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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 15, 1998
REGISTRATION NO. 333-20625
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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POST-EFFECTIVE AMENDMENT NO. 3 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)
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<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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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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EXPLANATORY NOTE
This Post-Effective Amendment No. 3 to the Registration Statement
(Registration No. 333-20625) (the "Registration Statement") of Objective
Communications, Inc. (the "Company") updates and amends certain information in
the Registration Statement. The Registration Statement was originally filed with
the Securities and Exchange Commission (the "Commission") in connection with the
initial public offering of Common Stock of the Company (the "Initial Offering"),
was amended by Post-Effective Amendment No. 1 on December 24, 1997, and by
Post-Effective Amendment No. 2 on April 3, 1998, which was declared effective by
the Commission on April 15, 1998. This Registration Statement covers the
registration of the following securities for resale by the holders thereof: (i)
337,500 shares of Common Stock (the "Bridge Warrant Shares") issued or issuable
upon exercise of warrants (the "Bridge Warrants") issued by the Company in
October and November 1996; (ii) 443,100 outstanding shares of Common Stock (the
"Series A Shares") that were issued by the Company upon conversion of
outstanding shares of the Company's Series A Convertible Preferred Stock, par
value $.01 per share (the "Series A Preferred Stock"), at the time of the
closing of the Initial Offering; (iii) 100,000 shares of Common Stock (the
"Series A Warrant Shares") issuable upon exercise of the warrants (the "Series A
Warrants") issued by the Company in December 1996 and January 1997 in connection
with the private placement of the shares of Series A Preferred Stock; and (iv)
180,000 shares of Common Stock issuable upon exercise of an option (the
"Barington Option Shares") to purchase 180,000 shares of Common Stock granted to
Barington Capital Group, L.P. (the "Barington Option") by the Company in the
Initial Offering. All of the Bridge Warrant Shares, the Series A Shares, the
Series A Warrant Shares and the Barington Option Shares (collectively, the
"Shares") will be sold for the accounts of the Selling Stockholders, and the
Company will receive no proceeds therefrom. Additionally, 475,000 of such Shares
are subject to lock-up arrangements in favor of Barington Capital Group, L.P.,
which restrict the sale of such shares until April 8, 1999, subject to certain
limited exceptions. 1,130,000 Shares registered under the Registration Statement
were available for resale by the holders thereof on April 15, 1998, when
Amendment No. 2 to the Registration Statement was declared effective. All of the
69,400 Shares covered by this Registration Statement that have been sold were
sold under the effective Registration Statement.
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PROSPECTUS
OBJECTIVE COMMUNICATIONS, INC.
1,060,600 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 1,060,600 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 1,060,600
shares of Common Stock registered pursuant to the Registration Statement of
which this Prospectus constitutes a part consist of (i) 337,500 shares of Common
Stock (the "Bridge Warrant Shares") issued or issuable upon exercise of warrants
(the "Bridge Warrants") issued by the Company in October and November 1996; (ii)
443,100 outstanding shares of Common Stock (the "Series A Shares") that were
issued by the Company upon conversion of outstanding shares of the Company's
Series A Convertible Preferred Stock, par value $.01 per share (the "Series A
Preferred Stock"), at the time of the closing of the initial public offering of
Common Stock in April 1997 (the "Initial Offering"); (iii) 100,000 shares of
Common Stock (the "Series A Warrant Shares") issuable by the Company upon
exercise of the warrants (the "Series A Warrants") issued by the Company in
December 1996 and January 1997 in connection with the private placement of the
shares of Series A Preferred Stock; and (iv) 180,000 shares of Common Stock
issuable upon exercise of an option (the "Barington Option Shares") to purchase
180,000 shares of Common Stock granted to Barington Capital Group, L.P. (the
"Barington Option") by the Company in the Initial Offering. All of the Bridge
Warrant Shares, the Series A Shares, the Series A Warrant Shares and the
Barington Option Shares (collectively, the "Shares") will be sold for the
accounts of the Selling Stockholders, and the Company will receive no proceeds
therefrom. Additionally, 175,000 of such Shares issuable upon the exercise of
warrants are subject to lock-up arrangements in favor of Barington Capital
Group, L.P. ("Barington"), which restrict the sale of such shares until April 8,
1999, subject to certain limited exceptions.
