes. In addition,
there can be no assurance 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, financial condition and operating results
would be materially and adversely affected.
DEPENDENCE ON KEY PERSONNEL
The Company's performance is substantially dependent upon the continued
efforts and abilities of its key managerial and technical personnel,
particularly Mr. James F. Bunker, President and Chief Executive Officer, and Mr.
Steven A. Rogers, the Company's founder, Vice President, Engineering and Chief
Technology Officer. The loss of the services of Mr. Bunker, 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 Mr. Bunker and Mr. Rogers, and has 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 need to recruit, 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 highly qualified personnel,
especially its existing
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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. The Company completed the relocation of
its headquarters to Portsmouth, New Hampshire, north of Boston, Massachusetts,
in late 1997. Portsmouth, New Hampshire is an area with a high concentration of
technology companies and technology professionals, from which the Company
expects to be able to recruit additional employees. However, there can be no
assurance that the Company will be able to hire or retain qualified personnel.
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. A significant portion of the Company's revenues in any quarter may be
derived from a limited number of large, non-recurring product sales, which may
cause significant variations in quarterly revenues. The Company also believes
that the purchase of its products is relatively discretionary and declines in
general economic conditions could precipitate significant reductions in
corporate spending for information technology, which could result in delays or
cancellations of orders for the Company's products.
GOVERNMENT REGULATION
The VidPhone(R) switch 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 regulations. The Company has already had
the VidModem(TM) formally tested by a qualified, independent testing facility,
and it 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
VidPhone(R) switch as terminal equipment under Part 68 of the FCC's regulations.
The Company has filed an application under Part 68 and has received the
requisite 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, 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. Additionally, there can be no assurance that future
governmental regulations will not adversely affect the Company's products or
technology.
CONTROL BY EXISTING STOCKHOLDERS
Following completion of the Offering, Mr. Steven A. Rogers will
beneficially own, and the directors and executive officers of the Company will
beneficially own in the aggregate, 14.3% and 26.3%, respectively, of the
outstanding shares of Common Stock. 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.
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POTENTIAL INFLUENCE BY CERTAIN STOCKHOLDERS
Pursuant to agreements with the Company or Mr. Steven A. Rogers, Mr. John
B. Torkelsen and Barington Capital Group, L.P. 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 "Certain Relationships Between the
Company and Certain Selling Stockholders."
POSSIBILITY OF NASDAQ DELISTING
The Company's Common Stock currently is quoted on the Nasdaq National
Market. The continued quotation of the Company's Common Stock on the Nasdaq
National Market is conditioned upon the Company maintaining certain asset,
capitalization or income tests and stock price tests established by The Nasdaq
Stock Market, Inc. To maintain eligibility for continued quotation on the Nasdaq
National Market, the Company is required to maintain either (i) net tangible
assets in excess of $4.0 million and a bid price of at least $1.00 per share or
(ii) a market capitalization of at least $50.0 million or total assets and total
revenues of $50.0 million each, and a bid price of at least $5.00 per share. The
Company believes that it will continue to meet these tests set forth by Nasdaq.
If the Company fails any of the applicable 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
Common Stock and materially and 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.
SHARES ELIGIBLE FOR FUTURE SALE; REGISTRATION RIGHTS
Future sales of Common Stock following the Offering could adversely affect
the market price of the Common Stock. Currently, the Company has 5,741,035
shares of Common Stock outstanding. Upon the completion of the Offering, and
assuming conversion of the 5% Convertible Debentures and that the Debenture
Warrants are not issued and, thus, no Debenture Warrant Shares are outstanding,
as of the date of this Prospectus the Company would have 6,745,788 shares of
Common Stock outstanding. Of such shares, 5,633,820 shares of Common Stock,
consisting of (i) the 1,060,600 shares sold or saleable pursuant to a
registration statement on Form S-3 filed by the Company in April 1998 (the
"Bridge Shares") to permit resale by the holders thereof, (ii) the 1,000,000
shares sold in the Follow-On Offering, (iii) the 2,070,000 shares sold in the
Initial Offering, (iv) the 429,067 shares previously resold in reliance on Rule
144 ("Rule 144") under the Securities Act of 1933, as amended (the "Securities
Act"), (v) the 69,400 shares of Common Stock sold by selling stockholders
pursuant to an effective registration statement, and (vi) the 1,004,753 Shares
registered for offering and resale by the holders thereof pursuant to this
registration statement, will be transferable without restriction by persons
other than "affiliates" of the Company, subject to certain lock-up arrangements
with Barington Capital Group, LP ("Barington"). The Debenture Warrants have not
been issued and will not be issued unless the 5% Convertible Debentures are
redeemed by the Company pursuant to the terms of such debentures. The remaining
1,111,968 shares of Common Stock are "restricted securities" under 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. The holders of 2,501,717 shares of Common Stock
(including the 1,179,753 Shares offered and sold in this Offering, the 261,364
shares of Common Stock underlying the Series B Preferred Stock and the Series B
Warrants, and the 1,060,600 Bridge Shares) also have certain registration
rights.
Of the shares of Common Stock outstanding upon completion of the Offering,
762,777 shares of Common Stock available for sale in the public market are
limited by restrictions under lock-up agreements entered into with Barington in
connection with the Initial Offering. Under these agreements, the holders of
such shares of Common Stock have agreed not to sell or otherwise dispose of any
of their shares of Common Stock until April 8, 1999, without the prior written
consent of Barington and NationsBanc Montgomery Securities, subject to certain
limited exceptions. Sales of substantial amounts of the Common Stock in the
public market, whether by purchasers in the Offering or other stockholders of
the Company, or the perception that such sales could occur, may adversely affect
the market price of the Common Stock.
14
<PAGE> 17
EFFECT OF OPTIONS AND WARRANTS ON STOCK PRICE
The Company has reserved (i) 300,000 shares of Common Stock for issuance to
key employees, officers and consultants upon the exercise of options granted
under the 1994 Stock Option Plan, (ii) 1,447,690 shares of Common Stock for
issuance to directors, executive officers and key employees upon the exercise of
options granted or to be granted under the 1996 Stock Incentive Plan, (iii)
190,000 shares of Common Stock for issuance upon the exercise of options granted
to certain directors of the Company, (iv) 125,000 shares of Common Stock for
issuance upon the exercise of an option granted to Barington in December 1997,
(v) 2,184,506 shares of Common Stock for issuance upon conversion of the 5%
Convertible Debentures (two times the number of shares of Common Stock issuable
upon conversion of the 5% Convertible Debentures at the time of issuance) and
exercise of the Debenture Warrants, and (vi) 261,364 shares of Common Stock for
issuance upon conversion of the Series B Preferred Stock and exercise of the
Series B Warrants. In addition, the Company also has reserved 912,332 shares of
Common Stock for issuance upon exercise of other outstanding warrants and
options. The registration statement of which this Prospectus constitutes a part,
registers for resale by the Selling Stockholders the 1,004,753 shares of Common
Stock to be issued by the Company upon conversion of the 5% Convertible
Debentures and the 175,000 shares of Common Stock issuable upon exercise of the
Debenture Warrants. The Debenture Warrants have not been issued and will not be
issued unless the Company redeems the 5% Convertible Debentures pursuant to the
terms of such debentures. Shares of Common Stock issuable upon the exercise of
outstanding warrants, outstanding options, options that may be issued in the
future under the Company's 1996 Stock Incentive 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.
VOLATILITY OF STOCK PRICE
The market price of the shares of the Company's Common Stock has been and
may in the future be highly volatile. Factors such as operating results,
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, stock markets have from time to time experienced
significant price and volume fluctuations that have particularly affected the
market prices for the common stock of technology companies. These broad market
fluctuations could adversely affect the market price of the Common Stock.
Further, 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.
LIMITATION ON UTILIZATION OF INCOME TAX LOSS CARRYFORWARDS
Based on the equity transactions consummated by the Company during 1996 and
early 1997, 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. The Company has a full valuation allowance against its
net deferred tax asset.
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 (the "GCL"), which could have the
effect of discouraging, delaying or preventing a change in control of the
Company. In addition, the Company's Second Amended and Restated Certificate of
Incorporation (the "Certificate of Incorporation") contains provisions that may
have the effect of discourag-
15
<PAGE> 18
ing 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.
LIMITATION ON LIABILITY OF DIRECTORS AND OFFICERS
The Company's Certificate of Incorporation provides for the indemnification
of the Company's directors and officers to the fullest extent permitted under
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 or
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. However, 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 Commission
such indemnification is against public policy as expressed in the Securities Act
and is therefore unenforceable. The Company also has obtained directors' and
officers' liability insurance with respect to liabilities arising out of certain
matters, including matters arising under the Securities Act.
USE OF PROCEEDS
The Company will not receive any proceeds from the sale of the 1,179,753
Shares of Common Stock, which are being offered for sale by the Selling
Stockholders for their own account, except that the Selling Stockholders will be
obligated to pay the Company and the Company will receive the exercise price
upon the exercise of the Debenture Warrants, if any such Debenture Warrants are
issued by the Company. Aggregate net proceeds from any issuance and exercise of
the Debenture Warrants, if issued by the Company and exercised by the holders
thereof, would be $1,925,000, and, if received by the Company, will be used for
working capital and general corporate purposes. See "Description of
Securities -- Debenture Warrants," and "Plan of Distribution."
16
<PAGE> 19
SELLING STOCKHOLDERS
The following table sets forth certain information provided to the Company
by each Selling Stockholder regarding the beneficial ownership of shares of
Common Stock by each Selling Stockholder as of October 27, 1998. Unless
otherwise noted, each stockholder named has sole voting and investment power
with respect to such shares, subject to community property laws, where
applicable.
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP
PRIOR TO THE BENEFICIAL OWNERSHIP
OFFERING(1)(2) AFTER THE OFFERING(1)
--------------------- NUMBER OF ---------------------
NUMBER SHARES NUMBER
NAME OF SELLING STOCKHOLDER OF SHARES PERCENT BEING SOLD(2) OF SHARES PERCENT
--------------------------- ---------- -------- ------------- ---------- --------
<S> <C> <C> <C> <C> <C>
James F. Bunker(3).......................... 8,038 *% 8,038 -- --%
Eugene R. Cacciamani(4)..................... 35,415 * 3,215 32,200 *
Marc S. Cooper(5)........................... 190,238 2.8 8,038 182,200 2.6
Clifford M. Kendall(6)...................... 97,252 1.4 32,152 65,100 *
Richard T. Liebhaber(7)..................... 79,285 1.2 32,152 47,133 *
Roger A. Booker(8).......................... 27,874 * 1,608 26,266 *
Robert H. Emery(9).......................... 62,137 * 8,038 54,099 *
Mary C. Murphy(10).......................... 10,038 * 8,038 2,000 *
AG Super Fund International Partners,
L.P.(11).................................. 24,114 * 24,114 -- --
AGR Halifax Fund, Ltd.(12)(13).............. 401,902 6.0 401,902 -- --
Kenneth Baronoff(14)........................ 3,215 * 3,215 -- --
Concetta Capotorto, custodian for Alexandra
Capotorto, UTMA/NJ(15).................... 8,038 * 8,038 -- --
GAM Arbitrage Investments, Inc.(16)......... 24,114 * 24,114 -- --
Scott Greiper(17)........................... 9,823 * 4,823 5,000 *
John W. Heilshorn(18)....................... 21,076 * 16,076 5,000 *
Carl G. Kleidman(19)........................ 5,215 * 3,215 2,000 *
Leonardo, L.P.(20).......................... 208,989 3.1 208,989 -- --
Kenneth F. Logue(21)........................ 38,909 * 16,076 22,833 *
Allan R. Lyons(22).......................... 37,438 * 8,038 29,400 *
William R. Maines(23)....................... 11,038 * 8,038 3,000 *
James Mitarotonda(24)....................... 8,038 * 8,038 -- --
Jerald S. Politzer(25)...................... 25,538 * 8,038 17,500 *
Ramius Fund, Ltd.(13)(26)................... 96,456 1.4 96,456 -- --
Raphael, L.P.(27)........................... 48,228 * 48,228 -- --
Raymond D. Rice Revocable Trust dated
4/11/96(28)............................... 53,909 * 16,076 37,833 *
</TABLE>
- ---------------
* Less than one percent
(1) Applicable percentage of ownership is based on 6,745,788 shares of Common
Stock outstanding as of October 27, 1998 and assuming completion of the
Offering. The number of shares of Common Stock outstanding as of October
27, 1998 assumes (i) the conversion of the 5% Convertible Debentures and
the issuance of 1,004,753 shares of Common Stock upon exercise of such
debentures and (ii) that the Debenture Warrants are not issued and, thus,
no Debenture Warrant Shares are outstanding. The Debenture Warrants will
not be issued unless the Company redeems the 5% Convertible Debentures
pursuant to the terms of such debentures. The "Beneficial Ownership After
the Offering" columns in the above table assume that each Selling
Stockholder sells all of his, her or its shares of Common Stock offered
hereby in the Offering. Because each of the Selling Stockholders may sell
all, some or none of their shares, the actual number of shares that will be
held by any Selling Stockholder after the completion of the Offering could
vary materially from the information set forth in the above table.
Beneficial ownership is determined in accordance with the rules of the
Commission. For each beneficial owner, shares of Common Stock subject to
options or conversion rights exercisable within sixty days of
17
<PAGE> 20
October 27, 1998 are deemed outstanding. The footnotes for each of the
Selling Stockholders in the above table reflect the beneficial ownership of
such Stockholders prior to the Offering.
