<PAGE>
As filed with the Securities and Exchange Commission on October 22, 1999
Registration No. 333-46005
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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POST-EFFECTIVE AMENDMENT NO. 1
ON
FORM S-3
TO FORM SB-2
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
---------------
SONIC FOUNDRY, INC.
(Name of Registrant as specified in its charter)
Maryland 7372 39-1783372
(State of Incorporation) (Primary Standard (I.R.S. Employer
Industrial Identification No.)
Classification Code
Number)
754 Williamson Street
Madison, WI 53703
(608) 256-3133
(Address, including zip code, and telephone number, including area code,
of Registrant's principal executive offices and principal place of business)
RIMAS BUINEVICIUS
Chairman and Chief Executive Officer
754 Williamson Street
Madison, WI 53703
(608) 256-3133
(Name, address, and telephone number, including area code,
of agent for service)
Copies to:
James R. Stern, Esq.
McBreen & Kopko
20 N. Wacker Dr., Suite 2520
Chicago, IL 60606
------------------------
Approximate date of commencement of proposed sale to the public: From time
to time after this Registration Statement becomes effective.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [_]
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. [X]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
Calculation Of Registration Fee
<TABLE>
<CAPTION>
====================================================================================================================================
Proposed Proposed
Title of each class of Amount maximum offering price maximum aggregate Amount of
Securities to be registered to be registered per unit(1) offering price(1) registration fee
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<S> <C> <C> <C> <C>
Common Stock issuable upon exercise of Warrants 1,145,312 $ 11.25 $12,884,760 $3,581.96
Representatives' Warrant 200,000 $ .0001 $ 20 ___
Common Stock issuable upon exercise of
Representatives' Warrants(2) 200,000 $12.375 $ 2,475,000 $ 688.05
Warrants issuable upon exercise of
Representatives' Warrants(2) 100,000 $ 0.165 $ 16,500 $ 4.59
Common Stock underlying Warrants issuable upon
exercise of Representatives' Warrants(2) 100,000 $18.625 $ 1,862,500 $ 517.78
- ------------------------------------------------------------------------------------------------------------------------------------
Total $17,238,780 $4,792.38(3)
====================================================================================================================================
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(a) of the Securities Act of 1933.
(2) In connection with the Registrant's sale of securities in an initial public
offering, the Registrant granted to the Representatives in the initial
public offering warrants to purchase 200,000 shares of Common Stock and
100,000 Warrants.
(3) Previously paid.
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 Section 8(a), may
determine.
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<PAGE>
Subject to completion, dated October _____, 1999
Prospectus
SONIC FOUNDRY, INC.
-----------------------
Representatives' Warrant
. Granted to the Representatives in connection with a public offering of units
of our securities;
. Exercisable to purchase 200,000 shares of common stock at $12.375 per share,
and 100,000 redeemable warrants at $0.165 per warrant.
100,000 Redeemable Common Stock Purchase Warrants, or Redeemable Warrants
. issuable upon exercise of the Representatives' Warrant;
. each Redeemable Warrant is exercisable through April 22, 2003 to purchase 1
share of our common stock for a price of $18.625 per share, which will result
in gross proceeds to us of $1,862,500 if all 100,000 warrants are exercised;
. each Redeemable Warrant is redeemable by us upon thirty (30) days notice at a
redemption price of $.10 per warrant, but only if certain requirements are
met.
1,445,312 shares, $.01 par value, common stock consisting of:
. 200,000 shares issuable upon exercise of the Representatives' Warrant at
$12.375 per share;
. 100,000 shares issuable upon the exercise of 100,000 Redeemable Warrants that
the Representatives will receive upon exercise of the Representatives'
Warrant; and
. 1,145,312 shares issuable upon the exercise of warrants sold in our initial
public offering, or our Public Warrants. Our Public Warrants are each
exercisable through April 22, 2003 to purchase 1 share of our common stock
for a price of $11.25 per share, but are otherwise identical to our
Redeemable Warrants.
----------------------------
American Stock Exchange Trading Symbols -
Common Stock SFO
Public Warrants SFOW
Redeemable Warrants- No public trading
market exists
Representatives' Warrant No public trading
market exists
----------------------------
For a discussion of certain matters that you should consider in evaluating an
investment in our securities, see "Risk Factors" commencing at page ___.
THE SECURITIES WE ARE OFFERING HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSIONS, NOR HAS
THE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
The information in this Prospectus is not complete and may be changed. This
Prospectus is included in a registration statement that we filed with the
Securities and Exchange Commission. We may not sell these securities until the
registration statement becomes effective. This Prospectus is not an offer to
sell these securities or the solicitation of an offer to buy these securities in
any State where an offer to sell or the solicitation of an offer to buy is not
permitted.
<PAGE>
The Date of this Prospectus is October ___, 1999.
PROSPECTUS SUMMARY
This summary highlights important information about our business and about
the offerings covered by this prospectus. Because it is a summary, it does not
contain all the information you should consider before investing in our
securities. Please read the entire prospectus.
Sonic Foundry, Inc.
