As filed with the Securities and Exchange Commission on August 30, 1999
Registration No. 333-79407
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
______________________________
AMENDMENT NO. 5
TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
______________________________
WESTELL TECHNOLOGIES, INC.
(Exact name of registrant as specified in its charter)
______________________________
DELAWARE 3661 36-3154957
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) classification Code Number) Identification No.)
______________________________
750 NORTH COMMONS DRIVE
AURORA, ILLINOIS 60504
(630) 898-2500
(Address, including zip code, and telephone number, including area code,
of registrant's executive offices)
______________________________
ROBERT H. GAYNOR
CHIEF EXECUTIVE OFFICER
WESTELL TECHNOLOGIES, INC.
750 NORTH COMMONS DRIVE
AURORA, ILLINOIS 60504
(630) 898-2500
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
______________________________
Copies To:
NEAL J. WHITE, P.C.
McDermott, Will & Emery
227 West Monroe Street, Suite 3100
Chicago, Illinois 60606-5096
(312) 372-2000
______________________________
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: From time to
time after the effective date of this registration statement.
If the only securities being registered on this Form are being offered pursuant
to dividend or interest reinvestment plans, please check the following box. / /
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. /x/
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, please check the following box and list
the Securities Act registration statement number of the earlier effective
registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / / __________
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE
OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
<PAGE>
Information contained in this prospectus is not complete and may be
changed. The selling stockholders may not sell these securities under this
prospectus until the registration statement filed with the SEC is effective.
This prospectus is not an offer to buy these securities in any state where the
offer or sale is not permitted.
SUBJECT TO COMPLETION, DATED AUGUST 30, 1999
PROSPECTUS
8,500,000 SHARES
WESTELL TECHNOLOGIES, INC.
CLASS A COMMON STOCK
We have prepared this prospectus to allow the selling stockholders
identified in this prospectus to sell up to 8,500,000 shares of our class A
common stock.
Our class A common stock is quoted on the Nasdaq National Market under
the symbol "WSTL." On August _____, 1999, the closing sale price of the class A
common stock on the Nasdaq National Market was $_______ per share.
INVESTING IN OUR CLASS A COMMON STOCK INVOLVES A HIGH DEGREE OF RISK.
YOU SHOULD CONSIDER CAREFULLY THE RISK FACTORS BEGINNING ON PAGE 3 OF THIS
PROSPECTUS BEFORE MAKING A DECISION TO PURCHASE OUR CLASS A COMMON STOCK.
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 August __, 1999
<PAGE>
TABLE OF CONTENTS
Summary.........................................................2
Risk Factors....................................................3
Use of Proceeds................................................13
The Selling Stockholders.......................................13
Plan of Distribution...........................................17
About This Prospectus..........................................19
Where You Can Find More Information............................19
Experts........................................................19
SUMMARY
Because this is a summary, it does not contain all the information
about us that may be important to you. You should read the entire prospectus,
and the more detailed information and the financial statements and related notes
which are incorporated by reference in this prospectus.
Since 1980, Westell has developed telecommunications products that
address the needs of telephone companies to upgrade their existing network
infrastructures in order to deliver advanced data and voice services to their
customers. We design, manufacture, market and service a broad range of digital
and analog products used by telephone companies to deliver services primarily
over existing copper telephone wires that connect end users to a telephone
company's central office which are commonly referred to as the local loop or the
local access network. We also market our products and services to other
telecommunications and information service providers seeking direct access to
end user customers.
Traditionally, telephone companies have provided services using analog
transmission, which involves the transmission of wave signals that correspond to
the information being transmitted. Analog transmission, however, is unable to
provide the requisite volume, speed and reliability to support the growing
demands for services over telephone wires. In contrast, digital transmission
makes it possible to reduce all forms of images, sounds and data to simple
digital signals of ones and zeros and consequently permits high speed, high
volume and highly reliable data transmission. In the U. S., the digital
conversion of the analog network has been built on the format known as T-1. T-1
transmission utilizes a data rate that is 24 times faster than standard analog
transmission or a rate equal to 1.54 megabits per second. Further, T-1
transmission can be aggregated or subdivided into channels that can deliver data
transmission tailored to specific end user requirements.
Our products can be categorized into three groups:
o DSL products: products based on digital subscriber line or DSL
technologies. DSL technology allows the simultaneous transmission
of data at speeds up to 140 times faster than traditional analog
telephone service in one direction, or 8 megabits per second, and
up to 17 times faster than traditional analog telephone service
in the reverse direction, or 1 megabit per second, while also
providing traditional analog telephone service over a single pair
of copper wires at distances of up to 18,000 feet, depending on
the transmission rate.
o T-1 products: products used by telephone companies to enable high
speed digital transmission at rates that are called T-1 rates in
the U.S. and E-1 rates outside the U.S.; these rates are
approximately 24 times faster than traditional telephone service
using analog transmission; and
o Traditional products: products used by telephone companies to
deliver digital and analog services at traditional analog
transmission rates which are slower than the speeds permitted by
our T-1 and DSL products.
Conference Plus, Inc., our 88% owned subsidiary, provides audio, video,
and data conferencing services. Businesses and individuals use these services to
hold voice, video or data conferences with many people at the same time.
<PAGE>
Conference Plus sells its services directly to large customers, including
Fortune 100 companies and serves customers indirectly through its private
reseller program.
RECENT DEVELOPMENTS--ACCOUNTING CHANGES
We are currently offering DSL products based upon forward pricing,
which is the pricing of DSL products below production costs to take into account
the expectation of large future volumes and corresponding reductions in
manufacturing costs. Such pricing will cause us to incur losses on a substantial
portion of our DSL product sales unless and until we can reduce manufacturing
costs. Effective April 1, 1999, we began to recognize losses on forward priced
orders at the time of product shipment. Prior to April 1, 1999, these losses
were recognized at order acceptance. This accounting change was made to record
the loss on these sales when the title to the product transfers as opposed to
when the orders are received.
RISK FACTORS
You should carefully consider the following risk factors in addition to
the other information contained and incorporated by reference into this
prospectus before purchasing our stock.
WE MAY FACE OTHER RISKS NOT DESCRIBED IN THE FOREGOING RISK FACTORS WHICH MAY
IMPAIR OUR BUSINESS OPERATIONS.
The risks and uncertainties described in the foregoing risk factors may
not be the only ones facing us. Additional risks and uncertainties not presently
known to us may also impair our business operations. If any of the following
risks actually occur, our business, financial condition and results of
operations could be materially adversely affected. In this case, the trading
price of our common stock could decline, and you may lose all or part of your
investment.
WE HAVE INCURRED AND CONTINUE TO EXPECT LOSSES.
Due to our significant ongoing investment in DSL technology, which can
be used by telephone companies and other service providers to increase the
transmission speed and capacity of copper telephone wires, we have incurred and
anticipate that our losses may extend at least through each of our fiscal 2000
quarters. To date, we have incurred operating losses, net losses and negative
cash flow on both an annual and quarterly basis. For the year ended March 31,
1999, we had net losses of $35.0 million.
We believe that our future revenue growth and profitability will depend
on:
o creating sustainable DSL sales opportunities;
o developing new and enhanced T-1 products;
o developing other niche products for both DSL and T-1 markets; and
o growing our teleconference service revenues.
In addition, we expect to continue to evaluate new product opportunities and
engage in extensive research and development activities. As a result, we will
continue to invest heavily in research and development and sales and marketing,
which will adversely affect our short-term operating results. We can offer no
assurances that we will achieve profitability in the future.
WE DEPEND ON DSL MARKET ACCEPTANCE AND GROWTH FOR FUTURE SUCCESS.
We expect to continue to invest significant resources in the
development of DSL products. Because the DSL market is in its early stages, our
DSL revenues have been difficult to forecast. If the DSL market fails to grow or
grows more slowly than anticipated, then our business, revenues and operating
results would be materially adversely affected.
Our analog based and T-1 based products, such as our Network Interface
Units which provide maintenance capabilities for telephone lines providing T-1
transmission, are not expected to generate sufficient revenues or profits to
offset any losses that we may experience due to a lack of sales of DSL systems.
If we fail to generate significant revenues from DSL sales, then we would not be
able to implement our business goals and our business and operating results
would suffer significantly.
Customers have only recently begun to consider implementing DSL
products in their networks. We have shipped most of our DSL products for trials
and early deployment. Most of our customers are in initial service deployments
and are not contractually bound to purchase our DSL systems in the future. We
<PAGE>
are unable to predict whether these initial service deployments or other
technical or marketing trials will be successful and when significant commercial
deployment of our DSL products will begin, if at all. The timing of DSL orders
and shipments can significantly impact our revenues and operating results.
Even if our customers adopt policies favoring full-scale implementation
of DSL technology, our DSL-based sales may not become significant. There is no
guaranty that our customers will select our DSL products instead of competitive
products. If we fail to significantly increase our DSL sales, then our business,
operating results and financial condition will suffer.