(2) Beneficial ownership for each Selling Stockholder includes the shares of
Common Stock issuable upon conversion of the Company's 5% Convertible
Debentures. The number of shares of Common Stock issuable upon the
conversion of the 5% Convertible Debentures represents an estimate assuming
(i) a conversion price of $3.146, which is the average of the three lowest
trading days preceding October 27, 1998, and (ii) that the Debenture
Warrants are not issued and, thus, no Debenture Warrant Shares are
outstanding. The actual number of shares of Common Stock issued upon
conversion of the 5% Convertible Debentures depends on the conversion
price, which cannot be predicted by the Company at this time. The
conversion rate of the 5% Convertible Debentures is determined by dividing
the principal amount of the 5% Convertible Debentures plus any accrued and
unpaid interest by a conversion price equal to the lesser of (i) the Fixed
Conversion Price of $10.87, or (ii) a Floating Conversion Price equal to
the average of the three lowest closing prices of the Common Stock on its
principal exchange during the 12 trading days immediately preceding the
date upon which the Company is notified of such conversion. In addition,
the 5% Convertible Debentures may not be converted into Common Stock if,
following such conversion the holder thereof, together with affiliates of
such holder, would be the beneficial owner of 4.99% or more of the Common
Stock. See "Description of Securities -- 5% Cumulative Convertible
Debentures due 2003." For purposes of the above table, beneficial ownership
by Selling Stockholders has been calculated without regard to that
restriction.
(3) Consists of 8,038 shares of Common Stock issuable upon conversion of the 5%
Convertible Debentures which are held by Mr. Bunker indirectly through a
limited partnership with respect to which Mr. Bunker exercises voting and
disposition power. Excludes 2,000 shares of Common Stock issuable upon
exercise of Debenture Warrants at an exercise price of $11.00 per share, if
such warrants are issued.
(4) Includes 22,200 shares of Common Stock issuable upon the exercise of
options and 3,215 shares of Common Stock issuable upon conversion of the 5%
Convertible Debentures. Excludes 800 shares of Common Stock issuable upon
exercise of Debenture Warrants at an exercise price of $11.00 per share, if
such warrants are issued.
(5) Consists of 180,000 shares of Common Stock that may be acquired upon
exercise of the Barington option (the "Barington Option"), 2,200 shares of
Common Stock issuable upon the exercise of other options and 8,038 shares
of Common Stock issuable upon conversion of the 5% Convertible Debentures.
Excludes 2,000 shares of Common Stock issuable upon exercise of Debenture
Warrants at an exercise price of $11.00 per share, if such warrants are
issued. The Barington Option is held by Barington Capital Group, LP and was
granted by the Company in connection with the Initial Offering in April,
1997. Mr. Cooper also is a stockholder in LNA Capital Corp., the corporate
general partner of Barington. Includes options to acquire 27,000 shares of
Common Stock which Cross Connect, L.L.C. has the right to acquire under
certain conditions. Cross Connect, L.L.C. is not affiliated with Barington
or Mr. Cooper and Mr. Cooper disclaims beneficial ownership of the 27,000
shares of Common Stock that may be acquired upon exercise of such options.
(6) Includes 40,100 shares of Common Stock issuable upon the exercise of
options and 32,152 shares of Common Stock issuable upon conversion of the
5% Convertible Debentures. Excludes 8,000 shares of Common Stock issuable
upon exercise of Debenture Warrants at an exercise price of $11.00 per
share, if such warrants are issued.
(7) Includes 19,633 shares of Common Stock issuable upon the exercise of
options, 2,500 shares of Common Stock issuable upon the exercise of
warrants and 32,152 shares of Common Stock issuable upon conversion of the
5% Convertible Debentures. Excludes 8,000 shares of Common Stock issuable
upon exercise of Debenture Warrants at an exercise price of $11.00 per
share, if such warrants are issued.
(8) Consists of 26,266 shares of Common Stock issuable upon the exercise of
options and 1,608 shares of Common Stock issuable upon conversion of the 5%
Convertible Debentures. Excludes 400 shares of Common Stock issuable upon
exercise of Debenture Warrants at an exercise price of $11.00 per share, if
such warrants are issued.
18
<PAGE> 21
(9) Includes 43,266 shares of Common Stock issuable upon the exercise of
options, 5,833 shares of Common Stock issuable upon the exercise of
warrants and 8,038 shares of Common Stock issuable upon conversion of the
5% Convertible Debentures. Excludes 2,000 shares of Common Stock issuable
upon exercise of Debenture Warrants at an exercise price of $11.00 per
share, if such warrants are issued.
(10) Includes 8,038 shares of Common Stock issuable upon conversion of the 5%
Convertible Debentures. Excludes 2,000 shares of Common Stock issuable upon
exercise of Debenture Warrants at an exercise price of $11.00 per share, if
such warrants are issued.
(11) Consists of 24,114 shares of Common Stock issuable upon conversion of the
5% Convertible Debentures. Excludes 3,750 shares of Common Stock issuable
upon exercise of Debenture Warrants at an exercise price of $11.00 per
share, if such warrants are issued.
(12) Consists of 401,902 shares of Common Stock issuable upon conversion of the
5% Convertible Debentures. Excludes 62,500 shares of Common Stock issuable
upon exercise of Debenture Warrants at an exercise price of $11.00 per
share, if such warrants are issued.
(13) AG Ramius Partners, LLC ("AG Ramius"), a registered investment advisor,
acts pursuant to contract as discretionary investment advisor for several
Selling Stockholders, holding voting and dispositive powers with respect to
securities acquired for their accounts. In such capacity, AG Ramius may be
considered a beneficial owner of shares of Common Stock that such Selling
Stockholders have the right to acquire through conversion of the 5%
Convertible Debentures in the original principal amount of $1,550,000
beneficially owned by such holders. The amount shown does not reflect
certain limitations as to the maximum number of shares of Common Stock
issuable to any stockholder and its affiliates. Moreover, the amount does
not reflect shares of Common Stock issuable on conversion of 5% Convertible
Debentures in an original aggregate principal amount of $950,000 held by
certain holders whose accounts are managed on a discretionary basis by
Angelo, Gordon & Co., LP, a registered investment advisor that is one of
the members of AG Ramius.
(14) Consists of 3,215 shares of Common Stock issuable upon conversion of the 5%
Convertible Debentures. Excludes 800 shares of Common Stock issuable upon
exercise of Debenture Warrants at an exercise price of $11.00 per share, if
such warrants are issued.
(15) Consists of 8,038 shares of Common Stock issuable upon conversion of the 5%
Convertible Debentures. Excludes 2,000 shares of Common Stock issuable upon
exercise of Debenture Warrants at an exercise price of $11.00 per share, if
such warrants are issued.
(16) Consists of 24,114 shares of Common Stock issuable upon conversion of the
5% Convertible Debentures. Excludes 3,750 shares of Common Stock issuable
upon exercise of Debenture Warrants at an exercise price of $11.00 per
share, if such warrants are issued.
(17) Includes 4,823 shares of Common Stock issuable upon conversion of the 5%
Convertible Debentures. Excludes 1,200 shares of Common Stock issuable upon
exercise of Debenture Warrants at an exercise price of $11.00 per share, if
such warrants are issued.
(18) Includes 16,076 shares of Common Stock issuable upon conversion of the 5%
Convertible Debentures. Excludes 4,000 shares of Common Stock issuable upon
exercise of Debenture Warrants at an exercise price of $11.00 per share, if
such warrants are issued.
(19) Includes 3,215 shares of Common Stock issuable upon conversion of the 5%
Convertible Debentures. Excludes 800 shares of Common Stock issuable upon
exercise of Debenture Warrants at an exercise price of $11.00 per share, if
such warrants are issued.
(20) Consists of 208,989 shares of Common Stock issuable upon conversion of the
5% Convertible Debentures. Excludes 32,500 shares of Common Stock issuable
upon exercise of Debenture Warrants at an exercise price of $11.00 per
share, if such warrants are issued.
(21) Includes 5,750 shares of Common Stock issuable upon the exercise of
warrants and 16,076 shares of Common Stock issuable upon conversion of the
5% Convertible Debentures. Excludes 4,000 shares of Common Stock issuable
upon exercise of Debenture Warrants at an exercise price of $11.00 per
share, if such warrants are issued.
19
<PAGE> 22
(22) Includes 8,038 shares of Common Stock issuable upon conversion of the 5%
Convertible Debentures. Excludes 2,000 shares of Common Stock issuable upon
exercise of Debenture Warrants at an exercise price of $11.00 per share, if
such warrants are issued.
(23) Includes 8,038 shares of Common Stock issuable upon conversion of the 5%
Convertible Debentures. Excludes 2,000 shares of Common Stock issuable upon
exercise of Debenture Warrants at an exercise price of $11.00 per share, if
such warrants are issued.
(24) Consists of 8,038 shares of Common Stock issuable upon conversion of the 5%
Convertible Debentures. Excludes 2,000 shares of Common Stock issuable upon
exercise of Debenture Warrants at an exercise price of $11.00 per share, if
such warrants are issued.
(25) Includes 8,038 shares of Common Stock issuable upon conversion of the 5%
Convertible Debentures. Excludes 2,000 shares of Common Stock issuable upon
exercise of Debenture Warrants at an exercise price of $11.00 per share, if
such warrants are issued.
(26) Consists of 96,456 shares of Common Stock issuable upon conversion of the
5% Convertible Debentures. Excludes 15,000 shares of Common Stock issuable
upon exercise of Debenture Warrants at an exercise price of $11.00 per
share, if such warrants are issued.
(27) Consists of 48,228 shares of Common Stock issuable upon conversion of the
5% Convertible Debentures. Excludes 7,500 shares of Common Stock issuable
upon exercise of Debenture Warrants at an exercise price of $11.00 per
share, if such warrants are issued.
(28) Includes 15,000 shares of Common Stock issuable upon the exercise of
options, 5,750 shares of Common Stock issuable upon the exercise of
warrants and 16,076 shares of Common Stock issuable upon conversion of the
5% Convertible Debentures. Excludes 4,000 shares of Common Stock issuable
upon exercise of Debenture Warrants at an exercise price of $11.00 per
share, if such warrants are issued.
The registration of the Shares under the Securities Act shall not be deemed
an admission by the Selling Stockholders or the Company that the Selling
Stockholders are underwriters for purposes of the Securities Act of any Shares
offered under this Prospectus.
LOW TRADES; SHORT SALES
The Selling Stockholders have agreed that, they will not, directly or
through an affiliate, on any trading day used in the calculation of the
"Floating Conversion Price" (as defined in the 5% Convertible Debentures) or any
other trading day used for any purpose in valuation pursuant to such debentures,
(a) create the lowest reported sales price on the Nasdaq National Market for the
Common Stock, or (b) offer to sell shares of Common Stock at a price lower than
the then prevailing bid price for the Common Stock on the Nasdaq National
Market. In addition, the Selling Stockholders also have agreed that, prior to
October 6, 1998, neither they nor their affiliates will take a "short" position
in the Company's Common Stock, unless at the time the position is taken the
price per share of the Common Stock as reported on the Nasdaq National Market is
greater than the Fixed Conversion Price of $10.87. See "Description of
Securities -- 5% Cumulative Convertible Debentures Due 2003."
20
<PAGE> 23
CERTAIN RELATIONSHIPS BETWEEN THE COMPANY
AND CERTAIN SELLING STOCKHOLDERS
Barington Capital Group, L.P. Barington, an investment banking firm, acted
as the placement agent of the Company in connection with the private placement
of $2.0 million aggregate principal amount of Bridge Notes and Bridge Warrants
to purchase 500,000 shares of Common Stock at an exercise price of $3.30 (the
"Bridge Financing"). The Bridge Financing was completed in November 1996. As
partial compensation for services provided in that offering, Barington received
warrants to purchase up to 50,000 shares of Common Stock at an exercise price of
$3.30 per share, which warrants were forfeited upon consummation of the Initial
Offering. In addition, Barington 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.
Barington also acted as the placement agent of the Company in connection
with the private placement of 250,000 shares of Series A Convertible Preferred
Stock, par value $.01 per share, and Warrants to purchase up to an additional
50,000 shares of Common Stock in December 1996 (the "Series A Warrants") and
250,000 shares of Series A Preferred Stock and Series A Warrants to purchase
50,000 shares of Common Stock in January 1997 for aggregate gross proceeds to
the Company of $2.0 million. As compensation for services provided in that
private placement, the Company paid Barington a fee of $140,000, which fee
represented 7.0% of the gross proceeds raised in the private placement.
Barington acted as an underwriter of the Follow-On Offering and was the
underwriter of the Initial Offering, for which it received underwriting
discounts and commissions totaling approximately $1.6 million. In addition,
Barington received a non-accountable expense allowance of $341,550, and was
issued the Barington Option to acquire 180,000 shares of Common Stock of the
Company at the Initial Offering. This Barington Option is exercisable for a
period of five years beginning on April 8, 1997 at an exercise price of $9.08
per share of Common Stock.
In December, 1997 Barington received an option to acquire 125,000 shares of
Common Stock at an exercise price of $13.813 per share of Common Stock, the fair
market value of the Common Stock on the date of grant. Such option was granted
in consideration of business and financial services, including investment
banking services and consulting with respect to mergers and acquisitions, to be
provided to the Company over a two-year period.
