SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM S-3
Registration Statement under the Securities Act of 1933
DAUPHIN TECHNOLOGY, INC.
------------------------
(Exact Name of Registrant as Specified in Its Charter)
ILLINOIS 3570 87-0455038
- -------------------------------------------------------------------------------
(State or Other Jurisdiction (Primary Standard (I.R.S. Employer
of Incorporation or Organization) Industrial Classification Number)
Identification No.)
800 E. Northwest Hwy., Suite 950, Palatine, IL 60067 847-358-4406
-----------------------------------------------------------------
(Address, Including Zip Code, and Telephone Number, Including
Area Code, of Registrant's Principal Executive Offices)
Andrew J. Kandalepas, President 800 E. Northwest Hwy., Suite 950, Palatine, IL
- -------------------------------------------------------------------------------
60067 847-358-4406
------------------
(Name, Address, Including Zip Code, and Telephone Number, Including
Area Code, of Agent for Service)
Approximate date of commencement of proposed sale to the public: From
time to time after the effective date of this registration statement as
determined by the selling shareholders.
If the only securities being registered on this Form are to be offered
pursuant to dividend or interest reinvestment plans, please check the following
box [_]
If any of the securities being registered on this Form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, other than securities offered only in connection with
dividend or interest reinvestment plans, check the following box [X]
If this Form is filed to register additional securities for an
offering pursuant to Rule 462(b) under the Securities Act, please check the
following box and list the Securities Act registration statement number of the
earlier effective registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box.[ ]
CALCULATION OF REGISTRATION FEE
Title of Each Class Amount to be Proposed Maximum Proposed Maximum Amount of
of Securities to be Registered Offering Aggregate Offering Registration
Registered Price Per Share (2) Price(2) Fee
- -------------------------------------------------------------------------------------------------------------------
Common Stock
$0.001 Par Value (1) 6,964,724 $1.20 $8,357,670 $2,533
(1) Includes 818,058 outstanding shares to be registered for sale by selling
shareholders and 6,146,666 shares to be registered for resale by selling
shareholders upon exercise of warrants and options.
(2) Estimated solely for the purpose of computing the registration fee pursuant
to Rule 457, based on the average of the high and low reported sales on
September 10, 2001.
In accordance with Rule 416 under the Securities Act of 1933, this registration
statement also covers such indeterminate number of additional shares as may
become issuable to prevent dilution resulting from stock splits, stock dividends
or similar transactions as set forth in the warrants referred to above.
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.
DAUPHIN TECHNOLOGY, INC.
6,964,724 Shares of Common Stock
$1.20 Bid Price as of September 10, 2001
THE COMPANY
We design and sell mobile hand-held, pen-based computers and broadband set-
top boxes, as well as other electronic devices for home and business use and
perform design services, process methodology consulting and intellectual
property development.
Our corporate offices are located at:
800 East Northwest Highway
Suite 950
Palatine, Illinois 60067
(847) 358-4406
Our shares trade on the over-the-counter market electronic bulletin board
operated by the NASD.
THE OFFERING
We are registering 6,964,724 shares of common stock owned by certain
selling shareholders. The shares were issued to the shareholders in private
transactions or shares which may be acquired by them through the exercise of
warrants or options. The shares offered for resale hereby were issued by the
Company in respect of the following: (i)766,058 shares were issued by the
Company in connection with the acquisition of the net assets of Suncoast
Automation, Inc.; (ii)52,000 shares were issued by the Company as payment for
certain advertising and promotional expenses and consulting services; and
(iii)6,146,666 shares issuable by the Company to the selling shareholders upon
exercise by them of issued and outstanding warrants and options.
Investing in our shares involves a high degree of risk. You should invest
only if you can afford a complete loss. See "Risk Factors" beginning on page 4.
Unless the context indicates otherwise, all references to "we", "our",
"us", and the "Company" refer to Dauphin Technology, Inc. and its subsidiaries.
Neither the Securities and Exchange Commission ("SEC") nor any state
securities commission has determined whether this prospectus is truthful or
complete. Nor have they made, nor will they make, any determination as to
whether anyone should buy these securities. Any representation to the contrary
is a criminal offense.
- --------------------------------------------------------------------------------
The Date of this Prospectus is September 13, 2001
TABLE OF CONTENTS
Where You Can Find More Information 1
The Company 1
Risk Factors 4
Forward Looking Statements 10
Use of Proceeds 10
Selling Shareholders 11
Description of Capital Stock 11
Plan of Distribution 12
Legal Matters 14
Experts 14
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and current reports, proxy statements and other
information with the SEC. You can read and copy these reports, proxy statements
and other information at the SEC's public reference rooms at 450 Fifth Street,
N.W., Judiciary Plaza, Washington D.C.; 500 West Madison Street, Chicago,
Illinois 60661; and 7 World Trade Center, Suite 1300, New York, New York 10048.
Copies of such materials can be obtained from the public reference rooms at
prescribed rates. You can obtain information regarding operation of the public
reference rooms by calling the SEC at 1-800-SEC-0330. Such material can also be
inspected and printed from the SEC's Internet site located at
http://www.sec.gov.
- ------------------
The SEC allows us to "incorporate by reference" into this prospectus
certain information we file with it. This means that we can disclose important
information to you by referring you to another document we filed separately with
the SEC. The information incorporated by reference is considered to be a part of
this prospectus, and information that we file later with the SEC will
automatically update and supercede previously filed information, including
information contained in this document.
We incorporate by reference the documents listed below and any future
filings made with the SEC under Sections 13(a), 13(c), 14 or 15(d) of the
Securities and Exchange Act of 1934 until the selling shareholders sell all of
their shares.
. Annual Report on Form 10-K for the fiscal year ended December 31, 2000;
. Quarterly report on Form 10-Q for the quarter ended June 30, 2001 and March
31, 2001;
. Form 8-K regarding the acquisition of the net assets of Suncoast
Automation, Inc. dated July 13, 2001 and filed with the Commission on July
16, 2001;
. Form 8-K/A regarding the acquisition of the net assets of Advanced Digital
Designs, Inc. dated August 18, 2000 and filed with the Commission on
September 25, 2000;
. Amendment No. 2 to Form S-1 Registration Statement dated July 21, 2000 and
filed with the Commission on July 28, 2000.
You may request a copy of these filings, at no cost, by writing or
telephoning us at our principal executive offices at the following address and
telephone number:
Assistant Secretary
Dauphin Technology, Inc.
800 E. Northwest Highway, Suite 950
Palatine, Illinois 60074
(847) 358-4406
You should rely only on the information contained or incorporated by
reference in this prospectus and in any prospectus supplement. We have not
authorized anyone else to provide you with different information. The selling
shareholders will not make an offer of these shares in any state where the offer
is not permitted. You should not assume that the information in this prospectus
or any supplement is accurate as of any date other than the date on the front of
the documents.
THE COMPANY
Our Business
We design and sell mobile hand-held, pen-based computers and broadband set-
top boxes, as well as other electronic devices for home and business use and
perform design services, process methodology consulting and intellectual
property development. We encountered severe financial problems in 1993 and 1994
relating to a prior product line. On January 3, 1995, we filed a petition for
reorganization under Chapter 11 of the Federal Bankruptcy Code. We operated
under Chapter 11 until July 23, 1996, when we were discharged and proceedings
ended. Since July 1996 we have been engaged primarily in the following
activities:
. contract manufacturing for third parties;
. development of the Orasis(R) hand-held computer and the OraLynx(TM)
set-top box; and
. acquiring personnel, capital and resources for these activities.