Sonic Foundry was incorporated in Wisconsin in February 1994 and merged
into a Maryland corporation of the same name in October 1996. We are a leading
provider of software products and services that enable communications
professionals and consumers to create, edit and deliver audio and video digital
content. Our executive offices are located at 754 Williamson Street, Madison,
Wisconsin, 53703 and our telephone number is (608) 256-3133. Our website can be
accessed at www.sonicfoundry.com. The information in our website is not a part
of this prospectus and is not incorporated by reference into this prospectus.
Unless the context otherwise requires, references in this prospectus to "Sonic
Foundry", the "Company", "we", "our", and "us" refer to Sonic Foundry, Inc. The
term "you" refers to a prospective investor.
Introduction To The Offerings
We are offering a Representatives' Warrant issued to Dirks & Company, Inc.
and Security Capital Trading Inc., or the Representatives, in connection with a
public offering of units of our securities that we completed in June 1998. The
Representatives' Warrant is exercisable to purchase 200,000 shares of common
stock at a price of $12.375 per share, and also to purchase 100,000 common stock
purchase warrants, or Redeemable Warrants, at a price of $0.165 per Redeemable
Warrant. We are also offering 200,000 shares of our common stock and Redeemable
Warrants that are exercisable to purchase an additional 100,000 shares of our
common stock. These securities are issuable to the Representatives, upon
exercise of the Representatives' Warrant. Each Redeemable Warrant can be
exercised to purchase one share of common stock for a price of $18.625 per
share. Once issued, the Redeemable Warrants must be exercised before April 22,
2003 or they will expire. Until the Redeemable Warrants either expire or are
exercised, we have the right to redeem them at a redemption price of $0.10 each.
In order to exercise our right to redeem the Redeemable Warrants, we must give
thirty (30) days advance written notice, and the closing sale price of our
common stock must have equaled or exceeded $20.00 per share for any twenty (20)
trading days within a period of thirty consecutive trading days ending on the
fifth trading day immediately preceding the date of our redemption notice.
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This prospectus also relates to our offer of up to 100,000 shares of common
stock issuable upon the exercise of the 100,000 Redeemable Warrants that the
Representatives will receive upon exercise of the Representatives' Warrant.
Finally, this prospectus relates to our offer of up to 1,145,312 shares of
common stock issuable upon the exercise of Public Warrants that were sold in our
initial public offering. Each Public Warrant can be exercised to purchase one
share of common stock at a price of $11.25 per share, but are otherwise
identical to the Redeemable Warrants.
We will not receive any proceeds from the resale of our common stock,
Redeemable Warrants or Public Warrants. However, assuming the exercise of the
Representatives' Warrant and all of the Redeemable Warrants issuable upon
exercise of the Representatives' Warrant, we will receive gross proceeds of
$4,354,000. Finally, assuming that all of our Public Warrants are exercised to
purchase 1,145,312 shares of common stock, we will receive additional gross
proceeds of $12,884,760.
In conjunction with the offerings covered by this prospectus, we agreed to
pay the cost of registering the securities covered by this prospectus which we
estimate will cost $25,000. Anyone reselling securities acquired in these
offerings will, however, pay the other costs related to the sale of their
securities, including discounts, commissions and transfer fees. For more
information, see "Plan of Distribution".
A public market for our Redeemable Warrants currently does not exist.
However, our common stock and Public Warrants are traded on the American Stock
Exchange under the symbols SFO and SFOW, respectively. On October 20, 1999, the
closing sale prices of our common stock and Public Warrants were $8.75 and
$3.00, respectively. There can be no assurance that a market for our Redeemable
Warrants will develop in the future, or that a market for our common stock or
Public Warrants, or either of them individually, will continue in the future.
The Specific Offerings
The Representatives' Warrant Offering
<TABLE>
<S> <C>
Securities Offered: 200,000 shares of common stock; and 100,000 Redeemable
Warrants which are issuable to the Representatives upon
exercise of the Representatives' Warrant
Offering Price: $12.375 per share of common stock
$0.165 per Redeemable Warrant
Common Shares Outstanding:
Before the Offering 6,497,249
After the Offering 6,697,249
</TABLE>
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<PAGE>
. The shares of common stock and Redeemable Warrants are issuable to the
Representatives upon exercise of the Representatives' Warrant, which is
exercisable to acquire 200,000 shares of Common Stock and 100,000 Redeemable
Warrants. There will be no public trading market developed for the Redeemable
Warrants.
. Common shares outstanding, before and after the offering, excludes:
. 768,285 shares subject to outstanding options with a weighted average
exercise price of $3.52 per share;
. 337,276 shares subject to outstanding warrants with a weighted average
exercise price of $7.38 per share;
. 121,775 shares reserved for issuance under options that we may grant under
our 1995 Stock Option Plan and Non-Employee Directors Stock Option Plan;
. 100,000 shares of common stock issuable upon exercise of the 100,000
Redeemable Warrants issuable upon exercise of the Representatives'
Warrant; and
. 1,145,312 shares of common stock issuable upon exercise of 1,145,312 of
the 1,145,387 Public Warrants that were sold in our initial public
offering, shares of common stock issuable upon exercise of 75 Public
Warrants having previously been exercised.
