AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON May 22, 2006
REGISTRATION NO. 333-_______
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
Farmstead Telephone Group Inc.
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(Exact name of registrant as specified in its charter)
Delaware 06-1205743
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(State or other jurisdiction of (I.R.S. Employer
Incorporation or organization) Identification No.)
22 Prestige Park Circle
East Hartford, Connecticut 06108
(860) 610-6000
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(Address, including zip code, and telephone number, including area code,
of registrant's principal executive offices)
Robert G. LaVigne
Executive Vice President, Chief Financial Officer and Secretary
Farmstead Telephone Group, Inc.
22 Prestige Park Circle
East Hartford, Connecticut 06108
(860) 610-6000
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(Name, address, including zip code, and telephone number,
including area code, of agent for service)
Copies to:
Henry E. Knoblock, III, Esq.
Dongsup S. Kim, Esq.
Gesmer Updegrove LLP
40 Broad Street - 3rd Floor
Boston, Massachusetts 02109
Telephone (617) 350-6800
Facsimile: (617) 350-6878
Approximate date of proposed commencement of sale to public: As soon as
practicable after this Registration Statement becomes effective.
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, other than securities offered only in connection with dividend or
interest reinvestment plans please 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, check the following box
and list the Securities Act registration statement number of the earlier
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 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
Proposed
Proposed Maximum
Amount of Maximum Aggregate
Title of Each Class Securities Offering Dollar Price Amount
of Securities to be Registered Price Per of Securities to of
to be Registered in the Offering Security be Registered Fee (8)
------------------- ---------------- --------- ---------------- -------
Common Stock 2,594,260 $1.89 $4,903,151.40 $ 524.64
Shares (1)
Common Stock 300,670 $1.89 $ 568,266.30 $ 60.80
Shares (2)
Common Stock 1,152,615 $1.89 $2,178,442.35 $ 233.09
Shares (3)
Common Stock 701,181 $1.89 $1,325,232.09 $ 141.80
Shares (4)
Common Stock 58,071 $1.89 $ 109,754.19 $ 11.74
Shares (5)
Common Stock 250,000 $1.89 $ 472,500.00 $ 50.56
Shares (6)
Common Stock 30,000 $1.89 $ 56,700.00 $ 6.07
Shares (7)
Total Securities
to be Registered 5,086,797 $1.89 $9,614,046.10 $1,028.70
Shares
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These shares (being registered for resale) are issuable on conversion
of outstanding Series A Preferred Stock of the Company ("Preferred
Stock" at current conversion rate of 10 shares of Common Stock for
each share of Preferred Stock. The number of shares presently
issuable on conversion is 2,594,260.
These shares (being registered for resale) are issuable on conversion
of shares of Preferred Stock issued upon exercise of warrants, at $17
per Preferred Stock share. The number of Preferred Stock shares
presently issuable on exercise is 30,067.
These shares (being registered for resale) are issuable on exercise
of warrants, at $2.125 per Common Stock share. The number of shares
presently issuable on exercise is 1,152,615.
These shares (being registered for resale) are issuable on exercise
of a warrant, at $1.27 per Common Stock share. The number of shares
presently issuable on exercise is 701,181.
These shares (being registered for resale) are additional shares
issuable on conversion of outstanding note(s) (principal and
interest) which were at the original conversion price of $1.54, which
has recently been adjusted to the current conversion price of $1.27
per share. The number of shares presently issuable on conversion is
333,071 of which 275,000 shares had been registered prior to the
adjustment.
These shares (being registered for resale) are issuable on exercise
of warrants by certain executive officers of the Company, at an
exercise price equal to the fair market value of the Company's common
stock as of the date the warrant was issued to each executive
officer. The number of shares issuable on exercise is a total of
250,000 shares.
These shares (being registered for resale)are shares issued or
issuable pursuant to the terms of certain marketing agreements with a
consultant to the Company.
Estimated solely for the purpose of calculating the registration fee.
Pursuant to Rule 457 (c) of the Securities Act of 1933, as amended,
the registration fee for the shares has been calculated based upon
the average of the high and low prices, as reported by NASDAQ, for
the registrant's common stock as of April 28, 2006, which was $1.89
per share.
Delaying amendment under rule 473(a): 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 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 section 8(a), may determine.
The information in this prospectus is subject to completion or amendment.
The securities covered by this prospectus cannot be sold until the
registration statement filed with the Securities and Exchange Commission
becomes effective. This prospectus shall not constitute an offer to sell or
the solicitation of an offer to buy nor shall there be any sale of these
securities in any state in which an offer, solicitation or sale would be
unlawful prior to registration or qualification under the securities laws
of that state.
The information in this prospectus is not complete and may be changed. We
may not sell these securities until the registration statement filed with
the Securities and Exchange Commission is effective. This prospectus is not
an offer to sell these securities and it is not soliciting an offer to buy
these securities in any state where the offer or sale is not permitted.
SUBJECT TO COMPLETION, DATED MAY 22, 2006
PROSPECTUS
[LOGO] FARMSTEAD
Farmstead Telephone Group, Inc.
SHARES OF COMMON STOCK
The selling stockholders listed on page 10 of this prospectus are
offering for resale up to 5,086,797 shares of common stock beneficially
owned by them. We will not receive any of the proceeds from the sale of the
shares by the selling stockholders.
The common stock may be offered from time to time by the selling
stockholder through ordinary brokerage transactions in the over-the-counter
markets, in negotiated transactions or otherwise, at market prices
prevailing at the time of sale or at negotiated prices and in other ways as
described in the "Plan of Distribution".
Our common stock is listed on the NASD Over-The-Counter Bulletin
Board (the "OTCBB")under the symbol "FTGP". On April 28, 2006, the last
sale price of our common stock as reported by the OTCBB was $1.92 per
share.
INVESTING IN OUR COMMON STOCK INVOLVES A HIGH DEGREE OF RISK. FOR
MORE INFORMATION, SEE "RISK FACTORS" BEGINNING ON PAGE 4.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE
SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR
DETERMINED IF THIS PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
The date of this prospectus is _________ __, 2006
Table of Contents
Page
Forward-looking Statements 3
About Farmstead Telephone Group, Inc. 3
Risk Factors 4
Use of Proceeds 10
Selling Stockholder 10
Plan of Distribution 16
Legal Matters 17
Experts 17
Where You Can Find More Information 17
Incorporation of Certain Documents By Reference 18
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ABOUT THIS PROSPECTUS
You should rely only on the information contained or incorporated by
reference in this prospectus. See "Documents Incorporated by Reference." We
have not authorized any other person to provide you with different
information. If anyone provides you with different or inconsistent
information, you should not rely on it. We and the selling shareholders are
not making an offer to sell these shares of common stock in jurisdictions
where offers and sales are not permitted. You should assume that the
information contained in this prospectus is accurate only as of the date on
the front cover of this prospectus, regardless of the time of delivery of
this prospectus or any sale of the common stock. Our business, financial
condition, results of operations and prospects may have changed since the
date of this prospectus.
In this prospectus, we refer to information and statistics regarding
the communications industry in the United States. We obtained this market
data from independent publications or other publicly available information.
Although we believe these sources are reliable, we have not independently
verified and do not guarantee the accuracy and completeness of this
information.
Unless the context indicates otherwise, all references in this
prospectus to "Farmstead," "we," "us" and "our" refer to Farmstead
Telephone Group, Inc. and its subsidiaries.
PROSPECTUS SUMMARY
This summary highlights specific information contained elsewhere or
incorporated by reference in this prospectus. This summary is not complete
and does not contain all of the information that you should consider before
investing in our common stock and is qualified in its entirety by the more
detailed information included or incorporated by reference in this
prospectus. To understand this offering fully, you should carefully read
this entire prospectus, including the "Risk Factors" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
sections and the documents incorporated by reference.
FORWARD-LOOKING STATEMENTS
Certain statements in this Registration Statement or the documents
incorporated by reference in this Registration Statement constitute
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995. These forward-looking statements involve
known and unknown risks, uncertainties and other factors which may cause
the actual results, performance or achievements of Farmstead Telephone
Group, Inc. to be materially different from any future results, performance
or achievements expressed or implied by such forward-looking statements.
Such factors include, among others, those set forth under the caption "Risk
Factors." Forward-looking statements may be indicated by the words
"believe," "expect," "anticipate," "intend," and "plan" and similar
expressions, by context or otherwise. Readers are cautioned not to place
undue reliance on any of these forward-looking statements, which speak only
as of the date of the statement was made. Farmstead Telephone Group, Inc.
undertakes no obligation to update any forward-looking statement.
ABOUT FARMSTEAD TELEPHONE GROUP, INC.
Farmstead was incorporated in Delaware in 1986. We are principally
engaged as a provider of new and used Avaya, Inc. ("Avaya") business
telecommunications parts, complete systems, and services. From December
1998 to the program's termination in July 2004, we provided refurbished
"Classic Lucent(tm)" and "Classic Avaya(tm)" telecommunications equipment
pursuant to an "Authorized Remarketing Supplier Program" with Lucent
Technologies and Avaya. Since the termination of this program, we have
continued to supply refurbished equipment to our customers. We also offer
Avaya's full-line of new telecommunications parts and complete systems as
an Avaya-certified "Platinum Dealer". Our service revenues are under the
aegis of our "2 Star" Avaya Services Agreement. Our product offerings are
primarily customer premises-based private switching systems and peripheral
products, including voice messaging products. We also provide
telecommunications equipment installation, repair and refurbishing, short-
term rental, inventory management, and related value-added services. A
portion of our revenues is also derived from the sale of Avaya maintenance
contracts. We sell our products and services to large and mid-size, multi-
location businesses, as well as to small businesses, government agencies,
and other equipment resellers. This business segment has been referred to
in this document as the "Legacy Telecommunications Equipment Business" or
the "Telecommunications Equipment Business".