PRICING PRESSURES ON OUR PRODUCTS MAY AFFECT OUR ABILITY TO BECOME PROFITABLE.
Due to competition in the DSL market, bids for recent field trials of
DSL products reflect:
o the forward pricing of DSL products below production costs to
take into account the expectation of large future volumes and
corresponding reductions in manufacturing costs; or
o suppliers providing DSL products at a lower price as part of a
sale of a package of products and/or services.
We are offering DSL products based upon forward pricing. Such pricing
will cause us to incur losses on a substantial portion of our DSL product sales
unless and until we can reduce manufacturing costs. For example, subsequent to
June 30, 1999, we received DSL orders priced below anticipated production costs.
We anticipate recognizing an estimated loss with respect to these orders of
$275,000 and $700,000 in the quarters ended September 30, 1999 and December 31,
1999, respectively. We believe that manufacturing costs may decrease when:
o more cost-effective transceiver technologies are available;
o product design efficiencies are obtained; and
o economies of scale are obtained related to increased volume.
There is no guaranty that we will be able to secure significant
additional orders and reduce per unit manufacturing costs that we have factored
into our forward pricing of DSL products. We could continue to incur losses in
connection with sales of DSL products even if our DSL unit volume increases.
Losses from our sales of DSL products could result in fluctuations in our
quarterly operating results and would materially and adversely affect our
ability to achieve profitability and implement our business goals.
Moreover, the International Telecommunication Union is expected to
announce a standard in late 1999 for a DSL product called G.Lite, which will
allow consumers to install DSL technology on their computers themselves. We
believe this announcement will increase competition in the DSL market and result
in greater pricing pressures with respect to all DSL products.
OUR QUARTERLY OPERATING RESULTS ARE LIKELY TO FLUCTUATE SIGNIFICANTLY AND SHOULD
NOT BE RELIED UPON AS INDICATIONS OF FUTURE PERFORMANCE.
We expect to continue to experience significant fluctuations in
quarterly operating results. Due to the factors set forth below and elsewhere
contained in "Risk Factors," sales to our largest customers have fluctuated and
are expected to fluctuate significantly between quarters. Sales to our customers
typically involve large purchase commitments, and customers purchasing our
products may generally reschedule or cancel orders without penalty. As a result,
our quarterly operating results have fluctuated significantly in the past three
fiscal years. Other factors that have had and may continue to influence our
quarterly operating results include:
o the impact of changes in the DSL customer mix or product mix
sold;
o timing of product introductions or enhancements by us or our
competitors;
o changes in operating expenses which can occur because of product
development costs, timing of customer reimbursements for research
and development, pricing pressures and other reasons;
<PAGE>
o write-offs for obsolete inventory; and
o the other risks that are contained in this "Risk Factors"
section.
Due to our fluctuations in quarterly results, we believe that period-to-period
comparisons of our quarterly operating results are not necessarily meaningful.
Our quarterly fluctuations make it more difficult to forecast our revenues. It
is likely that in some future quarters our operating results will be below the
expectations of securities analysts and investors, which may adversely affect
our stock price. This occurred in fiscal 1999. We attempt to address this
possible divergence through our public announcements and reports. The degree of
specificity we can offer in such announcements, however, and the likelihood that
any forward-looking statements we make will prove correct, can and will vary. As
long as we continue to depend on DSL and new products, there is substantial risk
of widely varying quarterly results, including the so-called "missed quarter"
relative to investor expectations.
EVOLVING INDUSTRY STANDARDS MAY ADVERSELY AFFECT OUR DSL SALES
Industry wide standardization organizations such as the American
National Standards Institute and the European Telecommunications Standards
Institute are responsible for setting transceiver technology standards for DSL
products. Because we have not internally developed a transceiver technology for
our products, we are dependent on transceiver technologies from third parties.
Absent the proper relationships with key transceiver technology vendors, our
products may not comply with the developing standards for DSL. If customers
require standards-based products that require transceiver technologies not
available to us under reasonable terms, then our DSL revenues would
significantly decrease and our business and operating results would materially
suffer.
We will continue to rely on third party suppliers for access to
transceiver technologies for new DSL products such as the DSL product under
development called G.Lite, which will allow consumers to install DSL technology
on their computers themselves. Since standards have not been established for
G.Lite products, there can be no assurance that standards-compliant transceiver
technologies will be available to us in a timely manner for the purpose of
product development.
In addition, the introduction of competing standards or implementation
specifications could result in confusion in the market and delay any decisions
regarding deployment of DSL systems. For example, the anticipated announcement
of G.Lite standard could also delay our customer's deployment of other DSL
products. Delay in the announcement of standards would materially and adversely
impact sales of our DSL product offerings and could have a material adverse
effect on our business and operating results.
OUR PRODUCTS FACE COMPETITION FROM OTHER EXISTING PRODUCTS, PRODUCTS UNDER
DEVELOPMENT AND CHANGING TECHNOLOGY, AND WE MUST DEVELOP NEW COMMERCIALLY
SUCCESSFUL PRODUCTS TO ACHIEVE OUR BUSINESS GOALS AND GENERATE REVENUE.
The markets for our products are characterized by:
o intense competition,
o rapid technological advances,
o evolving industry standards,
o changes in end-user requirements,
o frequent new product introductions and enhancements, and
o evolving telephone company service offerings.
New products introductions or changes in telephone company services
could render our existing products and products under development obsolete and
unmarketable. For example, High Bit-Rate DSL, a product that enhances the signal
quality of the transmission over copper wire, may reduce the demand for the
types of products that we currently manufacture such as our Network Interface
Units product, which provide performance monitoring of copper telephone wires.
Our Network Interface Units accounted for at least 50% of our revenues in each
of the last three fiscal years. Further, the demand for many of our traditional
analog products is decreasing, and will likely continue to decrease, as high
capacity digital transmission becomes less expensive and more widely deployed.
<PAGE>
There can be no assurance that we will have the financial and manufacturing
resources necessary to continue to successfully develop new products or to
otherwise successfully respond to changing technology standards and telephone
company service offerings. Our future success will largely depend upon our
ability to continue to enhance our existing products and to successfully develop
and market new products on a cost-effective and timely basis.
Our current product offerings apply primarily to the delivery of
digital communications over copper wire in the local access network. We expect
that the increasing deployment of fiber and wireless broadband transmission in
the local access network will reduce the demand for our existing products.
Telephone companies also face competition from cable operators, new local access
providers and wireless service providers that are capable of providing high
speed digital transmission to end-users. If telephone companies decide not to
aggressively respond to this competition and fail to offer high speed digital
transmission, then the overall demand for DSL products will decline.
Consequently, to remain competitive we must develop new products to meet the
demands of these emerging transmission media and new local access network
providers.
If our products become obsolete or fail to gain widespread commercial
acceptance due to competing products and technologies, then our product revenues
would significantly decrease and our business and operating results will be
materially adversely affected.
WE MAY EXPERIENCE DELAYS IN THE DEPLOYMENT OF NEW PRODUCTS.
Our past sales have resulted from our ability to anticipate changes in
technology, industry standards and telephone company service offerings, and to
develop and introduce new and enhanced products and services. Our continued
ability to adapt to such changes will be a significant factor in maintaining or
improving our competitive position and our prospects for growth. Factors
resulting in delays in product development include:
o rapid technological changes in the telecommunications industry;
o the Regional Bell Operating Companies' lengthy product approval
and purchase processes; and
o our reliance on third-party technology for the development of new
products.
There can be no assurance that we will successfully introduce new products on a
timely basis or achieve sales of new products in the future. If we fail to
deploy new products on a timely basis, then our product sales will decrease, our
quarterly operating results could fluctuate, and our competitive position and
financial condition would be materially and adversely affected.
THE TELECOMMUNICATIONS INDUSTRY IS A HIGHLY COMPETITIVE AND THIS COMPETITION MAY
RESULT IN OPERATING LOSSES, A DECREASE IN OUR MARKET SHARE AND FLUCTUATIONS IN
OUR REVENUE.
We expect competition to increase in the future especially in the
emerging DSL market. Because we are significantly smaller than most of our
competitors, we may lack the financial resources needed to increase our market
share. Many of our competitors, such as Ericsson, Cisco, Lucent Technologies,
Nortel and 3Com, are much larger than us and can offer a wide array of different
products and services that are required for all of a telephone company's
business. Conversely, our products are used to enhance transmission from the
telephone company's central office to the end user, which is just one element of
a telephone company's network. Our inability to form successful alliances
through which we can market our products and develop systems that meet customer
requirements will affect our ability to successfully compete in the DSL market
which would materially adversely affect our business and operating results.
We expect continued aggressive tactics from many of our competitors
such as:
o Forward pricing of products;
o Early announcements of competing products;
o Bids that bundle DSL products with other product offerings;
o Customer financing assistance; and
<PAGE>
o Intellectual property disputes.