We terminated contract manufacturing during the middle of 1999. We did this
for two reasons. First, we sought to focus on production and marketing of
Orasis(R). Second, we sought to identify additional products for development. We
believe these activities present greater opportunity for growth and
profitability than contract manufacturing.
We completed development and production tooling for Orasis(R) during 1998
and 1999. Orasis(R) is a mobile hand-held, pen-based computer that incorporates
features which we believe provide greater power and flexibility to address
performance requirements in a variety of industrial and commercial uses. We have
produced a limited number of Orasis(R) units which have been used for marketing
and limited sales. Orasis(R) has been favorably received by industry
publications and potential users.
Toward the end of 1999, we identified set-top boxes as a focus for product
development and on February 17, 2000 signed a contract with Estel
Telecommunications SA to develop and produce set-top boxes for sale in Greece. A
set-top box is an electronic device that converts digital signals into a user
acceptable format via other electronic devices such as television sets,
telephones and computers. It is a routing device that enables you to access and
transmit information to take advantage of services offered by television,
telephone, Internet and other providers of communication, information or
entertainment content or media. For example, you may connect a set-top box to
your television to receive cable television programming and music broadcasts
through your television and home sound system. You may also connect a set-top
box to a computer or various office equipment to serve a variety of commercial
uses. Throughout 2000 and 2001, the Company has successfully developed multiple
versions of its OraLynx(TM) set-top box and is continuing its further
development.
During 2000, in an effort to increase our engineering expertise, the
Company acquired the net assets of T & B Design, Inc. (f/k/a Advanced Digital
Designs, Inc.) ("ADD"), Advanced Technologies, Inc., ("ATI"), and 937 Plum Grove
Road Partnership ("937") pursuant to an Asset Purchase Agreement. ADD performs
design services, process methodology consulting and intellectual property
development for a variety of technology companies. ADD's engineers specialize in
telecommunications, especially wireless and cable-based product development, as
well as multimedia development, including digital video decoding and processing.
In July 2001, the Company purchased the net assets of Suncoast Automation,
Inc. ("Suncoast") from ProtoSource Corporation. Suncoast is a provider of
private, interactive cable systems providing bundled services of basic cable TV,
premium programming, video games and high-speed Internet access to the extended
stay hospitality industry.
Our Opportunity
Orasis (R) is a hand-held computer developed by the Company with features
to meet the expressed desires of many potential customers. The unit was
developed with the multi-sector mobile user in mind. As such, it incorporated an
upgradable processor, user upgradable memory and hard disc, various modules and
mobile devices to satisfy the needs of various industries. Basic unit features
are as follows:
. The unit weight is approximately 3 pounds
. The battery operating life is from 2 to 8 hours
. The unit is equipped with 233 MHz Pentium MMX processor, which can be
upgraded to 266 MHz Pentium MMX
. The standard unit is equipped with 64 MEG of memory upgradable to 128 MEG of
RAM
. Standard two type II or a single type III PCMCIA slot
. 2.1 GB expandable to 18 GB hard drive
. Built in speaker and microphone (including sound blaster for voice
recognition and multimedia)
. Video conferencing port
. Modular expansion bay with docking connector
. Electro-magnetic pen, voice activation, and an Infra Red keyboard for data
input
. CDROM drive, floppy drive, DVD drive, credit card readers, smart-card
readers, radio modems, wireless receivers, port replicators, USB hubs, audio
source I/O, heads-up goggles, GPS module and other attachable devices
Much more flexible and powerful than a Personal Digital Assistant ("PDA"),
the Orasis(R) is an MS-
2
DOS/Windows 95/98/2000, Windows NT and Linux compatible machine. Although the
basic unit carries a number of advanced features, the most significant advantage
of Orasis(R) is its upgradability. The expansion bay allows for the use of
CDROM, floppy drive, wireless radio, extended battery pack or any other device
through the PCI expansion bus. Unlike competitor models Orasis(R) does not lock
the customer into a single format. Orasis(R) affords a customer complete
flexibility and versatility offered by no other mobile computer presently on the
market. It is a time, labor, and money-saving device that can be custom-
configured with a variety of options to meet the end-user's needs. The Company
has not recognized significant sales of the product to date and will adjust its
product as the market further develops new technologies.
The OraLynx(TM) Broadband set-top box processes high-speed video, provides
storage and works with coaxial cable, ADSL and fiber. The OraLynx(TM) set-top
box offers considerable advantages for service providers and end users. For
service providers, the OraLynx(TM) set-top box enables integration of data,
voice, and video over one unified network using one termination device. For end
users, the OraLynx(TM) set-top box serves as a simple yet sophisticated gateway
and access device that can be controlled with a remote control, keyboard or
other mobile handheld device. The OraLynx(TM) set-top box can be networked to
PCs, Internet appliances, and more. The OraLynx(TM) can provide direct access to
interactive TV, video-on-demand and ATM or IP voiceover phone service. Basic
unit features are as follows:
. High quality/high speed user interface (2D graphics)
. Seamless Video-on-Demand Service
. Instant Telephone Access
. IP or ATM voiceover
. Supports up to 4 telephone lines
. Supports standard Internet protocols and various Internet connections
(xDSL, SONET, ATM25, Ethernet)
. Networking and Smart Appliance Interface
. Provides wireless or conventional networking
The Company performs design services, process methodology consulting and
intellectual property development for a variety of technology companies. The
Company's engineers specialize in telecommunications, especially wireless and
cable-based product development, as well as multimedia development, including
digital video decoding and processing. The Company has received a contract for
the production and sale of set-top boxes, but has not yet begun significant
production. It has also amended the contract and extended the delivery dates on
two occasions.
The Orasis(R) and OraLynx(TM) are capable products within their respective
markets. We must focus on the marketing and distribution of those products if we
are to ever obtain profitability. The opportunity will be lost if we fail to
respond quickly. Our industry is characterized by swift change and our products
may become obsolete if competitors offer new technologies or features that we do
not possess. Consequently, we must act swiftly.
Our Strategy
Our goals are to capture the opportunity presented by the Orasis(R) and
OraLynx(TM) set-top box products and to become a leading provider of electronic
products. We expect to develop or acquire a variety of products and services
that complement each other or offer production and operating economies. In this
way, we seek to minimize the risk presented by reliance upon any given product
that may become obsolete through technological change.
We expect to increase our development, production and marketing
capabilities by increasing staff and coordinating relationships with outside
manufacturers and sales representatives. We will then establish a responsive
level of production and distribution. At the same time, we have begun an
aggressive marketing campaign to seize opportunities in the growing set-top box
and hand-held computer markets.
3
Recent Developments
On April 12, 2000, we entered into a common stock purchase agreement with
Techrich International Limited, an institutional investor ("Techrich"). The
agreement provides for the future purchase of shares and issuance of warrants to
Techrich. The common stock purchase agreement establishes what is sometimes
termed an equity line of credit or an equity drawdown facility.