The Common Stock is traded on the National Market of the National
Association of Securities Dealers Automated Quotation System ("Nasdaq") under
the symbol OCOM. On September 10, 1998, the closing price of the Common Stock as
reported on the Nasdaq National Market was $3.0625 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 September , 1998.
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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;
(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; 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, the Company has a memorandum of understanding with
Unisys, expiring in September 1998, under which Unisys is testing and evaluating
the Company's products for marketing and resale by Unisys internationally. The
Company currently anticipates that Unisys will enter into a reseller agreement
with the Company, but there can be no assurance that an agreement with Unisys
will be reached.
In April 1997, the Company completed its Initial Offering of 2,070,000
shares of Common Stock at an initial public offering price of $5.50 per share.
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%
Cumulative Convertible Debentures Due 2003 (the "5% Convertible Debentures")
with certain institutional, affiliated and other investors, from which it
received gross proceeds of approximately $3.125 million. The number of shares of
Common Stock issuable upon conversion of the 5% Convertible Debentures 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 fixed
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conversion price of $10.87 per share, or a floating conversion price 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. In
addition, if the Company exercises its right to redeem the 5% Convertible
Debentures, then it is obligated to issue to the holders thereof warrants to
purchase 175,000 shares of Common Stock at an exercise price of $6.00 per share
(the "Debenture Warrants"). No Debenture Warrants are outstanding and such
warrants will be issued only if the 5% Convertible Debentures are redeemed by
the Company, at its option. In August 1998, the Company completed a 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
To date, the Company has not generated substantial revenues from the sale
of its products and services. The Company did not earn any revenues from the
sale of products or services during 1997, and recognized only $110,505 in
revenues from the sale of products during the first half of 1998. The Company
currently expects that it will recognize operating revenues in the second half
of 1998, but is unable to predict when such revenues will be recognized or the
amount that will be recognized, which will depend on customer acceptance of
products shipped to date and certain other factors, including the timing of
customer payments, which are beyond the control of the Company. In addition, the
Company expects to continue to incur substantial operating expenses in the
future to support its product development efforts, enhance its sales and
marketing capabilities and organization and for other selling, general and
administrative expenses. Through June 30, 1998, the Company had cumulative
losses since inception of approximately $29.1 million. The Company expects to
incur additional operating losses for the foreseeable future, and does not
expect that its products will achieve initial customer acceptance until, at the
earliest, the fourth quarter of 1998. The Company's results of operations may
vary significantly from quarter to quarter during the period of product
introduction and initial sales.
The Company has experienced delays in completing product development. The
Company shipped the first VidPhone(R) systems in the fourth quarter of 1997 and
shipments continued during the first quarter of 1998. However, the products
shipped did not achieve complete customer functionality, and the Company has
continued to work on product functionality and enhancements. During late July
and early August 1998, at the request of the Company, 27 VidPhone(R) systems
were returned to the Company by a reseller for upgrade, and the reseller's order
was cancelled at its request. On August 13, 1998, the Company announced the
introduction of Release 1.4, which added additional features to the VidPhone(R)
system, including ISDN and ATM wide area connectivity. Release 1.4 is being
installed at strategic partner and evaluation customer sites for resale and
internal use. The Company is in the process of upgrading all of the VidPhone(R)
systems manufactured to date and the upgraded switches will be returned to
inventory. The Company will pay the costs of the upgrade.
In July 1998, the Company implemented new cash-management practices in an
effort to reduce corporate expenses. On July 1, 1998, the Company significantly
reduced its personnel to 88 from approximately 130, and closed its Northern
Virginia sales office. To date, the Company has financed operations principally
through public and private sales of debt and equity, including the private
placement in July 1998 of the 5% Convertible Debentures, $625,000 of which was
purchased by certain directors, executive officers and other affiliates of the
Company. The Company believes that its existing resources will be sufficient to
fund operations through October 1998 and is seeking additional sources of debt
or equity financing.
The Company also announced in July 1998 that James F. Bunker has been
elected President and Chief Executive Officer of the Company. Mr. Bunker is an
experienced industry executive who has driven successful
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corporate turnarounds at several technology companies including General
Instrument and M/A-COM. Mr. Steven A. Rogers, who is the founder of the Company
and its former President and CEO, was elected as the Company's Chief Technology
Officer and Vice President of 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.
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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.