The Representatives' Redeemable Warrant Offering
Securities Offered: 100,000 shares of common stock, $0.01 par value
Common Shares Outstanding:
Before the Offering 6,497,249
After the Offering 6,797,249
Offering Price Per Share: $18.625
- -----------------
. Common shares outstanding, after the offering, assumes the Representatives'
Warrant has been exercised to purchase 200,000 shares of common stock and
Redeemable Warrants exercisable to purchase an additional 100,000 shares of
common stock. This figure also assumes the exercise of the Redeemable
Warrants to purchase 100,000 shares of common stock. We do not have the right
to compel, nor have the Representatives committed to, the exercise of the
Representatives' Warrant or the Redeemable Warrants. Accordingly, we do not
know how many shares, if any, will be purchased pursuant to the exercise of
the Representatives' Warrant or the Redeemable Warrants.
. Common shares outstanding, before and after the offering, excludes:
. 768,225 shares subject to outstanding options with a weighted average
exercise price of $3.52 per share;
. 337,276 shares subject to outstanding options with a weighted average
exercise price of $7.38 per share;
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<PAGE>
. 121,775 shares reserved for issuance under options that we may grant under
our 1995 Stock Option Plan and Non-Employee Directors Stock Option Plan;
and
. 1,145,312 shares of common stock issuable upon the exercise of 1,145,312
Public Warrants that were sold in our initial public offering.
The Public Warrant Offering
Securities Offered: 1,145,312 shares of common stock, $0.01 par value
Common Shares Outstanding:
Before the Offering 6,497,249
After the Offering 7,642,561
Offering Price Per Share: $11.25
- ------------------
. Common stock outstanding, before and after the offering, excludes:
. 768,225 shares subject to outstanding options with a weighted average
exercise price of $3.52 per share;
. 337,276 shares subject to outstanding options with a weighted average
exercise price of $7.38 per share;
. 121,775 shares reserved for issuance under options that we may grant under
our 1995 Stock Option Plan and Non-Employee Directors' Stock Option Plan;
. 200,000 shares of common stock issuable upon exercise of the
Representatives' Warrant; and
. 100,000 shares of common stock issuable upon exercise of the 100,000
Redeemable Warrants issuable upon exercise of the Representatives'
Warrant.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements that involve risks and
uncertainties. These statements relate to future events or our future financial
performance. In some cases, you can identify forward-looking statements by
terminology such as "may, " "will," "should," "expects," "plans," "anticipates,"
"believes," "estimates," "predicts," "potential" or "continue" or the negative
of such terms or other comparable terminology. These statements are only
predictions and involve known and unknown risks, uncertainties and other
factors, including the risks outlined under "Risk Factors," that may cause our
or our industry's actual results, levels of activity, performance or
achievements to be materially different from any future results, levels of
activity, performance or achievements expressed or implied by such forward-
looking statements.
Although we believe that the expectations reflected in the forward-looking
statements are reasonable, we cannot guarantee future results, levels of
activity, performance or
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<PAGE>
achievements. We are under no duty to update any of the forward-looking
statements after the date of this prospectus to conform such statements to
actual results.
WHERE YOU CAN FIND MORE INFORMATION
We file reports, proxy statements and other documents with the Securities
and Exchange Commission. You may read and copy any document we file at the
SEC's public reference room at Judiciary Plaza Building, 450 Fifth Street, N.W.,
Room 1024, Washington, D.C. 20549. You should call 1-800-SEC-0330 for more
information on the public reference room. Our SEC filings are also available to
you on the SEC's Internet site at http://www.sec.gov.
This prospectus is part of the registration statement and does not contain
all of the information included in the registration statement. Whenever a
reference is made in this prospectus to any contract or other document of Sonic
Foundry, the reference may not be complete and you should refer to the exhibits
that are a part of the registration statement for a copy of the contract or
document.
The SEC allows us to "incorporate by reference" the information that we
file with them which means that we can disclose important information to you by
referring to those documents that contain that information. The information
incorporated by reference is considered to be part of this prospectus, and
information that we file with the SEC after the date of this prospectus will
automatically update and may supersede this information. We incorporate by
reference the following documents filed by us with the SEC and any future
filings made with the SEC under Sections 13(a), 13(c), 14 or 15(d) of the
Securities Exchange Act of 1934, as amended, after the date of this prospectus
until the termination of this offering.
. Our Annual Report on Form 10-K for the fiscal year ended September 30, 1998;
. Our Quarterly Reports on Form 10-Q for the fiscal quarters ended December
31, 1998, March 31, 1999 and June 30, 1999;
. Our Current Report on Form 8-K filed on September 24, 1999; and
. The description of our common stock contained in our Exchange Act
Registration Statement on Form 8-A, Registration No. 1-14007.
You may request a copy of these documents, which will be provided at no
cost, by contacting: Sonic Foundry, Inc., 754 Williamson Street, Madison,
Wisconsin 53703, Attention: Investor Relations; Telephone (608) 256-3133.
MATERIAL DEVELOPMENTS
. During fiscal 1999, we guaranteed the operating lease of another company in
exchange for common stock of the lessee. The operating lease has a five-year
term with aggregate
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base lease payments of approximately $500,000. In April 1999, we purchased
additional shares of common stock in the company for $514,000. We own less
than 20% of the other company; accordingly, the investment is accounted for
using the cost method.