In general, the equity line operates like this: Techrich has committed to
provide us up to $100 million as we request it over a 18 month period, in return
for common stock and warrants that we issue to Techrich. Once every 22 trading
days, we may request a draw of up to $10 million, subject to a maximum of 18
draws. The maximum amount we actually can draw down upon each request will be
determined by the volume-weighted average daily price of our common stock for
the 22 trading days prior to our request and the average trading volume for the
45 trading days prior to our request. Each draw down must be for at least
$250,000. At the end of a 22 day trading period following the drawdown request,
the final drawdown amount is determined based on the volume-weighted average
stock price during that 22 day period. We then use the formulas in the common
stock purchase agreement to determine the number of shares and warrants that we
will issue to Techrich in return for the money drawn down.
The per share dollar amount Techrich pays for our common stock for each
drawdown includes a 7% discount to the average daily market price of our common
stock for the 22 day period after our drawdown request, weighted by trading
volume. We will receive the amount of the drawdown less an escrow agent fee of
$1,500 and a 3% placement fee payable to the placement agent, Ladenburg Thalmann
& Co. Inc., which introduced Techrich to us. Ladenburg Thalmann is a
registered broker dealer. It is not obligated to purchase any of our shares,
but as an additional placement fee, we have issued to Ladenburg Thalmann
warrants to purchase 250,000 shares of our common stock at an exercise price of
$5.481. The common stock issuable upon the exercise of those warrants, as well
as shares issuable to Techrich upon a drawdown request, were included in a
registration statement that became effective on July 28, 2000. During 2000, the
Company issued two drawdown notices for a total of $7,000,000 and issued
2,136,616 shares of common stock and warrants to purchase 146,109 shares of
common stock at exercise prices ranging from $3.26676 to $4.4369. The Company
has available $93,000,000 under the equity line, which expires December 28,
2001.
On August 28, 2000, the Company acquired the net assets of T & B Designs,
Inc. (formerly known as Advanced Digital Designs, Inc.) ("ADD"), Advanced
Technologies, Inc. and 937 Plum Grove Road Partnership, in exchange for $3
million in cash and $3 million to be held in escrow and disbursed in accordance
with the terms and conditions of an Escrow Agreement. In addition, the
principals and certain employees of ADD that we hired, were issued options to
purchase 2,190,000 shares of common stock. The options, and underlying shares,
issued to the principals and employees that we hired, are included in the
registration statement of which this prospectus is a part.
On July 10, 2001 we acquired substantially all of the assets of Suncoast, a
Florida-based provider of private, interactive cable systems. We assumed certain
equipment leases and issued 766,058 shares of common stock in exchange for the
Suncoast assets. In addition, certain employees of Suncoast that we hired were
issued options to purchase 900,000 shares of common stock. The options, and
underlying shares, issued to the employees that we hired, are included in this
registration statement of which this prospectus is a part.
RISK FACTORS
Investment in our shares is risky and should be considered speculative. In
addition to the information contained in this prospectus, you should consider
carefully the following risk factors before investing in shares offered under
this prospectus. We operate in a highly competitive and volatile industry. We
are faced with aggressive pricing by competitors; competition for necessary
parts, components and supplies; continually changing customer demands and rapid
technological developments; and risks that buyers may encounter difficulties in
obtaining governmental licenses or approvals, or in completing installation and
construction of infrastructure, necessary to use our products or to offer them
to end users. The following cautionary statements discuss certain important
factors that could cause actual results to differ materially from the projected
results contained in the forward-looking statements contained in this
prospectus.
4
Risks Related to Our Financial Results and/or Condition
We have had a limited operating history.
Since July 1996 we have operated without substantial sales or revenue. Our
limited financial performance may make it difficult for potential sources of
capital to evaluate the viability of our business to date and to assess its
future viability.
We have terminated one line of business that will result in reduced revenue.
We terminated contract-manufacturing services at the end of the second quarter
of 1999 as part of our current operating strategy. For years ending December 31,
1998 and 1999, contract manufacturing services conducted through our subsidiary
accounted for $5,637,574 and $2,134,563, respectively, in revenue. We will no
longer offer such services to third parties but will instead apply such
activities to develop and manufacture our own products.
Availability of funding under our equity line is affected by our share price and
general market conditions.
In April 2000 we entered into a common stock purchase agreement with Techrich
establishing an equity line whereby we may request draws of up to $100 million
over an 18-month period in return for common stock and warrants that we issue to
Techrich. The amount of securities to be issued under the equity line is based
on a formula that is tied to the market price for our shares. The securities
markets have recently experienced significant price and volume fluctuations. The
market prices and volume of securities of technology and development-stage
companies have been especially volatile. Market volatility and conditions could
reduce the market price of our shares despite operating performance and the
market price of our shares could decrease significantly if our operating
performance falls below expectations.
Because the amount of securities to be issued under our equity line is based on
a formula that is tied to the market price of our shares just prior to the time
of a drawdown, issuance of some or all of the securities allowed under the
equity line could result in significant dilution of the per share value of our
shares held by current investors. The inverse relationship between the price and
amount of securities to be issued may have the following results:
. the lower the average trading price of our shares at the time of a
drawdown, the greater the number of securities that would be issued, and
the greater the dilution caused by these securities;
. the perceived risk of dilution may cause Techrich or other shareholders
to sell their shares, which could contribute to the downward movement in
the stock price of Techrich's shares; and
. the significant downward pressure on the trading price of our shares
could encourage Techrich and other shareholders to engage in short
sales, which would further contribute to the downward spiraling price
decline of our shares.
If a large portion of the shares eligible for immediate resale after
registration were to be offered for public resale within a short period of time,
the current public market would likely be unable to absorb such shares. This
could result in a significant reduction in current market prices. There can be
no assurance that investors will be able to resell shares at the price they paid
for the shares or at any price.
Our agreement with Techrich restricts us from raising investment capital during
the term of the common stock purchase agreement except through that agreement,
unless otherwise agreed to in writing.
If we need capital but are unable to drawdown under the common stock purchase
agreement for any reason, we will need to negotiate with Techrich to lift those
restrictions so we can obtain the capital from other sources. Our common stock
purchase agreement with Techrich also limits our ability to sell our securities
for cash at a discount to the market price for 18 months from the effective date
of the registration statement filed in connection with establishment of the
equity line, unless otherwise agreed to in writing.
5
Risks Related to Our Strategy
We may be unable to identify or acquire additional technologies or products to
diversify our product offering.
We expect to avoid reliance upon any given product through acquisition and/or
development of additional technologies and products. However, we may be unable
to identify or acquire technologies or products. In that case, we may have to
rely upon our own resources to develop such technologies and products
internally. We may not have sufficient resources to do this. In addition,
acquisitions involve a number of special risks, such as diversion of
management's attention and financing issues, which may have a negative impact on
operations and financial performance.
We may not be able to efficiently integrate any acquired technologies, products
or businesses.
We expect to acquire technologies, products and other businesses to compliment
our operations. There can be no assurance that we will be able to integrate the
operations of any other business successfully. Acquisitions we do undertake will
subject us to a number of risks, including the following:
. inability to institute the necessary systems and procedures, such as
accounting and financial reporting systems;
. failure to retain key personnel; and
. assumption of unanticipated legal liabilities and other problems.