Effective February 1, 2001, we entered into a joint venture agreement
with TriNET Business Trust ("TriNET"), forming a limited liability
corporation operating under the name of InfiNet Systems, LLC ("InfiNet").
Under the agreement, we had a 50.1% ownership interest, and TriNET had a
49.9% ownership interest. Based in East Hartford, Connecticut, InfiNet was
organized for the purpose of selling new Avaya telecommunications systems
primarily to customers within the State of Connecticut and various counties
in the State of New York. Effective January 1, 2002, we
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acquired TriNET's 49.9% ownership interest in InfiNet. During 2002,
however, we changed our business strategy concerning the use of InfiNet,
downsizing its operating activities by eliminating its entire workforce and
fulfilling systems sales orders directly through Farmstead, which acquired
its own systems dealer license in 2002. As a result, InfiNet has since been
inactive, and the company was dissolved effective December 31, 2005.
Our operating results have declined significantly over the past
several years, with the Company incurring net losses of $3,314,000,
$1,424,000 and $709,000 for the years ended December 31, 2005, 2004 and
2003 on revenues of $15.2 million, $12.3 million and $14.9 million,
respectively. Although the Company experienced a 23% improvement in
revenues in 2005 as compared to 2004, revenues and profit margins have been
impacted by reduced business spending by our larger customers on enterprise
communications equipment coupled with intense competition between the
Company and other telecommunications equipment dealers and aftermarket
resellers.
Beginning in the fourth quarter of 2004, and continuing throughout
2005, we have been implementing a strategic redirection, which is
principally based upon building a larger and more highly qualified sales
force, and diversifying the Company's product offerings and targeted
customers. The business strategy is to transition to a full communications
solutions provider, becoming less dependent on parts sales, and developing
more sources of recurring revenues. During 2005, we expanded our product
offerings beyond traditional voice communications products by offering
Internet Protocol, or IP, telephony products and unified communications
products including voice messaging, and we expanded our customer base and
began generating incremental revenues by targeting the small to medium-
sized (under 200 employees) business market ("SMB").
Effective March 1, 2005 we launched a program to market SMB products
and services nationally. In connection therewith we significantly increased
our direct sales force and support staff, including the hiring of several
former Avaya sales and support professionals already engaged in this market
sector.
In May, 2005, we formed a wholly-owned subsidiary named One IP Voice,
Inc. ("OIPV"). OIPV was formed to provide carrier-based VoIP telephony
solutions along with network services. Its primary target market is the SMB
market. OIPV's product offerings include Hosted IP Centrex and IP Trunking
services, bundled with private OIPV "last mile" connectivity on a national
basis, long distance calling, On Net calling, local area calling, 911
capabilities and Wide Area Network ("WAN") voice and data connectivity.
Since its formation, OIPV has achieved several business plan milestones,
including the hiring of key management personnel and the completion of the
initial buildout of its first feature server platform, located in Denver,
Colorado. In January 2006, the Company launched the national marketing of
OIPV's products and services. The OIPV business is critical to the
Company's future business strategy and will require significant capital in
order to achieve success. This business segment has been referred to in
this document as the "IP Telephony Business".
RISK FACTORS
GENERAL RISK FACTORS
We operate in a changing environment that involves numerous known and
unknown risks and uncertainties that could materially adversely affect our
operations. The following highlights some of the factors that have
affected, and/or in the future could affect, our operations. Our prospects
are subject to many uncertainties and risks. Management recognizes the
challenges that it faces, particularly during this period of diminished
sales levels, and has adopted a number of strategies and action steps to
deal with its current operating environment. Disclosure of our strategies
and action steps is contained in the discussions set forth in Item 7.
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" of our Annual Report on Form 10-K filed with the SEC on April
12, 2006, and elsewhere herein. These risks and uncertainties are also
detailed from time to time in reports we file with the SEC, including Forms
8-K, 10-Q, and 10-K, and include, among other factors, the following
principal risks:
WE HAVE INCURRED NET LOSSES OVER THE LAST SEVERAL YEARS AND WE ARE
UNCERTAIN AS TO OUR FUTURE PROFITABILITY.
We recorded net losses of $3,314,000, $1,424,000 and $709,000 during
the years ended December 31, 2005, 2004 and 2003, respectively. We expect
that, due to the buildout of our new carrier-based, hosted IP telephony
business as further described below, we will continue to incur operating
losses for the foreseeable future, and such losses may be substantial. We
will need to generate significant revenue growth to achieve an operating
profit.
WE ARE PURSUING A SIGNIFICANT NEW BUSINESS DIRECTION - THE MARKETING
OF CARRIER-BASED, HOSTED VOIP PRODUCTS AND RELATED NETWORK SERVICES -
WHICH MAY NOT BE PROFITABLE.
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Since the beginning of 2005, we have been devoting significant
management and capital resources to the development of this business, and
we expect to continue to do so; however we cannot provide assurance that
this new business venture will be profitable. Our business model is still
being developed, and it has not yet been proven out. There is also no
guarantee that we will be successful in generating significant revenues
from future sales of our planned IP products and services. If we are not
able to generate significant revenues selling into the VoIP telephony
market, our business and operating results would be seriously harmed.
WE CURRENTLY HAVE LIMITED CASH RESOURCES, AND WE MAY NOT HAVE
ADEQUATE CASH OR CREDIT LINES TO FINANCE OUR CURRENT WORKING CAPITAL
REQUIREMENTS OR THE BUILDOUT OF OUR NEW IP TELEPHONY BUSINESS.
We are currently dependent upon cash generated from operations, and
borrowings under a revolving credit facility, to satisfy our working
capital requirements, which have increased since we are incurring costs
associated with the development of One IP Voice ("OIPV") and its associated
products and service offerings. A material adverse change in our business
going forward could prompt our lender to terminate our credit facility. In
addition, continued losses will consume our current cash reserves, and
negatively affect our ability to obtain additional or replacement financing
until we could demonstrate improved operating results or a return to
profitability.
Our working capital requirements are expected to significantly
increase as we continue the build out of the infrastructure of capital
equipment, systems, licenses and personnel required to deploy our hosted
VoIP service offerings through OIPV. Our current telephone equipment
business does not generate sufficient cash to meet the additional cash
requirements of OIPV. In the event that we are unable to obtain sufficient
external financing for this project, we may be unable to complete the
buildout of the OIPV business as currently planned. No assurances can be
given that we will have sufficient cash resources to finance future growth,
and it has become necessary to raise additional funds through public and/or
private debt and equity financings, which may also not be available to us
until operating performance improves, and which may significantly dilute
stockholder ownership in us. If, however, we perform according to our
expectations, we believe that additional sources of financing would become
available to us.
IF WE ARE UNABLE TO ATTRACT AND RETAIN KEY MANAGEMENT AND SALES
EMPLOYEES, WE WILL NOT BE ABLE TO COMPETE EFFECTIVELY AND OUR
BUSINESS MAY NOT BE SUCCESSFUL.
Our success is highly dependent upon our ability to hire and retain
key technical, sales and executive management personnel who have critical
industry experience and relationships that we rely on to execute our
business plans. Competition for such personnel is currently intense in our
industries. If we fail to hire and retain a sufficient number of high-
quality personnel, we may not be able to maintain or expand our business.
RISKS ATTRIBUTABLE TO THE NEW IP TELEPHONY BUSINESS
THE SUCCESS OF OUR NEW OIPV BUSINESS VENTURE IS DEPENDENT ON THE
GROWTH AND PUBLIC ACCEPTANCE OF VOIP TELEPHONY PRODUCTS AND SERVICES.
As we enter this emerging marketplace, we will be dependent upon
future demand for VoIP telephony systems and services. In order for the IP
telephony market to continue to grow, several things need to occur.
Telephony service providers must continue to invest in the deployment of
high speed broadband networks to residential and business customers. VoIP
networks must improve quality of service for real-time communications,
managing effects such as packet jitter, packet loss, and unreliable
bandwidth, so that toll-quality service can be provided. VoIP telephony
equipment and services must achieve a similar level of reliability that
users of the public switched telephone network have come to expect from
their telephone service. VoIP telephony service providers such as ourselves
must offer cost and feature benefits that are sufficient to cause customers
to switch away from traditional telephony service providers. Furthermore,
end users in markets serviced by recently deregulated telecommunications
providers are not familiar with obtaining services from competitors of
these providers and may be reluctant to use new providers, such as
ourselves. We will need to devote substantial resources to educate
customers and end users about the benefits of VoIP telephony solutions in
general and our services in particular. If any or all of these factors fail
to occur, our business may not be successful.
THE VOIP TELEPHONY MARKET IS SUBJECT TO INTENSE COMPETITION AND RAPID
TECHNOLOGICAL CHANGE, AND WE WILL DEPEND ON NEW PRODUCT AND SERVICE
INTRODUCTIONS IN ORDER TO ESTABLISH, MAINTAIN AND GROW OUR BUSINESS.