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. To date, 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
the sale of products or services during 1997, and recognized only $110,505 in
revenues from the sale of products during the first half of 1998. The Company
currently expects that it will recognize operating revenues in the second half
of 1998, but is unable to predict when such revenues will be recognized or the
amount that will be recognized, which will depend on customer acceptance of
products shipped to date and certain 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.
LACK OF LIQUIDITY; NEED FOR ADDITIONAL FINANCING
The Company anticipates that its existing financial resources will be
sufficient to continue to fund its operating and capital requirements through
October 1998. The Company does not expect to generate substantial cash from
operations during this period. 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 accountants 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 pursuing additional sources of debt and equity financing. 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.
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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 able to raise required funds, or
that any such funds will be available on terms favorable to, or acceptable to,
the Company. The lack of availability of adequate funds, or the lack of
availability of funds on terms acceptable to the Company, would have a material
adverse effect on the Company'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 to date from sales of its
products, including the VidPhone(R) system and did not recognize any revenues
during the year ended December 31, 1997. The Company 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.
EFFECT OF CONVERSION OF THE 5% CONVERTIBLE DEBENTURES; OFFERING OF CONVERSION
SHARES
Offering of Conversion Shares; Potential Dilution. The Company has filed
with the Commission a registration statement to register for resale up to
921,242 shares of Common Stock (the "Conversion Shares") issuable upon
conversion of the 5% Convertible Debentures and upon exercise of the Debenture
Warrants, if any such warrants are issued. Accordingly, simultaneously with this
Offering of Shares, certain other stockholders may be offering and selling up to
921,242 shares of Common Stock of the Company. The offering and sale of such
shares could have an adverse effect on the market price of the Common Stock in
the public market.
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.
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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 aggregate principal amount of 5% Convertible Debentures first
become convertible on October 6, 1998, and the remaining $625,000 aggregate
principal amount of 5% Convertible Debentures first become convertible on
January 5, 1999. 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.
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
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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, the Company has a memorandum of
understanding with Unisys, expiring in September 1998, under which Unisys is
testing and evaluating the Company's products for marketing and resale by Unisys
internationally. The Company currently anticipates that Unisys will enter into a
reseller agreement with the Company, but there can be no assurance that an
agreement with Unisys will be reached. 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 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
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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 recognized
only $110,505 in operating revenues during the six months ended June 30, 1998.
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 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.
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LIMITED MARKETING EXPERIENCE; NEED TO ESTABLISH PARTNERING RELATIONSHIPS; NEED
FOR ADDITIONAL PERSONNEL
As of August 31, 1998, the Company had only 11 full-time sales and
marketing employees. It 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 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.,
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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 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 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.
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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, 15.2% and 30.8%, 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.
POTENTIAL INFLUENCE BY CERTAIN STOCKHOLDERS
Pursuant to agreements with the Company or Mr. Steven A. Rogers, three
parties have the right to designate one nominee each for election as a member of
the Board of Directors. To the extent that such contractual rights are
exercised, such stockholders may be able to exercise substantial influence over
decisions of the Company's Board of Directors and the Company's business.
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.
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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,
assuming the Bridge Warrants, the Series A Warrants and the Barington Option are
exercised and without giving effect to conversion of the 5% Convertible
Debentures, conversion of the Series B Preferred Stock, or exercise of
outstanding options or warrants (other than as set forth above), as of the date
of this Prospectus the Company would have 6,311,660 shares of Common Stock
outstanding. Of such shares, 4,381,606 shares of Common Stock, consisting of (i)
the 1,060,600 shares sold or saleable pursuant to this Offering (the "Bridge
Shares") 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
181,606 shares previously resold in reliance on Rule 144 ("Rule 144") under the
Securities Act of 1933, as amended (the "Securities Act"), and (v) the 69,400
shares of Common Stock sold by selling stockholders pursuant to an effective
registration statement will be freely transferable without restriction by
persons other than "affiliates" of the Company, subject to certain lock up
restrictions. The remaining 1,930,054 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. In addition,
up to 746,242 shares registered for offering and resale by the holders thereof
pursuant to a registration statement on Form S-3 filed by the Company in
September 1998 to permit resale of such shares by the holders thereof, the
175,000 shares of Common Stock issuable upon exercise of the Debenture Warrants
if any such warrants are issued and the 261,364 shares of Common Stock
underlying the Series B Preferred Stock and the Series B Warrants will be
transferable without restriction by persons other than "affiliates" of the
Company, subject to certain lock-up arrangements with 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 holders of 2,068,206 shares of Common Stock (including the 1,060,600 Shares
offered and sold in this Offering, the 261,364 shares of Common Stock underlying
the Series B Preferred Stock, the Series B Warrants and the 746,242 shares of
Common Stock issuable upon conversion of the 5% Convertible Debentures) also
have certain registration rights.