These tactics can be particularly effective in a highly concentrated customer
base such as ours. In addition, the development of the G.Lite DSL product could
enable other companies with less technological expertise than us to more readily
enter the DSL market and could place additional pricing pressures on our other
DSL products.
In addition, under the Telecommunications Act, the Regional Bell
Operating Companies may engage in manufacturing activities. So our largest
customers may potentially become our competitors as well.
THE FAILURE TO MAINTAIN AND FURTHER DEVELOP PARTNERS AND ALLIANCES WOULD
ADVERSELY AFFECT OUR BUSINESS.
Instead of directly competing with large telecommunications equipment
suppliers, we have begun to develop and maintain partnerships and alliances with
other companies in order to secure complementary technologies, to lower costs,
and to better market and sell our products. These partnerships and alliances
provide important resources and channels for us to compete successfully. Some of
our partnerships provide us with third party technology that we rely on to
manufacture our products. In addition, instead of directly competing with large
suppliers such as Lucent Technologies and Fujitsu in the DSL market, we have
entered into alliances with these companies to offer our products within a
package of products sold by these companies to telephone companies. We cannot
provide any assurances that these partnerships will continue in the future. As
competition increases in the DSL market, these alliances will become even more
important to us. A loss of one or more partnerships and alliances could affect
our ability to sell our products and therefore could materially adversely affect
our business and operating results.
CONFERENCE PLUS'S LARGE COMPETITORS COULD ADVERSELY AFFECT CONFERENCE PLUS'S
ABILITY TO MAINTAIN OR INCREASE ITS MARKET SHARE.
Conference Plus participates in the highly competitive industry of
voice, video, and multimedia conferencing services. Competitors include
stand-alone conferencing companies and major telecommunications providers. In
addition, internet service providers may attempt to expand their revenue base by
providing conferencing services. Conference Plus's ability to sustain growth and
performance is dependent on its:
o maintenance of high quality standards and low cost position;
o international expansion; and
o evolving technological capability.
Any increase in competition could reduce our gross margin, require increased
spending on research and development and sales and marketing, and otherwise
materially adversely affect our business and operating results.
OUR LACK OF BACKLOG MAY AFFECT OUR ABILITY TO ADJUST TO AN UNEXPECTED SHORTFALL
IN ORDERS.
Because we generally ship products within a short period after receipt
of an order, we typically do not have a material backlog of unfilled orders, and
our revenues in any quarter are substantially dependent on orders booked in that
quarter. Our expense levels are based in large part on anticipated future
revenues and are relatively fixed in the short-term. Therefore, we may be unable
to adjust spending in a timely manner to compensate for any unexpected shortfall
of orders. Accordingly, any significant shortfall of demand in relation to our
expectations or any material delay of customer orders would adversely affect our
quarterly operating results and have an immediate adverse impact on our business
and operating results.
INDUSTRY CONSOLIDATION COULD MAKE COMPETING MORE DIFFICULT.
Consolidation of companies offering high speed telecommunications
products is occurring through acquisitions, joint ventures and licensing
arrangements involving our competitors, our customers and our customers'
competitors. We cannot provide any assurances that we will be able to compete
<PAGE>
successfully in an increasingly consolidated telecommunications industry. Any
heightened competitive pressures that we may face may have a material adverse
effect on our business, prospects, financial condition and result of operations.
WE DEPEND ON A LIMITED NUMBER OF CUSTOMERS WHO ARE ABLE TO EXERT A HIGH DEGREE
OF INFLUENCE OVER US.
We have and will continue to depend on the large Regional Bell
Operating Companies, those companies emerging from the break-up of AT&T, as well
as on other telephone carriers including smaller local telephone carriers and
new alternative telephone carriers such as Qwest, for substantially all of our
revenues. Sales to the Regional Bell Operating Companies accounted for 61.9%,
51.1% and 46.6% of our revenues in fiscal 1997, 1998 and 1999, respectively.
Consequently, our future success will depend significantly upon:
o the timeliness and size of future purchase orders from the
Regional Bell Operating Companies;
o the product requirements of the Regional Bell Operating
Companies;
o the financial and operating success of the Regional Bell
Operating Companies; and
o the success of the Regional Bell Operating Companies' services
that use our products.
The Regional Bell Operating Companies and our other customers are significantly
larger than we are and are able to exert a high degree of influence over us.
Customers purchasing our products may generally reschedule orders without
penalty to the customer. Even if demand for our products is high, the Regional
Bell Operating Companies have sufficient bargaining power to demand low prices
and other terms and conditions that may materially adversely affect our business
and operating results.
Any attempt by a Regional Bell Operating Company or our other customers
to seek out additional or alternative suppliers or to undertake the internal
production of products would have a material adverse effect on our business and
operating results. The loss of any or our customer could result in an immediate
decrease in product sales and materially and adversely affect our business.
Conference Plus's customer base is very concentrated as its top ten
customers represent a large portion of revenue. Customers of Conference Plus
have expanded their requirements for our services, but there can be no assurance
that such expansion will increase in the future. Additionally, Conference Plus's
customers continually undergo review and evaluation of their conferencing
services to evaluate the merits of bringing those services in-house rather than
outsourcing those services. There can be no assurance in the future that
Conference Plus's customers will bring some portion or all of their conferencing
services in-house. Conference Plus must continually provide higher quality,
lower cost services to provide maintain and grow their customer base. Any loss
of a major account, would have a material adverse effect on Conference Plus. In
addition, any merger or acquisition of a major customer could have a material
adverse effect on Conference Plus.
OUR CUSTOMERS HAVE LENGTHY PURCHASE CYCLES WHICH AFFECT OUR ABILITY TO SELL OUR
PRODUCTS.
Prior to selling products to telephone companies, we must undergo
lengthy approval and purchase processes. Evaluation can take as little as a few
months for products that vary slightly from existing products or up to a year or
more for products based on new technologies such as DSL products. Accordingly,
we are continually submitting successive generations of our current products as
well as new products to our customers for approval. The length of the approval
process can vary and is affected by a number of factors, including the:
o complexity of the product involved,
o priorities of telephone companies,
o telephone companies' budgets, and
o regulatory issues affecting telephone companies.
The requirement that telephone companies obtain FCC approval for most new
telephone company services prior to their implementation has in the past delayed
the approval process. Such delays in the future could have a material adverse
affect on our business and operating results. While we have been successful in
<PAGE>
the past in obtaining product approvals from our customers, there is no guaranty
that such approvals or that ensuing sales of such products will continue to
occur.
WE ARE DEPENDENT ON THIRD PARTY TECHNOLOGY AND WE WOULD NOT BE ABLE TO COMPETE
WITHOUT THIRD PARTY TECHNOLOGY.
Many of our products incorporate technology developed and owned by
third parties. Consequently, we must rely upon third parties to develop and
introduce technologies which enhance our current products and to develop new
products. Any impairment or termination of our relationship with any licensors
of technology would force us to find other developers on a timely basis or
develop our own technology. There is no guaranty that we will be able to obtain
the third-party technology necessary to continue to develop and introduce new
and enhanced products, that we will obtain third-party technology on
commercially reasonable terms or that we will be able to replace third-party
technology in the event such technology becomes unavailable, obsolete or
incompatible with future versions of our products. We would have severe
difficulty competing if we cannot obtain or replace the third-party technology
used in our products. Any absence or delay would materially adversely affect our
business and operating results.
For example, our ability to produce DSL products is dependent upon
third party transceiver technologies. Our licenses for DSL transceiver
technology are nonexclusive and the transceiver technologies either have been
licensed to numerous other manufacturers or do not require a license to acquire.
If our DSL transceiver licensors fail to deliver implementable or standards
compliant transceiver solutions to us and other alternative sources of DSL
transceiver technologies are not available to us at commercially acceptable
terms, then our business and operating results would be materially and adversely
affected.
WE ARE DEPENDENT ON SOLE OR LIMITED SOURCE SUPPLIERS AND COULD NOT SELL OUR
PRODUCTS WITHOUT THESE SUPPLIERS.
Integrated circuits and other electronic components used in our
products are currently available from only one source or a limited number of
suppliers. For example, we currently depend on GlobeSpan Technologies, Alcatel
and Analog Devices, Inc. to provide critical integrated transceiver circuits
used in the Company's DSL products. In addition, some of the electronic
components used in our products are currently in short supply and are provided
on an allocation basis to us and other users based upon past usage. There is no
guaranty that we will be able to continue to obtain sufficient quantities of
integrated circuits or other electronic components as required, or that such
components, if obtained, will be available to us on commercially reasonable
terms. Integrated transceiver circuits and electronic components are key
components in all of our products and are fundamental to our business strategy
of developing new and succeeding generations of products at reduced unit costs
without compromising functionality or serviceability. In the past we have
experienced delays in the receipt of key components which have resulted in
delays in related product deliveries. We anticipate that integrated circuit
production capacity and availability of some electronic components may be
insufficient to meet the demand for such components in the future. The inability
to obtain sufficient key components or to develop alternative sources for such
components as required, could result in delays or reductions in product
shipments, and consequently have a material adverse effect on our customer
relationships and our business and operating results.