In addition, we may acquire technologies or products that prove incompatible to
other products following further development.
Even if we successfully integrate acquired technologies, products or businesses,
we may be unable to effectively manage growth.
We seek to become profitable by expanding sales of Orasis(R), the OraLynx(TM)
set-top box and any new products that we may develop or acquire. To manage
growth, we may be required to:
. improve existing and implement new operational, production and personnel
systems;
. hire, train and manage additional qualified personnel; and
. establish relationships with additional suppliers and strategic partners
while maintaining existing relationships.
The existing purchase orders received from international companies and the set-
top box agreement subjects us to risks associated with international operations.
As we begin shipping under the purchase orders and set-top box agreement, we
risk exposure to international risks, including:
. greater difficulty in accounts receivable collection and longer
collection periods;
. unexpected changes in regulatory requirements;
. reduced protection of intellectual property rights;
. potentially adverse tax consequences; and
. political instability.
Risks Related to Development, Production and Marketing of Our Products
Product development involves substantial expense and resource allocation that
may exceed our capabilities.
We incurred substantial expense in developing the Orasis(R) computer. We expect
to continue to develop enhancements and accessory equipment to meet customer and
market demands. The OraLynx(TM) set-top box is in the final development stage.
Although we anticipate further expense associated with the final stage of
development, it will not be substantial. However, delays in development arising
from insufficient cash or personnel resources will hinder our ability to bring
these products to market before competitors introduce comparable products. In
that case, we will
6
miss the opportunity to capitalize on the technological advances, which we
believe such products may offer.
We depend on outside sources for components and may be harmed by unavailability
of components, excessive prices for components or unexpected delays in component
deliveries.
The Orasis(R) and OraLynx(TM) set-top box use or will use various component
parts, such as PCBs, microchips and fabricated metal parts. We must obtain these
components from manufacturers and third-party vendors. Our reliance on those
manufacturers and vendors, as well as industry component supply, creates many
risks including the following:
. the possibility of a shortage of components;
. increases in component costs;
. variable component quality;
. reduced control over delivery schedules; and
. potential manufacturer/vendor reluctance to extend credit to us.
If there is a shortage of component parts or if the cost of these parts
substantially increases, our operations and our success in the marketplace could
be materially and adversely affected.
Errors or defects in our products could result in customer refund or product
liability claims.
Because our products are complex, they could contain errors or bugs that can be
detected at any point in a product's life cycle. While we continually test our
products for errors and will work with customers to identify and correct bugs,
errors may be found in the future. Although many of these errors may prove to be
immaterial, any of these errors could be significant. Detection of any
significant errors may result in:
. loss of or delay in market acceptance and sales of our products;
. diversion of development resources;
. injury to our reputation; or
. increased maintenance and warranty costs.
Errors or defects could harm our business and future operating results.
Moreover, because our products will be used in critical computing functions, we
may receive significant liability claims if our products do not work properly.
Our agreements with customers typically do and will contain provisions intended
to limit our exposure to product liability claims. However, these provisions may
not preclude all potential claims. Liability claims could require us to spend
significant time, money and effort in litigation. They also may result in
substantial damage awards. Any such claim, whether or not successful, could
materially damage our reputation and results of operation.
We will be unable to develop, produce and market our products without qualified
professionals and seasoned management.
Our success depends in large part on our ability to recruit and retain
professionals, key management and operating personnel. We need to complete
development of the OraLynx(TM) set-top box and coordinate production of
Orasis(R) computers and the OraLynx(TM) set-top box. We also need to develop
marketing channels to increase market awareness and sales of our products.
Qualified professionals, management and operating personnel are essential for
these purposes. Such individuals are in great demand and are likely to remain a
limited resource in the foreseeable future. Competition for them is intense and
turnover is high. If we cannot attract and retain needed personnel, we will not
succeed.
We believe that our future success will depend on our ability to retain the
services of our executive officers. These officers have developed industry
relationships that are critical to our growth and development. They also will be
essential in dealing with the significant challenges that we expect will arise
from anticipated growth in our operations.
We have an ongoing need to expand management personnel and support staff. The
loss of one or more members of management or key employees, or the inability to
hire additional personnel as needed, could have a material adverse effect on our
operations.
7
Risks Related to Competition within Our Industry
None of our products have achieved widespread distribution or customer
acceptance.
Although the Orasis(R) computer has passed the development stage, we have not
established a market for it. The Orasis(R) is a solution oriented, pen-based,
mobile computer system, which has been produced and marketed only on a limited
basis. As the market and applications for the Orasis(R) increase, we anticipate
its market will increase; however, there is no assurance that this will happen.
The OraLynx(TM) set-top box is in the final stage of development. We believe we
will successfully develop the OraLynx(TM) set-top box that will conform to
specifications under the set-top box agreement that will address a broad market
demand. There can be no assurance that we will successfully complete develop of
the OraLynx(TM) set-top box or that a market demand will exist. In addition, if
a market demand exists, it may be met with alternative products offered by
competitors or with pricing that we cannot match.
Competition in our industry is intense and we may not be able to compete
successfully due to our limited resources.
Our industry is highly competitive and dominated by competitors with substantial
resources. Continuous improvement in product pricing and performance is the key
to future success. At all levels of competition, pricing has become very
aggressive. We expect pricing pressure to continue to be intense. Many of our
competitors are larger and have significantly greater financial, technical,
marketing and manufacturing resources. They also have broader product lines,
greater brand name recognition and larger existing customer bases. As a result,
our competitors may be better able to finance acquisitions or internal growth or
respond to technological changes or customer needs.
Current and potential competitors also have established or may establish
cooperative relationships among themselves or with third parties to increase
their ability to address customer needs. There can be no assurance that we will
be able to compete successfully in developing, manufacturing or marketing our
products. An inability to do so would adversely affect our business, financial
condition and market price of our shares.
Our industry is subject to rapid technological change and we may not be able to
keep up.
Rapid technological change, frequent new product introductions and enhancements,
uncertain product life cycles and changes in customer demands and evolving
industry standards, characterize the computer industry. Our products could
become obsolete if products based on new technologies are introduced or if new
industry standards emerge.
Computer equipment is inherently complex. As a result, we cannot accurately
estimate the life cycles of our products. New products and product enhancements
can require long development and testing periods, which requires retention of
increasingly scarce technically competent personnel. Significant delays in new
product releases or significant problems in installing or implementing new
products can seriously damage our business. In the past, we have experienced
delays in scheduled product introductions and cannot be certain that we will
avoid similar delays in the future. We must produce products that are
technologically advanced and comparable to and competitive with those made by
others. Otherwise, our products may become obsolete or we will fail to achieve
market acceptance.
Our future success depends on our ability to enhance existing products, develop
and introduce new products, satisfy customer requirements and achieve market
acceptance. We cannot be certain that we will successfully identify new product
opportunities and develop and bring new products to market in a timely and cost-
effective manner.
We may sell fewer products if other vendors' products are no longer compatible
with ours or other vendors bundle their products with those of our competitors
and sell them at lower prices.