5
VoIP telephony is an emerging market that is characterized by rapid
changes in customer requirements, frequent introductions of new and
enhanced products, and continuing and rapid technological advancement. To
compete successfully in this emerging market, we will have to offer VoIP
telephony products and services that will incorporate the latest
technological advancements in features, performance and cost-effectiveness,
and respond to changing customer requirements. To that end, we will be
reliant upon independent third party providers and manufacturers of the
equipment, networks and software that are integrated into our product
offerings. In particular, we rely heavily on Straitshot Communications,
Inc., a Washington corporation, ("Straitshot") for certain communications
services and equipment in connection with our OIPV offering. Our Chairman
and CEO, Mr. Stiegemeier, is currently a member of the Board of Directors
of Straitshot. In the event that Straitshot was unable or unwilling to
provide services or equipment under its agreement with OIPV, service to the
Company's customers could be materially impacted.
The Company competes against many companies in the VoIP industry
including providers of hosted offerings such as AT&T, Callvantage, MCI
Advantage, Voiceone, Net2Phone, Cbeyond, Covad and Vonage; cable television
companies, such as Cablevision, Cox and Time Warner, incumbent telephone
carriers, such as SBC and Verizon and other providers of traditional and
legacy telephone service. While competition will be intense in this
burgeoning industry, we believe that our products will effectively compete
because we are delivering a complete product and service offering to the
SMB business segment.
DECREASING TELECOMMUNICATIONS RATES MAY DIMINISH OR ELIMINATE OUR
PLANNED COMPETITIVE PRICING STRUCTURE.
Decreasing telecommunications rates may diminish or eliminate the
competitive pricing structure of our services. Telecommunications rates
have decreased significantly over the last few years in most of the markets
in which we intend to operate, and we anticipate that rates will continue
to be reduced. Users who select our services to take advantage of the
current pricing differential between traditional telecommunications rates
and our rates may switch to traditional telecommunications carriers as such
pricing differentials diminish or disappear, and we will be unable to use
such pricing differentials to attract new customers in the future.
Continued rate decreases could require us to lower our rates to remain
competitive and adversely impact our profit margins.
OUR SUCCESS WILL DEPEND ON THIRD PARTIES IN OUR PLANNED DISTRIBUTION
CHANNELS.
We plan to sell our products primarily through resellers, and we are
focusing our business development efforts on establishing distribution
channels. Our planned revenues and future growth will depend in large part
on sales of our products through reseller and other distribution
relationships. We may not be successful in developing these distribution
relationships. Agreements with distribution partners may not require
minimum purchases or restrict development or distribution of competitive
products. In addition, our planned distribution channels may not dedicate
sufficient resources or give sufficient priority to selling our products.
Our failure to develop distribution channels, the loss of a key
distribution relationship or a decline in the efforts of a material
reseller or distributor could have a material adverse effect on our
business, financial condition or results of operations.
RISKS ATTRIBUTABLE TO OUR LEGACY TELECOMMUNICATIONS EQUIPMENT BUSINESS
OUR BUSINESS IS MATERIALLY IMPACTED BY CAPITAL SPENDING LEVELS FOR
TELECOMMUNICATIONS PRODUCTS AND SERVICES IN THE UNITED STATES.
Although the Company experienced a 23% improvement in revenues in
2005 as compared to 2004, revenues have been impacted by reduced business
spending by our larger customers on enterprise communications equipment
over the last several years. In addition, this environment has resulted in
increased pricing and competitive pressures, which have affected revenues
and profit margins. If business capital spending for telecommunications
products does not improve, or if economic conditions in the U.S.
deteriorate, our telecommunications equipment revenues may decline and our
operating results will be adversely affected. We remain cautious about the
telecommunications product marketplace going forward, and cannot predict
whether the level of capital spending for the Company's products will
improve in the near term. As a result, we believe that there will be
continued pressure on our ability to generate revenue in excess of current
levels.
OUR BUSINESS IS HEAVILY DEPENDENT UPON AVAYA, AS OUR PRIMARY SUPPLIER
OF EQUIPMENT FOR RESALE.
6
We primarily sell Avaya telecommunications products and services
through various Dealer agreements with Avaya. The Company is dependent upon
the quality and price-competitiveness of current Avaya products as well as
Avaya's continued development of new products in order to compete. The
Company's current sales levels for new parts and systems would be adversely
impacted should market demand for these Avaya products significantly
decline. Should Avaya's operations deteriorate to the point that it either
cannot continue to introduce technologically new products or effectively
compete with other equipment manufacturers, our long-term business strategy
to continue as an Avaya dealer would be adversely affected. Our new parts
and systems sales levels would also be adversely impacted if the Avaya
dealer agreements were terminated, or if Avaya eliminated its "Business
Partner" programs.
OUR GROSS PROFIT MARGINS VARY FROM PERIOD TO PERIOD.
Our gross profit margins are dependent upon a variety of factors
including (1) product mix -gross margins can vary significantly among parts
sales, system sales and our various service offerings. The parts business,
for example, involves hundreds of parts that generate significantly varying
gross profit margins depending upon their availability, competition, and
demand conditions in the marketplace; (2) customer mix -we sell parts to
both end-users and to other equipment resellers. Our larger "Enterprise"
companies often receive significant purchase discounts from Avaya, which
could lower our gross margins as we compete against Avaya directly for this
business; (3) the level and amount of vendor discounts and purchase rebates
available to us from Avaya and its master distributors; (4) excess capacity
-as sales volume falls, overhead costs become a higher percentage of sales
dollars; (5) competitive pressures -as a result of the slowdown in capital
equipment spending in our industry, and the several hundred Avaya dealers
nationwide, we have been faced with increased price competition; and (6)
obsolescence charges. The combined effect of all of these factors will
result in varying gross profit margins from period to period.
OUR GROSS PROFIT MARGINS AND OPERATING EXPENSES COULD BE ADVERSELY
AFFECTED BY A REDUCTION IN PURCHASE DISCOUNT AND OTHER REBATE OR
INCENTIVE PROGRAMS CURRENTLY OFFERED BY AVAYA.
As an Avaya Dealer, we receive substantial rebates and other cash
incentives from Avaya, based upon volume levels of certain product
purchases, which are material to our operating results and which help
reduce product purchase costs, market development and marketing expenses.
These incentive programs are subject to change by Avaya, and no assurances
can be given that they would not be altered so as to adversely impact our
profit margins or operating expenses.
RISKS RELATED TO OUR CURRENT FINANCING ARRANGEMENTS AND FINANCING PLANS:
IF WE ARE REQUIRED TO REPAY OUR OUTSTANDING BORROWINGS UNDER OUR
SECURED REVOLVING NOTE OR SECURED CONVERTIBLE MINIMUM BORROWING NOTES
TO LAURUS AT AN UNEXPECTED TIME, WE COULD DEPLETE OUR WORKING
CAPITAL. AN INABILITY TO REPAY THE OUTSTANDING BORROWINGS WHEN
REQUIRED COULD REQUIRE THE SALE OF SUBSTANTIAL ASSETS.
Our Secured Revolving Note and Secured Convertible Minimum Borrowing
Notes (collectively, the "Notes") with Laurus for a maximum of $3 million,
of which $1,832,000 was outstanding at December 31, 2005, are repayable
March 31, 2008, unless sooner converted into shares of our common stock.
An Event of Default, as defined under these agreements and including, for
example, a change in the Company's financial condition which is deemed to
have a "material adverse effect", which is not cured within specified grace
periods, can result in the acceleration of the Note repayments. The Notes
are secured by the Company's assets. An inability to repay the Notes when
required could result in the sale of substantial of the Company's assets.
FUTURE EQUITY TRANSACTIONS, INCLUDING EXERCISE OF OPTIONS OR WARRANTS
AND SHARES ISSUED UNDER CONVERTIBLE NOTES AND EQUITY SECURITIES,
COULD DEPRESS THE MARKET PRICE OF OUR COMMON STOCK AND COULD RESULT
IN SIGNIFICANT DILUTION TO OUR EXISTING STOCKHOLDERS.
From time to time, the Company may sell preferred stock and warrants,
and convertible debt, to investors in private placements conducted by
broker-dealers, or in negotiated transactions. These transactions cause
dilution to existing shareholders. Also, from time to time, options are
issued to employees and third parties, with exercise prices equal to
market. Exercise of in-the-money options and warrants will result in
dilution to existing shareholders; the amount of dilution may depend on the
spread between market and exercise price, and the number of shares
involved. The Company will continue to grant options to employees and
consultants with exercise prices equal to market price at the grant date,
and in the future may sell restricted stock and warrants, all of which may
result in dilution to existing shareholders. As of April 28, 2006, we had
3,975,282 shares of common stock issued and outstanding and we had (i)
convertible notes and warrants issued to the Laurus Master Fund, Ltd which
could require the issuance of 1,353,822 additional shares of common stock;
(ii) shares of Series A convertible preferred stock
7
outstanding which are convertible into 2,594,260 shares of common stock;
(iii) warrants issued to investors and the placement agent in connection
with the Company's 2006 private placement and convertible bridge loan
transactions which could require the issuance of 1,853,796 additional
shares of common stock; (iv) warrants issued to the placement agent in
connection with the Company's 2006 private placement transactions which
could require the issuance of Series A convertible preferred stock which
would be convertible into 300,670 shares of common stock; and (v) and
outstanding stock options and warrants issued to employees and affiliates
which could require the issuance of 3,728,619 additional shares of common
stock.
TERMS OF SUBSEQUENT FINANCING MAY ADVERSELY IMPACT YOUR INVESTMENT.