OUR SERVICES ARE AFFECTED BY UNCERTAIN GOVERNMENT REGULATION AND CHANGES IN
CURRENT OR FUTURE LAWS OR REGULATIONS COULD RESTRICT THE WAY WE OPERATE OUR
BUSINESS.
Many of our customers are subject to regulation from federal and state
agencies, including the FCC and various state public utility and service
commissions. While such regulation does not affect us directly, the effects of
such regulations on our customers may adversely impact our business and
operating results. For example, FCC regulatory policies affecting the
availability of telephone company services and other terms on which telephone
companies conduct their business may impede our penetration of local access
markets. The Telecommunications Act lifted certain restrictions on telephone
companies' ability to provide interactive multimedia services. Rules to
implement these new statutory provisions are now being considered by the FCC.
While the statutory and regulatory framework for telephone companies providing
multimedia services has become more favorable, it is uncertain at this time how
this will affect telephone companies' demand for products based upon DSL
technology. In addition, our business and operating results may also be
<PAGE>
adversely affected by the imposition of tariffs, duties and other import
restrictions on components that we obtain from non-domestic suppliers or by the
imposition of export restrictions on products that we sell internationally.
Internationally, governments of the United Kingdom, Canada, Australia and
numerous other countries actively promote and create competition in the
telecommunications industry. Changes in current or future laws or regulations,
in the U.S. or elsewhere, could materially and adversely affect our business and
operating results.
In addition, the Telecommunications Act permits the Regional Bell
Operating Companies to engage in manufacturing activities after the FCC
authorizes a Regional Bell Operating Company to provide long distance services
within its service territory. A Regional Bell Operating Company must first meet
specific statutory and regulatory tests demonstrating that its monopoly market
for local telephone services is open to competition before it will be permitted
to enter the long distance market. When these tests are met, a Regional Bell
Operating Company will be permitted to engage in manufacturing activities and
the Regional Bell Operating Companies, which are our largest customers, may
become our competitors as well.
POTENTIAL PRODUCT RECALLS AND WARRANTY EXPENSES COULD ADVERSELY AFFECT OUR
ABILITY TO BECOME PROFITABLE.
Our products are required to meet rigorous standards imposed by our
customers. Most of our products carry a limited warranty ranging from one to
seven years. In addition, our supply contracts with our major customers
typically require us to accept returns of products or indemnify such customers
against certain liabilities arising out of the use of our products. Complex
products such as those offered by us may contain undetected errors or failures
when first introduced or as new versions are released. Because we rely on new
product development to remain competitive, we cannot predict the level of these
type of claims that we will experience in the future. Despite our testing of
products and our comprehensive quality control program, there is no guaranty
that our products will not suffer from defects or other deficiencies or that we
will not experience material product recalls, product returns, warranty claims
or indemnification claims in the future. Such recalls, returns or claims and the
associated negative publicity could result in the loss of or delay in market
acceptance of our products, affect our product sales, our relationships with
customers, and our ability to generate a profit
OUR INTERNATIONAL OPERATIONS EXPOSE US TO THE RISKS OF CONDUCTING BUSINESS
OUTSIDE THE UNITED STATES.
International revenues represented 5.5%, 9.9% and 9.1% of our revenues
in fiscal 1997, 1998 and 1999, respectively. The Company also has a relationship
with Fujitsu Telecom Europe, Ltd. for the supply of DSL equipment to British
Telecom. Because Conference Plus has expanded its conference call business in
Europe by opening new offices in Dublin, Ireland, we believe that our exposure
to international risks may increase in the future. These risks include:
o foreign currency fluctuations
o tariffs, taxes and trade barriers,
o difficulty in accounts receivable collection,
o political unrest, and
o burdens of complying with a variety of foreign laws and
telecommunications standards.
The occurrence of any of these risks would impact our ability to increase our
revenue and become profitable, or could require us to modify significantly our
current business practices.
OUR FAILURE TO MANAGE OUR GROWTH EFFECTIVELY COULD IMPAIR OUR ABILITY TO SUPPLY
AND SUPPORT THE MANUFACTURE OF LARGE VOLUMES OF DSL PRODUCTS.
We are in the process of planning for the manufacturing capabilities
necessary to supply and support large volumes of DSL products and in the future
may become increasingly dependent on subcontractors. Reliance on third-party
subcontractors involves several risks, including the potential absence of
adequate capacity and reduced control over product quality, delivery schedules,
manufacturing yields and costs. Although we believe that alternative
subcontractors or sources could be developed if necessary, the use of
<PAGE>
subcontractors could result in material delays or interruption of supply as a
consequence of required re-tooling, retraining and other activities related to
establishing and developing a new subcontractor or supplier relationship. Any
material delays or difficulties in connection with increased manufacturing
production or the use of subcontractors could have a material adverse effect on
our business and operating results. Our failure to effectively manage our growth
would have a material adverse effect on our business and operating results.
THE CLASS A COMMON STOCK ISSUABLE UPON CONVERSION OF OUR CONVERTIBLE DEBENTURES
MAY SIGNIFICANTLY INCREASE THE SUPPLY OF OUR CLASS A COMMON STOCK IN THE PUBLIC
MARKET, WHICH MAY CAUSE OUR STOCK PRICE TO DECLINE.
On April 16, 1999, we issued $20,000,000 aggregate principal amount of
convertible debentures and warrants to purchase 909,091 shares of Class A Common
Stock. Currently, the convertible debentures are convertible into 3,138,731
shares of class A common stock which upon issuance would represent 7.9% of the
outstanding common stock, 18.8% of the outstanding class A common stock and 3.2%
of our voting power.
The convertible debentures are convertible into a number of shares of
class A common stock as is determined by dividing the principal amount of the
convertible debentures by the lesser of:
o a variable conversion price which is initially $6.372 per share,
but will be increased under the terms of the convertible
debentures; and
o the floating market price of our class A common stock at the time
of conversion, except that the market price can be imposed only
under specific conditions.
The number of shares of class A common stock that may ultimately be issued upon
conversion is presently indeterminable and could fluctuate significantly.
Purchasers of class A common stock could therefore experience substantial
dilution upon conversion of the convertible debentures. To illustrate the
potential dilution that may occur upon conversion of the convertible debentures,
the following table sets forth the number of shares of class A common stock that
are convertible from the convertible debentures if the conversion price is
$6.372, which is the initial conversion price, $4 and $2 per share.
<TABLE>
SHARES ISSUABLE FROM
CONVERTIBLE DEBENTURES PERCENTAGE OWNERSHIP OF PERCENTAGE OWNERSHIP OF
CONVERSION PRICE AND WARRANTS CLASS A COMMON STOCK TOTAL VOTING POWER
---------------- --------------------- ----------------------- ------------------------
<S> <C> <C> <C>
$6.372 (the initial conversion price) 4,047,822 18.8% 4.1%
$4.00 5,909,091 25.3% 5.9%
$2.00 10,909,091 38.5% 10.4%
</TABLE>
The variable conversion price formula could affect the class A common stock as
follows:
o If our class A common stock trades at a price less than the variable
conversion price, which is initially $6.372 per share, then the convertible
debentures will be convertible into shares of our class A common stock at
variable rates based on future trading prices of the class A common stock
and events that may occur in the future. The number of shares of class
A common stock issuable upon conversion of the convertible debentures will
be inversely proportional to the market price of the class A common stock
at the time of conversion.
o To the extent that the holders of the convertible debentures convert and
then sell their class A common stock, the class A common stock price may
decrease due to the additional shares in the market, allowing holders to
convert the convertible debentures into greater amounts of class A common
stock, further depressing the stock price.
o The dividends payable on the convertible debentures may be paid in cash,
additional convertible debentures or class A common stock at our option. In
this regard, the lower the class A common stock price, the more shares of
class A common stock the holders of the convertible debentures will receive
in payment of dividends.
o The significant downward pressure on the price of the class A common stock
as the selling stockholders convert and sell material amounts of class A
common stock could encourage short sales by the holders or others, placing
further downward pressure on the price of the class A common stock.
<PAGE>
The warrants are also subject to anti-dilution protection, which may
result in the issuance of more shares than originally anticipated if we issue
securities at less than market value or the applicable exercise price. These
factors may result in substantial future dilution to the holders of our class A
common stock.
WE WILL NOT BE ABLE TO SUCCESSFULLY COMPETE, DEVELOP AND SELL NEW PRODUCTS IF WE
FAIL TO RETAIN KEY PERSONNEL AND HIRE ADDITIONAL KEY PERSONNEL.