Our ability to sell our products depends in part on the compatibility of our
products with other vendors' software and hardware products. For example,
Orasis(R) will not sell if it cannot run software, or access resources such as
Internet or telephone services provided by others. The same is true for the set-
top box. Other vendors may change their products so that they will no longer be
compatible with our products. These vendors also may decide to bundle their
products with products of our competitors for promotional purposes and to
discount the sales price of the bundled products. If this were to occur, our
business and future operating results could suffer.
We have limited intellectual property protection and our competitors may be able
to appropriate our technology or
8
assert infringement claims.
Our products are differentiated from those of our competitors by our internally
developed technology that is incorporated into our products. If we fail to
protect our intellectual property, others may appropriate our technology and
sell products with features similar to ours. This could reduce demand for our
products. We rely on a combination of trade secrets, copyright and trademark
laws, non-disclosure and other contractual provisions with employees and third
parties, and technical measures to protect our proprietary rights in our
products. There can be no assurance that these protections will be adequate or
that our competitors will not independently develop technologies that are
substantially equivalent or superior to ours.
We believe that our products do not infringe upon the proprietary rights of
third parties. However, there can be no assurance that third parties will not
assert infringement claims against us in the future or that a license or similar
agreement will be available on reasonable terms in the event of an unfavorable
ruling on any such claim. In addition, any such claim may require us to commit
substantial time and effort, and to incur substantial litigation expenses, and
may subject us to significant liabilities that could have a material adverse
effect on our financial condition and results of operations.
Our business and operations may be affected by government regulations.
Our products may be subject to various federal, state and other government
regulations. For example, we are required to obtain CE approval and
certification for the set-top box under the set-top box agreement. If we do not
receive such approval and certification within thirty days of application,
production will be postponed. In addition, if we do not receive such approval
and certification within sixty days of application, the buyer may terminate the
agreement. The Company may terminate the agreement if permits to install fiber
optic and other infrastructure equipment are not issued to the buyer. Even if
such permits are issued, delays in issuance will delay set-top box orders and
shipments. Consequently, government regulations may interfere with our business
plans and could have an adverse effect on our ability to develop and market our
products.
Risks Relating to Our Shares
It is likely that our shares will be subject to substantial price and volume
fluctuations due to a number of factors, many of which will be beyond our
control.
The securities markets have recently experienced significant price and volume
fluctuations. The market prices and volume of securities of technology and
development-stage companies have been especially volatile. Market volatility and
other market conditions could reduce the market price for our shares despite
operating performance. In addition, if our operating performance falls below
expectations the market price of our shares could decrease significantly. You
may be unable to resell shares at or above the registration price. In the past,
companies that have experienced volatility in the market price of their stock
have been the subject of securities class action litigation. If we were the
subject of such litigation we could experience substantial litigation costs and
diversion of management's attention and resources.
We have not paid any dividends and have no expectation of paying dividends in
the foreseeable future.
We have not declared, paid, or distributed any cash dividends on our shares in
the past, nor are any cash dividends contemplated in the foreseeable future.
There is no assurance that our operations will generate any profits from which
to pay cash dividends. Even if profits are generated through operations in the
future, our present intent is to retain any such profits for acquisitions,
product development, production and marketing, and for general working capital
requirements.
Our shares are not widely traded.
There is only a limited market for our shares. If a large portion of the shares
eligible for immediate resale after registration were to be offered for public
resale within a short period of time, the current public market would likely be
unable to absorb such shares. This could result in a significant reduction in
current market prices. There can be no assurance that investors will be able to
resell shares at the price they paid for the shares or at any price.
Our shares are subject to special trading rules relating to "penny stocks" which
restrict trading.
9
Our shares are covered by an SEC rule that imposes additional sales practice
requirements on broker-dealers who sell "penny stock" to persons other than
certain established customers. For transactions covered by the rule, the
broker-dealer must obtain sufficient information from the customer to make an
appropriate suitability determination, provide the customer with a written
statement setting forth the basis of the determination and obtain a signed copy
of the suitability statement from the customer. The rule may affect the ability
of broker-dealers to sell our shares and also may affect your ability to sell
shares in the secondary market.
We have broad discretion in how we use any proceeds of this registration, and we
may not use these proceeds effectively.
We could spend any proceeds received from the sale of the shares underlying the
warrants and options that are included in this registration in ways that you may
not agree or that do not yield a favorable return. Our primary purpose for
conducting this registration is to register the shares issued by the Company in
connection with the acquisition of the net assets of Suncoast Automation, Inc.
FORWARD LOOKING STATEMENTS
This prospectus contains forward-looking statements that involve
substantial risks and uncertainties. Any statement that is not a statement of
historical fact constitutes a forward-looking statement. You can identify these
statements by forward-looking words such as "may", "will", "intend",
"believe", "anticipate", "estimate", "expect", "project" and similar words.
You should read statements that contain these words carefully because they
discuss our future expectations, contain projections of our future results of
operation and of our financial condition or state other forward looking
information. This prospectus also includes third party estimates regarding the
size and growth of markets and mobile computer equipment usage in general.
You should not place undue reliance on these forward-looking statements.
The sections captioned "Risk Factors" and "The Company" as well as any
cautionary language in this prospectus, provide examples of risks, uncertainties
and events that may cause our actual results to differ materially from our
expectations.
Although we believe that the expectations reflected in the forward-looking
statements are reasonable, we cannot guarantee future results, levels of
activity, performance or achievements. We are under no duty to update any of
the forward looking statements after the date of this prospectus or to conform
these statements to actual results or to changes in our expectations, except
with respect to material developments related to previously disclosed
information.
USE OF PROCEEDS
All net proceeds from the sale of the common stock covered by this
prospectus will be received by the selling shareholders who offer and sell their
shares. We will not receive any proceeds from the sale of the common stock by
the selling shareholders other than from the possible exercise of warrants to
purchase 230,000 shares of common stock at prices ranging between $1.03 to $3.50
per share and the possible exercise of options to purchase 5,845,000 shares of
common stock at prices ranging from $0.7812 to $3.875 per share. Any proceeds
received from the exercise of warrants and options will be used for general
corporate purposes.
10
SELLING SHAREHOLDERS
The selling shareholders' shares were issued in accordance with private
placements. The shares are being registered to remove their restricted status
under federal securities law. Although the selling shareholders have not advised
us that they currently intend to sell shares pursuant to this registration, they
may choose to sell all or a portion of the shares from time to time in the over-
the-counter market or otherwise at prices and terms then prevailing or at prices
related to the current market price, or negotiated transactions. None of the
selling shareholders are or have been affiliates of the Company or hold more
than 5% of the outstanding shares.
Beneficially Owned Beneficially
Shares Beneficially Shares to be Owned Shares
Owned Registered to be Sold After Registration
Name Number % Number % Number Number %
- -------------------------------- ---------- ------ ---------- ------ ------------ ---------- ------
ProtoSource Corporation (1) 727,755 1.2% 727,755 1.2% 0 727,755 1.2%
Andrew, Alex. Wise & Co (2) 38,303 0.1% 38,303 0.1% 0 38,303 0.1%
Declan Group, LLC (3) 30,000 0.0% 30,000 0.0% 0 30,000 0.0%
Thompson, Mark (3) 12,000 0.0% 12,000 0.0% 0 12,000 0.0%
Smith, Brian (3) 10,000 0.0% 10,000 0.0% 0 10,000 0.0%
(1) The shares of ProtoSource Corporation were issued in connection with
the purchase of the net assets of Suncoast Automation, Inc., a wholly owned
subsidiary of ProtoSource Corporation, pursuant to an Asset Purchase Agreement
by and among the Company, ProtoSource and Suncoast.