We may have to raise equity by issuing debt or preferred stock
financing in the future. Your rights and the value of your investment in
our common stock could be reduced. For example, if we continue to issue
secured debt, the creditors would have a claim to our assets that would be
prior to the rights of stockholders until the debt is paid. Debt service
would increase costs and negatively impact operating results. Preferred
stock could also be issued in series from time to time with such
designations, rights, preferences, and limitations as needed to raise
capital. The terms of preferred stock offerings could be more advantageous
to those investors than to the holders of common stock.
WE ARE CURRENTLY LISTED ON THE OVER-THE-COUNTER BULLETIN BOARD.
On November of 2005, the Company received notice from the American
Stock Exchange (the "AMEX") that the Company no longer complied with the
AMEX's continued listing standards as set forth in Section 1003 (a) (ii) of
the AMEX Company Guide (the "Company Guide"), and that its securities were,
therefore, subject to being delisted from the AMEX. The Company was
previously granted an eighteen month period to regain compliance with this
standard, and such compliance period ended as of November 7, 2005.
The Company subsequently appealed this determination and on December 14,
2005 participated in a formal hearing before an appointed Listing
Qualifications Panel (the "Panel"). On December 19, 2005, the Company
received written notice from the AMEX that the Panel had affirmed the
earlier determination to delist the common stock of the Company. The notice
cited that the Company was as of November 7, 2005, and continued to be, not
in compliance with (1) Section 1003(a)(i) of the Company Guide as its
stockholders' equity was less than $2 million and it had sustained losses
from continuing operations and/or net losses in two of its three most
recent fiscal years; and (2) Section 1003(a)(ii) of the Company Guide as
its stockholders' equity was less than $4 million and it had sustained
losses from continuing operations and/or net losses in three of its four
most recent fiscal years.
The Company obtained quotation of its securities on the Over-the-
Counter Bulletin Board (the "OTCBB") effective December 30, 2005, and its
Common Stock is currently listed under the symbol "FTGP". The OTC Bulletin
Board(R) is a regulated quotation service that displays real-time quotes,
last-sale prices, and volume information in over-the-counter (OTC) equity
securities. An OTC equity security generally is any equity that is not
listed or traded on Nasdaq(R) or a national securities exchange. OTCBB
securities include national, regional, and foreign equity issues, warrants,
units, American Depositary Receipts (ADRs), and Direct Participation
Programs (DPPs).
The recent delisting described above and being listed on the OTCBB
could reduce the ability of our shareholders to purchase or sell shares as
quickly and as inexpensively as they have done historically. For instance,
failure to obtain listing on another market or exchange may make it more
difficult for traders to sell our securities. Broker-dealers may be less
willing or able to sell or make a market in our common stock which could
* result in a decrease in the trading price of our common stock;
* lessen interest by institutions and individuals in investing in
our common stock;
* make it more difficult to obtain analyst coverage; and
* make it more difficult for us to raise capital in the future.
IF WE ARE UNABLE TO OBTAIN, AND/OR MAINTAIN THE EFFECTIVENESS OF THE
REGISTRATION STATEMENT FOR THE SHARES UNDERLYING THE LAURUS MINIMUM
BORROWING NOTES AND WARRANTS, WE MAY INCUR SUBSTANTIAL FINANCIAL
PENALTIES
Pursuant to the terms of a Registration Rights Agreement with Laurus
in connection with the current credit facility, the Company is obligated to
file and obtain effectiveness for a registration statement registering the
resale of shares of the Company's Common Stock issuable upon conversion of
the Laurus Notes and the exercise of the Warrant. If the registration
statement is not filed or declared effective in a timely manner, the
Company will be subject to
8
certain penalties including a daily penalty at a rate of 2% per month of
the outstanding principal amount of any Minimum Borrowing Notes.
IF WE SELL ANY SECURITIES AT AN EFFECTIVE PRICE BELOW $1.54 PER
SHARE, THE CONVERSION PRICE OF THE LAURUS CONVERTIBLE NOTES WILL BE
LOWERED, RESULTING IN ADDITIONAL DILUTION TO STOCKHOLDERS
Pursuant to our convertible note agreements with Laurus, if we issue
securities at a price that is lower than the then current conversion price,
which was $1.54 as of December 31, 2005, the conversion price applicable to
Laurus would be lowered to this amount. If this occurs, stockholders may
incur substantial additional dilution as a result of the potential issuance
of additional securities upon conversion. In January 2006 Laurus's
conversion price was in fact lowered to $1.27 from $1.54 as a result of the
issuance of warrants to investors at a $1.27 exercise price.
OTHER RISKS:
In addition to the specific risks and uncertainties discussed above,
our future operating performance can also be affected by: performance and
reliability of products; the maintenance of our level of customer service
and customer relationships; adverse publicity; business disruptions; acts
of terrorism within the U.S., and the impact of those acts on the U.S.
economy; and other events that can impact revenues and business costs. The
risks included here are not exhaustive. Other sections of this report may
include additional factors, which could adversely affect our business and
financial performance. Moreover, we operate in a very competitive and
rapidly changing environment. New risk factors emerge from time to time and
it is not possible for management to predict all such risk factors, nor can
it assess the impact of all such risk factors on its business or the extent
to which any factor, or combination of factors, may cause actual results to
differ materially from those contained in any forward-looking statements.
Given these risks and uncertainties, investors should not place undue
reliance on forward-looking statements as a prediction of actual results.
Stockholders should also be aware that while we do, from time to
time, communicate with securities analysts, it is against our policy to
disclose to them any material information unless such information shall
have been previously or is simultaneously disclosed in a manner intended to
provide broad, non-exclusionary distribution of the information to the
public. Accordingly, stockholders should not assume that we agree with any
statement or report issued by any analyst irrespective of the content of
the statement or report. Furthermore, we have a policy against issuing or
confirming financial forecasts or projections issued by others. Thus, to
the extent that reports issued by securities analysts contain any
projections, forecasts or opinions, such reports are not our
responsibility.
WE MAY BE SUBJECT OF SECURITIES CLASS ACTION LITIGATION DUE TO
FUTURE STOCK PRICE VOLATILITY.
In the past, when the market price of a stock has been volatile,
holders of that stock have often instituted securities class action
litigation against the company that issued the stock. If any of our
stockholders brought a lawsuit against us, we could incur substantial costs
defending the lawsuit. The lawsuit could also divert the time and attention
of our management.
PROVISIONS OF DELAWARE LAW COULD DELAY OR PREVENT A CHANGE OF
CONTROL.
As a Delaware corporation, we are subject to the General Corporation
Law of the State of Delaware, including Section 203, an anti-takeover law
enacted in 1988. In general, Section 203 restricts the ability of a public
Delaware corporation from engaging in a "business combination" with an
"interested stockholder" for a period of three years after the date of the
transaction in which the person became an interested stockholder. Subject
to exceptions, an interested stockholder is a person who, together with
affiliates and associates, owns, or within three years did own, 15% or more
of a corporation's voting stock. As a result of the application of Section
203, potential acquirers may be discouraged from attempting to acquire us,
thereby possibly depriving our stockholders of acquisition opportunities to
sell or otherwise dispose of our stock at above-market prices typical of
acquisitions.
THE PRICE OF OUR COMMON STOCK COULD BE VOLATILE.
Prior to December 30, 2005, our stock traded on the AMEX. Since that
time, our common stock has traded on the OTCBB. It has experienced, and is
likely to experience in the future, significant price and volume
fluctuations which could adversely affect the market price of our common
stock without regard to our operating performance. In addition, the trading
price of our
9
common stock could be subject to significant fluctuations in response to
actual or anticipated variations in our quarterly operating results,
announcements by us or our competitors, factors affecting the
telecommunications industry generally, changes in national or regional
economic conditions, changes in securities analysts' estimates for our
competitors' or industry's future performance or general market conditions.
The market price of our common stock could also be affected by general
market price declines or market volatility in the future or future declines
or volatility in the prices of stocks for companies in our industry.
FUTURE SALES OF SHARES OF OUR COMMON STOCK COULD AFFECT THE MARKET
PRICE OF OUR COMMON STOCK AND OUR ABILITY TO RAISE ADDITIONAL
CAPITAL.
Under the Laurus transaction, as further described herein, we are
obligated to register within thirty (30) days common stock issuable upon
conversion of any notes then outstanding. Depending upon the amount
outstanding under the revolving facility and the current market price of
the Company's shares, Laurus could, subject to certain restrictions, elect
to convert its debt into additional common shares significantly in excess
of the number of shares being registered under this Memorandum. The Company
however does have the option to redeem the notes being converted for a cash
premium. We have also registered a substantial number of shares of common
stock that are issuable upon the exercise of options. If holders of options
choose to exercise their purchase rights and sell shares of common stock in
the public market, or if holders of currently restricted common stock or
common stock issuable upon conversion of our convertible debt choose to
sell such shares of common stock in the public market under Rule 144 or
otherwise, or if the selling stockholder whose shares are being offered
pursuant to this Memorandum sells or attempts to publicly sell such Offered
Securities or the Underlying Shares all at once or in a short time period,
the prevailing market price for our common stock may decline. Future public
sales of shares of common stock may adversely affect the market price of
our common stock or our future ability to raise capital by offering equity
securities.
WE DO NOT INTEND TO PAY DIVIDENDS IN THE FORESEEABLE FUTURE.