For a period of five years following the completion of the Initial Offering
on April 8, 1997, the Company has agreed to use its best efforts (including the
solicitation of proxies, if necessary) to elect one designee of Barington to the
Board of Directors of the Company. Marc S. Cooper, Vice Chairman of Barington,
has served as a director of the Company since April 1997 and currently is a
member of the Executive and Audit Committees of the Board of Directors. Mr.
Cooper was elected to the Board pursuant to this agreement.
In July 1998, the Company issued $3,125,000 original aggregate principal
amount 5% Convertible Debentures due 2003 pursuant to Subscription Agreements
dated as of July 1, 1998, and July 8, 1998. Certain of the subscribers were
directors, executive officers and consultants to the Company, including Mr. Marc
Cooper, a director of the Company and Vice Chairman of Barington. Mr. Cooper
owns $25,000 original principal amount of 5% Convertible Debentures. In
addition, other principals and employees of Barington beneficially own in the
aggregate $50,000 original principal amount of 5% Convertible Debentures. In
addition, if the Company exercises on January 5, 1998, its right to redeem the
$625,000 original aggregate principal amount of the 5% Convertible Debentures,
the Company is obligated to issue to Mr. Cooper, individually, and all Barington
principals and employees in the aggregate (including Mr. Cooper), Debenture
Warrants to purchase 5,970 and 17,910 shares of Common Stock of the Company,
respectively, at an exercise price of $11.00 per share, and expiring five years
from the date of issuance.
John B. Torkelsen and PVR Securities, Inc. John B. Torkelsen, President of
Princeton Venture Research, Inc. ("PVR") and its affiliate, PVR Securities, Inc.
("PVR Securities"), has served as a director of the Company since March 1996 and
is a member of the Nominating Committee of the Board of Directors. PVR
Securities acted as the placement agent of the Company in connection with the
private placements in
21
<PAGE> 24
June 1995 and August 1996, of 50 units and 19.11 units, respectively, to
accredited investors (the "PVR Investors") (the "PVR Offering"). Each unit sold
consisted of 5,000 shares of Common Stock and warrants to purchase an additional
5,000 shares of Common Stock at $8.00 per share. In the private placement
conducted by PVR Securities, the Company issued 345,536 shares of Common Stock
and warrants to acquire 345,536 shares of Common Stock at an exercise price of
$8.00 per share. Aggregate gross proceeds to the Company from the offering were
$2,073,222.
As partial compensation for services provided in the private placement, the
Company issued to Mr. Torkelsen, President of PVR Securities, warrants to
purchase an aggregate of 69,106 shares of Common Stock. Of such warrants, 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.
Each PVR Investor was also given the opportunity to purchase from Steven A.
Rogers, the Chief Executive Officer and President of the Company, 2,500 shares
of Common Stock for each unit purchased in the private placement, at a price of
$2.00 per share. In connection with such transaction, PVR Investors in the
private placement purchased an aggregate of 172,583 shares of Common Stock from
Mr. Rogers for aggregate consideration of $345,166.
As part of the private placement of securities managed by PVR Securities,
between May 1995 and May 1996, the Company also issued to certain investors (the
"Debt Inducement Investors"), in a private placement, warrants to purchase an
aggregate of 102,332 shares of Common Stock at an exercise price of $8.00 per
share, in order to induce such investors to extend loans to the Company. These
debt transactions were considered by the Company to be part of its overall
financing activities during this time period, and were necessary because the
equity financing being raised in the PVR Offering was not obtained as quickly as
originally contemplated by the Company.
In January 1997, the Company issued and sold to Acorn Technology Partners,
L.P. ("Acorn") 250,000 shares of Series A Preferred Stock, which converted to
Common Stock on a one-to-one basis upon the Initial Offering, 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. Mr. Torkelsen was the President and
Manager of the general partner of Acorn. In September 1997, Acorn distributed
its holdings of the Company's securities to PVR. PVR served as the investment
advisor to Acorn.
In addition, PVR, a corporation of which Mr. 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.
In connection with the private placement of equity securities of the
Company by PVR Securities, Mr. Torkelsen, a director of the Company, and Mr.
Steven A. Rogers, a director and the Vice President, Engineering and Chief
Technology 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 of Common Stock 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 pursuant to this agreement. In addition, Mr. Torkelsen
agreed, subject to his fiduciary obligations to the Company, to
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vote for Mr. Rogers to continue his position as Vice President, Engineering and
Chief Technology Officer of the Company during the term of the voting agreement.
Additional Transactions with PVR Investors. In January 1997, the Company
offered to certain investors the opportunity to exchange existing warrants to
purchase shares of Common Stock in the Company for new warrants to purchase
shares of Common Stock. The purpose of the warrant exchange was to induce such
investors to enter into lock-up arrangements with Barington, the underwriter of
the Initial Offering, and into agreements consolidating such investors'
registration rights with those granted by the Company to other investors, and so
that the investment by such investors in the Company would be on terms and
conditions that more closely reflect the terms and conditions upon which other
investors invested in the Company during a comparable time period.
For the investors who participated in the warrant exchange transaction, the
effect of the warrant exchange was to cause investors who previously had
purchased shares of Common Stock in the Company to purchase such shares at an
effective purchase price of $4.00 per share, and to cause investors who
previously had received warrants to purchase shares of Common Stock in the
Company, to exchange such warrants for warrants with an exercise price of $4.00
per share.
As a result of the warrant exchange transaction, the Company issued an
aggregate of 165,267 shares of Common Stock and new warrants to purchase an
aggregate of 336,707 shares of Common Stock at an exercise price of $4.00 per
share. As described in detail below, the new warrants to purchase 336,707 shares
of Common Stock consist of (i) warrants to purchase 165,269 shares of Common
Stock issued to PVR Investors, (ii) warrants to purchase 69,106, shares of
Common Stock issued to Mr. Torkelsen, a director of the Company and President of
PVR Securities, and (iii) warrants to purchase 102,332 shares of Common Stock
issued to the Debt Inducement Investors. The Company did not receive any
additional cash proceeds or consideration other than the securities exchanged by
the investors in the warrant exchange.
In January 1997, the Company offered to each of the PVR Investors the
opportunity to exchange their 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
approximately one-half of the number of shares of Common Stock at an exercise
price of $4.00 per share. In exchange for warrants to purchase an aggregate of
330,536 shares of Common Stock at an exercise price of $8.00 per share, the
Company issued warrants to purchase an aggregate of 165,269 shares of Common
Stock at an exercise price of $4.00 per share. One PVR Investor holding warrants
to purchase 15,000 shares of Common Stock chose not to participate in the
warrant exchange transaction and to retain such warrants with an exercise price
of $8.00 per share. As part of the warrant exchange, each PVR Investor who
accepted the Company's offer also was issued by the Company an additional 2,500
shares of Common Stock for each unit purchased in the PVR Offering, for no
additional consideration. The Company issued an aggregate of 165,267 additional
shares of Common Stock to the PVR Investors in the warrant exchange. Each PVR
Investor also agreed to sign an agreement with the Company relating to
registration rights and a lock-up agreement with Barington, the underwriter of
the Initial Offering. In connection with the Follow-On Offering, Barington
conveyed to NationsBanc Montgomery Securities all rights and responsibilities
under this agreement.
As part of the warrant exchange, in order to restructure the transaction in
which the PVR Investors originally purchased shares of Common Stock from Mr.
Rogers at a below-market price per share to terms and conditions more closely
reflecting market terms and conditions, each PVR Investor who had originally
purchased shares of Common Stock from Mr. Rogers at a purchase price of $2.00
per share, also was required to pay Mr. Rogers an additional $2.00 for each
share originally purchased from him. Mr. Rogers received an aggregate of
$340,166 from PVR Investors in connection with the warrant exchange.
Also as part of the warrant exchange, the Company issued to Mr. Torkelsen,
a director of the Company and President of PVR Securities, new warrants to
purchase an aggregate of 69,106 shares of Common Stock at $4.00 per share, in
exchange for the warrants to purchase 34,553 shares of Common Stock at an
exercise price of $6.60 per share, and the warrants to purchase 34,553 shares of
Common Stock at an exercise price of $8.80 per share, previously issued to Mr.
Torkelsen as compensation for services in the private placement managed by PVR
Securities.
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<PAGE> 26
As part of the warrant exchange, the Company also exchanged warrants to
purchase an aggregate of 102,332 shares of Common Stock held by the Debt
Inducement Investors at an exercise price of $8.00 per share, for warrants to
purchase 102,332 shares at an exercise price of $4.00 per share.
Applewood Associates, L.P. In December 1996, the Company issued and sold
to Applewood Associates, L.P. ("Applewood") 250,000 shares of Series A Preferred
Stock, which converted to Common Stock on a one-to-one basis upon the Initial
Offering, 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. Pursuant
to a voting agreement, dated December 19, 1996 by and among Applewood, Acorn and
Mr. Steven A. 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 (the "Applewood Agreement"), Anthony M. Agnello was elected
to the Board of Directors in January 1996. 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. Mr. Agnello serves on the Compensation Committee of the Board of
Directors. The Applewood Agreement expired in accordance with its terms in April
1997 upon the completion of the Initial Offering.
Issuance of 5% Convertible Debentures. On July 8, 1998, the Company issued
$3.125 million original aggregate principal amount of 5% Convertible Debentures
pursuant to a Subscription Agreement to purchase $2.5 million original aggregate
principal amount of 5% Convertible Debentures dated as of July 1, 1998 executed
by certain institutional investors (the "Institutional Investors") and accepted
by the Company, and Subscription Agreements to purchase $625,000 original
aggregate principal amount of 5% Convertible Debentures executed by Messrs.
Clifford M. Kendall, Eugene R. Cacciamani, Marc S. Cooper, and Richard T.
Liebhaber, directors of the Company, Messrs. James F. Bunker, Roger A. Booker,
Robert H. Emery, and Ms. Mary C. Murphy, executive officers of the Company, and
certain outside investors, including outside consultants to the Company
(collectively, the "Additional Investors" and together with the Institutional
Investors, the "Investors") and accepted by the Company. Following the issuance
of the 5% Convertible Debentures, the following executive officers and directors
of the Company hold beneficially the original principal amount of such
debentures indicated: Mr. Bunker -- $25,000; Mr. Booker -- $5,000; Mr. Emery --
$25,000; Ms. Murphy -- $25,000; Mr. Kendall -- $100,000; Mr. Cacciamani --
$10,000; Mr. Cooper -- $25,000; and Mr. Liebhaber -- $100,000. The offering,
issuance and sale of the 5% Convertible Debentures to certain directors and
executive officers was a condition precedent to the consummation of the
financing with the Institutional Investors, and was approved by the full Board
of Directors of the Company, with the directors participating in the proposed
financing abstaining from voting.
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DESCRIPTION OF SECURITIES
The following information is in addition to information regarding the
Company's outstanding securities, consisting of Common Stock, par value $.01 per
share, and Preferred Stock, par value $.01 per share, contained elsewhere in the
Company's filings with the Commission and incorporated herein by reference. See
"Incorporation of Certain Documents by Reference." The following information is
summary in nature and is qualified in its entirety by reference to the
instruments defining the rights of the holders of such securities, copies of
which are filed as exhibits to the Registration Statement of which this
Prospectus constitutes a part and which are available from the Commission.
5% CUMULATIVE CONVERTIBLE DEBENTURES DUE 2003
Interest. Each 5% Convertible Debenture is entitled to receive cumulative
annual interest at the rate of 5.0% per annum on the principal amount thereof,
payable quarterly in arrears on the last day of March, June, September and
December of each year, commencing on September 30, 1998. Interest accrues daily
from the date of issuance of the 5% Convertible Debentures, until such debenture
has been converted or redeemed. Interest is payable in cash, or the Company may,
at its option, in full or in part, pay interest on the Debentures on any
interest payment date by increasing the 5% Convertible Debentures by the amount
of such interest. When any interest is added to the principal amount of the 5%
Convertible Debentures, such interest shall be deemed to be part of the
principal amount of the debenture for purposes of determining interest
thereafter payable and amounts thereafter convertible into Common Stock.
The Company elected to pay all of the interest on the 5% Convertible
Debentures for the period beginning July 8, 1998 and ending September 30, 1998
by increasing the original principal amount of such Debentures by $35,958.86,
the amount of interest due on such Debentures for such period. As a result of
such increase, the adjusted aggregate principal amount of the 5% Convertible
Debentures is $3,160,958.86, which adjusted amount was used for purposes of
calculating the number of shares of Common Stock registered for resale pursuant
to this Registration Statement.
Seniority; Liquidation Preference. The Company's outstanding $3.125
million original principal amount of 5% Convertible Debentures are senior in
right of payment to substantially all existing and future indebtedness of the
Company and to the Company's equity securities. If at any time (i) there occurs
any merger, consolidation or other business combination of the Company, with or
into any other corporation, entity or person (whether or not the Company is the
surviving corporation) or there occurs any other corporate reorganization or
transaction or series of related transactions, and as a result thereof the
stockholders of the Company pursuant to such merger, consolidation,
reorganization or other transaction own in the aggregate less than 50% of the
voting power and common equity of the ultimate parent corporation or other
entity surviving or resulting from such merger, consolidation, reorganization or
other transaction, (ii) the Company transfers all or substantially all of the
Company's assets to another corporation or other entity or person, or (iii) a
purchase, tender or exchange offer is made to and accepted by the holders of
more than 50% of the outstanding shares of Common Stock (each of the foregoing
items (i) to (iii), an "Extraordinary Transaction"), then the holders of the 5%
Convertible Debentures then outstanding may participate in any such transaction
as a class with the common stockholders on the same basis as if the 5%
Convertible Debentures had been converted one day prior to the announcement date
(or record date for such distribution, dividend or offer) of such transaction.