. In September 1999 all of our previously outstanding preferred stock was
converted into common stock.
RISK FACTORS
This offering involves a high degree of risk. You should carefully
consider the risks described below and the other information in this prospectus
before purchasing our securities. The risks and uncertainties described below
are not the only ones facing us. If any of the following risks actually occur,
our business, financial condition or results of operations would likely suffer.
In such case the trading price of our securities could fall, and you may lose
all or part of the money you paid to buy our securities.
We have a limited operating history upon which you can evaluate our business and
our future prospects and our operating results will likely fluctuate
significantly.
We were incorporated in February 1994 and we have a limited operating
history and limited financial results upon which you can assess our future
success. As a result of our limited operating history and the rapidly changing
nature of the markets in which we compete, our quarterly and annual revenues and
operating results are difficult to predict and may fluctuate significantly from
quarter to quarter and from year to year. You should therefore not rely upon our
revenues and our operating results for any one quarter or year as an indication
of our future revenues or operating results. Fluctuations in our revenues and
our operating results will likely increase the volatility of our stock price,
and if our revenues or results of operations fall below the expectations of
investors or public market analysts, the price of our common stock could fall
substantially. You should evaluate our chances of financial and operational
success in light of the risks, uncertainties, expenses and difficulties
frequently encountered by growing companies in new and rapidly evolving markets.
We have a history of losses and we may never attain profitability.
We have incurred significant losses since our inception and we may never
become profitable. For the twelve months ended September 30, 1997, the year
ended September 30, 1998 and the nine months ended June 30, 1999, we incurred
net losses of $881,062, $632,099 and $4,175,040, respectively, and as of June
30, 1999, we had an accumulated deficit of $5,642,772. We cannot assure you
that we will achieve or maintain profitability in the future.
We may be unable to obtain necessary additional capital to fund operations in
the future.
We expect that we will require substantial additional capital in the next
six months. We may seek additional funding through public or private financings
or collaborative or
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other arrangements with third parties. There can be no assurance that additional
funds will be available on acceptable terms, if at all. If additional funds are
raised by issuing equity securities, further substantial dilution to existing
stockholders, including purchasers of the securities we are currently offering,
may result. If adequate funds are not available, we may be required to delay,
scale back or eliminate our research and development expenditures. For more
information, see "Use of Proceeds".
We cannot predict whether the Representatives' Warrant will be exercised or the
number of Redeemable Warrants or Public Warrants, if any, that will be
exercised, or the proceeds that we will receive from the exercise of these
warrants.
Holders of the Representatives' Warrant, Redeemable Warrants and the
Public Warrants are under no obligation to exercise their warrants, and can be
expected to do so only if it is economically reasonable for them to do so.
Typically, warrants are not exercised unless exercise is forced, either by our
decision to call them for redemption, or because they are scheduled to expire;
and then they will be exercised only if the exercise price is less than the
market price of the common stock. Accordingly, there is no assurance that the
Representatives' Warrant, Redeemable Warrants or Public Warrants, or any of
them, will be exercised prior to their expiration, or that we will receive any
proceeds from the exercise of any warrants.
The success of our business depends, in part, upon strategic relationships that
we have with other companies.
Our business depends, in part, upon relationships that we have with
strategic partners such as Microsoft, RealNetworks and Fraunhofer Institut. We
rely, in part, on strategic relationships to help us:
. maximize the acceptance of our products by customers through distribution
arrangements;
. increase the amount and availability of compelling media content on the
Internet to help boost demand for our products and services;
. increase awareness of our Sonic Foundry brand; and
. increase the performance and utility of our products and services.
We would be unable to realize many of these goals without the cooperation
of these partners. We anticipate that the efforts of our strategic partners
will become more important as the availability and use of multimedia content on
the Internet increases. For example, we may become more reliant on strategic
partners to provide multimedia content, provide more secure and easy-to-use
electronic commerce solutions and build out the necessary infrastructure for
media delivery. The loss of these strategic relationships, the inability to find
other strategic partners or the failure of our existing relationships to achieve
meaningful positive results could harm our business.
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<PAGE>
We depend upon access to Microsoft software codes to develop our products.
Quick access to Microsoft's software codes enables us to develop Microsoft
Windows-based software products in a timely manner. Although, in the past,
Microsoft consistently has given us quick access to its software codes,
Microsoft is under no obligation to do so and may refuse us this access in the
future at its discretion. If we do not continue to receive quick access to
Microsoft's software codes, the development of our software products will be
delayed and our business may suffer.
We may not be successful in our attempts to keep pace with rapid technological
change and evolving industry standards.
The markets for digital media products and digital media services are
characterized by rapidly changing customer requirements, evolving technologies
and industry standards, and frequent new product and service introductions. Our
future success will depend, in part, upon our ability to:
. use leading technologies effectively;
. enhance our current software products and services;
. identify, develop, and market new software products and service
opportunities; and
. influence and respond to emerging industry standards and other technological
changes.
We must accomplish these objectives in a timely and cost-effective manner.
We have experienced development delays and cost overruns in our development
efforts in the past and we may encounter such problems in the future. Delays and
cost overruns could affect our ability to respond to technological changes,
evolving industry standards, competitive developments or customer requirements.