(2) Andrew, Alexander Wise & Company acted as agent to ProtoSource
Corporation and was assigned this number of shares based on the request of
ProtoSource Corporation.
(3) All of the shares owned were issued to the shareholders as payment for
certain advertising and promotional expenses and consulting services.
Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission and generally includes voting or investment
power with respect to securities. Except as indicated, we believe each person
possesses sole voting and investment power with respect to all of the shares of
common stock owned by such person, subject to community property laws where
applicable. In computing the number of shares beneficially owned by a person and
the percentage ownership of that person, shares of common stock subject to
options or warrants held by that person that are currently exercisable or
exercisable within 60 days are deemed outstanding. Such shares, however, are not
deemed outstanding for the purpose of computing the percentage ownership of any
other person.
Except for our officers and directors identified herein, the selling
shareholders have not held any positions or offices or had material
relationships with us or any of our affiliates within the past three years. We
may amend or supplement this prospectus from time to time to update the
disclosure.
DESCRIPTION OF CAPITAL STOCK
Our authorized capital stock consists of 100,000,000 shares of $0.001 par
value common stock and 10,000,000 shares of $0.01 par value preferred stock. As
of August 30, 2001 there were 62,666,127 shares of common stock outstanding and
beneficially owned by approximately 22,500 beneficial shareholders, and no
shares of preferred stock were outstanding. The following summary is qualified
in its entirety by reference to our certificate of incorporation, which is
available upon request.
11
Common Stock
The holders of common stock are entitled to one vote for each share held of
record on all matters submitted to a vote of the shareholders. Subject to
preferences that may be applicable to any then outstanding preferred stock,
holders of common stock are entitled to receive ratably such dividends as may be
declared by the Board of Directors out of funds legally available. In the event
of a liquidation, dissolution or winding up of the company, holders of the
common stock are entitled to share ratably in all assets remaining after payment
of liabilities and the liquidation preference of any then outstanding preferred
stock. Holders of common stock have no right to convert their common stock into
any other securities and have no cumulative voting rights. There are no
redemption or sinking fund provisions applicable to the common stock. All
outstanding shares of common stock are fully paid and non-assessable.
Preferred Stock
The preferred stock may be issued in one or more series, the terms of which
may be determined at the time of issuance by the Board of Directors, without
further action by shareholders, and may include voting rights (including the
right to vote as a series on particular matters), preferences as to dividends
and liquidation, conversion and redemption rights and sinking fund provisions.
We have no present plans to issue preferred stock. However, the issuance of any
such preferred stock could affect the rights of the holders of common stock and
reduce the value of the common stock. In particular, specific rights granted to
future holders of preferred stock could be used to restrict our ability to merge
with or sell our assets to a third party, thereby preserving control of the
company by present owners.
Warrants and Options
As of September 10, 2001 warrants to purchase 8,301,738 shares of common
stock were issued and outstanding in the hands of approximately 60 investors.
These warrants are convertible at any time. The strike prices of these warrants
range from $0.20 to $5.481. The warrants expire between three and five years
from the date of issuance. The warrants include a change of form provision in
them so that if a change in the form of the common stock occurs due to stock
splits, stock dividends, or mergers, the holders are entitled to receive a pro-
rata increase of shares at a discounted price. However, the holders of the
warrants do not have any voting rights and are not entitled to receive any cash
or property dividends declared by the Board of Directors until they convert the
warrants into common shares. At the time such warrants are exercised, the common
shareholders' ownership percentage of the Company will be diluted. In December
2000, the Company re-priced approximately 3,012,000 warrants it had previously
issued to outside consultants. The warrants were originally issued with an
exercise price ranging from $10.00 to $5.00, and were re-priced with exercise
prices ranging from $5.00 to $2.00 per share. The re-pricing created a charge to
earnings of approximately $234,000.
As of September 10, 2001 there are a total of 4,871,580 options issued and
outstanding in the hands of more than thirty employees and former employees.
These options are exercisable at any time into the Company's $0.001 par value
common stock. The per share strike prices of these options range from $0.50 to
$3.875. These options expire three years from the date of issuance. At the time
such options are exercised, the common shareholders ownership percentage of the
Company will be diluted.
Transfer Agent and Registrar
Our transfer agent and registrar is American Stock Transfer and Trust
Company, 6201 15/th/ Avenue, Brooklyn, New York 11219 (212) 936-5100.
PLAN OF DISTRIBUTION
We are registering 6,964,724 shares of common stock on behalf of certain
selling shareholders. The shares were issued to the shareholders in private
transactions or are shares that may be acquired by them through the exercise of
warrants or options. The shares offered for resale hereby were issued by the
Company in respect of the following: (i)766,058 shares were issued by the
Company in connection with the acquisition of the net assets of Suncoast
Automation, Inc.; (ii)52,000 shares were issued by the Company as payment for
certain advertising and promotional expenses and consulting services; and
(iii)6,146,666 shares issuable by the Company to the selling shareholders,
employees and consultants upon exercise by them of the issued and outstanding
warrants and options.
12
The selling shareholders may sell their shares from time to time at prices
and at terms prevailing at the time of sale.
The selling shareholders, employees and consultants may exercise their
6,146,666 warrants and options from time to time prior to expiration. As of
September 10, 2001, we will receive $12,901,286 from the exercise of such
warrants and options if all are exercised prior to expiration. We will receive
none of the proceeds of any subsequent sale of shares issued under the warrants
or options.
Sales may be made on 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 private transactions, or in a combination of these methods. The
selling shareholders, employees and consultants will act independently of us in
making decisions with respect to the form, timing, manner and size of each sale.
We have been informed by the selling shareholders, employees and consultants
that there are no existing arrangements between any selling shareholder,
employee or consultant and any other person, broker, dealer, underwriter or
agent relating to the sale or distribution of shares of common stock which may
be sold by selling shareholders, employees or consultants through this
prospectus. Selling shareholders, employees and consultants may be deemed
underwriters in connection with resales of their shares.
The common shares may be sold in one or more of the following manners:
. 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;
. purchases by a broker or dealer for its account under this prospectus; or
. ordinary brokerage transactions and transactions in which the broker
solicits purchases.
In effecting sales, brokers or dealers engaged by the selling shareholders,
employees and consultants may arrange for other brokers or dealers to
participate. Except as disclosed in a supplement to this prospectus, no broker-
dealer will be paid more than a customary brokerage commission in connection
with any sale of the common shares. Brokers or dealers may receive commissions,
discounts or other concessions from the selling shareholders, employees and
consultants in amounts to be negotiated immediately prior to the sale. The
compensation to a particular broker-dealer may be in excess of customary
commissions. Profits on any resale of the common shares as a principal by such
broker-dealers and any commissions received by such broker-dealers may be deemed
to be underwriting discounts and commissions under the Securities Act of 1933.