Of the shares of Common Stock outstanding upon completion of the Offering,
1,010,238 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.
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) 1,207,660 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. In addition to the shares of Common Stock registered for resale in this
Offering, the Company has filed a registration statement to register for resale
by holders thereof up to
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746,242 shares of Common Stock issuable 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 discouraging certain transactions involving an actual or
threatened change in control of the Company. Such provisions include a provision
in the Certificate of Incorporation which grants to the Board of Directors the
authority to issue up to 2,500,000 shares of preferred stock in one or more
series and to fix the powers, preferences and rights of each such series without
further stockholder action. The issuance in the future of any such preferred
stock could have the effect of diluting the purchasers of the Common Stock
offered hereby, discouraging unsolicited acquisition proposals or making it more
difficult for a third party to commence such an acquisition.
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
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<PAGE> 18
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 1,060,600
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
payable upon the exercise of the outstanding but unexercised Bridge Warrants,
the Series A Warrants and the Barington Option, if any such warrants or option
are exercised. See "Plan of Distribution."
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<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 August 31, 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
AFTER THE OFFERING(1)
NUMBER OF ---------------------
NUMBER SHARES NUMBER
OF SHARES PERCENT BEING SOLD OF SHARES PERCENT
--------- ------- ---------- ---------- --------
<S> <C> <C> <C> <C> <C>
Applewood Associates, L.P.(2).................. 368,100 5.8% 368,100 -- *%
Princeton Venture Research, Inc.(3)............ 584,161 9.2 300,000 284,161 4.5
Leonard Adams(4)............................... 3,125 * 3,125 -- *
Louis J. Alimena(5)............................ 6,250 * 6,250 -- *
Paul Alter(6).................................. 6,250 * 6,250 -- *
David Babiarz(7)............................... 6,250 * 6,250 -- *
Barington Capital Group, L.P.(8)............... 180,000 2.9 180,000 -- *
Marvin Barish(9)............................... 12,500 * 12,500 -- *
Baron Associates(10)........................... 3,125 * 3,125 -- *
Gerald Benjamin(11)............................ 6,250 * 6,250 -- *
New York Urban Professionals Basketball League
Profit Sharing, John Bykowsky, Trustee(12)... 6,250 * 6,250 --
Dennis J. Drebsky(13).......................... 6,250 * 6,250 -- *
Harry Friedman Living Trust, Harry Friedman,
Trustee(14).................................. 12,500 * 12,500 --
Sara Hauser(15)................................ 6,250 * 6,250 -- *
Arthur Steinberg IRA R/O(16)................... 6,250 * 6,250 -- *
Robert Jacobs IRA R/O(17)...................... 6,250 * 6,250 -- *
Robert Steinberg IRA R/O(18)................... 6,250 * 6,250 -- *
David Kohane................................... 6,250 * 6,250 -- *
David Mitchell(19)............................. 12,500 * 12,500 -- *
Samuel Musnikow(20)............................ 6,250 * 6,250 -- *
Dennis J. Mykytyn(21).......................... 6,250 * 6,250 -- *
Steven Ostner(22).............................. 12,500 * 12,500 -- *
Bruce H. Paul(23).............................. 6,250 * 6,250 -- *
Jerald Politzer(24)............................ 12,500 * 12,500 -- *
Linda Saker(25)................................ 3,125 * 3,125 -- *
Paul H. Salsgiver(26).......................... 12,500 * 12,500 -- *
Stewart A. Shiman(27).......................... 12,500 * 12,500 -- *
Floyd M. Smith(28)............................. 6,250 * 6,250 -- *
C.M. Solomon(29)............................... 3,125 * 3,125 -- *
Gershon H. Stern(30)........................... 6,250 * 6,250 -- *
Jack M. Threadgill(31)......................... 6,250 * 6,250 -- *
Steven Yavers(32).............................. 6,250 * 6,250 -- *
</TABLE>
- ---------------
* Less than one percent
(1) Applicable percentage of ownership is based on 6,311,660 shares of Common
Stock outstanding as of August 31, 1998 and upon completion of the
Offering. The number of shares of Common Stock outstanding as of August 31,
1998 assumes (i) the exercise by the Selling Stockholders of the Bridge
Warrants, the Series A Warrants and the Barington Option and the issuance
of 570,625 shares of Common Stock upon exercise of such warrants and option
and without giving effect to the conversion of the 5% Convertible
Debentures, the Series A Warrants, the Series B Preferred Stock or any
other outstanding options and warrants. Beneficial ownership is determined
in accordance with the rules of the
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<PAGE> 20
Commission. For each beneficial owner, shares of Common Stock subject to
options or conversion rights exercisable within sixty days of August 31,
1998 are deemed outstanding.