Because of our need to continually evolve our business with new product
developments and strategies, our success is dependent, in part, on our ability
to attract and retain qualified technical, marketing, sales and management
personnel. To remain competitive in the telecommunications industry, we must
maintain top management talent, employees who are involved in the development
and testing of new products, and employees who have developed important
relationships with key customers. Because of the high demand to these types of
key employees, especially in the DSL market, it is difficult to retain existing
key employees and attract new key employees. While most of our executive
officers, have severance agreements in which the officers agreed not to compete
with us and not to solicit any of our employees for a period of one year after
termination of the officer's employment in most circumstances, we do not have
similar noncompetition and nonsolicitation agreements for other employees who
are important in our product development and sales. Our inability to attract and
retain additional key employees or the loss of one or more of our current key
employees could materially adversely affect our ability to successfully develop
new products and implement our strategy.
WE RELY ON OUR INTELLECTUAL PROPERTY WHICH WE MAY BE UNABLE TO PROTECT, OR WE
MAY BE FOUND TO INFRINGE THE RIGHTS OF OTHERS.
Our success will depend, in part, on our ability to protect trade
secrets, obtain or license patents and operate without infringing on the rights
of others. Although we regard our technology as proprietary, we have only one
patent on such technology related to our Network Interface Units. We expect to
seek additional patents from time to time related to our research and
development activities. We rely on a combination of technical leadership, trade
secrets, copyright and trademark law and nondisclosure agreements to protect our
unpatented proprietary know-how. These measures, however, may not provide
meaningful protection for our trade secrets or other proprietary information.
Moreover, our business and operating results may be materially adversely
affected by competitors who independently develop substantially equivalent
technology. In addition, the laws of some foreign countries do not protect our
proprietary rights to the same extent as U.S. law. The telecommunications
industry is also characterized by the existence of an increasing number of
patents and frequent litigation based on allegations of patent and other
intellectual property infringement. From time to time we receive communications
from third parties alleging infringement of exclusive patent, copyright and
other intellectual property rights to technologies that are important to us.
There is no guaranty that third parties will not assert infringement claims
against us in the future, that assertions by such parties will not result in
costly litigation, or that we would prevail in any such litigation or be able to
license any valid and infringed patents from third parties on commercially
reasonable terms. Further, such litigation, regardless of its outcome, could
result in substantial costs to and diversion of our efforts. Any infringement
claim or other litigation against or by us could have a material adverse effect
on our business and operating results.
OUR STOCK PRICE IS VOLATILE WHICH MAY AFFECT YOUR ABILITY TO REALIZE A PROFIT
WHEN PURCHASING OUR STOCK.
Our class A common stock price has experienced substantial volatility
in the past and is likely to remain volatile in the future due to factors such
as:
o Our historical and anticipated quarterly and annual operating
results;
o Variations between our actual results and analyst and investor
expectations;
o Announcements by us or others and developments affecting our
business;
o Investor perceptions of our company and comparable public
companies; and
o Conditions and trends in the data communications and
Internet-related industries.
<PAGE>
In particular, the stock market has from time to time experienced significant
price and volume fluctuations affecting the common stocks of technology
companies, which may include telecommunications manufacturers like Westell.
Volatility can also arise as a result of the activities of short sellers and
risk arbitrageurs regardless of our performance. This volatility may result in a
material decline in the market price of our class A common stock, and may have
little relationship to our financial results or prospects.
WE WILL NEED ADDITIONAL FINANCING IF WE DO NOT MEET OUR BUSINESS PLAN OR WE WILL
NOT BE ABLE TO FUND OUR OPERATIONS.
We must continue to enhance and expand our product and service
offerings in order to maintain our competitive position and increase our market
share. As a result and due to our net losses, the continuing operations of our
business may require substantial capital infusions. Whether or when we can
achieve cash flow levels sufficient to support our operations cannot be
accurately predicted. Unless such cash flow levels are achieved, we may require
additional borrowings or need to sell additional debt or equity securities, or
some combination thereof, to provide funding for our operations. In April 1999,
we completed a private placement of convertible debentures and warrants for $20
million to fund our operations. If we cannot generate sufficient cash flow from
our operations, or are unable to borrow or otherwise obtain additional funds to
finance our operations when needed, then we would not be able to operate our
business. Under the terms of the sale of the convertible debentures and
warrants, in most circumstances, we are not permitted to issue any equity
securities or any equity-like securities until October 11, 1999.
OUR PRINCIPAL STOCKHOLDERS CAN EXERCISE SIGNIFICANT INFLUENCE OVER US WHICH
COULD DISCOURAGE TRANSACTIONS INVOLVING A CHANGE OF CONTROL OF WESTELL AND MAY
AFFECT YOUR ABILITY TO RECEIVE A PREMIUM FOR CLASS A COMMON STOCK THAT YOU
PURCHASE.
At March 31, 1999, as trustees of a voting trust containing common
stock held for the benefit of the Penny family and the Simon family, Robert C.
Penny III and Melvin J. Simon have the exclusive power to vote over 75% of the
votes entitled to be cast by the holders of our common stock. In addition, all
members of the Penny family who are beneficiaries under this voting trust are
parties to a stock transfer restriction agreement which prohibits the
beneficiaries from transferring any class B common stock or their beneficial
interests in the voting trust without first offering such class B common stock
to the other Penny family members. Consequently, Westell is effectively under
the control of Messrs. Penny and Simon, as trustees, who have sufficient voting
power to elect all of the directors and to determine the outcome of most
corporate transactions or other matters submitted to the stockholders for
approval. Such control may have the effect of discouraging transactions
involving an actual or potential change of control of Westell, including
transactions in which the holders of class B common stock might otherwise
receive a premium for their shares over the then-current market price.
IF WE DO NOT ADEQUATELY ADDRESS YEAR 2000 ISSUES, WE MAY INCUR SIGNIFICANT COSTS
AND OUR BUSINESS COULD SUFFER.
The Year 2000 issue is the result of computer programs being written
using two digits rather than four to define the applicable year. As a result,
our computer programs that have date-sensitive software and software of
companies into which our network is interconnected may recognize a date using
"00" as the year 1900 rather than the year 2000. This could result in system
failures or miscalculations causing disruptions of operations, including, among
other things, a temporary inability to process transactions, send invoices or
engage in similar normal business activities. If the system of other companies
on whose services we depend or with whom our systems interconnect are not year
2000 compliant, it could have a material adverse effect on our business,
prospects, financial condition and operating results. The year 2000 issue is
discussed at greater length in the SEC documents that are incorporated by
reference into this prospectus.
USE OF PROCEEDS
We will not receive any proceeds from the sale of the class A common
stock by the selling stockholders.
<PAGE>
THE SELLING STOCKHOLDERS
The class A common stock covered by this prospectus consists of shares
issued or issuable upon conversion of our $20,000,000 aggregate principal amount
of 6% Subordinated Secured Convertible Debentures due April 15, 2004 and
warrants to purchase 909,091 shares of our class A common stock.
The number of shares that may be actually sold by each selling
stockholder will be determined by such selling stockholder. Because each selling
stockholder may sell all, some or none of the shares of class A common stock
which it holds, and because the offering contemplated by this prospectus is not
currently being underwritten, no estimate can be given as to the number of
shares of class A common stock that will be held by the selling stockholders
upon termination of the offering.
The following table sets forth certain information regarding the
selling stockholders, including:
o the name of each selling stockholder,
o the beneficial ownership of class A common stock of each selling
stockholder as of July 31, 1999, and
o the maximum number of shares of class A common stock offered by
each selling stockholder.
The information presented is based on data furnished to the Company by the
selling stockholders and assumes a conversion price of $6.372 per share. The
actual number of shares of class A common stock issuable upon conversion of the
convertible debentures is indeterminate, and is subject to adjustment and could
be materially less or more than the amounts set forth in the table below
depending on factors which we cannot predict at this time, including, among
other factors, the future market price of the class A common stock.
The shares of class A common stock included in the table below
represent a good faith estimate of the number of shares of class A common stock
that will become issuable upon conversion of the convertible debentures. Under
the registration rights agreement, we are required to register for resale by the
selling shareholders 8,500,000 shares of our Class A common stock. This amount
is based upon:
o the number of shares convertible from the convertible debentures
and exercisable with respect to the warrants, and
o the increased number of shares issuable with respect to the
convertible debentures if the conversion price declines.
If the warrants were exercised in full and all of the convertible debentures
were converted at the conversion price of $6.372 per share, only 4,047,823
shares of class A common stock would be issued and available for resale under
this prospectus. However, we cannot determine the exact number of shares of
Class A common stock that we will ultimately issue upon exercise of the warrants
and conversion of the convertible debentures if anti-dilution adjustments occur
with respect to the warrants or the conversion price for the convertible
debentures changes from the current conversion price.