We have never declared or paid a dividend on our common stock. We
intend to retain earnings, if any, for use in the operation and expansion
of our business and therefore do not anticipate declaring or paying any
dividends in the foreseeable future.
OUR DIRECTORS AND MANAGEMENT WILL EXERCISE SIGNIFICANT CONTROL OVER
OUR COMPANY.
Our directors and executive officers and their affiliates
collectively control or beneficially own approximately 47% of our
outstanding common stock. As a result, these stockholders, if they act
together, will be able to influence our management and affairs and all
matters requiring stockholder approval, including the election of directors
and approval of significant corporate transactions. The concentration of
ownership may have the effect of delaying or preventing a change in control
of our company and might affect the market price of our common stock.
NEED FOR ADDITIONAL CAPITAL
Various elements of the Company's business and growth strategies,
including its plans to broaden existing product lines, introduce new
products and invest in infrastructure will require additional capital.
There can be no assurance that funds will be available to the Company on
terms satisfactory to the Company when needed. To the extent that the
Company raises additional equity capital, it would have a dilutive effect
on existing shareholders.
USE OF PROCEEDS
We will not receive any proceeds from the sale of our securities by
the selling stockholders named in this prospectus. Any proceeds we receive
from any exercise for cash by the selling stockholders of warrants held by
them will be used for working capital.
We have agreed to pay certain expenses in connection with the
registration of the shares being offered by the selling stockholders.
SELLING STOCKHOLDERS
Series A Preferred Stock Investors
From February 17, 2006 through April 17, 2006 the Company sold an
aggregate of 200,456 Unit shares of Series A Preferred Stock to the
following investors (the "Investors") at a price of $17.00 per Unit:
Meadowbrook Opportunity Fund LLC, Sotomar - Empreendimentos Industriais e
10
Imobiliarios, SA, William A. Boyd, Suzy Ulrich, Richard J. Cranmer, Watamar
& Partners SA, Thomas Barrett, Case Holdings Co., Inc., Allan Sorensen,
Chuck & Joy Hartz, Hartz Family Foundation, Barton Ferris, Jr. and William
Harner Michael Bloch, Robert A. Smith, Robert Gillman, Julian Eaton, Julian
F. & Mary J. Eaton, Robert H. Chanson, Joan Robertson, Robert B. Rowley,
William M. Goatley Revocable Trust DTD 05/09/89, MidSouth Investor Fund LP,
Ronald C. Smiley, Lewis Opportunity Fund, LP, Sat P. Dewan, Dewan
Retirement Plan Trust, Richard Dwayne Roberson, OT Finance, SA, Robert W.
Russell, Joseph & Kimberly Greenspan, Thomas Link, Nite Capital, Richard &
Christine VonderSitt, Deborah A. Picon, Danid P. Hanlon, S. Wistar Lewis,
Alan S. Wirshborn, Gail B. Shanklin, Benjamin S. Eichholtz, as Custodian
for David Eichholtz and Daniel Eichholtz, Michaels Associates. Each Unit
consists of (i) one share of the Company's Series A Preferred Stock, $.001
par value per share, and (ii) a Warrant to purchase five shares of the
Company's Common Stock, par value $.001 per share, at an exercise price of
$2.125 per share. The aggregate proceeds received by the Company, net of
fees and expenses incurred by the Company's placement agent, were
approximately $3.1 Million.
The following describes certain of the material terms of this
transaction. The description below is not a complete description of the
terms of the financing transaction and is qualified in its entirety by
reference to the agreements entered into in connection therewith which are
included as exhibits to the Current Reports on Form 8-K previously filed on
February 24, 2006, March 21, 2006 and April 21, 2006.
Series A Preferred Stock. Each Investor received certain rights in
connection with its purchase of the Series A Preferred Stock:
* The Investor shall be entitled to receive in preference to any
dividend on the Common Stock a cumulative non-compounding
dividend at the rate of 8% per annum of the original Preferred
A Per Share Price.
* In the event of any liquidation or winding up of the Company,
the Investor shall be entitled to receive in preference to the
holders of the Common Stock an amount equal to two times the
original Preferred A Per Share Price plus any declared but
unpaid dividends.
* The conversion price of the Series A Preferred Stock will be
subject to a weighted average adjustment (based on all deemed
outstanding shares of Common Stock and shares of Preferred
Stock) and to reduce dilution in the event that the Company
issues additional equity securities (other than the shares
reserved for issuance under or to Laurus Master Fund Ltd., the
Company's Stock Option Plan, the Company's Employee Stock
Purchase Plan, employees, officers, consultants and directors
of the Company, and under other currently existing options,
warrants and obligations to issue shares) at a purchase price
less than the Series A Preferred Stock conversion price. The
Series A Preferred Stock conversion price will also be subject
to proportional adjustment for stock splits, stock dividends,
recapitalizations and the like.
* The Series A Preferred Stock will vote together with the Common
Stock and not as a separate class except as required by law,
however, the Series A Preferred Stock, exclusively and as a
separate class, will be entitled to elect one (1) director of
the Corporation. Each share of Series A Preferred Stock shall
have a number of votes equal to the number of shares of Common
Stock then issuable upon conversion of such share of Series A
Preferred Stock.
The foregoing provisions were incorporated in the Certificate of
Designation filed with the Secretary of State of the State of Delaware on
February 17, 2006.
Warrant to Purchase Shares of Stock. The Investors received warrants
to purchase up to an aggregate 1,002,280 shares of the Company's common
stock at an exercise price of $2.125 per share. The warrant expires five
years from issuance. In lieu of exercising the warrant with cash, the
Holder may elect to receive that number of shares of common stock equal to
the value of the warrant (or that portion being exercised) at the time of
exercise.
Registration Rights. The Company agreed to use its best efforts to
register the common stock underlying the Securities for resale via a Form
S-3 or other appropriate registration
11
statement ("Registration Statement") within 90 days after the completion of
the Series A Offering. The Company agreed to respond to Securities and
Exchange Commission Registration Statement comments within 10 days and
request effectiveness of the Registration Statement within 3 days of "no
review" or "no further comments".
Sotomar - Empreendimentos Industriais e Imobiliarios, SA
On February 8, 2006, the Company issued a $1,000,000 Principal Amount
Convertible Promissory Note (the "Sotomar Note") to Sotomar -
Empreendimentos Industriais e Imobiliarios, SA (the "Holder") pursuant to a
Convertible Note and Warrant Purchase Agreement (the "Sotomar Purchase
Agreement") of even date. The proceeds received by the Company, net of
issuance expenses and placement agent fees, amounted to approximately
$900,000.
The following describes certain of the material terms of this
transaction. The description below is not a complete description of the
terms of the financing transaction and is qualified in its entirety by
reference to the agreements entered into in connection therewith which are
included as exhibits to the Current Report on Form 8-K previously filed on
February 14, 2006.
Warrant to Purchase Shares of Stock. In connection with the issuance
of the Sotomar Note, the Holder received a warrant to purchase up to an
aggregate 529,134 shares of the Company's common stock at an exercise price
of $1.27 per share. The warrant expires ten years from issuance. In lieu
of exercising the warrant with cash, the Holder may elect to receive that
number of shares of common stock equal to the value of the warrant (or that
portion being exercised) at the time of exercise. The warrant also contains
normal anti-dilution clauses in the event of stock splits or stock
dividends and the Sotomar Purchase Agreement provides for registration
rights with respect to the underlying equity securities, and unlimited
"come-along" rights in the event of a change of control of Company.
Pursuant to the terms of the Sotomar Note, and as a result of the
aforementioned sale of Series A Preferred Stock, on February 17, 2006 the
Sotomar Note, together with interest accrued thereon, converted into 58,970
shares of Series A Preferred Stock.
Christopher P. Baker
On January 30, 2006, the Company obtained a bridge loan of $400,000
from Christopher P. Baker ("CPB"), a principal of C.P. Baker Securities,
Inc., the Company's placement agent, for a convertible note (the "CPB
Note") and a 10 year warrant to purchase an aggregate of up to 22,047
shares of Company's Common Stock (the "CPB Warrant"), pursuant to a
Convertible Promissory Note and Warrant Purchase Agreement (the "CPB
Purchase Agreement"). All amounts outstanding under the CPB Note have been
paid out by the Company and the CPB Note has been canceled as of February
8, 2006. The CPB Warrant has an exercise price per share of $1.27. The CPB
Warrant also contains normal anti-dilution clauses in the event of stock
splits or stock dividends and the CPB Purchase Agreement provides for
registration rights with respect to the underlying equity securities, and
unlimited "come-along" rights in the event of a change of control of
Company.
C.P. Baker Securities, Inc.
In connection with the Series A Preferred Stock transactions and the
bridge loan with Sotomar described above, the Company issued to its
placement agent, C.P. Baker Securities, Inc., warrants (i) to purchase up
to an aggregate 150,335 shares of the Company's common stock at an exercise
price of $2.125 per share; (ii) to purchase up to an aggregate 30,067
shares of the Company's Series A Preferred Stock at an exercise price of
$17.00 per share; and (iii) to purchase up to 150,000 shares of the
Company's common stock at an exercise price of $1.27. The warrants
described in (i) and (ii) expire ten years from issuance, and the warrant
described in (iii) expires in five years. In lieu of exercising the
warrants with cash, the placement agent may elect to receive that number of
shares of common stock or Series A Preferred Stock, as applicable, equal to
the value of the applicable warrant (or that portion being exercised) at
the time of exercise.
Laurus Master Fund Ltd.