Any broker-dealer participating in such transactions as agent may receive
commissions from the selling shareholders (and, if they act as agent for the
purchaser of such common shares, from such purchaser).
Broker-dealers may agree with the selling shareholders, employees and
consultants to sell a specified number of common shares at a stipulated price
per share, and, to the extent a broker dealer is unable to do so acting as
agent, to purchase as principal any unsold common shares at a price required to
fulfill the broker-dealer commitment to the selling shareholders. Broker-dealers
who acquire common shares as principal may thereafter resell such common shares
from time to time in transactions (which may involve crosses and block
transactions and which may involve sales to and through other broker-dealers,
including transactions of the nature described above) in the over-the-counter
market, in negotiated transactions or otherwise at market prices prevailing at
the time of sale or at negotiated prices, and in connection with such resales
may pay to or receive from the purchasers of such common shares commissions
computed as described above. Brokers or dealers who acquire common shares as
principal and any other participating brokers or dealers may be deemed to be
underwriters in connection with resales of the common shares.
In addition, any common shares covered by this prospectus which qualify for
sale pursuant to Rule 144 may be sold under Rule 144 rather than pursuant to
this prospectus. We will not receive any of the proceeds from the sale of these
common shares, although we have paid the expenses of preparing this prospectus
and the related registration statement of which it is a part.
The selling shareholders, employees and consultants will pay all
commissions and their own expenses, if any, associated with the sale of their
common shares, other than the expenses associated with preparing this
13
prospectus and the registration statement of which it is a part.
LEGAL MATTERS
Certain legal matters with respect to the validity of the shares being
registered have been passed upon for the company by Rieck and Crotty, P.C., 55
West Monroe Street, Suite 3390, Chicago, Illinois 60603.
EXPERTS
Our annual financial statements incorporated into this prospectus by
reference to our Annual Report on Form 10-K for the fiscal year ended December
31, 2000 have been audited in part by Grant Thornton LLP, independent public
accountants, as indicated in their report with respect thereto, and by Arthur
Andersen LLP, independent public accountants, as indicated in their report with
respect thereto and are included herein in reliance upon the authority of those
firms as experts in accounting and auditing in giving said reports.
PART II
- -------
INFORMATION NOT REQUIRED IN PROSPECTUS
- --------------------------------------
Item 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
- -----------------------------------------------------
The following table sets forth the various expenses in connection with the sale
and distribution of the securities being registered hereby. All amounts are
estimated except the Securities and Exchange Commission registration fee.
Amount
---------
SEC registration fee $2,533.00
Accounting fees and expenses 2,000.00
Legal fees and expenses 3,000.00
Miscellaneous fees and expenses 1,500.00
---------
Total $9,033.00
---------
Item 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
- ---------------------------------------------------
Registrant is incorporated in the State of Illinois. Section 8.75 of the
Illinois Business Corporation Act defines the powers of registrant to indemnify
officers, directors, employees and agents.
In additional to the provisions of Illinois Business Corporation Act Section
8.75, and pursuant to the power granted therein, registrant has adapted Article
XII of its Bylaws which provides as follows:
ARTICLE XII
- -----------
INDEMNIFICATION OF OFFICERS, DIRECTORS, EMPLOYEES AND AGENTS
SECTION 1 The corporation shall indemnify any person who was or is a party, or
- ---------
is threaten to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative
(other than an action by or in the right of the corporation) by reason of the
fact that he is or was a directors, officer, employee or agent of the
corporation or fiduciary of any employee benefit plan maintained by the
corporation, or who is or was a director, officer, employee or agent of the
corporation of a fiduciary as aforesaid, or who is or was serving at the request
of the corporation as a director, officer, employee, agent of fiduciary of
another corporation, partnership, joint venture, trust or other enterprise,
against expenses (including attorney's fees), judgments, fines, and amounts paid
in settlement actually and reasonably incurred by him in connection with such
action, suit or proceeding, if he acted in good faith and in a manner he
reasonably believed to be in, or not opposed to, the best interests of the
corporation (or, in the case of a fiduciary, the best interests of the plan and
plan participants) and, with respect to any criminal action proceeding, had no
reasonable cause to believe his conduct was unlawful. This termination of any
action, suit or proceeding by judgment, order, settlement, conviction, or upon a
plea of nolo
14
contender or its equivalent, shall not, of itself, create a presumption that the
person did not act in good faith and in a manner which he reasonably believed to
be in or not opposed to the best interests of the corporation and, with respect
to any criminal action or proceeding, had reasonable cause to believe that this
conduct was unlawful.
SECTION 2 The corporation shall indemnify any person who was or is a party, or
- ---------
is threatened to be made a party to any threatened, pending or completed action
or suit by or in the right of the corporation to procure a judgment in its favor
by reason of the fact that he is or was a director, officer, employee or agent
of the corporation or fiduciary as aforesaid, or is or was serving at the
request of the corporation as a director, officer, employee, or agent of another
corporation, partnership, joint venture, trust or other enterprise, against
expenses (including attorney's fees) actually and reasonably incurred by him in
connection with the defense or settlement of such action or suit, if he acted in
good faith and in a manner he reasonably believed to be in, or not opposed to
the best interests of the corporation (or, in the case of a fiduciary, the best
interests of the plan and plan participants), except that no indemnification
shall be made in respect of any claim, issue or matter as to which such person
shall have been adjudged to be liable for negligence or misconduct in the
performance of his duty to the corporation, unless, and only to the extent that
the court in which such action or suit was brought shall determine upon
application that, despite the adjudication of liability, but in view of all the
circumstances of the case, such person is fairly and reasonably entitled to
indemnify for such expenses as the court shall deem proper.
SECTION 3 To the extent that a director, officer, employee or agent of a
- ---------
corporation or fiduciary as aforesaid has been successful, on the merits or
otherwise, in the defense of any action, suit or proceeding referred to in
proceeding sections, or in defense of any claim, issue or matter therein, he
shall be indemnified against expenses (including attorney's fees) actually and
reasonably incurred by him in connection therewith.
SECTION 4 Any indemnification under section 1 and 2 hereof (unless ordered by a
- ---------
court) shall be made by the corporation only as authorized in the specific case,
upon a determination of the director, officer, employee, agent of fiduciary is
proper on the circumstances because he has met the applicable standard of
conduct set forth in said sections. Such determination shall be made (1) by the
board of directors by a majority vote of a quorum consisting of directors who
were not parties to such action, suit or proceeding, or (2) if such a quorum is
not obtained, or even if obtainable, a quorum of disinterest directors so
directs, by independent legal counsel in a written opinion, or (3) by the
shareholders.
SECTION 5 Expenses incurred in defending a civil or criminal action, suit or
- ---------
proceeding may be paid by the corporation in advance of the final disposition of
such action, suit or proceeding, as authorized by the board of directors in the
specific case, upon receipt of an undertaking by or oh behalf of the director,
officer, employee or agent to repay such amount unless it shall ultimately be
determined that he is entitled to be indemnified by the corporation as
authorized in this Article.
SECTION 6 The indemnification provided by this Article shall not be deemed
- ---------
exclusive of any other rights to which those seeking indemnification may be
entitled under any bylaws, agreement, vote of shareholders or disinterested
directors, or otherwise, both as to action in his official capacity and as to
action in another capacity while holding such office, and shall continue as to a
person who has ceased to be a director, officer, employee or agent, and shall
incur to the benefit of the heirs, executors and administrators of such person.