(2) Includes 175,000 shares of Common Stock that may be acquired by Applewood
upon the exercise of warrants. Applewood is beneficially owned by its four
general partners, Barry Rubenstein, Barry Fingerhut, Irwin Lieber and
Applewood Capital Corp., and by a number of limited partners. Each of the
general partners disclaims beneficial ownership except to the extent of
such general partner's equity interest therein.
(3) Consists of 526,541 shares of Common Stock (250,000 of which were issued
upon conversion of the Series A Preferred Stock owned by Princeton Venture
Research, Inc. ("PVR") and 50,000 of which are issuable upon exercise of
the Series A Warrants), and 57,620 shares of Common Stock that may be
acquired by PVR upon the exercise of currently exercisable warrants. Mr.
John Torkelsen, a director of the Company, has served as President of PVR
since 1984 and President of its affiliate, PVR Securities, Inc. ("PVR
Securities") since 1987. PVR Securities acted as the placement agent of the
Company in connection with private placements of stock and warrants in June
1995 and August 1996. Pursuant to this Registration Statement, PVR is
offering for sale 300,000 shares of Common Stock, 50,000 of which shares
are issuable upon exercise of the Series A Warrants.
(4) Consists of 3,125 shares of Common Stock issuable upon the exercise of
Bridge Warrants.
(5) Includes 3,125 shares of Common Stock issuable upon the exercise of Bridge
Warrants.
(6) Includes 3,125 shares of Common Stock issuable upon the exercise of Bridge
Warrants.
(7) Includes 3,125 shares of Common Stock issuable upon the exercise of Bridge
Warrants.
(8) Consists of 180,000 shares of Common Stock that may be acquired upon
exercise of the Barington Option, which was granted by the Company in
connection with the Initial Offering. 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, and Barington disclaims beneficial ownership of the 27,000
shares of Common Stock that may be acquired upon exercise of such options.
(9) Consists of 12,500 shares of Common Stock issuable upon the exercise of
Bridge Warrants.
(10) Consists of 3,125 shares of Common Stock issuable upon the exercise of
Bridge Warrants.
(11) Consists of 6,250 shares of Common Stock issuable upon the exercise of
Bridge Warrants.
(12) Consists of 6,250 shares of Common Stock issuable upon the exercise of
Bridge Warrants.
(13) Includes 3,125 shares of Common Stock issuable upon the exercise of Bridge
Warrants.
(14) Includes 6,250 shares of Common Stock issuable upon the exercise of Bridge
Warrants.
(15) Consists of 6,250 shares of Common Stock issuable upon the exercise of
Bridge Warrants.
(16) Consists of 6,250 shares of Common Stock issuable upon the exercise of
Bridge Warrants.
(17) Consists of 6,250 shares of Common Stock issuable upon the exercise of
Bridge Warrants.
(18) Includes 3,125 shares of Common Stock issuable upon the exercise of Bridge
Warrants.
(19) Consists of 12,500 shares of Common Stock issuable upon the exercise of
Bridge Warrants.
(20) Includes 3,125 shares of Common Stock issuable upon the exercise of Bridge
Warrants.
(21) Consists of 6,250 shares of Common Stock issuable upon the exercise of
Bridge Warrants.
(22) Consists of 12,500 shares of Common Stock issuable upon the exercise of
Bridge Warrants.
(23) Includes 3,125 shares of Common Stock issuable upon the exercise of Bridge
Warrants.
(24) Consists of 12,500 shares of Common Stock issuable upon the exercise of
Bridge Warrants.
(25) Consists of 3,125 shares of Common Stock issuable upon the exercise of
Bridge Warrants.