On March 31, 2005, the Company entered into a financing transaction
with Laurus Master Fund, Ltd, ("Laurus"), providing for a three-year, $3
million ("Capital Availability Amount") revolving loan credit facility
which includes a Secured Revolving Note (the "Revolving Note") and Secured
Convertible Minimum Borrowing Notes (together with the Revolving Note, the
"Laurus Notes"). The initial Secured Convertible Minimum Borrowing Note was
set at $500,000, the proceeds of which were advanced to the Company on
April 4, 2005 (the "First Note"). The second Secured Convertible Minimum
Borrowing Note was also set at $500,000 dated as of September 2, 2005 (the
"Second Note"). Amounts outstanding under the Laurus Notes will either be
paid in cash at their March 31, 2008 maturity date or, at Laurus' option,
by converting such amounts into shares of the Company's common stock from
time to time. The Company also issued Laurus a five-year warrant (the
12
"Warrant") to purchase an aggregate of 500,000 shares of common stock of
the Company at an exercise price of $1.82 per share. The warrant exercise
price was set at 130% of the average closing price of the Company's common
stock over the ten trading days preceding the execution of the agreement,
and is subject to anti-dilution protection adjustments. The shares of
common stock underlying the First Note and the Warrant have been registered
through previous S-3 filings. This transaction was completed in a private
offering pursuant to an exemption from registration under Section 4(2) of
the Securities Act of 1933, as amended. This credit facility replaced the
$1.7 million revolving credit facility the Company had with Business
Alliance Capital corporation.
The following describes certain of the material terms of the
financing transaction with Laurus. The description below is not a complete
description of the material terms of the financing transaction and is
qualified in its entirety by reference to the agreements entered into in
connection with the financing which were included as exhibits to the
Current Report on Form 8-K filed April 5, 2005:
Principal Borrowing Terms and Prepayment: Borrowings are advanced
pursuant to a formula consisting of (i) 90% of eligible accounts
receivable, as defined (primarily receivables that are less than 90 days
old), and (ii) 30% of eligible inventory, as defined (primarily inventory
classified as "finished goods"), up to a maximum inventory advance of
$600,000, less any reserves required by Laurus. Interest on the outstanding
borrowings is charged at the per annum rate of two percentage points (2%)
above the prime rate, but not less than 6%. The interest rate charged,
however, will be decreased by 2% (or 200 basis points) for every 25%
increase in the market price of the Company's common stock above the fixed
conversion price, down to a minimum interest charge of 0.0%. The Company
will additionally be charged a fee equal to 0.25% of the unused portion of
the facility. Should the Company terminate the financing agreement with
Laurus prior to the maturity date, the Company will incur an early payment
fee equal to 4%, 3% and 2% of the Capital Availability Amount if terminated
in the first, second or third year, respectively, of the term.
Security and Events of Default. The Laurus Notes are secured by a
lien on substantially all of the Company's assets. The Security Agreement
contains no specific financial covenants; however, it defines certain
circumstances under which the agreement can be declared in default and
subject to termination, including among others if (i) there is a material
adverse change in the Company's business or financial condition; (ii) an
insolvency proceeding is commenced; (iii) the Company defaults on any of
its material agreements with third parties or there are material liens or
attachments levied against the Company's assets; (iv) the Company's common
stock ceases to be publicly traded; and (v) the Company fails to comply
with the terms, representations and conditions of the agreement. Upon the
occurrence of an Event of Default, the interest rate charged will be
increased by 1-1/2 % per month until the default is cured; should the
default continue beyond any applicable grace period, then Laurus could
require the Company to repay 120% of any principal and interest outstanding
under the agreement.
Conversion Rights. All or a portion of the outstanding principal and
interest due under the Laurus Notes may be converted, at the option of the
Holder, into shares of the Company's common stock, subject to certain
limitations as defined in the Laurus Notes, if the market price of the
common stock is 15% above the current Fixed Conversion Price of $1.27 per
share for five consecutive trading days in any month. The fixed conversion
price was originally set at 110% of the average closing price of the
Company's common stock over the ten trading days preceding the execution of
the agreement, and is subject to anti-dilution protection adjustments. The
fixed conversion price will be reset once $1.5 million of debt has been
converted. Upon receipt of a conversion notice from the Holder, the Company
can elect to pay cash to the Holder in lieu of issuing shares of common
stock, at a price per share equal to the intraday high price of the stock.
Registration Rights. Pursuant to the terms of a Registration Rights
Agreement, the Company is obligated to file and obtain effectiveness for a
registration statement registering the resale of shares of the Company's
common stock issuable upon conversion of the Laurus Notes and the exercise
of the Warrant. If the registration statement is not timely filed, or
declared effective the Company will be subject to certain penalties.
Alfred Stein
Mr. Stein has an employment agreement dated March 1, 2005 and
expiring December 31, 2008 which includes the following key provisions: (i)
current annual base salary of $250,000; (ii) an annual bonus of up to 100%
of base salary based upon attaining earnings targets approved by the Board
of Directors; (iii) the grant of a five-year warrant to purchase up to
250,000 shares of common stock at an exercise price of $.67 per share,
which was equal to the closing price of the common stock on his date of
hire; and (iv) the grant of an option to purchase up to 100,000 shares of
common stock at an exercise price of $1.80 per share, which was equal to
the closing price of the common stock on the date of grant; subject to
vesting over four quarters commencing with the quarter ended March 31,
2006. The Company has previously registered 150,000 of the
13
250,000 underlying shares and has agreed to register the remainder of the
underlying shares for the Executive with this prospectus.
Nevelle Johnson
Mr. Johnson has an employment agreement expiring December 31, 2008
which includes the following key provisions: (i) current annual base salary
of $250,000; (ii) an annual bonus of up to 50% of base salary based upon
attaining earnings targets approved by the Board of Directors; (iii) the
grant of a five-year warrant to purchase up to 250,000 shares of common
stock at an exercise price of $1.10 per share, which was equal to the
closing price of the common stock on his date of hire; and (iv) payment by
the Company of life insurance premiums not exceeding $5,000 per month. The
Company has previously registered 100,000 of the 250,000 underlying shares
and has agreed to register the remainder of the underlying shares for the
Executive with this prospectus.
Aurelius Consulting Group
The Company has issued 20,000 shares of restricted Common Stock to
Aurelius Consulting Group, pursuant to a six-month Marketing Agreement on
July 20, 2005 which contract has since expired. Effective January 31, 2006,
the Company entered into a new three-month Marketing Agreement with
Aurelius pursuant to which Aurelius has been issued 10,000 shares of
restricted Common Stock and which contract has since expired.
Based on information provided by the selling stockholders, the
following table sets forth certain information regarding the selling
stockholders.
The table below assumes for calculating each selling stockholder's
beneficial and percentage ownership that options, warrants or convertible
securities that are held by such stockholder (but not held by any other
person) and are exercisable within 60 days from the date of this prospectus
have been exercised and converted. The table also assumes the sale of all
of the shares being offered.
Common Stock Beneficially
Owned After the Offering (1)
Number of Shares of ------------------------------
Common Stock
Beneficially Owned Shares Number Percent of
Selling Security Holder Prior to the Offering Being Offered of Shares Outstanding Shares
----------------------- --------------------- ------------- --------- ------------------
Meadowbrook Opportunity Fund LLC 661,755(2) 661,755(2) --
Sotomar - Empreendimentos
Industriais e Imobiliarios, SA 2,001,149(2) 2,001,149(2) --
William A. Boyd 88,230(2) 88,230(2) --
Suzy Ulrich 26,460(2) 26,460(2) --
Richard J. Cranmer 44,115(2) 44,115(2) --
Wanita S.A. 89,970(2) 89,970(2) --
Thomas Barrett 11,025(2) 11,025(2) --
Case Holdings Co., Inc. 44,115(2) 44,115(2) --
Allan Sorensen 22,050(2) 22,050(2) --
Chuck & Joy Hartz 88,230(2) 88,230(2) --
Hartz Family Foundation 44,115(2) 44,115(2) --
Barton Ferris, Jr. 22,050(2) 22,050(2) --
William Harner 8,820(2) 8,820(2) --
Michael Bloch 69,000(2) 69,000(2) --
Robert A. Smith 17,640(2) 17,640(2) --
Robert Gillman 8,820(2) 8,820(2) --
14
Julian Eaton 44,115(2) 44,115(2) --
Julian F. Eaton & Mary J. Eaton,
Joint Tenants 44,115(2) 44,115(2) --
Robert H. Chanson 22,050(2) 22,050(2) --
Joan Robertson 22,050(2) 22,050(2) --
Robert B. Rowley 37,500(2) 37,500(2) --
William M. Goatley Revocable Trust
DTD 05/09/89 9,000(2) 9,000(2) --
MidSouth Investor Fund LP 176,460(2) 176,460(2) --
Ronald C. Smiley 8,820(2) 8,820(2) --
Lewis Opportunity Fund, LP 150,000(2) 150,000(2) --
Sat P. Dewan 9,000(2) 9,000(2) --
Dewan Retirement Plan Trust 15,000(2) 15,000(2) --
Richard Dwayne Roberson 18,000(2) 18,000(2) --
OT Finance, SA 15,000(2) 15,000(2) --
Robert W. Russell 15,000(2) 15,000(2) --
Joseph Greenspan & Kimberly
Greenspan, Joint Tenants 9,000(2) 9,000(2) --
Thomas Link 26,460(2) 26,460(2) --
Nite Capital 88,230(2) 88,230(2) --
Richard VonderSitt & Christine
VonderSitt, Joint Tenants 9,000(2) 9,000(2) --
Deborah A. Picon 18,000(2) 18,000(2) --
Danid P. Hanlon 44,115(2) 44,115(2) --
S. Wistar Lewis 15,000(2) 15,000(2) --
Alan S. Wirshborn 9,000(2) 9,000(2) --
Gail B. Shanklin 22,050(2) 22,050(2) --
Benjamin S. Eichholtz, as Custodian
for David Eichholtz and Daniel
Eichholtz 21,165(2) 21,165(2) --
Michaels Associates 30,000(2) 30,000(2) --
C.P. Baker Securities, Inc 601,005(2) 601,005(2) --
Christopher P. Baker 22,047(2) 22,047(2) --
Laurus Master Fund, Ltd. (1) 194,788(3) 58,071 --
Alfred Stein 275,000(4) 100,000 275,000 6.5%
Nevelle Johnson 260,000(5) 150,000 260,000 6.2%
Aurelius Consulting Group 30,000 30,000 -- (6)
--------------------
We do not know when or in what amounts the selling stockholder may
offer for sale the shares of common stock pursuant to this offering.