Redemption. At the option of each holder, the Company shall redeem all or
any portion of such holder's 5% Convertible Debentures effective as of the
effective date of an Extraordinary Transaction, and the holder shall be entitled
to receive a redemption price per $100 principal amount of 5% Convertible
Debentures being redeemed equal to 112.5% of the aggregate principal amount of
the 5% Convertible Debentures, plus accrued and unpaid interest thereon. Each
holder shall be entitled to make an election for redemption at any time up to
five (5) days prior to the effective date of any Extraordinary Transaction;
provided, however, at the discretion of such holder, such holder may, at any
time, elect to convert its 5% Convertible Debentures into fully paid, validly
issued and nonassessable shares of Common Stock in accordance with the terms of
such debentures,
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for such number of shares of Common Stock as determined by the application of
the Conversion Rate (as defined therein) so long as the Company has not redeemed
such 5% Convertible Debentures.
At the option of each holder, the Company also is obligated to redeem all
or any portion of such holder's outstanding 5% Convertible Debentures effective
as of the date of the occurrence of certain "Triggering Events" (as defined
below), and the holder shall be entitled to receive a redemption price per $100
principal amount of 5% Convertible Debentures being redeemed equal to 130% of
the principal amount of the 5% Convertible Debentures, plus accrued and unpaid
interest. For purposes of the 5% Convertible Debentures, the following
constitute "Triggering Events:" (i) the Common Stock is either delisted or
suspended from trading on Nasdaq, The New York Stock Exchange, Inc. or The
American Stock Exchange, Inc. for a period of five (5) consecutive trading days,
or any such delisting or suspension is threatened in writing or pending
(excluding disruptions from business announcements that result in any halt(s) in
trading of not more than one day on each occasion) and other than as a result of
the suspension of trading in securities on such market in general; (ii) any
money judgment, writ or warrant of attachment, or similar process in excess of
Seven Hundred and Fifty Thousand Dollars ($750,000) in the aggregate shall be
entered or filed against the Company, its subsidiaries or any of their
properties or other assets and which shall remain unpaid, unvacated, unbonded or
unstayed for a period of sixty (60) days or in any event later than ten (10)
days prior to the date of any proposed sale thereunder; or (iii) a default or
event of default (as defined in the 5% Convertible Debentures) shall have
occurred and remain uncured following the applicable cure period under such
debentures. Each holder shall be entitled to make an election for redemption at
any time following thirty (30) days after the occurrence of a Triggering Event;
provided, however, at the discretion of such holder, such holder may, at any
time, elect to convert its 5% Convertible Debentures into fully paid, validly
issued and nonassessable shares of Common Stock in accordance with the terms of
the debentures, for such number of shares of Common Stock as determined by the
application of the Conversion Rate (as defined therein) so long as the Company
has not redeemed such debentures. In addition to the foregoing, upon the
occurrence of a Triggering Event, and only for the period that such Triggering
Event remains uncured, the Company is obligated to pay each holder 2.0% per
month on the outstanding principal amount of the 5% Convertible Debentures. Any
such interest which is not paid when due shall accrue interest until paid at the
rate from time to time applicable to interest on the 5% Convertible Debentures
as to which such Triggering Event has occurred.
In addition, the 5% Convertible Debentures are redeemable at the option of
the Company in certain circumstances. The 5% Convertible Debentures held by the
Institutional Investors may be redeemed by the Company, at its option, at any
time on or before October 6, 1998. The 5% Convertible Debentures held by the
Additional Investors are subject to mandatory redemption by the Company on
January 5, 1999, provided that the Company has previously redeemed the 5%
Convertible Debentures held by the Institutional Investors. The 5% Convertible
Debentures are redeemable at a redemption price per 5% Convertible Debenture
equal to 110% of the principal amount of the Debenture, plus any accrued and
unpaid interest thereon. Upon such redemption, if any, the Company also is
obligated to issue to the Institutional Investors warrants to purchase an
aggregate up to 125,000 shares of Common Stock, and to the Additional Investors
warrants to purchase an aggregate up to 50,000 shares of Common Stock at an
exercise price of $11.00 per share (subject to adjustment as provided therein).
See "-- Debenture Warrants" below.
Conversion Privileges. In addition, at any time on or after October 6,
1998, the Institutional Investors may, in whole or in part, convert the 5%
Convertible Debentures into shares of Common Stock. The Debentures issued to the
Additional Investors are convertible, in whole or in part, at the option of the
holder any time after January 5, 1999. The conversion rate of the 5% Convertible
Debentures is determined by dividing the principal amount of the 5% Convertible
Debentures plus any accrued and unpaid interest by a conversion price equal to
the lesser of (i) the Fixed Conversion Price of $10.87, or (ii) a Floating
Conversion Price equal to the average of the three lowest closing prices of the
Common Stock on its principal exchange during the 12 trading days immediately
preceding the date upon which the Company is notified of such conversion (the
"Conversion Rate"). The number of shares of Common Stock issuable upon
conversion of the 5% Convertible Debentures is subject to adjustment in certain
events, including without limitation a reclassification, reorganization or
exchange of the Company's Common Stock.
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If the Company cannot, or does not intend to, or fails to, issue shares of
Common Stock registered for resale for any reason (a "Conversion Default"),
including, without limitation, because the Company (x) does not have a
sufficient number of shares of Common Stock or other securities authorized and
available, or (y) is otherwise prohibited by applicable law or by the rules and
regulations of any stock exchange, interdealer quotation system or other
self-regulatory organization with jurisdiction over the Company or its
securities from issuing all of the Common Stock which is to be issued to a
holder, then the Company is obligated to issue as many shares of Common Stock as
it is able to issue in accordance with such holder's conversion notice, and with
respect to the unconverted principal amount of 5% Convertible Debentures, notify
the holder of such failure (a "Default Notice"). Each holder who receives a
Default Notice has the following options, at its election: (i) the right to
demand from the Company immediate redemption of its Debentures in cash at 125%
of the principal amount thereof, plus accrued and unpaid interest; (ii) void its
notice of conversion and have returned the nonconverted 5% Conversion Debentures
that were to be converted; or (iii) if the Company's inability to fully convert
the 5% Convertible Debentures is pursuant to the Exchange Cap provision
described below, require the Company to use its best efforts to take all steps
necessary in order to exceed such Exchange Cap.
In addition to the foregoing, upon a Conversion Default, the Company will
pay each holder of the 5% Convertible Debentures (including debentures for which
a conversion notice has not yet been sent), for the period during which such 5%
Convertible Debentures have not been duly converted or redeemed as herein
provided, 2.0% per month on the outstanding principal amount of the 5%
Convertible Debentures until such Debentures have been duly converted or
redeemed as herein provided; provided, however, that if the Company's inability
to fully convert Debentures is pursuant to the subsection (y) above, the Company
has sixty (60) days to cure such default prior to giving rise to the right of
the Holder to exercise remedies, including, without limitation, the right to
receive additional interest.
Voting Rights. Holders of 5% Convertible Debentures have no voting rights,
except as required by law and as expressly provided in the 5% Convertible
Debentures.
Limitation on Number of Conversion Shares. The Company is not obligated to
issue upon conversion of the 5% Convertible Debentures, in the aggregate, more
than a number of shares of Common Stock equal to 19.99% of the number of shares
of Common Stock outstanding on the date on which the 5% Convertible Debentures
were issued (as adjusted from time to time in the event of stock splits, stock
dividends, combinations, reverse stock splits, reclassification, capital
reorganization and similar events relating to the Common Stock) (the "Exchange
Cap"), if issuance of a larger number of shares of Common Stock would constitute
a breach of the Company's obligations under the rules or regulations of Nasdaq
or any other principal securities exchange or market upon which the Common Stock
is or becomes traded. The Exchange Cap shall be allocated among the holders of
the 5% Convertible Debentures pro rata based on the total principal amount
outstanding of the Debentures.
After giving effect to the issuance of Common Stock pursuant to each notice
of conversion, the total number of shares of Common Stock deemed beneficially
owned by the holder submitting such conversion notice (excluding shares that
might otherwise be deemed beneficially owned by reason of the conversion right
in the 5% Convertible Debentures owned by such holder), together with all shares
of Common Stock deemed beneficially owned by such holder's "affiliates" (as
defined in Rule 144 under the Securities Act), shall not exceed 4.99% of the
total issued and outstanding shares of the Common Stock.
Registration Rights. The Company has agreed to register on a Form S-3
under the Securities Act the shares of Common Stock issuable upon conversion of
the 5% Convertible Debentures and the exercise of any Debenture Warrants held by
the Investors.
Maturity. On or after July 8, 2003 (the "Maturity Date"), the Company will
have the option to cause the outstanding 5% Convertible Debentures to be
automatically converted to shares of Common Stock pursuant to the Conversion
Rate, or to redeem all outstanding 5% Convertible Debentures at a redemption
price equal to the principal amount of the 5% Convertible Debentures plus any
accrued and unpaid interest thereon.
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DEBENTURE WARRANTS
In connection with the issuance of the 5% Convertible Debentures, if the
Company exercises its option to redeem the $2.5 million original principal
amount of 5% Convertible Debentures issued to the Institutional Investors on or
before October 6, 1998, and the $625,000 original principal amount of 5%
Convertible Debentures issued to the Additional Investors on January 5, 1998,
then the Company is obligated to issue to the Investors the Debentures Warrants
to purchase an aggregate of 175,000 shares of Common Stock. Of such Debenture
Warrants, warrants to purchase 125,000 shares of Common Stock are issuable to
the Institutional Investors and warrants to purchase 50,000 shares of Common
Stock are issuable to the Additional Investors. The Debenture Warrants are
exercisable for a period of five years from the date of issuance and are
exercisable at an exercise price of $11.00 per share.
SERIES B PREFERRED STOCK
In August 1998, the Company issued to certain unaffiliated investors in a
private placement 209,091 shares of Series B Preferred Stock and warrants to
purchase an aggregate of 52,237 shares of Common Stock at an exercise price of
$6.00 per share. The shares of Series B Preferred Stock and Series B Warrants
were issued at an exercise price of $5.50 per share, resulting in gross proceeds
to the Company of $1.15 million.
Dividends. The holders of shares of Series B Preferred Stock are entitled
to receive, in preference to the holders of Junior Securities (as defined
herein), cumulative annual dividends at the rate of 5.0% per annum on the stated
value per share of Series B Preferred Stock (the "Stated Value"), initially
$5.50 per share. Such dividends are payable in additional shares of Series B
Preferred Stock, annually in arrears on the annual anniversary of the issuance
date. Dividends accumulate daily on each share of Series B Preferred Stock from
the issuance date, whether or not earned or declared, until such share of Series
B Preferred Stock has been converted or redeemed. To the extent dividends are
not paid on the applicable dividend payment date, such dividends shall be
cumulative and shall compound annually until the date of payment.
Seniority; Liquidation Preference. The Series B Preferred Stock, with
respect to rights upon liquidation, winding up or dissolution, and dividend
rights, rank senior and prior in right to (i) the Common Stock, and (ii) any
other equity interest (including, without limitation, options and warrants) in
the Company that by its terms ranks junior to the Series B Preferred Stock
("Junior Securities"). The Series B Preferred Stock, with respect to rights upon
liquidation, winding up or dissolution, and dividend rights, ranks pari passu
with (i) any series of preferred stock hereafter created, unless such series by
its terms ranks junior to the Series B Preferred Stock, and (ii) any other
equity interest in the Company hereafter created that by its terms ranks on a
par with or pari passu with the Series B Preferred Stock ("Parity Securities").
Without the prior express written consent of the holders of not less than
two-thirds ( 2/3) of the then outstanding shares of Series B Preferred Stock,
the Company shall not hereafter (i) issue any additional shares of Series B
Preferred Stock, (ii) authorize or issue any capital stock that is of senior
rank to the Series B Preferred Stock in respect of dividend rights or the
preferences as to distributions and payments upon the liquidation, dissolution,
winding up or otherwise of the Company, (iii) authorize or issue any Parity
Securities with terms and conditions more favorable than the terms herein, or
(iv) authorize or make any amendment to the Company's Certificate of
Incorporation or By-laws, which would materially and adversely affect the rights
or relative priority of the holders of the Series B Preferred Stock relative to
the holders of Parity Securities or the holders of any other class of capital
stock. In the event of the merger, consolidation or other business combination
of the Company with or into another corporation, the Series B Preferred Stock
shall maintain its relative powers, designations and preferences and no merger,
consolidation or other business combination shall cause a result inconsistent
therewith.
In the event of any voluntary or involuntary liquidation, dissolution or
winding up of the Company, the holders of the Series B Preferred Stock are
entitled to receive in cash out of the assets of the Company, whether from
capital or from earnings available for distribution to its stockholders, before
any amount shall be paid to the holders of any Common Stock or any Junior
Securities, an amount per share of Series B Preferred Stock equal to the
Aggregate Value (as defined in the Certificate of Designations of the Series B
5%
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Cumulative Convertible Preferred Stock); provided that, if funds are
insufficient to pay the full amount due to the holders and any holders of Parity
Securities, then each holder and each holder of Parity Securities shall receive
a ratable percentage of such funds in accordance with respective amounts that
would be payable in full to such holder as a liquidation preference, in
accordance with their respective Certificate of Designations, Preferences and
Rights.