Pursuant to their terms, the convertible debentures and warrants are
convertible by any holder only to the extent that the number of shares thereby
issuable, together with the number of shares of class A common stock owned by
such holder, but not including unconverted shares of convertible debentures or
warrants, would not exceed 4.9% of the then outstanding class A common stock as
determined in accordance with Section 13(d) of the Securities Exchange Act of
1934, unless such conversion is approved by the majority of the holders of class
A common stock. Accordingly, the number of shares of class A common stock set
forth in the third through fifth columns in the table below for each selling
stockholder exceeds the number of shares of class A common stock that the
selling stockholder beneficially owns as of July 31, 1999. This 4.9% limit may
not prevent any holder from converting all of its convertible debentures or
exercising its warrants, because the holder can convert or exercise convertible
debentures and warrants into 4.9% of the outstanding class A common stock, then
sell all of that stock to permit it to engage in further conversions or
exercises. As a result, the 4.9% limit does not prevent any selling stockholder
from selling more than 4.9% of our class A common stock.
<PAGE>
<TABLE>
SHARES OF CLASS A COMMON STOCK
OWNED IF ALL ACQUISITION RIGHTS ARE
SHARES OF CLASS A COMMON STOCK EXERCISED ASSUMING THE 4.9%
BENEFICIALLY OWNED PRIOR TO OWNERSHIP
OFFERING LIMITATION IS NOT IN EFFECT
-------------------------------- -----------------------------------
% OF % OF % OF % OF % OF % OF
CLASS A TOTAL CLASS A TOTAL SHARES CLASS A TOTAL
COMMON VOTING COMMON VOTING BEING COMMON VOTING
NUMBER STOCK POWER NUMBER STOCK POWER OFFERED STOCK POWER
------ ----- ----- ------ ----- ----- ------- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Castle Creek Technology Partners,
LLC (1)...................................899,577 4.9% * 1,821,519 9.4% 1.9% 3,825,000 18.0% 3.9%
Marshall Capital Management, Inc (2)......899,577 4.9% * 1,214,346 6.5% 1.3% 2,550,000 12.7% 2.6%
Capital Ventures International (3)........899,577 4.9% * 1,011,954 5.5% 1.1% 2,125,000 10.9% 2.2%
- ---------------------
*Less than 1%
(1) Castle Creek Technology Partners, LLC beneficially owns 899,577
shares, determined in accordance with Rule 13d-3, and disclaims
beneficial ownership of any shares other than these 899,577
shares. As investment manager, pursuant to a management agreement
with Castle Creek Technology Partners LLC, Castle Creek Partners,
LLC may be deemed to beneficially own the securities held by
Castle Creek Technology Partners LLC. Castle Creek Partners, LLC
disclaims such beneficial ownership. John Ziegelman and Daniel
Asher, as managing members of Castle Creek Partners, LLC, may be
deemed to be beneficial owners of such securities. Messrs. Asher
and Ziegelman disclaim such beneficial ownership.
(2) Marshall Capital Management, Inc. is a subsidiary of CF
FirstBoston. Marshall Capital Management, Inc. disclaims
beneficial ownership of any shares other than 899,577 shares.
(3) Heights Capital Management, Inc., the investment manager for
Capital Ventures International, has voting control and investment
discretion over the transactions by Capital Ventures
International. Heights Capital Management, Inc. disclaims
beneficial ownership of any shares other than 899,577 shares.
</TABLE>
The percentages set forth in the table above are based upon 17,459,163
shares of class A common stock and 19,124,869 shares of Class B Common Stock
outstanding. Each share of class A common stock has one vote per share and each
share of class B Common Stock has four votes per share.
The numbers included in the column "Shares Being Offered" include
additional shares that may be issuable to the selling stockholders upon
conversion of the convertible debentures and the exercise of the warrants,
including if the conversion price of the convertible debentures falls below
$6.372 per share or because additional shares are issuable to the holders of the
convertible debentures due to anti-dilution price protection provisions. Under
Rule 416 of the Securities Act of 1933, the selling stockholders may offer and
sell additional shares of class A common stock issued or issuable upon
conversion or exercise of the warrants or the convertible debentures as a result
of stock splits, stock dividends and anti-dilution provisions.
At our election, but subject to specific conditions, the convertible
debentures are not convertible into shares of class A common stock if shares to
be received upon such conversion would exceed 20% of the outstanding common
stock.
DESCRIPTION OF CONVERTIBLE DEBENTURES AND WARRANTS
As of April 14, 1999, we issued and sold in a private placement $20
million aggregate principal amount of the convertible debentures and warrants to
purchase 909,091 shares of our class A common stock, subject to adjustment. The
convertible debentures are convertible into our class A common stock.
Conversion Price. The conversion price is generally the lower of:
o the "variable conversion price" as described below; and
o the floating market price of our class A common stock at time of
conversion based upon lowest average bid price of the class A
common stock in a five consecutive day trading period in the ten
trading days immediately prior to the recalculation of the
conversion price. If on April 16, 2000, the market price is
<PAGE>
$9.5625 or greater, then the market price will not be used to
determine the conversion price under most circumstances unless we
have committed certain defaults under the terms of the
convertible debentures that are described below.
The variable conversion price initially is $6.372 per share. On April 16, 2000
and April 16, 2001, the variable conversion price will be adjusted to be the
greater of:
o $4.4604, and
o the weighted average sales price of the class A common stock over
the ten day trading period prior to the adjustment.
The variable conversion price cannot fall below $4.4604 or be greater than
$6.372 per share. The formula for calculating the conversion price will be
adjusted if we fail to comply with certain terms of the convertible debentures
such as failing to convert the convertible debentures in a timely manner. If we
are suspended from trading or are no longer listed for trading on The Nasdaq
National Market or the New York Stock Exchange, then the conversion price will
be reduced by 10% and a holder of the convertible debentures can elect to use
the floating market price described above to determine the conversion price.
Interest. The convertible debentures accrue interest at the rate of 6% or
$1,200,000 per year. This interest is payable, at our option, in cash,
additional convertible debentures or class A common stock at the conversion
price then in effect. The number of shares issued as payment of the annual
accrued interest would be 188,323 shares of class A common stock per year
assuming the conversion price equals $6.372 per share. The interest rate on the
convertible debentures can increase to 8% if the conversion price of the
convertible debentures falls below $4.4604 per share.
Redemption Upon Default. The holder of a convertible debenture may demand the
redemption of its convertible debentures upon the occurrence of the defaults
listed below. There are two different redemption prices depending upon the type
of default. The redemption price shall equal $1,150 for each convertible
debenture being redeemed, plus accrued and unpaid interest, for the following
defaults:
o we become bankrupt or suffer certain other bankruptcy events,
o an event of default occurs under our existing loan agreements
with LaSalle National Bank,
o we breach any agreement with respect to indebtedness of $500,000
or more,
o our accountants deliver a "going concern" qualification or
exception with respect to our financial statements,
o we suffer a $500,000 judgment that is not discharged within sixty
days, or
o an event of default occurs under the debentures issued by us in
exchange for the convertible debentures.
For other defaults, the redemption price shall equal the greater of:
o $1,350 for each convertible debenture being redeemed plus accrued
and unpaid interest, or
o the product of:
o the highest price at which our stock is traded from the date
of the default to the redemption date divided by the lowest
conversion price in effect during such period (assuming the
market conversion price is in effect); and
o the principal amount of the convertible debentures plus
accrued and unpaid interest.
The defaults triggering this second redemption price include the following
defaults:
o we fail to deliver in a timely manner our stock upon
submission by such investors of a notice of conversion,
<PAGE>
o we fail to reserve the amount of stock required under the
terms of the convertible debentures,
o this prospectus cannot be used by the holders of the
convertible debentures for certain time periods or is not
amended as required under the terms of the convertible
debentures,
o our stock is suspended from trading on the Nasdaq National
Market for five days in any nine (9) month period;
o we fail to remove restrictive legends on our stock when
required pursuant to the private placement documents,
o we commit an uncured breach of a material provision of any
private placement document,
o any of our representations or warranties contained in the
private placement documents is false or misleading in any
material respect,
o we announce our intention not to issue stock upon conversion
of the convertible debentures or exercise of the warrants,
o we materially breach, as a result of performance under the
private placement documents, any agreement to which we are
or become a party, and
o we fail to obtain stockholder approval to issue more than
20% of our voting power upon conversion of the convertible
debentures and upon exercise of the warrants.
Instead of demanding that we redeem their convertible debentures, a holder may
demand that we pay him or her a cash penalty of 1% of the outstanding amount of
the convertible debentures for each day that the default is not fixed. This cash
penalty cannot exceed 135% of the outstanding amount of convertible debentures.
20% Conversion Limitation. At our election, but subject to specific conditions,
the convertible debentures are not convertible if shares to be received upon
such conversion of all of the convertible debentures would equal or exceed 20%
of our outstanding common stock. Once we notify the selling stockholders that
the conversion of all of the convertible debentures would equal or exceed 20% of
our common stock, we may exchange that portion of the convertible debenture
submitted for conversion that represents the amount of convertible debentures
held by that selling stockholder that would exceed 20% of our common stock if
converted, into a one year note bearing interest at 12% per year.