Our products also may contain undetected errors that could cause increased
development costs, loss of revenues, adverse publicity, reduced market
acceptance of those products or lawsuits by customers. If we fail to develop
products that achieve widespread market acceptance or that fail to generate
significant revenues to offset development costs, our business and operating
results would suffer. We may not timely and successfully identify, develop and
market new product and service opportunities. If we introduce new products and
services, they may not attain broad market acceptance or contribute meaningfully
to our revenues or profitability. Any of these developments would have an
adverse effect on our operating results.
Demand for our products might decrease or fail to grow if commercial acceptance
of the Microsoft windows computer operating system declines.
Our products work exclusively on the Microsoft Windows computer operating
system. Some of our competitors offer products for the Apple Macintosh and
other computer operating systems. If the Macintosh computer operating system,
which is popular with many
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musicians, or other competing operating systems, including Linux and Java, were
to become dominant in the marketplace at the expense of the Microsoft Windows
computer operating system, demand for our digital media software products may
decrease or fail to grow. Moreover, if we were unable to adapt our current
digital media software products or develop new digital media software products
in a timely and cost-effective manner to work on these different operating
systems, our business might suffer.
Development of new standards for the electronic delivery of digital media,
particularly music, could significantly affect our growth and the way we do
business.
The onset of competing industry standards for the electronic delivery of
music could slow the growth of our business or force us to adjust the way in
which we do business. Some of the major recording studios have recently
announced a plan to develop a universal standard for the electronic delivery of
music, called Secured Digital Music Initiative, or SDMI, and have announced
their intention to make this delivery method available by the end of 1999. In
addition, major corporations have launched efforts to establish their own
proprietary audio formats. The lack of defined, generally accepted standards for
delivery formats could slow the widespread commercial acceptance of this media
delivery technology and our products. If standard delivery technology does not
achieve widespread commercial acceptance and we are unable to adapt our digital
media software products accordingly in a timely and cost-effective manner, our
business may suffer.
Problems related to the year 2000 issue could require us to incur unanticipated
delays and expenses in the operation of our business.
We have completed an assessment of our products and the software, computer
systems and other critical systems that we use in our business to insure that
they will not fail or malfunction as a result of the Year 2000 date change. Our
products and systems, and those of third parties, including content providers,
advertisers, affiliates and end users, may contain errors or faults with respect
to the year 2000. Known or unknown errors or defects that affect the operation
of our products and systems or those of third parties could result in delay or
loss of revenues, interruptions of services, cancellation of customer contracts,
diversion of development resources, damage to our reputation, increased service
and warranty costs and litigation costs, any of which could harm our business.
The market for our products and services is relatively new, and we cannot assure
you that the market will develop as we expect.
Because the market for our products and services is relatively new and
rapidly changing, it is difficult to predict future financial results. Our
research and development and sales and marketing efforts, and business
expenditures generally, are partially based on predictions regarding certain
developments for software products and media services. To the extent that these
predictions prove inaccurate, we may not achieve the level of revenues and
operating expenses that we expect at the time that we expect them and our
revenues and operating expenses may fluctuate.
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Our markets are highly competitive, and we may not be able to compete
effectively in our business.
Competition in the markets for digital media software, products and
services is intense. Pricing pressure, rapid development, feature upgrades, and
undefined new technologies characterize the industry. Numerous companies
including Adaptec, Adobe, Avid Technology, Cakewalk Company, CreamWare,
Euphonix, Media 100, MusicMatch, RealNetworks, Sonic Solutions, Syntrillium
Software Corporation and Steinberg Soft-Und Hardware offer products which
compete directly or indirectly with one or more of our products, although none
of these companies can independently offer a matching product line which
competes one for one with our product line. We expect competition to increase
as new companies enter the market and our current competitors expand their
products and services. This could mean lower prices or reduced demand for our
products. Many of our current and potential competitors have longer operating
histories, greater name recognition, more employees and significantly greater
financial, technical, marketing, public relations and distribution resources
than we do, and we may not be able to successfully compete with them. Any of
these developments would have an adverse effect on our operating results.
Lack of commercial acceptance of, or decreased demand for, complementary
products and technologies developed by third parties may lead to a decreased
demand for our products and services.
The success of some of our products and services depends, in part, upon the
commercial acceptance of products and technologies developed by other companies
that our digital media software products and services may complement, including
compact disc recorders, Digital Versatile Disc players and MP3 technology.
These complementary products help drive the demand for digital media and if
businesses and consumers do not accept these products, the demand for our
products and services may decrease or fail to grow and our business may suffer.
We rely upon a number of distributors to increase our market penetration
domestically and internationally.
We rely upon 60 distributors in 52 countries to sell and market our
products internationally. We generally do not have contracts with these
distributors. If these distributors were to cease selling and marketing our
products, the international sales of our products may decrease.
We have a distribution contract with Ingram Micro, Inc., which distributes
our software products to various computer resellers, value-added resellers,
catalog distributors and smaller retail outlets. Our contract with Ingram Micro
requires us to accept the return of any of our products that Ingram Micro does
not sell and to credit Ingram Micro for the value of these products. Our
contract with Ingram Micro also protects Ingram Micro for the value of its
inventory in the event that we lower our prices. If Ingram Micro fails to
continue to carry our products, returns a large quantity of our products to us,
or competitive pressures
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require us to lower the prices of the products that we supply to Ingram Micro,
our business will suffer.