SECTION 7 The corporation may purchase and maintain insurance on behalf of any
- ---------
person who is or was a director, officer, employee or agent of the corporation
of fiduciary, or who is or was serving at the request of the corporation as a
director, officer, employee, agent or fiduciary of another corporation,
partnership, joint venture, trust or other enterprise, against any liability
asserted against him and incurred by him in any such capacity, or arising out of
his status as such, whether or not the corporation would have the power to
indemnify him against such liability under the provisions of this Article.
SECTION 8 In the case of a merger, the term "corporation" shall include, in
- ---------
additional to the surviving corporation, any merging corporation absorbed in a
merger, which if its separate existence had continued, would have had the power
and authority to indemnify its directors, officers and employees or agents, so
that any person who was a director, officer, employee or agent of such merging
corporation, or was serving at the request of another corporation, as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, shall stand in the same position under the
provisions of this section with respect to the surviving corporation as such
person would have with respect to such merging if its separate existence had
continued.
15
SECTION 9 For the purpose of this Article, referenced to "other enterprises"
- ---------
shall include employee benefit plans; reference to "fines" shall include any
excise tax assessed on a person with respect to an employee benefit plan; and
references to the phrase "serving at the request of the corporation" shall
include any service as a director, officer, employee, or agent with respect to
an employee benefit plan, its participants, or beneficiaries. A person who acted
in good faith and in a manner he or she reasonably believed to be in the best
interests of the participants and beneficiaries of an employee benefit plan
shall be deemed to have acted in a manner "not opposed to the best interests of
the corporation" as referred to in this Article.
Insofar as indemnification for liabilities arising under the Act may be
permitted to directors, officers and controlling persons of registrant pursuant
to the foregoing provisions, or otherwise, registrant has been advised that in
the opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Act and is, therefore, enforceable. In
the event that a claim for indemnification against such liabilities (other than
the payment by registrant of expenses incurred 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, 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 questions whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such an issue.
Except to the extent herein above set forth, there is no charter provision,
bylaw, contract, arrangement or statute pursuant to which any director or
officer of registrant is indemnified in any manner against any liability which
he may incur in his capacity as such.
16
Item 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
----------------------------------------------------
Exhibit No. Description of Document
----------- -----------------------
*3(1) Certificate of Incorporation filed July 27, 1990, incorporated
herein by reference to exhibit 7(c)(1) of Form 8-K filed May 14,
1991.
*3(2) By-Laws as amended, incorporated herein by reference to exhibit
3(2) of Form 10-K for the fiscal year ended December 31, 1997.
*4(1) Specimen Common Stock Certificate incorporated herein by reference
to exhibit 4(1) of Form S-18 filed June 1, 1990.
*10(1) Agreement and Plan of Reorganization incorporated herein by
reference to exhibit 7(c) of Form 8-K filed April 4, 1991.
*10(2) Plan and Agreement of Merger incorporated herein by reference to
exhibit 7(c)(1) of Form 8-K filed May 14, 1991.
*10(3) Computer Technology License Agreement dated November 12, 1997,
between Phoenix Technology, Inc. and Dauphin Technology, Inc.
included as an exhibit to Form S-1 filed march 17, 1998,
incorporated herein by reference.
*10(4) License Agreement dated May 3, 1996, between Microsoft Corporation
and Dauphin Technology, Inc. included as an exhibit to Form S-1
filed March 17, 1998, incorporated herein by reference.
*10(5) Equity line of credit agreement by and between Techrich
International Limited and Dauphin Technology, Inc. dated April 12,
2000 including Common Stock Purchase Agreement, Registration
Rights Agreement, Escrow Agreement and Form of a stock Purchase
Warrant included as an exhibit to Form 8-K filed on April 20, 2000
incorporated herein by reference.
*10(6) Amendment No. 1 to Common Stock Purchase Agreement dated July 10,
2000 between Dauphin Technology, Inc. and Techrich International
Limited.
*10(7) Asset Purchase Agreement, by and among the Company, ADD
Acquisition Corp., T & B Design, Inc. (f/k/a Advanced Digital
Designs, Inc.), Advanced Technologies, Inc., 937 Plum Grove Road
Partnership, the Stockholders of T & B Design, Inc. and Advanced
Technologies, Inc. and the partners of 937 Plum Grove Road
Partnership, dated August 18, 2000 included as an exhibit to Form
8-K/A filed on September 25, 2000 incorporated herein by
reference.
*10(8) Asset Purchase Agreement, by and among the Company, Suncoast
Acquisition Corp., ProtoSource Corporation and Suncoast
Automation, Inc. dated July 1, 2001 included as an exhibit to Form
8-K filed on July 14, 2001 incorporated herein by reference.
24(1) Consent of Arthur Andersen LLP., independent public accountants.
24(2) Consent of Grant Thornton LLP., independent public accountants.
24(3) Consent of Rieck and Crotty, P.C.
* Previously filed or incorporated by reference.
17
Item 17. UNDERTAKINGS
- ----------------------
(A) Subject to the terms and conditions of Section 15(d) of the Securities
--------------------------------------------------------------------------
Exchange Act of 1934, the undersigned Company hereby undertakes to file
-------------------------------------
with the Securities and Exchange Commission such supplementary and periodic
information, documents and reports as may be prescribed by any rule or
regulation of the Commission heretofore or hereafter duly adopted pursuant
to authority conferred in the section.
(B) The undersigned Company hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, post-effective amendment to this registration statement:
(i) To include any Prospectus required by Section 10(a) of
the Securities Act of 1993;
(ii) To disclose in the Prospectus any change in the offering
price at which any registering shareholders subject to
the requirement of a Pricing Amendment are offering
their registered securities for sale;
(iii) 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;
(iv) To include any material information with respect to the
plan of distribution not previously disclosed in the
registration statement or any material change to such
information in the registration statement;
(2) That for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
(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.
(C) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons
of the Company pursuant to the forgoing provisions, or otherwise, the
Company has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in
the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Company of expenses incurred or paid by a director, officer or controlling
person of the Company 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 Company will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question
whether such indemnification by it is against public policy as expressed in
the Act and will be governed by the final adjustment of such issue.
18
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
registrant has duly caused this registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Palatine
and State of Illinois, on the 13th day of September, 2001.
DAUPHIN TECHNOLOGY, INC.
By: /s/Andrew J. Kandalepas.
------------------------
Andrew J. Kandalepas, President
Pursuant to the requirement of the Securities Act of 1933, as amended,
this registration statement has been duly signed by the following persons in the
capacity and on the dates indicated.
SIGNATURE TITLE DATE
/s/ Andrew J. Kandalepas Chairman of the Board/President/ September 13, 2001
- ------------------------
Andrew J. Kandalepas Chief Executive Officer
/s/ Jeffrey Goldberg Secretary/Director September 13, 2001
- --------------------
Jeffrey Goldberg
/s/ Gary E. Soiney Director September 13, 2001
- ------------------
Gary E. Soiney
/s/ Mary Ellen W. Conti Director September 13, 2001
- -----------------------
Mary Ellen W. Conti