Potential Dilution Due to Conversion. The following table sets forth the number
of shares of class A common stock issuable upon conversion of the convertible
debentures and the exercise of the warrants, and the percentage ownership of the
class A common stock that each represents assuming:
o the conversion price is 25%, 50%, 75% and 100% of the initial
variable conversion price ($6.372);
o the conversion price is the minimum variable conversion price
($4.4604);
o the warrants' exercise price is $8.9208 per share; and
o 17,459,163 shares of class A common stock and 19,124,869 shares
of class B common stock are outstanding.
<TABLE>
SHARES UNDERLYING PERCENTAGE OWNERSHIP
CONVERTIBLE DEBENTURES OF CLASS A PERCENTAGE OWNERSHIP
PERCENT OF $6.372 AND WARRANTS COMMON STOCK OF TOTAL VOTING POWER
----------------- ---------------------------- ------------ ---------------------
<S> <C> <C> <C>
100%............................ 4,047,822 18.8% 4.1%
75%............................. 5,094,047 22.6% 5.1%
50%............................. 7,186,555 29.2% 7.1%
25%............................. 13,464,019 43.5% 12.5%
Minimum Variable
Conversion Price
($4.4604)....................... 5,392,994 23.6% 5.4%
</TABLE>
<PAGE>
Limitations in the private placement documents under which the convertible
debentures were issued may preclude the levels of beneficial ownership set forth
above from being achieved.
Anti-Dilution Provisions. In addition, additional shares are issuable under the
convertible debentures upon the following events:
<TABLE>
Event Additional Shares Issuable
- ----- --------------------------
<S> <C>
o Stock split, stock dividend, reclassification and other Shares issuable will be proportionately adjusted to
reflect the occurrence of such event.
o Announcement of a merger or tender offer for our common stock. During the thirty day period after the announcement,
or a lesser period if the transaction is publicly
announced to be abandoned, the conversion
price shall equal the conversion price on the
announcement date if that conversion price is lower
than the conversion price calculated by using
the standard conversion price formula set forth above.
o We merge or consolidate with another company or a change of Each holder may receive either:
control occurs.
o the shares that he or she would be entitled to
receive upon conversion of the convertible
debentures; or
o 125% of the principal amount of the convertible
debentures in cash if the surviving
corporation of the transaction:
o is not publicly traded;
o does not have a market capitalization of
$150,000,000 or more;
o does not have an average daily trading
volume that is greater than $2,000,000; and
o does not have historical 100 day volatility
that is greater than 60%.
o We issue other securities convertible or The conversion price used with respect to the
exchangeable for our common stock at a convertible debentures will be reduced to reflect
conversion or exercise price based upon a the discount and/or lower conversion price
discount market price, or at a conversion price formula.
that is lower than the conversion price
for the convertible debentures.
o We issue additional shares other than pursuant The conversion price used to calculate the
to a Board approved employee/director option convertible debentures will be reduced to reflect
plan, at prices less than the market price the discount price.
for our common stock.
</TABLE>
<PAGE>
Impact of Dilution. The additional shares issued upon conversion of the
convertible debentures would dilute the percentage interest of each of our
existing class A common stockholders, and this dilution would increase as more
shares of class A common stock are issued due to the impact of the variable
conversion price. Each additional issuance of shares upon conversion or exercise
of the warrants would increase the supply of shares in the market and, as a
result, may cause the market price of our common stock to decline.
The effect of this increased supply of class A common stock leading to
a lower market price may be magnified if there are sequential conversions of
convertible debentures. Specifically, the selling stockholders could convert a
portion of their convertible debentures and then sell the class A common stock
issued upon conversion, which likely would result in a drop in our stock price.
Then selling stockholders could convert another portion of their convertible
debentures at a lower conversion price because of the decreased stock price, and
be issued a greater number of shares of class A common stock due to the lower
conversion price. If they then sold shares of class A common stock, our stock
price would likely decrease again, permitting the selling stockholders to do
more conversions at a conversion price even more favorable to them. However, an
ever falling market price for our common stock may not benefit the holders of
the convertible debentures. If the price keeps falling, the holders will receive
more and more shares with a decreasing aggregate value. Eventually, if the
dilution becomes extreme, the market for our class A common stock will tend to
become illiquid, which will limit the ability of the converting selling
stockholders to sell shares of our class A common stock even at a very low
price.
A pattern of such partial conversions and sales could increase the
aggregate number of shares of class A common stock issued upon conversion of the
convertible debentures above that it would otherwise be, and could place
significant downward pressure on our stock price. This downward pressure on our
stock price might encourage market participants to sell our stock short, which
would put further downward pressure on our stock price, and further decrease the
conversion price and increase the dilution of our existing common stockholders
upon conversion of the convertible debentures.
Company Redemption. We may redeem the convertible debentures after April 16,
2000, if the price of our class A common stock is at least 200% of the variable
conversion price then in effect. The redemption price would equal 115% of the
face amount of the convertible debentures, plus accrued and unpaid interest. The
selling stockholders have a right to convert their convertible debentures prior
to this type of redemption.
Security Interest. The convertible debentures are collaterally secured with a
second lien on all of our assets, except for the common stock of our subsidiary,
Conference Plus, Inc. We are subject to penalties, under a variety of
circumstances, including failure to list the underlying class A common stock on
The Nasdaq Stock Market and failure to register the resale of the underlying
class A common stock under the Securities Act of 1933.
Registration Rights. Pursuant to the securities purchase agreement under which
the convertible debentures were issued, we filed with the SEC a Registration
Statement on Form S-3, of which this prospectus forms a part, with respect to
the resale of the shares and agreed to use our best efforts to keep such
Registration Statement effective until such date as all of the shares have been
resold, or such time as all of the shares held by the selling stockholders can
be sold immediately without compliance with the registration requirement of the
Securities Act of 1933, pursuant to Rule 144 or otherwise.
Warrants. The warrants are exercisable at any time until April 15, 2004. The
exercise price for the class A common stock underlying the warrants is $8.9208
per share.
PLAN OF DISTRIBUTION
Sales of the shares being sold by the selling stockholders are for the
selling stockholders' own accounts. We will not receive any proceeds from the
sale of the shares offered hereby.
The selling stockholders have advised us that:
o the shares may be sold by the selling stockholders or their
respective pledgees, donees, transferees or successors in
interest, on The Nasdaq Stock Market, in sales occurring in the
public market other than such market quotation system, in
privately negotiated transactions, through the writing of options
on shares, short sales or in a combination of such transactions;
o each sale may be made either at market prices prevailing at the
time of such sale, at negotiated prices, at fixed prices which
may be changed, or at prices related to prevailing market prices;
o some or all of the shares may be sold through brokers acting on
behalf of the selling stockholders or to dealers for resale by
such dealers including block trades in which brokers or dealers
will attempt to sell the shares but may position and resell the
block or principal; and
o in connection with such sales, such brokers and dealers may
receive compensation in the form of discounts and commissions
from the selling stockholders and may receive commissions from
the purchasers of shares for whom they act as broker or agent
which discounts and commissions may be less than or exceed those
customary in the types of transactions involved. Any broker or
dealer participating in any such sale may be deemed to be an
"underwriter" within the meaning of the Securities Act of 1933
and will be required to deliver a copy of this prospectus to any
person who purchases any class A common stock from or through
such broker or dealer. We have been advised that, as of the date
hereof, none of the selling stockholders have made any
arrangements with any broker for the sale of their class A common
stock.
In offering the class A common stock covered hereby, the selling
stockholders and any broker-dealers and any other participating broker-dealers
who execute sales for the selling stockholders may be deemed to be
"underwriters" within the meaning of the Securities Act of 1933 in connection
with such sales, and any profits realized by the selling stockholders and the
compensation of such broker-dealer may be deemed to be underwriting discounts
and commissions. In addition, any class A common stock covered by this
prospectus which qualify for sale pursuant to Rule 144 may be sold under Rule
144 rather than pursuant to this prospectus.
If necessary, the specific shares of our class A common stock to be
sold, the names of the selling stockholders, the respective purchase prices and
public offering prices, the names of any agent, dealer or underwriter, and any
applicable commissions or discounts with respect to a particular offer will be
set forth in an accompanying prospectus supplement or, if appropriate, a
post-effective amendment to the registration statement of which this prospectus
is a part. We entered into a registration rights agreement in connection with
the private placement of the convertible debentures and the warrants which
required us to register the underlying shares of our class A common stock under
applicable federal and state securities laws under certain circumstances and at
certain times. The registration rights agreement provides for
cross-indemnification of the selling stockholders and us and their respective
directors, officers and controlling persons against certain liabilities in
connection with the offer and sale of the class A common stock, including
liabilities under the Securities Act of 1933 and to contribute to payments the
parties may be required to make in respect thereof. We have agreed to indemnify
and hold harmless the selling stockholders from certain liabilities under the
Securities Act of 1933.