Voting Rights. The holders of the Series B Preferred Stock have no voting
rights, except as required by law and as expressly provided the Certificate of
Designations of the Series B 5% Cumulative Convertible Preferred Stock.
Conversion. Shares of Series B Preferred Stock are convertible at any time
after the issuance date, in whole or in part, at the option of the Holder
thereof, into fully paid, validly issued and nonassessable shares of Common
Stock in accordance with the terms herein for such number of shares of Common
Stock as determined by the application of the Conversion Rate (as hereinafter
defined). The conversion rate of the Series B Preferred Stock is the number of
shares of Common Stock issuable upon conversion of each share of Series B
Preferred Stock determined by dividing the Stated Value of such shares of Series
B Preferred Stock, plus accumulated but unpaid dividends (whether or not earned
or declared) for each share of Series B Preferred Stock (not previously added to
the Stated Value) as of the conversion date, by the conversion price (as
hereinafter defined). The initial conversion price is $5.50 per share, subject
to adjustment in certain events, including without limitation a
reclassification, reorganization or exchange of the Company's Common Stock.
The shares of Series B Preferred Stock are subject to automatic conversion,
without further action on the part of the holder or the Company, if for fifteen
(15) consecutive trading days subsequent to the issuance date the closing price
of one share of Common Stock has equaled or exceeded $11.00 per share.
Registration Rights. The Company has agreed to register on a Form S-3
under the Securities Act, the shares of Common Stock issuable upon conversion of
the Series B Preferred Stock and the exercise of the Series B Warrants.
Maturity. On the date that is the sixth anniversary of the Issuance Date,
the Company has the option, in its sole and absolute discretion, to either (i)
cause the shares of Series B Preferred Stock then outstanding to be
automatically converted into that number of fully paid, validly issued and
nonassessable shares of Common Stock determined in accordance with the terms of
the Certificate of Designations by application of the then applicable Conversion
Rate; or (ii) redeem all of the shares of Series B Preferred Stock then
outstanding at the Aggregate Value per share.
PLAN OF DISTRIBUTION
The distribution of the Shares by the Selling Stockholders, or by pledgees,
donees, transferees or other successors in interest may be effected from time to
time in transactions on the Nasdaq National Market in negotiated transactions or
other exchanges or in the over-the-counter market, or otherwise at prices and at
terms then prevailing or at prices related to the then current market price, or
in negotiated transactions. The Shares may be sold by one or more of the
following: (i) a block trade in which the broker or dealer so engaged will
attempt to sell the shares as agent but may position and resell a portion of the
block as principal to facilitate the transaction; (ii) purchases by a broker or
dealer as principal and resale by such broker or dealer for its account pursuant
to this Prospectus; (iii) an exchange distribution in accordance with the rules
of such exchange; and (iv) ordinary brokerage transactions and transactions in
which the broker solicits purchasers. In addition, any securities covered by
this Prospectus which qualify for sale pursuant to Rule 144 may be sold under
Rule 144 rather than pursuant to this Prospectus. From time to time and subject
to certain contractual limitations, the Selling Stockholders may engage in short
sales, short sales versus the box, puts and calls and other transactions in
securities of the issuer or derivatives thereof, and may sell and deliver the
shares in connection therewith. See "Selling Stockholders -- Low Trades; Short
Sales." Broker-dealers through which transactions involving the Shares are
effected 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-
29
<PAGE> 32
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.
In effecting sales, brokers or dealers engaged by the Selling Stockholders
may arrange for other brokers or dealers to participate. Brokers or dealers will
receive commissions or discounts from Selling Stockholders in amounts to be
negotiated immediately prior to the sale. The Selling Stockholders and agents
who execute orders on their behalf may be deemed to be underwriters as that term
is defined in Section 2(11) of the Securities Act and a portion of any proceeds
of sales and discounts, commissions or other compensation may be deemed to be
underwriting compensation for purposes of the Securities Act. The Company has
agreed to indemnify the Selling Stockholders against certain liabilities,
including liabilities under the Securities Act.
ADDITIONAL INFORMATION
The Company is subject to the information requirements of the Exchange Act,
and, in accordance therewith, files reports and other information with the
Commission. Such reports, proxy statements, and other information can be
inspected without charge at the Commission's Public Reference Room at 450 Fifth
Street, N.W., Washington, D.C. 20549. The public may obtain information on the
operation of the Public Reference Room by calling the Commission at
1-800-SEC-0330. 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 Commission maintains an internet site located at
http://www.sec.gov that contains reports, proxy and information statements, as
well as other information regarding issuers that file electronically with the
Commission, including the Company. The Common Stock of the Company is quoted on
the Nasdaq National Market and other information concerning the Company can be
inspected at the office of the Nasdaq National Market, 1735 K Street, N.W.,
Washington, D.C. 20006-1500.
The Company has filed with the Commission a Registration Statement on Form
S-3 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. Statements contained in this Prospectus as to the contents of
any contract or other documents are not necessarily complete, and in each
instance, reference is made to the copy of such contract or documents filed as
an exhibit to the Registration Statement, each such statement being qualified in
all respects by such reference and the exhibits and schedules thereto. For
further information regarding the Company and the Shares, reference is hereby
made to the Registration Statement and such exhibits and schedules which may be
obtained from the Commission at its principal office in Washington, D.C. upon
payment of the fees prescribed by the Commission.
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.
EXPERTS
The balance sheet as of December 31, 1997 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, 1997 and for the period
October 5, 1993 (date of inception) to December 31, 1997, incorporated by
reference in this prospectus, have been incorporated herein in reliance on the
report, which includes an explanatory paragraph on the Company's ability to
continue as a going concern, of PricewaterhouseCoopers LLP, independent
accountants, given on the authority of that firm as experts in accounting and
auditing.
30
<PAGE> 33
- ------------------------------------------------------
- ------------------------------------------------------
NO DEALER, SALES REPRESENTATIVE OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO
GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THE
OFFERING OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR MADE,
SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL
OR A SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THE SHARES OF
COMMON STOCK TO WHICH IT RELATES OR AN OFFER TO, OR A SOLICITATION OF, ANY
PERSON IN ANY JURISDICTION WHERE SUCH OFFER OR SOLICITATION WOULD BE UNLAWFUL.
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>
Incorporation of Certain Documents by
Reference........................... 2
Prospectus Summary.................... 3
Risk Factors.......................... 6
Use of Proceeds....................... 16
Selling Stockholders.................. 17
Certain Relationships between the
Company and Certain Selling
Stockholders........................ 21
Description of Securities............. 25
Plan of Distribution.................. 29
Additional Information................ 30
Legal Matters......................... 30
Experts............................... 30
</TABLE>
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
1,179,753 SHARES
[OBJECTIVE COMMUNICATIONS LOGO]
OBJECTIVE
COMMUNICATIONS, INC.
COMMON STOCK
NOVEMBER , 1998
- ------------------------------------------------------
- ------------------------------------------------------
<PAGE> 34
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. 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 are estimates.
<TABLE>
<CAPTION>
DESCRIPTION AMOUNT
----------- -------
<S> <C>
Blue Sky fees and expenses (including fees of counsel)...... $ 2,000
Transfer Agent and Registrar's fees......................... 1,000
Printing expenses........................................... 10,000
Legal fees and expenses (other than blue sky)............... 15,000
Accounting fees and expenses................................ 8,000
Miscellaneous............................................... 2,000
-------
Total............................................. $38,000
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
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 Second 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 16. EXHIBITS.
The following is a list of all exhibits filed as a part of this
Registration Statement on Form S-3, including those incorporated herein by
reference.
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION OF EXHIBIT
- ------- ----------------------
<C> <S>
3.1 Second Amended and Restated Certificate of Incorporation of
the Registrant (Incorporated by reference to Exhibit 3.1
forming a part of the Registrant's Quarterly Report on
Form 10-QSB, as amended by Amendment No. 1 to the Form
10-QSB on Form 10-QSB/A, for the quarter ended June 30,
1998).
3.2 Amended and Restated Bylaws of the Registrant (Incorporated
by reference to Exhibit 3.2 forming a part of the
Registrant's Registration Statement on Form SB-2 (File
No. 333-20625) filed with the Securities and Exchange
Commission under the Securities Act of 1933, as amended).
</TABLE>
II-1
<PAGE> 35
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION OF EXHIBIT
- ------- ----------------------
<C> <S>
4.1 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
(Incorporated by reference to Exhibit 3.4 forming a part
of the Registrant's Registration Statement on Form SB-2.
(File No. 333-20625) filed with the Securities and
Exchange Commission under the Securities Act of 1933, as
amended).
4.2 Form of Warrant to Purchase Common Stock of the Registrant,
issued in connection with the private placement of units
in June 1995 and August 1996 (Incorporated by reference
to Exhibit 3.5 forming a part of the Registrant's
Registration Statement on Form SB-2 (File No. 333-20625)
filed with the Securities and Exchange Commission under
the Securities Act of 1933, as amended).
4.3 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 (Incorporated by reference to Exhibit
3.7 forming a part of the Registrant's Registration
Statement on Form SB-2 (File No. 333-20625) filed with
the Securities and Exchange Commission under the
Securities Act of 1933, as amended).
4.4 Form of Option for the Purchase of 180,000 Shares of Common
Stock issued to Barington Capital Group, L.P.
(Incorporated by reference to Exhibit 3.8 forming a part
of the Registrant's Registration Statement on Form SB-2
(File No. 333-20625) filed with the Securities and
Exchange Commission under the Securities Act of 1933, as
amended).
4.5 Form of Stock Option Agreement, dated December 18, 1997, by
and between the Registrant and Barington Capital Group,
L.P. (Incorporated by reference to Exhibit 10.8 forming a
part of the Registrant's Annual Report on Form 10-KSB for
the year ended December 31, 1997).
4.6 Specimen certificate evidencing shares of Common Stock of
the Registrant (Incorporated by reference to Exhibit 4.2
to the Registrant's Registration Statement on Form SB-2
(File No. 333-20625) filed with the Securities and
Exchange Commission under the Securities Act of 1933, as
amended).
4.7 Form of 5% Convertible Debentures due 2003 of the Registrant
(Incorporated by reference to Exhibits 4.3 and 4.4
forming a part of the Registrant's Current Report on Form
8-K dated July 1, 1998 and filed July 16, 1998 with the
Securities and Exchange Commission under the Securities
Exchange Act of 1934, as amended).
4.8 Form of Warrants to be issued upon redemption of the 5%
Cumulative Convertible Debentures due 2003 of the
Registrant (Incorporated by reference to Exhibit 4.5
forming a part of the Registrant's Current Report on Form
8-K dated July 1, 1998 and filed July 16, 1998 with the
Securities and Exchange Commission under the Securities
Exchange Act of 1934, as amended).
4.9* Specimen certificate evidencing shares of the Series B 5%
Cumulative Convertible Preferred Stock of the Registrant.
4.10* Certificate of Designations of the Series B 5% Cumulative
Convertible Preferred Stock of the Registrant.
4.11* Form of Warrant issued in connection with the Series 5%
Cumulative Convertible Stock of the Registrant.
5* Opinion of Shaw, Pittman, Potts & Trowbridge as to the
legality of the securities being registered.
10.10** Strategic Alliance and Marketing Agreement between the
Registrant and Unisys Corporation.
23.1* Consent of Shaw, Pittman, Potts & Trowbridge (included as
part of Exhibit 5).
23.2 Consent of PricewaterhouseCoopers LLP
24* Power of Attorney (included on signature page to the
Registration Statement).
</TABLE>
- ---------------
* Previously filed.
** Confidential portions omitted and will be supplied separately to the
Securities and Exchange Commission.
II-2
<PAGE> 36
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 in the
aggregate, represent a fundamental change in the information set forth
in the registration statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the estimated
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) 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.
(c) 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-3
<PAGE> 37
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant certifies it has reasonable grounds to believe it meets all the
requirements for filing this Form S-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the County of Rockingham, New Hampshire, on November 5, 1998.
OBJECTIVE COMMUNICATIONS, INC.
(Registrant)
By: /s/ JAMES F. BUNKER
----------------------------------
James F. Bunker
President and Chief Executive
Officer
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>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ JAMES F. BUNKER President and Chief November 5, 1998
- ----------------------------------------------------- Executive Officer
James F. Bunker (Principal Executive
Officer)
/s/ ROBERT H. EMERY Vice President, November 5, 1998
- ----------------------------------------------------- Administration and
Robert H. Emery Finance and Secretary
(Principal Financial
and Accounting Officer)
/s/ CLIFFORD M. KENDALL* Chairman of the Board of November 5, 1998
- ----------------------------------------------------- Directors
Clifford M. Kendall
/s/ STEVEN A. ROGERS* Vice President, November 5, 1998
- ----------------------------------------------------- Engineering, Chief
Steven A. Rogers Technology Officer and
Director
/s/ ANTHONY M. AGNELLO* Director November 5, 1998
- -----------------------------------------------------
Anthony M. Agnello
/s/ ROBERT L. BARNETT* Director November 5, 1998
- -----------------------------------------------------
Robert L. Barnett
/s/ DONALD W. BARRETT* Director November 5, 1998
- -----------------------------------------------------
Donald W. Barrett
/s/ EUGENE R. CACCIAMANI* Director November 5, 1998
- -----------------------------------------------------
Eugene R. Cacciamani
/s/ MARC S. COOPER* Director November 5, 1998
- -----------------------------------------------------
Marc S. Cooper
/s/ LINCOLN D. FAURER* Director November 5, 1998
- -----------------------------------------------------
Lincoln D. Faurer
/s/ RICHARD T. LIEBHABER* Director November 5, 1998
- -----------------------------------------------------
Richard T. Liebhaber
</TABLE>
II-4
<PAGE> 38
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ ROY C. NASH* Director November 5, 1998
- -----------------------------------------------------
Roy C. Nash
/s/ JOHN B. TORKELSEN* Director November 5, 1998
- -----------------------------------------------------
John B. Torkelsen
</TABLE>
*By: /s/ ROBERT H. EMERY
-------------------------------
Robert H. Emery
Attorney-in-Fact
II-5
<PAGE> 39
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION OF EXHIBIT
- ------- ----------------------
<C> <S>
3.1 Second Amended and Restated Certificate of Incorporation of
the Registrant (Incorporated by reference to Exhibit 3.1
forming a part of the Registrant's Quarterly Report on
Form 10-QSB, as amended by Amendment No. 1 to the Form
10-QSB on Form 10-QSB/A, for the quarter ended June 30,
1997).