The growth of our business depends upon the increased use of the internet for
communications, commerce and advertising.
The growth of our business depends upon the continued growth of the
Internet as a medium for communications. The Internet may not be accepted as a
viable commercial medium for broadcasting digital and multimedia content or
digital media delivery for a number of reasons, including:
. potentially inadequate development of the necessary infrastructure to
accommodate growth in the number of users and Internet traffic;
. lack of acceptance of the Internet as a medium for media delivery;
. unavailability of compelling multimedia content; and
. delays in the development or adoption of new technological standards and
protocols or increased governmental regulations, which could inhibit the
growth and use of the Internet.
In addition, we believe that other Internet-related issues, including
security of transactions, reliability of data transmission, cost and ease of
use, are not fully resolved and may affect the amount of business that is
conducted over the Internet.
If Internet usage grows, its infrastructure may not be able to support the
demands placed on it by this growth, in particular growing demands for
delivering high-quality media content. As a result, its performance and
reliability may decline. In addition, websites have experienced interruptions
in service as a result of outages and other delays occurring throughout the
Internet network infrastructure. If these outages or delays occur frequently in
the future, Internet usage, as well as the use of our products and services,
could grow more slowly or decline.
Our business will suffer if our systems fail or become unavailable.
A reduction in the performance, reliability and availability of our website
and network infrastructure will harm our ability to distribute our products and
services to our users, as well as our reputation and ability to attract and
retain users, customers, advertisers and content providers. Our systems and
operations could be damaged or interrupted by fire, flood, power loss,
telecommunications failure, Internet breakdown, earthquake and similar events.
Our systems are also subject to break-ins, sabotage, intentional acts of
vandalism and similar misconduct. Our computer and communications infrastructure
is located at a single facility in Madison, Wisconsin. We do not have fully
redundant systems or a formal disaster recovery plan, and we do not carry
adequate business interruption insurance to compensate us for losses that may
occur from a system outage.
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Our electronic commerce and digital distribution activities are managed by
sophisticated software and computer systems. We are in the process of adopting a
new enterprise information system, which handles all of the company's
accounting, operations, sales and information systems. We may encounter delays
in adopting this or other systems that we use. Furthermore, these systems may
contain undetected errors that could cause the systems to fail. Any system error
or failure that causes interruption in availability of products or content or an
increase in response time could result in a loss of potential or existing
business services customers. If we suffer sustained or repeated interruptions,
our products, services and website could be less attractive and our business may
suffer.
A sudden and significant increase in traffic on our website could strain
the capacity of the software, hardware and telecommunications systems that we
deploy or use. This could lead to slower response times or system failures. We
depend on Web browsers, ISPs and online service providers to provide Internet
users access to our website. Many of these providers have experienced
significant outages in the past, and could experience outages, delays and other
difficulties due to system failures unrelated to our systems.
We may not be successful in protecting our intellectual property and proprietary
rights.
Our inability to protect our proprietary rights, and the costs of doing so,
could harm our business. Our success and ability to compete partly depend on
the superiority, uniqueness or value of our technology, including both
internally developed technology and technology licensed from third parties. To
protect our proprietary rights, we rely on a combination of trademark, copyright
and trade secret laws, confidentiality agreements with our employees and third
parties and "shrink wrap" licenses. Despite our efforts to protect our
proprietary rights, unauthorized parties may copy or infringe aspects of our
technology, products, services or trademarks, or obtain and use information we
regard as proprietary. In addition, others may independently develop
technologies that are similar or superior to ours, which could reduce the value
of our intellectual property.
Companies in the computer industry have frequently resorted to litigation
regarding intellectual property rights. We may have to litigate to enforce our
intellectual property rights, to protect our trade secrets or to determine the
validity and scope of other parties' proprietary rights. From time to time,
other parties' proprietary rights, including patent rights, have come to our
attention and on several occasions we have received notice of claims of
infringement of other parties' proprietary rights, and we may receive such
notices in the future.
Our intellectual property may infringe the rights of others.
Because we protect our proprietary rights with a combination of trademark,
copyright and trade secret laws, confidentiality agreements with our employees
and third parties and "shrink wrap" licenses rather than with patents, our
intellectual property may unintentionally infringe upon the proprietary rights
of others. If a third party's claim of intellectual property right infringement
were to prevail, we could be forced to pay damages, comply with
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injunctions, or halt distribution of our products while we re-engineer them or
seek licenses to necessary technology, which might not be available on
reasonable terms. We could also be subject to claims for indemnification
resulting from infringement claims made against our customers and strategic
partners, which could increase our defense costs and potential damages. In
addition, we have agreed to indemnify certain distributors and original
equipment manufacturers, or OEMs, for infringement claims of other parties. If
these other parties sue the distributors or OEMs, we may be responsible for
defending the lawsuit and for paying any judgment that may result. Any of these
events could harm our business.
We may be unable to retain technology licensed or obtained from third parties
and strategic partners.
We rely upon licenses from third parties and strategic partners for some of
our technologies. These companies that license the technologies to us may
decide to discontinue the licenses at any time. If they do so, our business may
suffer.