The selling stockholder may choose not to sell any of the shares
offered by this prospectus. Because the selling stockholder may,
subject to certain restrictions, offer all or some of the shares of
common stock pursuant to this offering we cannot estimate the number
of shares of common stock that the selling
15
stockholder will hold after completion of the offering. For purposes
of this table, we have assumed that the selling stockholder will have
sold all of the shares covered by this prospectus upon the completion
of the offering and that the selling stockholder will not have
entered into any other transactions with respect to our securities.
These numbers include any and all shares of common stock issuable on
conversion or exercise of each Preferred Stock and warrants to
purchase either Common Stock or Preferred Stock held by such selling
stockholder.
Laurus (i) has made an investment in the Second Note and, subject to
certain conditions noted below, may, taking into account the recent
adjustment to the current conversion price to the Second Note from
$1.57 to $1.27 per share, convert this investment into up to 333,071
shares of our common stock at the new conversion price of $1.27 per
share, 275,000 of which underlying shares are currently registered
and 58,071 additional shares are now being registered through this S-
3 filing and (ii) holds warrants to purchase up to 500,000 shares of
common stock, which shares have been registered through previous S-3
filings, and, subject to certain conditions noted below, these
warrants are exercisable within 60 days at an exercise price of $1.82
per share. These notes and warrants are not exercisable to the extent
that the number of shares of our common stock beneficially held by
Laurus after giving effect to such conversion or exercise would
result in beneficial ownership by Laurus of more than 4.99% of our
outstanding shares of common stock. Laurus may only waive these
restrictions (x) upon 90 days' prior notice to us, or (y) upon the
occurrence of an event of default under the Notes. Laurus
beneficially owns 194,788 shares of our common stock underlying
warrants and the Notes that are exercisable or convertible, as the
case may be, within 60 days. Laurus' address is 825 Third Avenue, New
York, NY 10022.
Consists of 250,000 shares issuable upon exercise of warrants and
25,000 shares issuable upon exercise of currently exercisable stock
options.
Includes 250,000 shares issuable upon the exercise of warrants.
Less than 1 percent.
PLAN OF DISTRIBUTION
All costs, expenses and fees in connection with the registration of
the shares offered by this prospectus shall be borne by us. Brokerage
costs, if any, attributable to the sale of shares will be borne by the
selling stockholder.
Subject to certain contractual restrictions noted above, the shares
may be sold by the selling stockholder by one or more of the following
methods:
* under a 10b5-1 trading plan;
* block trades 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 shares as principal to facilitate the
transaction;
* purchases by a broker or dealer as principal and resale by such
broker dealer for its account pursuant to this prospectus;
* an exchange distribution in accordance with the rules of the
applicable exchange;
* ordinary brokerage transactions and transactions in which the
broker solicits purchasers;
* through put and call options relating to the shares;
* negotiated transactions;
* a combination of any such methods of sale at market prices
prevailing at the time of the sale or at negotiated prices; and
* any other method permitted pursuant to applicable law.
The transactions described above may or may not involve brokers or
dealers.
16
The selling stockholders will not be restricted as to the price or
prices at which the selling stockholders may sell their shares. Sales of
shares by the selling stockholders may depress the market price of our
common stock since the number of shares which may be sold by the selling
stockholders is relatively large compared to the historical average weekly
trading of our common stock. Accordingly, if the selling stockholders were
to sell, or attempt to sell, all of such shares at once or during a short
time period, we believe such a transaction could adversely affect the
market price of our common stock.
From time to time a selling stockholder may pledge its shares under
margin provisions of customer agreements with its brokers or under loans
with third parties. Upon a default by the selling stockholder, the broker
or such third party may offer and sell any pledged shares from time to
time.
In effecting sales, brokers and dealers engaged by a selling
stockholder may arrange for other brokers or dealers to participate in the
sales as agents or principals. Brokers or dealers may receive commissions
or discounts from the selling stockholder or, if the broker-dealer acts as
agent for the purchaser of such shares, from the purchaser in amounts to be
negotiated, which compensation as to a particular broker dealer might be in
excess of customary commissions which are not expected to exceed those
customary in the types of transactions involved. Broker-dealers may agree
with the selling stockholder to sell a specified number of such shares at a
stipulated price per share, and to the extent the broker-dealer is unable
to do so acting as agent for a selling stockholder, to purchase as
principal any unsold shares at the price required to fulfill the broker-
dealer commitment to the selling stockholder. Broker-dealers who acquire
shares as principal may then resell those shares from time to time in
transactions
* in the over-the counter market or otherwise;
* at prices and on terms prevailing at the time of sale;
* at prices related to the then-current market price; or
* in negotiated transactions.
These resales may involve block transactions or sales to and through
other broker-dealers, including any of the transactions described above. In
connection with these sales, these broker-dealers may pay to or receive
from the purchasers of those shares commissions as described above. The
selling stockholders may also sell the shares in open market transactions
under Rule 144 under the Securities Act, rather than under this prospectus.
The selling stockholders and any broker-dealers or agents that
participate with the selling stockholders in sales of the shares may be
deemed to be "underwriters" within the meaning of the Securities Act in
connection with these sales. In this event, any commissions received by
these broker-dealers or agents and any profit on the resale of the shares
purchased by them may be deemed to be underwriting commissions or discounts
under the Securities Act.
The selling stockholders may agree to indemnify any agent, dealer or
broker-dealer that participates in transactions involving sales of the
shares against certain liabilities, including liabilities arising under the
Securities Act.
The selling stockholders are subject to applicable provisions of the
Securities Exchange Act of 1934 and the SEC's rules and regulations,
including Regulation M, which provisions may limit the timing of purchases
and sales of the shares by the selling stockholders.
* In order to comply with certain states' securities laws, if
applicable, the shares may be sold in those jurisdictions only
through registered or licensed brokers or dealers. In certain
states the shares may not be sold unless the shares have been
registered or qualified for sale in such state, or unless an
exemption from registration or qualification is available and
is obtained.
LEGAL MATTERS
Gesmer Updegrove LLP of Boston, Massachusetts will pass upon the
validity of the shares of common stock being offered by this prospectus.
EXPERTS
The financial statements and the related financial statement schedule
incorporated in this prospectus by reference from Farmstead Telephone
Group, Inc.'s Annual Report on Form 10-K for the year ended December 31,
2005 have been audited by Carlin, Charron & Rosen, LLP, independent
17
registered public accounting firm, as stated in their report, which is
incorporated herein by reference, and has been so incorporated in reliance
upon the report of such firm given upon their authority as experts in
accounting and auditing.
WHERE YOU CAN FIND MORE INFORMATION
We are subject to the informational requirements of the Securities
Exchange Act of 1934 and we file reports and other information with the
SEC.
You may read and copy any of the reports, statements, or other
information we file with the SEC at the SEC's Public Reference Section at
450 Fifth Street, N.W., Washington, D.C. 20549 at prescribed rates.
Information on the operation of the Public Reference Room may be obtained
by calling the SEC at 1-800-SEC-0330. The SEC maintains a Web site at
http://www.sec.gov that contains reports, proxy statements and other
information regarding issuers that file electronically with the SEC. The
NASD maintains a Web site at http://www.nasdaq.com that contains reports,
proxy statements and other information filed by us.
You may also obtain information about us, including copies of our SEC
reports, through our website at http://www.farmstead.com. This website
address is not an active link to the registration statement of which this
prospectus is a part, and any documents, references, links or other
materials of any kind contained or referred to on such website are not part
of the registration statement of which this prospectus is a part.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
We have filed with the SEC, Washington, D.C., a registration
statement on Form S-3 under the Securities Act of 1933, covering the
securities offered by this prospectus. This prospectus does not contain all
of the information that you can find in our registration statement and the
exhibits to the registration statement. Statements contained in this
prospectus as to the contents of any contract or other document referred to
are not necessarily complete and in each instance such statement is
qualified by reference to each such contract or document filed or
incorporated by reference as an exhibit to the registration statement.
The SEC allows us to "incorporate by reference" the information we
file with them. This means that we can disclose important information to
you by referring you to other documents that are legally considered to be
part of this prospectus, and later information that we file with the SEC
will automatically update and supersede the information in this prospectus
and the documents listed below. We incorporate by reference the documents
listed below, and any future filings made with the SEC under Section 13(a),
13(c), 14 or 15(d) of the Securities Exchange Act of 1934 until the selling
stockholder sells all the shares.