3.2 Amended and Restated Bylaws of the Registrant (Incorporated
by reference to Exhibit 3.2 forming a part of the
Registrant's Registration Statement on Form SB-2 (File
No. 333-20625) filed with the Securities and Exchange
Commission under the Securities Act of 1933, as amended).
4.1 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
(Incorporated by reference to Exhibit 3.4 forming a part
of the Registrant's Registration Statement on Form SB-2
(File No. 333-20625) filed with the Securities and
Exchange Commission under the Securities Act of 1933, as
amended).
4.2 Form of Warrant to Purchase Common Stock of the Registrant,
issued in connection with the private placement of units
in June 1995 and August 1996 (Incorporated by reference
to Exhibit 3.5 forming a part of the Registrant's
Registration Statement on Form SB-2 (File No. 333-20625)
filed with the Securities and Exchange Commission under
the Securities Act of 1933, as amended).
4.3 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 (Incorporated by reference to Exhibit
3.7 forming a part of the Registrant's Registration
Statement on Form SB-2 (File No. 333-20625) filed with
the Securities and Exchange Commission under the
Securities Act of 1933, as amended).
4.4 Form of Option for the Purchase of 180,000 Shares of Common
Stock issued to Barington Capital Group, L.P.
(Incorporated by reference to Exhibit 3.8 forming a part
of the Registrant's Registration Statement on Form SB-2
(File No. 333-20625) filed with the Securities and
Exchange Commission under the Securities Act of 1933, as
amended).
4.5 Form of Stock Option Agreement, dated December 18, 1997, by
and between the Registrant and Barington Capital Group,
L.P. (Incorporated by reference to Exhibit 10.8 forming a
part of the Registrant's Annual Report on Form 10-KSB for
the year ended December 31, 1997).
4.6 Specimen certificate evidencing shares of Common Stock of
the Registrant (Incorporated by reference to Exhibit 4.2
to the Registrant's Registration Statement on Form SB-2
(File No. 333-20625) filed with the Securities and
Exchange Commission under the Securities Act of 1933, as
amended).
4.7 Form of 5% Convertible Debentures due 2003 of the Registrant
(Incorporated by reference to Exhibits 4.3 and 4.4
forming a part of the Registrant's Current Report on Form
8-K dated July 1, 1998 and filed July 16, 1998 with the
Securities and Exchange Commission under the Securities
Exchange Act of 1934, as amended).
4.8 Form of Warrants to be issued upon redemption of the 5%
Cumulative Convertible Debentures due 2003 of the
Registrant (Incorporated by reference to Exhibit 4.5
forming a part of the Registrant's Current Report on Form
8-K dated July 1, 1998 and filed July 16, 1998 with the
Securities and Exchange Commission under the Securities
Exchange Act of 1934, as amended).
4.9* Specimen certificate evidencing shares of the Series B 5%
Cumulative Convertible Preferred Stock of the Registrant.
4.10* Certificate of Designations of the Series B 5% Cumulative
Convertible preferred stock of the Registrant.
</TABLE>
<PAGE> 40
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION OF EXHIBIT
- ------- ----------------------
<C> <S>
4.11* Form of Warrant issued in connection with the Series 5%
Cumulative Convertible Stock of the Registrant.
5* Opinion of Shaw, Pittman, Potts & Trowbridge as to the
legality of the securities being registered.
10.10** Strategic Alliance and Marketing Agreement between the
Registrant and Unisys Corporation.
23.1* Consent of Shaw, Pittman, Potts & Trowbridge (included as
part of Exhibit 5).
23.2 Consent of PricewaterhouseCoopers LLP
24* Power of Attorney (included on signature page to the
Registration Statement).
</TABLE>
- ---------------
* Previously filed.
** Confidential portions omitted and will be supplied separately to the
Securities and Exchange Commission.
<PAGE> 1
EXHIBIT 10.10
STRATEGIC ALLIANCE AND MARKETING AGREEMENT
This Agreement is entered into as of this 22nd day of October, 1998 (the
"Effective Date") by and between Unisys Corporation (hereinafter "Unisys"), a
Delaware corporation, with offices at 8008 Westpark Drive, McLean, Virginia
22102, and Objective Communications, Inc., (hereinafter "Seller" or
"Objective"), a Delaware corporation, with offices at 50 International Drive,
Portsmouth, New Hampshire 03801-2852.
RECITALS
The purpose of this document is to establish a strategic alliance and marketing
agreement ("Agreement") between Unisys and Objective. This Agreement outlines
the cooperative proposal activities, sales, marketing, delivery, support and
working relationship that Unisys and Objective will pursue in the U.S. Federal
Government (the "Government") market sector for the period covered by this
Agreement. Unisys and Objective agree to perform their respective obligations,
as set forth in this Agreement.
Unisys has need of particular types of hardware, software and related products
used in the production of video modems and related customer-premises video and
multimedia distribution and switching products, which are essentially Seller's
products as set forth in Seller's then-current standard Product and Price
Listing or as otherwise defined (hereinafter "Products") for its use and for
lease, rental, sublicense, and/or sale to others; and
Seller, among other things, is engaged in the design, manufacture, and sale of
said Products and elements thereof, and Seller is willing to sell such Products
to Unisys.
In consideration of the mutual covenants herein contained and intending to be
legally bound by the provisions of this Agreement, Unisys and Seller agree as
follows:
I. SCOPE
<TABLE>
<S> <C>
A. EXCLUSIVITY: Unisys shall be the exclusive reseller of Objective's Products to the United States
Courts. Unisys shall be the non exclusive reseller of Objective's Products to the Federal
Government* * * * * *
* * * * * *
* * * * * **
* *Unisys will:
1. Promote Objective's Products throughout the Unisys Federal customer base;
2. Provide Objective's Product and feature training to Unisys sales personnel;
3. Promote Objective's Products at key Industry Trade Shows;
4. Include Objective's Products in the Unisys / Microsoft Application Development Center of
Excellence;
5. Include Objective's Products, whenever possible and as mutually agreed by the parties,
on existing government contracts;* *
* * * * * *
* * * * *
* * * * *
* * *
</TABLE>
*Text deleted pursuant to a forthcoming application for Confidential Treatment
under Rule 406 of the Securities Act of 1933, as amended, and filed separately
with the Securities and Exchange Commission.
<PAGE> 2
B. PRODUCT SET: Unisys reserves the right to purchase any Product which
Seller offers to any other reseller pursuant to the terms of this
Agreement. Seller shall sell all new Products and Product
enhancements to Unisys if such Products are generally available for
sale to others. Unisys may productize and/or engage in proactive
marketing programs on any one or more of these Products.
Productization includes promoting the sale of the Products within the
Unisys sales force and to our customers and entering the Product data
and pricing in the on-line database for dissemination to the field
sales personnel.
C. SALE TO OTHERS: Unisys is authorized to sell and support the Products
for both end user and reseller customers of Unisys.
D. MAINTENANCE: Unisys is authorized to provide maintenance/support
services for Products to its customers regardless of whether or not
Unisys sold the customer the Products.
II. SALES AND MARKETING
A. MARKETING PROGRAMS: Unisys and Seller will work together to develop
marketing programs to promote visibility and customer awareness for
the Unisys/Seller relationship.
B. TRAINING: Seller will provide reasonable sales and configuration
training, at a location mutually agreed by the parties, at no charge
to Unisys. The training will be designed to familiarize Unisys sales,
marketing, technical and program management personnel with the
features and functionality of the Products. Unisys will be allowed to
videotape such training.
C. PRE-SALE SUPPORT: Seller shall provide pre-sale Product support,
including customer site support if needed. Seller shall advise Unisys
regarding availability of CD-ROM, Bulletin boards, telephone, and
Internet support and shall provide links to demo facilities.
D. MARKETING DEVELOPMENT FUNDS: Seller shall provide reasonable funds
for Unisys use to advertise and promote the sale of Objective's
Products in conjunction with Unisys contracts and solutions. Such
funds will be based on parameters to be mutually agreed by the
parties. Seller and Unisys may participate in co-advertising and
joint seminars.
E. CENTER OF EXCELLENCE: During the term of this Agreement, Seller
agrees to provide, at no charge to Unisys, the following Products and
related support:
1. Objective shall provide the following minimum
configuration for initial use and testing:
1 BDL-1020-0001-AGA VidPhone Switch - 20 User Bundle
20 BDL-6000-0101-WBM Win95 Station with AVD (NTSC)
1 BRD-0500-0001-AAA Conference Bridge
5 CBL-0015-0000-AAA Direct Access5 Extension Cable
1 GWY-1000-0001-AAA H.320 ISDN Gateway
1 Roll About Flat Panel VideoConferencing System
<PAGE> 3
2. Objective shall provide the technical support necessary to ensure
successful testing, use and demonstration of its Products during the
development phase and the operation of the Center of Excellence. At
a minimum, such support shall include:
- Technical points of contact
- Hardware support to repair / replace failed products or
components in a timely manner.
III. BUSINESS ADMINISTRATION
A. TERM OF AGREEMENT: This Agreement has an initial term of one (1) year
from the Effective Date and shall automatically renew for successive
one year terms unless earlier terminated. Either party may terminate
this Agreement with written notice issued at least ninety (90)
calendar days prior to the effective termination date. Any such
termination shall only affect continuation of this Agreement and may
not affect arrangements which were established as a result of this
Agreement.
B. ORDERING OF PRODUCTS:
Unisys authorized personnel may issue purchase orders for Products
under the provisions of this Agreement.
C. GOVERNMENT CONTRACT PROVISIONS:
If an order specifies that Products are for resale to a state, local
or federal government, Seller agrees to be bound by the specific
government contract provisions attached to or referred to in the
order which Unisys is required by law to include in its subcontracts.
Such orders are subject to Seller's acceptance.
D. ORDER CONTENT / ACCEPTANCE:
Each order shall specify quantities, prices, delivery schedules,
destination, and other similar matters necessary for the individual
transaction to be adequately described. Orders are deemed accepted by
Seller if issued in accordance with the provisions of this Agreement.
E. PURCHASE COMMITMENTS:
Unisys shall not be obligated to order or purchase any specific or
minimum quantity of Products under this Agreement. The sole
obligation and liability of Unisys to Seller shall be limited to the
actual quantities of Products specified by purchase orders issued
pursuant to this Agreement.
F. PRICING/TERMS: The net purchase price to Unisys is based on Seller's
then-current Standard Product and Price List as of the date of
shipment, less applicable discounts as set forth in Addendum A of
this Agreement. Seller shall use reasonable efforts to provide
Product and price change information to Unisys in electronic format
and in a timely manner so as to allow updates of the Unisys ordering
and sales support systems. The Unisys discount shall not change
except by mutual agreement of the parties. Payment terms are Net 30
days from receipt of a proper invoice. Unisys and Seller agree to
negotiate "bid specific" pricing on an as needed basis to effectively
meet customer needs or competition on specific sales opportunities.
G. TERMINATION/CANCELLATION/RETURNS: Unisys may cancel orders for
standard Products prior to shipment at no charge. Custom built or
configured Products may be canceled at terms mutually agreeable to
the parties. Either party may terminate this Agreement for default,
subject to the
<PAGE> 4
provision of written notice specifying such default and the allowance
of a sixty (60) day cure period after receipt of such notice to cure
the default. Unisys may return any non-defective properly packaged
Product for a full refund.
H. MOST FAVORED CUSTOMER: Seller warrants that the prices, payment terms
and other terms and conditions stated for the Products, spare parts,
and supplies covered by this Agreement are not less favorable than
prices, payment terms or other terms and conditions accorded to
Seller's most favored customer for like items in similar quantities.
If, at any time during the term of this Agreement, Seller provides to
such customer of Seller more favorable net prices, payment terms or
other terms and conditions for products and services which are
substantially comparable to those licensed or sold to Unisys
hereunder, Seller shall extend such prices, payment terms and other
terms and conditions to Unisys.