Under applicable rules and regulations under Regulation M under the
Securities Exchange Act of 1934, any person engaged in the distribution of the
class A common stock may not simultaneously engage in market making activities,
subject to certain exceptions, with respect to the class A common stock of the
Company for a specified period set forth in Regulation M prior to the
commencement of such distribution and until its completion. In addition and
without limiting the foregoing, each selling stockholder will be subject to the
applicable provisions of the Securities Act of 1933 and Securities Exchange Act
of 1934 and the rules and regulations thereunder, including, without limitation,
Regulation M, which provisions may limit the timing of purchases and sales of
shares of the class A common stock by the selling stockholders. The foregoing
may affect the marketability of the class A common stock.
<PAGE>
We will bear all expenses of the offering of the class A common stock,
except that the selling stockholders will pay any applicable underwriting
commissions and expenses, brokerage fees and transfer taxes, as well as the fees
and disbursements of counsel to and experts for the selling stockholders.
ABOUT THIS PROSPECTUS
This prospectus is a part of a registration statement that we have
filed with the SEC using a "shelf registration" process. You should read both
this prospectus and any supplement together with additional information
described under "Where You Can Find More Information."
You should rely only on the information provided or incorporated by
reference in this Prospectus or any supplement. We have not authorized anyone
else to provide you with additional or different information. The class A common
stock is not being offered in any state where the offer is not permitted. You
should not assume that the information in this prospectus or any supplement is
accurate as of any date other than the date on the front of such documents.
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and special reports, proxy statements and
other information with the SEC. You may read and copy any document we file at
the SEC's public reference rooms located at Room 1024, 450 Fifth Street, N.W.,
Washington, D.C. 20549, at The Citicorp Center, 500 West Madison Street, Suite
1400, Chicago, Illinois 60661, and at Seven World Trade Center, Suite 1300, New
York, New York 10048. Please call the SEC at 1-800-SEC-0330 for further
information on the public reference rooms. Our filings with the SEC are also
available to the public on the SEC's Internet web site at http://www.sec.gov.
The SEC allows us to "incorporate by reference" the information we file
with it, which means that we can disclose important information to you by
referring you to those documents. The information incorporated by reference is
considered to be part of this prospectus, and information that we file with the
SEC later will automatically update and supersede this information. The
following documents filed by us and any future filings made by us with the SEC
under Sections 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934,
until the Selling Stockholders sell all of the class A common stock offered
hereby, are incorporated by reference in this Prospectus:
o our Annual Report on Form 10-K for the year ended March 31, 1999,
as amended;
o our Quarterly Report on Form 10-Q for the quarter ended June 30,
1999, as amended;
o our Registration Statement on Form 8-A;
o our Current Reports on Form 8-K dated April 20, 1999 and June 14,
1999; and
o our Schedule 14A filed with the SEC on July 14, 1999.
You may request a copy of these filings, at no cost, by writing or telephoning
us at:
Westell Technologies, Inc.
750 North Commons
Aurora, Illinois 60504
(630) 898-2500
Attention: Nicholas Hindman
EXPERTS
The consolidated financial statements and schedule of the Company
incorporated by reference in this Registration Statement on Form S-3 have been
audited by Arthur Andersen LLP, independent public accountants, as indicated in
its reports with respect thereto, and are included herein in reliance upon the
authority of said firm as experts in giving said reports incorporated by
reference herein, and upon the authority of said firm as experts in accounting
and auditing.
<PAGE>
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following are the estimated expenses (other than the SEC registration fee)
of the issuance and distribution of the securities being registered, all of
which will be paid by the Company.
SEC registration fee.............................. $15,212
Fees and expenses of counsel...................... 15,000
Fees and expenses of accountants.................. 5,000
*Nasdaq listing fees and expenses................... --
Miscellaneous..................................... 4,788
---------
Total................................... $ 40,000
=========
The Company has agreed to bear all expenses (other than underwriting
discounts and selling commissions, brokerage fees and transfer taxes, if any,
and the fees and expenses of counsel and other advisors to the Selling
Stockholders) in connection with the registration and sale of the Shares being
offered by the Selling Stockholders.
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Under Delaware law, a corporation may indemnify any person who was or
is a party or is threatened to be made a party to an action (other than an
action by or in the right of the corporation) by reason of his service as a
director or officer of the corporation, or his service, at the corporation's
request, as a director, officer, employee or agent of another corporation or
other enterprise, against expenses (including attorneys' fees) that are actually
and reasonably incurred by him ("Expenses"), and judgments, fines and amounts
paid in settlement that are actually and reasonably incurred by him, in
connection with the defense or settlement of such action, provided that he acted
in good faith and in a manner he reasonably believed to be in or not opposed to
the corporation's best interests and, with respect to any criminal action or
proceeding, had no reasonable cause to believe that his conduct was unlawful.
Although Delaware law permits a corporation to indemnify any person referred to
above against Expenses in connection with the defense or settlement of an action
by or in the right of the corporation, provided that he acted in good faith and
in a manner he reasonably believed to be in or not opposed to the corporation's
best interests, if such person has been judged liable to the corporation,
indemnification is only permitted to the extent that the Court of Chancery (or
the court in which the action was brought) determines that, despite the
adjudication of liability, such person is entitled to indemnity for such
Expenses as the court deems proper. The determination as to whether a person
seeking indemnification has met the required standard of conduct is to be made
(1) by a majority vote of a quorum of disinterested members of the board of
directors, or (2) by independent legal counsel in a written opinion, if such a
quorum does not exist or if the disinterested directors so direct, or (3) by the
shareholders. The General Corporation Law of the State of Delaware also provides
for mandatory indemnification of any director, officer, employee or agent
against Expenses to the extent such person has been successful in any proceeding
covered by the statute. In addition, the General Corporation Law of the State of
Delaware provides the general authorization of advancement of a director's or
officer's litigation expenses in lieu of requiring the authorization of such
advancement by the board of directors in specific cases, and that
indemnification and advancement of expenses provided by the statute shall not be
deemed exclusive of any other rights to which those seeking indemnification or
advancement of expenses may be entitled under any bylaw, agreement or otherwise.
The Company's Restated Certificate and by-laws provide for
indemnification of the Company's directors, officers, employees and other agents
to the fullest extent not prohibited by the Delaware law.
The Company maintains liability insurance for the benefit of its
directors and officers.
ITEM 16. EXHIBITS
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------
+3.1 Amended and Restated Certificate of Incorporation of the Company as
amended.
+3.2 Second Amended and Restated By-Laws of the Company, incorporated
herein by reference to Exhibit 3.2 to the Company's Registration
Statement on Form S-1 (No. 33-98024).
+5.1 Opinion of McDermott, Will & Emery regarding legality
23.1 Consent of Arthur Andersen, LLP
+23.2 Consent of McDermott, Will & Emery (included in Exhibit 5.1)
+24.1 Power of Attorney (included with the signature page to the
Registration Statement)
____________________
+ Previously filed.
ITEM 17. UNDERTAKINGS.
(1) The undersigned registrant hereby undertakes:
(a) To file, during any period in which offers or sales are being
made, a post-effective amendment to this Registration Statement
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.
(b) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall
be deemed to be a new Registration Statement relating to the
securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona
fide offering thereof.
(c) 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.
(2) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each
filing of the registrant's annual report pursuant to section 13(a) or
15(d) of the Securities Exchange Act of 1934 (and, where applicable,
each filing of an employee benefit plan's annual report pursuant to
section 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 the initial bona fide offering thereof.
(3) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officer 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 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 Act and will be governed by the final adjudication of such issue.
<PAGE>
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 Amendment to
be signed on its behalf by the undersigned, thereunto duly authorized, in
Aurora, Illinois on August 30, 1999.
WESTELL TECHNOLOGIES, INC.
By: /s/ Robert H. Gaynor
Robert H. Gaynor,
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
Amendment has been signed by the following persons or their attorneys-in-fact in
the capacities indicated on August 30, 1999.
SIGNATURE TITLE
- --------- -----
/s/ Robert H. Gaynor Chief Executive Officer and Chairman of
Robert H. Gaynor the Board of Directors
(Principal Executive Officer)
* Interim Chief Financial Officer
Nicholas C. Hindman (Principal Financial and Accounting Officer)
* Director
Paul A. Dwyer
* Director
Robert C. Penny III
* Director
John W. Seaholtz
* Director
Melvin J. Simon
* Director
Ormand J. Wade
*Pursuant to Power of Attorney
/s/ Robert H. Gaynor
Robert H. Gaynor
Exhibit 23.1
To the Board of Directors of
Westell Technologies, Inc.:
As independent public accountants, we hereby consent to the incorporation by
reference in this Registration Statement on Form S-3, as amended on August 4,
1999 and August 19, 1999, of our reports dated May 11, 1999 included in Westell
Technologies Inc.'s Form 10-K, as amended on August 4, 1999 and August 19, 1999,
for the year ended March 31, 1999 and to all references to our Firm included in
this Registration Statement.
ARTHUR ANDERSEN LLP
Chicago, Illinois
August 25, 1999