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<PAGE> 21
(26) Consists of 12,500 shares of Common Stock issuable upon the exercise of
Bridge Warrants. Mr. Salsgiver beneficially owns the shares jointly with
his wife, Linda B. Salsgiver and son Paul H. Salsgiver, Jr.
(27) Consists of 12,500 shares of Common Stock issuable upon the exercise of
Bridge Warrants.
(28) Includes 3,125 shares of Common Stock issuable upon the exercise of Bridge
Warrants. Mr. Smith beneficially owns the shares jointly with his wife,
Ilyse Smith.
(29) Consists of 3,125 shares of Common Stock issuable upon the exercise of
Bridge Warrants.
(30) Includes 3,125 shares of Common Stock issuable upon the exercise of Bridge
Warrants.
(31) Includes 3,125 shares of Common Stock issuable upon the exercise of Bridge
Warrants.
(32) Includes 3,125 shares of Common Stock issuable upon the exercise of Bridge
Warrants.
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.
LOCK-UP ARRANGEMENTS
Subject to the limited exceptions described below, of the Shares being
offered in this Offering, Selling Stockholders holding 475,000 Shares have
agreed not to offer, issue, sell, contract to sell, grant any option for the
sale of or otherwise dispose of any securities of the Company until April 8,
1999, without the prior written consent of Barington. Notwithstanding these
lock-up arrangements, any stockholder subject to such arrangements may sell up
to 30% of his, her or its shares of Common Stock in the event that the last
sales price for the Common Stock on the Nasdaq National Market has been at least
200% of the initial public offering price (i.e., $11.00 per share of Common
Stock) for a period of twenty consecutive trading days ending within five days
of the date of such sale, and such sale is completed at a price in excess of
200% of the initial public offering price.
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<PAGE> 22
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 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
principal amount of 5% Convertible Debentures. In addition, other principals and
employees of Barington beneficially own in the aggregate $50,000 principal
amount of 5% Convertible Debentures. In addition, if the Company exercises on
January 5, 1998, its right to redeem the $625,000 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 $6.00 per
share, and expiring five years from the date of issuance.
John B. Torkelsen and PVR Securities, Inc. John B. Torkelsen, President of
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 June 1995 and August
1996, of 50 units
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<PAGE> 23
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 President and Chief Executive Officer of
the Company, entered into an agreement that provides that, for a five-year
period beginning December 5, 1995, each of them will vote any shares 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 vote for
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<PAGE> 24
Mr. Rogers to continue his position as President and Chief Executive 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> 25
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
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, 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.
Issuance of 5% Convertible Debentures. On July 8, 1998, the Company issued
$3.125 million aggregate principal amount of 5% Convertible Debentures pursuant
to a Subscription Agreement to purchase $2.5 million 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 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 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.
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.
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<PAGE> 26
Seniority; Liquidation Preference. The Company's outstanding $3.125
million 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, 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.
24
<PAGE> 27
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 September 29, 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 of the Company, par value $.01
per share (the "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 September 29,
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.
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
25
<PAGE> 28
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 of 1933, as amended, 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.
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."
DEBENTURE WARRANTS
In connection with the issuance of the 5% Convertible Debentures, if the
Company exercises its option to redeem the $2.5 million principal amount of 5%
Convertible Debentures issued to the Institutional Investors on or before
September 29, 1998, and the $625,000 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 $6.00 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.
26
<PAGE> 29
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% 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
27
<PAGE> 30
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 of 1933, as amended, 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 "Maturity 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.
28
<PAGE> 31
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. 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-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
29
<PAGE> 32
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 financial statements and schedule incorporated in this Prospectus by
reference to the Company's Annual Report on Form 10-KSB for the year ended
December 31, 1997 have been included herein in reliance on the report 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........................ 20
Plan of Distribution.................. 27
Additional Information................ 29
Legal Matters......................... 30
Experts............................... 30
</TABLE>
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
1,060,600 SHARES
[OBJECTIVE COMMUNICATIONS LOGO]
OBJECTIVE
COMMUNICATIONS, INC.
COMMON STOCK
SEPTEMBER , 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)............... 7,500
Accounting fees and expenses................................ 8,000
Miscellaneous............................................... 2,000
-------
Total............................................. $30,500
</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 Amended and Restated Certificate of Incorporation of the
Registrant (Incorporated by reference to Exhibit 3.1
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>
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 Current 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 Company'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 Company'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 Company
(Incorporated by reference to Exhibit 4.9 forming a part
of the Registrant's Registration Statement on Form S-3
(File No. 333-62971) filed with the Securities and
Exchange Commission under the Securities Act of 1933, as
amended).