I. LOGISTICS: Seller shall provide to Unisys all current Product
lead-time information and update changes as needed. If lead-times
become non-competitive or fail to meet market demand, Seller and
Unisys will cooperate to reduce adverse impact on sales; an example
would be to establish forecasts of orders to manage availability, and
such order schedules would be modified to meet actual requirements in
a timely manner with sufficient notice to Seller prior to scheduled
delivery dates. Seller will promptly advise Unisys of any schedule
changes on all open orders. Seller agrees to pay Unisys liquidated
damages for late delivery in the amount of which the customer is
contractually entitled from Unisys, provided that Unisys had advised
Seller of the customer's inclusion of a liquidated damages provision
and Seller had agreed to such provision. Seller shall provide
expedited delivery capability to meet critical Products availability
dates as needed. Seller shall ship Products to domestic and
international destinations from the most cost effective
manufacturing/inventory location. Seller is not authorized to make
partial shipments unless Unisys requests or approves partial delivery
in writing.
J. PACKING: Products shall be suitably packed and shipped in accordance
with standard commercial packing, the requirements of common
carriers, and in such manner as to assure against damage from
transportation, weather, and other environmental conditions. The
Unisys purchase order number and part numbers, and any other
information required by the customer, must be plainly marked on all
invoices, inner-packages, outer packing, bills of lading, and
shipping orders. See Addenda C and D for further information and
requirements.
K. SHIPPING:
1. Unisys may, from time to time, direct the use of specific carriers
or premium modes of transportation and arrange for direct billing of
freight charges to Unisys. If such Unisys direction relative to
premium modes of transportation is necessitated by Seller's failure
to perform in accordance with established schedules, Seller shall
bear any resulting increase in transportation and packing costs.
2. All orders must ship complete. No partial shipments are authorized
unless Unisys provides explicit written authorization to do so. No
invoices should be submitted, nor will they be processed for payment
until the order ships complete unless otherwise authorized.
L. EXPORT: Unisys may request that Seller export Products to Unisys
organizations or Unisys customers located outside of the United
States, in which case Seller shall be the exporter of record. Seller
shall then be responsible for compliance with applicable export
regulations, including obtaining requisite export and/or re-export
licenses, if any, in Seller's name covering said shipment
<PAGE> 5
to the consignee (customer). Unisys shall provide Seller
documentation necessary for Seller's use in application for export
licenses or permits enough in advance of scheduled delivery dates so
that Seller's associated shipping schedules shall not be impacted by
government processing time. Any customs or duty charges will be the
responsibility of Unisys.
M. ADMINISTRATION/NOTICES: All official notices shall be in writing and
shall be sent by certified mail, return receipt requested, or by wire
communications (i.e., telex, twx, facsimile, etc.), to the respective
Contract Administrator, at the address noted below, or as may be
changed from time to time by notice similarly given. Written and
other forms of notices applicable to orders shall be sent to Unisys
procurement personnel at the addresses noted in the orders affected.
1. For Unisys
General administration and liaison shall be
performed by Valerie Meuleners, Manager
Contracts and Pricing (referred to herein as
"Unisys Contract Administrator"), or her
designee or successor.
Marketing liaison shall be performed by Frank
Zinzi (referred to herein as "Unisys Marketing
Administrator"), or his designee or successor.
2. For Seller
General administration and liaison shall be
performed by Robert Emery, Vice President
Administration & Finance (referred to herein as
"Seller's Contract Administrator"), or his
designee or successor.
Marketing liaison shall be performed by Ty
Glasgow, Director, Business Development
(referred to herein as Seller's Marketing
Administrator"), or his designee or successor.
.
3. The Marketing Administrators may clarify, explain, provide further
details, handle necessary marketing matters, implement marketing
aspects, and develop administrative procedures, but shall have no
authority to affect or change any of the terms and conditions of this
Agreement. The exercise of Unisys rights of termination or
cancellation and the exercise of other general rights of Unisys are
reserved to Unisys Contract Administrator.
IV. PRODUCT SUPPORT
A. Express Warranties:
1. Seller warrants that:
a. The Products shall be free of defects in material and
workmanship for a period of the greater of twelve (12) months from
the date of installation or fourteen (14) months from date of
invoice;
b. The Products shall be of new manufacture, in
conformance with applicable specifications and regulatory agencies'
requirements, free of defects in design, and free of any claim,
encumbrance or lien; and
c. The Products shall be free of latent defects. As used
herein, latent defects are defects that meet the following criteria:
(i) such defects are not apparent to either party during
<PAGE> 6
customary manufacturing or quality testing and/or inspection, (ii)
such defects result solely from defective material, workmanship, or
design and are not caused by misuse or misapplication of the Product,
and (iii) such defects occur in at least three percent (3%) of a
specific model of Product sold to Unisys during the life of the
Product but limited to a maximum of ten (10) years after the initial
delivery to Unisys of such Product,
2. Seller shall repair or replace Products which are not in
conformance with any of the foregoing warranties, and such obligation
to repair or replace shall apply to the future performance of the
Products so as to keep them in operating condition during each
warranty term.
3. Products repaired or replaced under the original warranty shall be
warranted for the longer of the remainder of the warranty period on
the original Products or three (3) months from reshipment of the
repaired or replacement Products by Seller.
4. Seller represents and warrants that it has title and the right to
sell Products free and clear of all liens and encumbrances and the
right to grant the software misappropriation or patent or copyright
infringement in connection with the sale and licensing of the
Products to Unisys.
5. Seller's warranties, together with its service guaranties, shall
run to Unisys and end users. Unisys inspection, approval, acceptance,
use of, or payment for Products shall in no way affect Unisys
warranty rights, whether or not a breach of warranty had become
evident at the time. Seller shall honor customer warranty claims
during the warranty period. However, Unisys reserves the rights to
sell Product warranty uplifts or maintenance services to its clients
and deliver such services directly to its clients during said
warranty period.
B. Remedies for Breach of Warranty
1. Any Product, which fails within the first thirty (30) days
after installation, shall be considered Dead on Arrival
("DOA"). DOA Products shall be replaced by Seller
immediately upon notification of such occurrence and prior
to the return of such DOA Products. For other than DOA
occurrences, Unisys may return to Seller any Products in
breach of any warranty, and Seller shall reship the
repaired or replacement Product to Unisys within thirty
( 30 ) days whenever possible and no later than ninety
( 90 ) days after receipt of the nonconforming Products
returned by Unisys.
2. Unisys or its authorized agent shall submit warranty
claims to Seller in writing, within a reasonable time,
stating the nature and date of the claim.
3. Special billing procedures for replacement Products may be
established as needed based upon mutual agreement of the
parties.
4. Seller shall bear all freight charges associated with
warranty claims for shipments to and from Unisys
locations.
5. Seller shall have the risk of loss, destruction, or damage
to all returned Products while in Seller's possession and
while in transit during return to Seller and reshipment to
Unisys.
6. Unisys rights under this Article are cumulative and
nonexclusive and in addition to all other rights and
remedies that Unisys may have in law or equity.
<PAGE> 7
C. Product Support
Unisys shall be authorized to perform first level support and
maintenance for the Products in a manner, which meets or exceeds
Seller's service provision standards whether or not Unisys sold the
Products to the customer. Seller shall provide secondary support to
Unisys, at Unisys request, in supporting and maintaining the
Products, at no charge to Unisys when the Products are under warranty
and at mutually agreed charges for time and material when the
Products are under extended warranty or maintenance.
D. Seller-Provided Technical Training
1. Unisys and Seller recognize the importance of training for
the successful support of all Products. Unisys agrees to
provide adequate staff and facilities to properly support
Seller's Products.
2. Seller shall, when requested by Unisys, provide sufficient
initial training sessions to train sixteen (16) people at
no additional charge. These initial training sessions will
cover installation procedures, configuration, operation,
trouble shooting and repair of the Products.
3. Seller shall provide all manuals and course materials for
the training specified in Paragraph 2, above. Seller
grants Unisys the right to reproduce, modify, translate,
and distribute manuals and course materials and the right
to disclose the information contained therein for its own
training purposes.
Seller shall provide camera ready copy and/or electronic
media of such manuals and course materials, as well as
course outlines, lesson guides, training aids, and other
related materials, as available, for Unisys use in setting
up its own training courses. Such manuals and course
materials furnished to Unisys, and all copies thereof made
by Unisys, shall become the property of Unisys.
4. The preferred methodology for delivering training provided
under Paragraph 2, above, is CBT (Computer Based
Training), Video, or Self-Study for first level support,
with more in-depth training reserved for second level
support. Should Instructor-led training be required, it
shall be done at times and locations mutually agreeable to
the parties; provided, however,
a. if the training is to be performed at Seller's
facility, Seller shall furnish all things required for
such training and Unisys shall bear the cost of travel and
living expenses of its personnel.
b. if the training is to be performed at other than
Seller's facility, Unisys shall provide adequate training
facilities and Seller shall bear the cost of travel and
living expenses for its personnel.
5. If improvements or enhancements are made or new Products
(s) are added to this Agreement, and training for same is
reasonably required by Unisys, Seller shall provide the
type of training noted in Paragraph D-2, above, as well as
manuals and course materials,
<PAGE> 8
for sixteen (16) people, at no charge or cost to Unisys
except as set forth in Paragraph b, of D-4 above.
6. Seller shall, as requested by Unisys, provide additional
training courses and/or training as noted herein for
additional Unisys personnel.
E. Software Update/Upgrade Distribution
Seller shall make available object code and user documentation for
all software maintenance releases, patches, bug fixes, updates and/or
upgrades in accordance with the following priority of option
preferences:
1. Electronic Bulletin Board (Dial-Up) - Preferred.
2. Seller maintains current software release status
directly with Unisys customers based upon Seller's drop
ship customer record.
3. Seller provides packaged deliverable Product for
distribution by Unisys.
4. Seller provides gold master copies of materials for
Unisys reproduction and distribution.
F. Spare Parts
Parts pricing shall be established at a discount equal to or greater
than the discounts available from published list prices for Products
under this Agreement. Seller shall ship parts in stock within one
( 1 ) days after receipt of order and lead time plus five (5) days
for parts not in stock. Seller agrees to provide spares and/or repair
services for a period of three (3) years after the end of Product
life or the termination of this Agreement, whichever period is
longer, at prices consistent with those afforded to other similarly
situated resellers during the applicable time period.
G. Information
Seller will provide to Unisys a reasonable number of sets of Product
documentation as needed to provide support to its customers, and the
limited right to reproduce such documents from time to time for use
within its support organization.. Seller must maintain a Product
quality database, including records substantiating Product compliance
with regulatory requirements and, upon reasonable request, allow
Unisys to examine such database. Seller must have a problem
prioritization and tracking system with response time commitments for
problem resolution as mutually agreed by the parties.
H. Diagnostic Software
When applicable, Seller shall, at no cost to Unisys, provide Unisys
with sufficient copies of existing Diagnostic Software for the
Products. Seller hereby grants to Unisys non-exclusive and
non-transferable license to copy and reproduce the Diagnostic
Software solely for the purpose of the Unisys maintenance
organization to meet the demands of the service delivery. The terms
of this license shall continue until such time that Unisys no longer
provides Product support services to its end-users.
I. Configuration Control
Seller shall provide Unisys at least ninety (90) days notice of any
change in the Products which affects form, fit, function, regulatory
approvals, interface, interchangeability, reliability, or
maintainability.
<PAGE> 9
J. Escrow
Seller agrees that Unisys shall have the option to require Seller to
place source code and other technical documentation into escrow,
should it become evident that Seller will no longer be able to
perform pursuant to this Agreement. This right is deemed to include
firmware which is downloadable to "flash" memory.
V. LEGAL PROVISIONS
This Article contains standard legal terms and conditions relating to the
purchase and resale of Products under this Agreement.
A. CONFIDENTIAL INFORMATION AND DISCLOSURE
1) Any information which either party may disclose to the other party
shall not be deemed to be confidential and shall be acquired free
from any restriction, unless the information is proprietary to the
disclosing party and, if it is disclosed in tangible form, the
disclosing party marks such information as being confidential to it
by marking such information as "Proprietary", "Restricted", or
"Confidential." Any confidential information disclosed orally shall
be identified as confidential at the time of disclosure and
thereafter reduced to tangible form with a copy, prominently marked
as aforesaid, delivered to the receiving party within ten (10) days
of the verbal disclosure. When a writing contains both confidential
and nonconfidential information, the disclosing party shall
specifically note the information, which is confidential.
However, notwithstanding the above, the identities, addresses, and
other specific information regarding Unisys customers provided by
Unisys to Seller shall be deemed Unisys confidential information.
2) Each party shall exercise the same degree of care to avoid the
publication or dissemination of the confidential information of the
other party as it affords to its own confidential information of a
similar nature which it desires not to be published or disseminated,
but in any case not less care than a reasonable person would
exercise.
3) Confidential information disclosed under this Agreement shall only be
used by the receiving party in the furtherance of this Agreement or
the performance of its obligations hereunder.
4) The obligations of the parties with respect to confidential
information shall survive the termination or cancellation of this
Agreement. However, neither party shall be obligated to protect
confidential information of the other party which:
a. is rightfully received by the receiving party from
another party without restriction, or
b. is known to or developed by the receiving party
independently without use of the confidential information,
or
c. is or becomes generally known to the public by other
than a breach of duty hereunder by the receiving party, or
d. has been or is hereafter furnished to others without
restriction on disclosure, or
<PAGE> 10
e. is known or available to the receiving party by
inspection or analysis of products available in the
market.
The obligation not to use or disclose said confidential information
shall end; either, two (2) years after the date of receipt of said
confidential information, or years after the termination of this
Agreement, whichever is later, except with respect to software for
which the obligation shall continue until the occurrence of any of
the events listed in Subparagraphs a through e, above.