Further, the Internet and software industries have experienced substantial
consolidation and a proliferation of strategic transactions. We expect this
consolidation and strategic partnering to continue. Acquisitions or strategic
relationships could harm us in a number of ways. For example:
. our competitors could acquire or form partnerships with companies with which
we have strategic relationships and discontinue our relationship, resulting
in the loss of distribution opportunities for our products and services or
the loss of certain enhancements or value-added features to our products and
services; or
. a party with significant resources and experience could acquire a competitor
of ours, increasing the ability of the competitor to compete with our
products and services.
Stockholders may be unable to exercise control because our management controls a
large percentage of our stock.
Our directors, officers and affiliated persons beneficially own
approximately 60% of our common stock and exercise significant influence over
stockholder voting matters limiting the influence of our other stockholders. If
our directors, officers and affiliated persons act together, they will be able
to influence the composition of our board of directors, and will continue to
have significant influence over our affairs in general.
Provisions of our charter documents and Maryland law could discourage an
acquisition of our company that would benefit our stockholders.
Provisions of our articles of incorporation and by-laws may make it more
difficult for a third party to acquire control of our company, even if a change
in control would benefit our stockholders. Our articles authorize our board of
directors, without stockholder approval, to issue one or more series of
preferred stock, which could have voting and conversion rights that adversely
affect or dilute the voting power of the holders of common stock.
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Furthermore, our articles of incorporation provide for classified voting, which
means that our stockholders may vote upon the retention of only one of our five
directors each year. Moreover, Maryland corporate law restricts certain business
combination transactions with "interested stockholders."
Our stock price has been and may continue to be volatile.
The trading price of our common stock has been and is likely to continue to
be highly volatile. For example, during the 52-week period ended October 22,
1999, the price of our common stock ranged from $6.25 to $20.75 per share. In
addition, the stock market in general, and the market for technology companies
in particular, have experienced extreme price and volume fluctuations that have
often been unrelated or disproportionate to the operating performance of these
companies. These broad market and industry factors may reduce our stock price,
regardless of our operating performance.
The exercise of our redeemable warrants or public warrants may result in
substantial dilution.
The exercise prices of our Redeemable Warrants and Public Warrants is
considerably higher than our per share net tangible book value. As a result,
the exercise of Redeemable Warrants or Public Warrants may result in substantial
dilution.
At June 30, 1999, we had a net tangible book value of $9,441,093 or
approximately $1.45 per share of common stock outstanding, based upon 6,497,249
shares issued and outstanding. Assuming the exercise of the Representatives'
Warrant and all of the Redeemable Warrants issued as part of the
Representatives' Warrant, and assuming further the exercise of all 1,145,312
Public Warrants, the number of shares of common stock will increase to 7,942,561
and the net tangible book value will increase to $26,654,853 after subtracting
the expenses of the offerings covered by this prospectus which are estimated to
be $25,000, resulting in a net tangible book value per share of approximately
$3.36. To the extent that currently outstanding options and warrants to
purchase our common stock are exercised, and depending upon our net tangible
book value on the date of exercise, there may be further, substantial, dilution
to investors in the Offerings covered by this prospectus exercising Redeemable
Warrants or Public Warrants. For more information, see "Dilution".
Exercise of outstanding options and warrants may result in further dilution.
The issuance of shares of common stock upon the exercise of our outstanding
options and warrants will result in dilution to the interests of our
stockholders and you as an investor in the Offering, and may have and adverse
effect on the trading price and market for our common stock.
We have outstanding options and warrants exercisable to acquire 2,550,813
shares of common stock, 260,058 of which are subject to future vesting.
Included in the foregoing are 768,225 options which have been granted under our
1995 Employee Stock Option Plan and our non-employee director stock option plan,
508,167 of which are immediately exercisable.
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Additionally, included in the foregoing are 1,145,312 shares of common stock
issuable upon exercise of our Public Warrants, and 200,000 shares of common
stock issuable upon exercise of the Representatives' Warrant, together with an
additional 100,000 shares of common stock issuable upon exercise of the
Redeemable Warrants also issuable to the Representatives under the
Representatives' Warrant.
To the extent that these stock options or warrants are exercised, the
dilution to the interests of our stockholders and you as an investor will likely
occur. Additional options and warrants may be issued in the future at prices
not less than 85% of the fair market value of the underlying security on the
date of grant. Exercise of these options or warrants, or even the potential of
their exercise of conversion may have an adverse effect on the trading price and
market for our common stock. The holders of our options or our warrants are
likely to exercise them at times when the market price of the common stock
exceeds the exercise price of the securities. Accordingly, the issuance of
shares of common stock upon exercise of the options or our warrants will likely
result in dilution of the equity represented by the then outstanding shares of
common stock held by other stockholders. Holders of our options or our warrants
can be expected to exercise them at a time when we would, in all likelihood, be
able to obtain any needed capital on terms which are more favorable to us than
the exercise terms provided by these options or warrants. For more information,
see "Description of Securities".
Substantial sales of our common stock could lower our stock price.
The market price for our common stock could drop as a result of sales of a
large number of our presently outstanding shares, or the perception that these
sales could occur. These factors also could make it more difficult for us to
raise funds through future offerings of our common stock. For more information,
see "Shares Eligible For Future Sale."