4.10 Certificate of Designations of the Company's Series B 5%
Cumulative Convertible Preferred Stock of the Company
(Incorporated by reference to Exhibit 4.10 forming a part
of the Registrant's Registration Statement on Form S-3
(File No. 333-62971) filed with the Securities and
Exchange Commission under the Securities Act of 1933, as
amended).
</TABLE>
II-2
<PAGE> 36
<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 Company (Incorporated
by reference to Exhibit 4.11 forming a part of the
Registrant's Registration Statement on Form S-3 (File No.
333-62971) filed with the Securities and Exchange
Commission under the Securities Act of 1933, as amended).
5* Opinion of Shaw, Pittman, Potts & Trowbridge as to the
legality of the securities being registered.
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.
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.
II-3
<PAGE> 37
(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-4
<PAGE> 38
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 September 15, 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 September 15, 1998
- ----------------------------------------------------- Executive Officer
James F. Bunker (Principal Executive
Officer)
/s/ ROBERT H. EMERY Vice President of September 15, 1998
- ----------------------------------------------------- Administration and
Robert H. Emery Finance and Secretary
(Principal Financial
and Accounting
Officer)
/s/ CLIFFORD M. KENDALL Chairman of the Board of September 15, 1998
- ----------------------------------------------------- Directors
Clifford M. Kendall
/s/ STEVEN A. ROGERS Director September 15, 1998
- -----------------------------------------------------
Steven A. Rogers
/s/ ANTHONY M. AGNELLO Director September 15, 1998
- -----------------------------------------------------
Anthony M. Agnello
/s/ ROBERT L. BARNETT Director September 15, 1998
- -----------------------------------------------------
Robert L. Barnett
/s/ DONALD W. BARRETT Director September 15, 1998
- -----------------------------------------------------
Donald W. Barrett
/s/ EUGENE R. CACCIAMANI Director September 15, 1998
- -----------------------------------------------------
Eugene R. Cacciamani
/s/ MARC S. COOPER Director September 15, 1998
- -----------------------------------------------------
Marc S. Cooper
/s/ LINCOLN D. FAURER Director September 15, 1998
- -----------------------------------------------------
Lincoln D. Faurer
/s/ RICHARD T. LIEBHABER Director September 15, 1998
- -----------------------------------------------------
Richard T. Liebhaber
</TABLE>
II-5
<PAGE> 39
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ ROY C. NASH Director September 15, 1998
- -----------------------------------------------------
Roy C. Nash
/s/ JOHN B. TORKELSEN Director September 15, 1998
- -----------------------------------------------------
John B. Torkelsen
</TABLE>
II-6
<PAGE> 40
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION OF EXHIBIT
------- ----------------------
<C> <S>
3.1 Amended and Restated Certificate of Incorporation of the
Registrant (Incorporated by reference to Exhibit 3.1
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).
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 Company'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 Company'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).
</TABLE>
<PAGE> 41
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION OF EXHIBIT
------- ----------------------
<C> <S>
4.9 Specimen certificate evidencing shares of the Series B 5%
Cumulative Convertible Preferred Stock of the Company.
(Incorporated by reference to Exhibit 4.9 forming a part
of the Registrant's Registration Statement on Form S-3
(File No. 333-62971) filed with the Securities and
Exchange Commission under the Securities Act of 1933, as
amended).
4.10 Certificate of Designations of the Company's Series B 5%
Cumulative Convertible preferred stock of the Company
(Incorporated by reference to Exhibit 4.10 forming a part
of the Registrant's Registration Statement on Form S-3
(File No. 333-62971) filed with the Securities and
Exchange Commission under the Securities Act of 1933, as
amended).
4.11 Form of Warrant issued in connection with the Series 5%
Cumulative Convertible Stock of the Company (Incorporated
by reference to Exhibit 4.11 forming a part of the
Registrant's Registration Statement on Form S-3 (File No.
333-62971) filed with the Securities and Exchange
Commission under the Securities Act of 1933, as amended).
5* Opinion of Shaw, Pittman, Potts & Trowbridge as to the
legality of the securities being registered.
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.
<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. 333-20625) 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
September 14, 1998