5) Unisys shall be permitted to disclose said confidential information
to subsidiaries, Affiliates, third parties and subcontractors for
their use in the furtherance of this Agreement in accordance with the
rights and licenses granted; provided, however, that subsidiaries,
Affiliates, third parties and subcontractors agree to protect such
information to the extent provided herein.
6) Nothing contained in this Section V.A., or elsewhere, shall be
construed as preventing Unisys from marketing, selling, leasing,
renting, or sublicensing the Products in the same manner as it may
then market, sell, lease, rent, or sublicense its other Products.
Unisys and subsidiaries, Affiliates and third parties may disclose
Seller's confidential information to end users for the purposes of
training, operation, maintenance and marketing of the Products;
provided, however, that they shall require such end users to keep
confidential any Seller confidential information so transferred to
the same extent Unisys requires confidentiality with regard to its
own confidential information under similar circumstances.
B. DISCLAIMER
EXCEPT AS EXPRESSLY STATED HEREIN, NEITHER PARTY HAS MADE ANY WARRANTIES OR
REPRESENTATIONS, EXPRESS OR IMPLIED BY OPERATION OF LAW OR OTHERWISE, CONCERNING
THE PRODUCTS TO BE PROVIDED HEREUNDER, THE SCOPE OR DURATION OF ANY MARKETING
EFFORT WHICH Unisys MAY UNDERTAKE, OR THE SUCCESS OF ANY SUCH MARKETING EFFORT.
NEITHER PARTY HAS RELIED ON ANY EXPRESS OR IMPLIED REPRESENTATION OF THE OTHER
PARTY, WRITTEN OR ORAL, AS AN INDUCEMENT TO ENTERING INTO THIS AGREEMENT.
C. LIMITATION OF LIABILITY
EXCEPT AS PROVIDED IN SECTION V.D. HEREOF, NEITHER PARTY SHALL BE LIABLE FOR ANY
INCIDENTAL, INDIRECT, SPECIAL OR CONSEQUENTIAL DAMAGES, INCLUDING, BUT NOT
LIMITED TO, LOST PROFITS, EVEN IF SUCH PARTY HAS BEEN ADVISED OF THE POSSIBILITY
OF SUCH DAMAGES.
D. INFRINGEMENT/INDEMNITY
Seller agrees to indemnify and hold harmless Unisys, its subsidiaries,
Affiliates and subcontractors, and third party reseller customers, and end user
customers of any of the aforesaid (the "Indemnified Parties") from any claim,
liability, damage or expense including but not limited to legal expenses, of
whatever kind for or on account of patent infringement, copyright infringement,
misappropriation of trade secrets or violation of other proprietary rights in
connection with or relating to the use, copying, reproduction, distribution,
selling, licensing or other disposition of the Products. Seller agrees to defend
or settle all suits and proceedings arising out of any of the foregoing
provided, however, that Unisys shall give Seller prompt
<PAGE> 11
written notice of all suits or threats of suit and other such claims concerning
patent or copyright infringement or misappropriation of trade secrets or other
intellectual property against any of the Indemnified Parties. Unisys, at its own
expense, shall have the right to participate in Seller's defense of any such
action through Unisys' own counsel. In the event that Seller fails, after
notice, to adequately defend or settle any action which it is obligated to
defend or settle under this Section V.D., Unisys shall have the right of
prosecuting and defending such action or actions and to collect such costs and
expenses (including attorney's fees) from Seller and further shall have the
right to charge Seller with any and all awards, damages, and court costs in such
action or actions and to collect such awards, damages, and court costs from
Seller. If any Product is held to be an infringement or misappropriation for
which indemnification is to be provided by Seller, and its use is enjoined,
Seller shall, at Seller's option and expense, either:
1. Procure for the Indemnified parties the right to continue
to utilize the Product pursuant to the license granted
herein, or
2. Replace or modify the Product in such a way that they
shall not continue to constitute such infringement or
misappropriation.
Seller shall not be liable under this Section V.D. if the Product has been
modified by any of the Indemnified Parties and such modification is solely the
cause of any such infringement or misappropriation, unless such modifications
were made in accordance with Seller's instructions or with Seller's approval.
E. TRADEMARKS AND TRADE NAMES
Nothing contained in this Agreement shall be construed as licensing either party
to use any trademark or trade name owned or used by the other party without the
prior written consent of the other party. However, Unisys, its subsidiaries,
Affiliates and third parties shall have the unrestricted use of the terms stated
in this Agreement (and any other or subsequent term used by Seller to identify
the Products) in connection with the use, marketing, copying, distribution,
sale, rental, lease, licensing, and sublicensing of the Products. When marketing
the Products, Unisys, its subsidiaries and Affiliates shall have the right to
use their own trademarks or trade names when referring to the Products.
F. FORCE MAJEURE
Neither Unisys nor Seller shall be liable to the other for delays in the
performance of or completion of this Agreement if such delay is caused by
strikes, riots, wars, government regulations, acts of God, fire, flood or other
similar causes beyond its control; provided, however, if such delay exceeds
sixty (60) days, the other party shall have the option, exercisable by written
notice, to terminate this Agreement by notice in accordance with Section III.M
hereof.
G. ASSIGNMENT AND BENEFITS
All the terms and conditions of this Agreement shall be binding upon, inure of
the benefit of, and is enforceable by the respective successors and permitted
assigns of the parties hereto. Except as specifically stated in this Agreement,
neither this Agreement nor any of the rights, interests or obligations of any
party hereunder shall be assigned or delegated by either party hereto without
the prior written consent of the other. Such consent shall not be withheld
unreasonably. Any unauthorized assignment or delegation shall be null and void.
Notwithstanding the foregoing, either party may assign or otherwise transfer its
rights and obligations to successors in interest (whether by purchase of stock
or assets, merger, operation of law, or otherwise) of that portion of its
business related to the subject matter hereof.
<PAGE> 12
H. DISPUTE RESOLUTION
1) This Section H shall govern any dispute between the parties arising
from or related to the subject matter of this Agreement that is not
resolved by agreement between the Contract Administrators.
2) The parties shall make a good-faith effort to amicably settle by
mutual agreement any dispute that may arise between them under this
Agreement. The parties agree to settle all disputes, controversies or
claims which relate in any way to this Agreement finally and
conclusively by arbitration. The arbitration shall be conducted in
accordance with the Commercial Arbitration Rules of the American
Arbitration Association ("AAA") then in effect. Any such arbitration
shall be conducted in Virginia by one arbitrator selected from a
panel of persons having experience with and knowledge of electronic
computers and the computing business. The arbitrator selected will be
an attorney. The arbitrator shall be chosen by both parties; if the
parties are unable to agree, the arbitrator shall be selected by the
AAA. Judgment upon the award may be entered in any court having
jurisdiction thereof or having jurisdiction over the applicable party
or its assets. Either party will be free to apply at any time to a
court of competent jurisdiction for interim or conservatory relief
and will not be deemed to have breached this agreement to arbitrate
or to have infringed the powers of the arbitrator in doing so.
I. GENERAL PROVISIONS
1) Governing Law
This Agreement shall be construed, governed and interpreted in
accordance with the laws, but not the rules relating to the choice of
law, of the Commonwealth of Virginia.
2) Captions/Headings
The captions and headings of the Articles, sections, and paragraphs
contained herein have been inserted for the convenience of the
parties and shall not be construed as a part of or modifying any
provision of this Agreement.
3) Waiver
The failure of either party to insist, in any one or more instances,
upon the performance of any of the terms, covenants or conditions of
this Agreement or to exercise any right hereunder shall not be
construed as a waiver of the future performance of any such term,
covenant or condition or the future exercise of such right.
4) Severability
If any court should find any particular provision of this Agreement
void, illegal, or unenforceable, then that provision shall be
regarded as stricken from this Agreement and the remainder of this
Agreement shall remain in full force and effect.
5) Independent Contractors
It is agreed that the relationship between the parties is that of
independent contractors, and nothing contained in this Agreement
shall be construed or implied to create the relationship of partners,
joint venturers, agent and principal, employer and employees, or any
relationship other than that of independent contractors. At no time
shall either party make any commitments or incur any charges or
expenses for or in the name of the other party.
<PAGE> 13
6) Conflict of Interest
Seller agrees that it shall not engage directly or indirectly, either
for itself, or with or for any other person or corporation, in any
work or undertaking which shall conflict with or create any legal
impediment against Seller's performance of its obligations under this
Agreement and the rights and licenses granted to Unisys hereunder.
Seller represents that there is no such present conflict of interest
or any such legal impediment.
7) Divestiture
Notwithstanding other provisions of this Agreement to the contrary,
subsidiaries, Affiliates, and other business units of Unisys which
are, in whole or in part, divested by Unisys during the term of this
Agreement shall, nevertheless, retain all rights pursuant to this
Agreement which such divested entity had in the Products prior to
such divestiture. The rights and obligations of such divested
entities regarding the Products shall be the same as, but limited to,
Unisys rights and obligations directly applicable to the use,
payments and Seller support of the Products, and such divested
entities shall have no other rights or obligations pursuant to this
Agreement. All sales by such divested entities shall be contributory
toward the achievement of any quantity and volume pricing discounts,
and payments shall be at the then applicable net prices for the
Products. Unisys shall notify Seller of such divested entities.
8) Counterparts
This Agreement may be executed in any number of counterparts, each of
which together shall constitute one and the same instrument.
9) Publicity
Seller shall not, except as may be required by law or federal
regulation, or except with the prior written permission of Unisys,
publicly advertise this Agreement or disclose its contents.
10) Risk of Loss
Until such time as the deliverable items have been delivered to the
Unisys designated ship to address or the applicable end user
location, all risk of loss shall be Seller's.
11) Entire Compensation
Except as may be specifically provided otherwise in this Agreement,
Seller's performance and fulfillment of its other obligations under
this Agreement, and the granting of licenses and rights to Unisys
shall be at no additional cost or charge to Unisys.
12) Personal Injury/Property Damage
Each party (the "Indemnifying Party") shall hold harmless and defend
the other party (the "Indemnified Party") from any claim of personal
injury or property damage arising from any act or omission of the
Indemnifying Party. The obligations of the Indemnifying Party under
this Indemnification provision are conditional upon: (a) the
Indemnified Party providing prompt written notice to the Indemnifying
Party of any claim referred to above and any related action, suit, or
other proceeding; (b) the Indemnified Party's permitting the
Indemnifying Party to defend or settle such claim, action, suit, or
proceeding (provided the Indemnified Party must approve in its sole
discretion any settlement terms that obligate the Indemnified Party);
and (c) the Indemnified Party provided the Indemnifying Party (at the
Indemnifying Party's expense) all reasonable assistance in
<PAGE> 14
defending or settling the claim, action, suit, or proceeding. Upon
request by Unisys, Seller shall furnish evidence of insurance
coverage for such injury and damage.
13) Notice of Delay
Whenever any occurrence (e.g., an event of Force Majeure or a filling
under a bankruptcy law) is delaying or threatens to delay Seller's
timely performance under this Agreement, Seller shall promptly give
notice thereof, including all relevant information with respect
thereto, to Unisys.
14) Compliance with Law
In the performance of this Agreement, the parties shall comply with
all applicable laws, executive orders, regulations, ordinances,
rules, proclamations, demands and requisitions of national
governments or of any state, local or other governmental authority
which may now or hereafter govern performance hereunder including all
laws, executive orders, regulations, ordinances, rules and
proclamations regarding Equal Employment Opportunity, the exporting
of technology, and withholding for income taxes.
15) Foreign Offset Credits
If any foreign government offset credits result from the performance
of this Agreement, it is agreed that they shall be the sole property
of Unisys.
16) Survival of Provisions
In addition to the rights and obligations which survive as expressly
provided for elsewhere in this Agreement, the Articles and Addenda
which by their nature should survive, shall survive and continue
after any termination or cancellation of this Agreement.
17) Entire Agreement
This Agreement states the entire agreement between the parties with
respect to the subject matter hereof and shall supersede all previous
proposals, negotiations, representations, commitments, writings,
agreements and other communications, both oral and written, between
the parties. This Agreement may not be released, discharged, changed
or modified, except by an instrument in writing signed by a duly
authorized representative of each of the parties.
This Agreement has been duly signed by the parties hereto as of the
Effective Date.
<TABLE>
<S> <C>
OBJECTIVE COMMUNICATIONS, INC. UNISYS CORPORATION
By: /s/ Robert H. Emery By: Beverly G. Hayes
---------------------------------------------- --------------------------
Title: Vice President, Administration and Finance Title: Director, Contracts
------------------------------------------- -----------------------
Date: November 5, 1998 Date: November 5, 1998
-------------------------------------------- ------------------------
</TABLE>
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the Registration Statement of
Objective Communications, Inc. (a development stage enterprise) on Form S-3
(file No. 333-62971) of our report dated February 20, 1998 which includes an
explanatory paragraph on the Company's ability to continue as a going concern,
on our audits of the financial statements of Objective Communications, Inc. as
of December 31, 1997 and 1996, and for each of the three years in the period
ended December 31, 1997 and for the period October 5, 1993 (date of inception)
to December 31, 1997, which report is included in Objective Communications, Inc.
Annual Report on Form 10-KSB. We also consent to the reference to our firm under
the caption "Experts."
/s/ PRICEWATERHOUSECOOPERS LLP
-------------------------------
PricewaterhouseCoopers LLP
Boston, Massachusetts
November 5, 1998