1. Our Annual Report on Form 10-K for the fiscal year ended December 31,
2005;
2. Our Quarterly Report Restatement on Form 10-Q/A filed on May 15,
2006;
3. Our Quarterly Report on Form 10-Q filed on May 18, 2006;
4. Our Current Report on Form 8-K filed on February 14, 2006;
5. Our Current Report on Form 8-K filed on February 24, 2006;
6. Our Current Report on Form 8-K filed on March 21, 2006;
7. Our Current Report on Form 8-K filed on April 12, 2006;
8. Our Current Report on Form 8-K filed on April 21, 2006;
9. The description of the Registrant's common stock, contained in the
Registrant's Registration Statement on Form SB-2 (Registration No.
333-5103) dated June 3, 1996 (as amended by Forms SB-2/A dated July
22, 1996, and August 12, 1996), and Form 8-A dated September 10,
1996, including any amendments or reports filed for the purpose of
updating that description;
10. All documents filed by us pursuant to Sections 13(a), 13(c), 14 or
15(d) of the Securities Exchange Act of 1934 subsequent to the date
of this prospectus and prior to the termination of this offering,
except the Compensation Committee Report on Executive Compensation
and the performance graph included in any Proxy Statement filed by us
18
pursuant to Section 14 of the Exchange Act; and
11. All documents filed by us pursuant to Sections 13(a), 13(c), 14 or
15(d) of the Securities Exchange Act of 1934 subsequent to the date
of the initial filing of this registration statement and prior to the
effectiveness of this registration statement, except the Compensation
Committee Report on Executive Compensation and the performance graph
included in any Proxy Statement filed by us pursuant to Section 14
of the Exchange Act.
The SEC file number for all of these filings is 001-12155.
You may request and we will provide a copy of these filings to you at
no cost, other than the exhibits, by writing or telephoning us at Farmstead
Telephone Group, Inc., 22 Prestige Park Circle, East Hartford, Connecticut
06108, telephone number (860)610-6000.
We have not authorized anyone else to provide you with information
different from that contained or incorporated by reference in this
prospectus. This prospectus is not an offer to sell nor is it a
solicitation of an offer to buy any security in any jurisdiction where the
offer or sale is not permitted. Neither the delivery of this prospectus nor
any sale made under this prospectus shall, under any circumstances, imply
that there has been no change in our affairs since the date of this
prospectus or that the information contained in this prospectus or
incorporated by reference herein is correct as of any time subsequent to
its date.
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The expenses payable by the Registrant in connection with the
issuance and distribution of the securities being registered (estimated
except for the SEC Registration fee) are as follows:
SEC Registration Fee $ 1,028.70
Accounting Fees and Expenses $ 3,000*
Printing Expenses $ 5,000*
Legal Fees and Expenses $ 8,000*
Miscellaneous Expenses $ 2,000*
Total $ 19,028.70*
* Estimated pursuant to Item 511 of Regulation S-K
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145 of the General Corporation Law of the State of Delaware
("GCL") provides for the indemnification of officers and directors under
certain circumstances against expenses incurred in successfully defending
against a claim and authorizes Delaware corporations to indemnify their
officers and directors under certain circumstances against expenses and
liabilities incurred in legal proceedings involving such persons because of
their being or having been an officer or director.
Section 102(b) of the GCL permits a corporation, by so providing in
its certificate of incorporation, to eliminate or limit director's
liability to the corporation and its shareholders for monetary damages
arising out of certain alleged breaches of their fiduciary duty. Section
102(b)(7) of the GCL provides that no such limitation of liability may
affect a director's liability with respect to any of the following: (i)
breaches of the director's duty of loyalty to the corporation or its
shareholders; (ii) acts or omissions not made in good faith or which
involve intentional misconduct of knowing violations of law; (iii)
liability for dividends paid or stock repurchased or redeemed in violation
of the GCL; or (iv) any transaction from which the director derived an
improper personal benefit. Section 102(b)(7) does not authorize any
limitation on the ability of the corporation or its shareholders to obtain
injunctive relief, specific performance or other equitable relief against
directors.
19
The registrant's Certificate of Incorporation and the registrant's
By-laws provide for indemnification to the fullest extent permitted or
authorized by the GCL or judicial or administrative decisions of each
person who was or is a party or threatened to be made a party, or was, or
is a witness, to any threatened pending or completed action, suit, or
proceeding against any liability or cost or expense asserted against him or
incurred by him by reason of the fact that he is or was a director, officer
or employee of the registrant or is or was an agent of the registrant to
whom the registrant has agreed to grant such indemnity or is serving or was
serving, at the registrant's request, as an officer , director or employee
of another entity or is serving as an agent of another entity to whom the
Corporation has agreed to grant indemnity. The foregoing right of
indemnification shall not be deemed to be exclusive of any other rights to
which those seeking indemnification may be entitled under any by-law,
agreement, vote of shareholders or disinterested directors, or otherwise.
The registrant's Certificate of Incorporation provides that no
director of the registrant shall be personally liable to the registrant or
its stockholders for any monetary damages for breaches of fiduciary duty as
a director, except for liability (i) for any breach of the director's duty
of loyalty to the registrant or its stockholders; (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a
knowing violation of law; (iii) under Section 174 of the GCL; or (iv) for
any transaction from which the director derived an improper personal
benefit.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and
controlling persons of the registrant pursuant to the foregoing provisions
or otherwise, the registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Securities Act and is, therefore, unenforceable.
ITEM 16. EXHIBITS.
5 Opinion of Gesmer Updegrove LLP
23.1 Consent of Carlin, Charron & Rosen, LLP
23.3 Consent of Gesmer Updegrove LLP (included in Exhibit 5)
24 Power of Attorney (included on the signature page of the
Registration Statement)
ITEM 17. UNDERTAKINGS
Undertaking Required by Regulation S-K, Item 512(a).
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this Registration Statement:
i. To include any prospectus required by Section 10(a)(3) of
the Securities Act of 1933, as amended (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;
iii. 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;
provided, however, that clauses (i) and (ii) do not apply if the
Registration Statement is on Form S-3, Form S-8 or Form F-3, and the
information required to be included in a post-effective amendment by such
clauses is contained in periodic reports filed with or furnished to the
Commission by the Registrant pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 that are incorporated by reference in the
Registration Statement;
(2) That, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment shall be deemed to be a
new registration statement relating to the
20
securities offered therein, and the offering 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.
Undertaking Required by Regulation S-K, Item 512(b).
The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act, each filing of the
registrant's annual report pursuant to Section 13(a) or 15(d) of the
Securities Exchange Act of 1934 that is incorporated by reference in the
registration statement 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 initial bona fide offering
thereof.
Undertaking required by Regulation S-K, Item 512(h).
Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers or controlling
persons 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.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it
meets all of the requirements for filing on Form S-3 and has duly caused
this registration statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of East Hartford, State of
Connecticut on the 22nd day of May, 2006.
Farmstead Telephone Group, Inc.
By: /s/ Jean-Marc Stiegemeier
-------------------------------------
Jean-Marc Stiegemeier
Chief Executive Officer and President
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints each of Jean-Marc Stiegemeier and
Robert G. LaVigne, or any of them, each acting alone, his true and lawful
attorney-in-fact and agent, with full power of substitution and re-
substitution, for such person and in his name, place and stead, in any and
all capacities, in connection with the Registrant's Registration Statement
on Form S-3 under the Securities Act of 1933, including to sign the
Registration Statement in the name and on behalf of the undersigned as a
director or officer of the Registrant and any and all amendments or
supplements thereto, including any and all stickers and post-effective
amendments thereto, and any and all additional registration statements
relating to the same offering of securities as those that are covered by
the Registration Statement that are filed pursuant to Rule 462(b) under the
Securities Act of 1933, and to file the same, with all exhibits thereto,
and all other documents in connection therewith, with the Securities and
Exchange Commission and any applicable securities exchange or securities
self-regulatory body, granting unto said attorneys-in-fact and agents, each
acting alone, full power and authority to do and perform each and every act
and thing requisite and necessary to be done in and about the premises, as
fully to all intents and purposes as he might or could do in person, hereby
ratifying and confirming all that said attorneys-in-fact and agents, or his
or their substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
21
Signature Title(s)
--------- --------
/s/ Jean-Marc Stiegemeier Chairman of the Board, President, Chief
---------------------------- Executive Officer and Director
Jean-Marc Stiegemeier (Principal Executive Officer)
Dated: May 22, 2006
/s/ Robert G. LaVigne Executive Vice President, Chief Financial
---------------------------- Officer, Secretary and Treasurer
Robert G. LaVigne (Principal Financial and Accounting
Officer)
Dated: May 22, 2006
/s/ George J. Taylor, Jr. Director
----------------------------
George J. Taylor, Jr.
Dated: May 22, 2006
/s/ Harold L. Hansen Director
----------------------------
Harold L. Hansen
Dated: May 22, 2006
/s/ Joseph J. Kelley Director
----------------------------
Joseph J. Kelley
Dated: May 22, 2006
/s/ Ronald P. Pettirossi Director
----------------------------
Ronald P. Pettirossi
Dated: May 22, 2006
/s/ Hugh M. Taylor Director
----------------------------
Hugh M. Taylor
Dated: May 22, 2006
22