Our business could suffer if we lose the services of, or fail to attract, key
personnel.
Our success depends in significant part upon a number of key management and
technical employees. The loss of the services of one or more key employees,
particularly Rimas Buinevicius, our Chairman of the Board and Chief Executive
Officer, Monty R. Schmidt, our President, and Curtis Palmer, our Chief
Technology Officer, could seriously impede our success. Although we have
employment agreements with each of these individuals, a state court may
determine not to enforce, or to only partially enforce, these agreements. We do
not have employment agreements with any other of our key employees. We maintain
$1 million "key-man" insurance policies on the lives of Mr. Buinevicius, Mr.
Schmidt, and Mr. Palmer, but do not maintain any "key-man" insurance policies on
any other employees. Our success also depends upon our ability to attract and
retain highly skilled technical, managerial, marketing, and customer service
personnel. Competition for highly-skilled personnel is intense. In particular,
we have experienced difficulty in hiring software engineers and other technical
employees necessary to further our research and development efforts. Our
failure to attract or retain these personnel could adversely affect our
business.
We may not successfully manage our growth.
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We cannot successfully implement our business model if we fail to manage
our growth. We have rapidly and significantly expanded our operations
domestically and internationally and anticipate further expansion to take
advantage of market opportunities. We have increased the number of our full-time
employees from 43 on January 1, 1998 to 160 on September 30, 1999. Managing this
substantial expansion has placed a significant strain on our management,
operational and financial resources. If our growth continues, we will need to
continue to improve our financial and managerial control and reporting systems
and procedures.
We may pursue acquisitions and investments that could adversely affect our
business.
We may make acquisitions of, or investments in, businesses, products and
technologies that could complement or expand our business in the future. We
currently have no commitments or agreements with respect to any business
acquisitions or investments. If we identify an acquisition candidate, we may
not be able to successfully negotiate or finance the acquisition or integrate
the acquired businesses, products or technologies into our existing business and
products. Future acquisitions could result in potentially dilutive issuances of
equity securities, the incurrence of debt and contingent liabilities,
amortization expenses, write-downs of acquired assets.
Our international operations involve risks.
We have an office in the Netherlands, and we use over 60 distributors to
market and sell our products in 52 countries. For the nine-month period ended
June 30, 1999, approximately 14% of our revenues were derived from our
international operations. We are subject to the normal risks of doing business
internationally any of which may harm our business. These risks include:
. unexpected changes in regulatory requirements;
. export and import restrictions;
. tariffs and trade barriers and limitations on fund transfers;
. longer payment cycles and problems in collecting accounts receivable;
. potential adverse tax consequences;
. exchange rate fluctuations; and
. increased risk of piracy and limits on our ability to enforce our
intellectual property rights.
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We may be subject to assessment of sales and other taxes for the sale of our
products, license of technology or provision of services.
We may have to pay past sales or other taxes that we have not collected
from our customers. We do not currently collect sales or other taxes on the sale
of our products, license of technology or provision of services in states and
countries other than Wisconsin. The federal Internet Tax Freedom Act, passed in
1998, imposes a three-year moratorium on discriminatory sales taxes on
electronic commerce. We cannot assure you that this moratorium will be extended.
Further, foreign countries or, following the moratorium, one or more states, may
seek to impose sales or other tax obligations on companies that engage in such
activities within their jurisdictions. Our business would suffer if one or more
states or any foreign country were able to require us to collect sales or other
taxes from current or past sales of products, licenses of technology or
provision of services, particularly because we would be unable to go back to
customers to collect sales taxes for past sales and may have to pay such taxes
out of our own funds.
We need to maintain current prospectus and state blue sky registrations for our
warrants.
The Representatives' Warrant, Redeemable Warrants or Public Warrants may be
deprived of any value if a prospectus covering the shares of common stock
issuable upon their exercise is not kept effective and current, or if the
underlying shares of common stock are not, or cannot be, registered in the
applicable states.
As a holder of the Representatives' Warrant, Redeemable Warrants or Public
Warrants you will have the right to exercise the warrants to acquire securities
underlying such warrants only if there is a current and effective registration
statement and prospectus covering the underlying securities issuable upon their
exercise, and only if the underlying securities are qualified for sale, or
exempt from qualification, under the securities laws of the applicable state or
states. While we have undertaken and plan to do so, maintaining a current
effective registration statement and prospectus could result in substantial
expense, and there can be no assurance that a current registration statement and
prospectus will be in effect when you may want to exercise the Representatives'
Warrant, the Redeemable Warrants or Public Warrants. Although we will seek to
qualify for sale the shares of common stock underlying the Representatives'
Warrant, Redeemable Warrants and Public Warrants in those states in which the
securities are to be offered and qualification is required, no assurance can be
given that the required qualification will occur. The warrants may be deprived
of any value if a prospectus covering the shares issuable upon the exercise
thereof is not kept effective and current, or if the underlying shares are not,
or cannot be, registered in the applicable states. For more information, see
"Description of Securities".
Potential adverse effect of warrant redemption.
Our redemption of the Redeemable Warrants or Public Warrants could force
you to exercise the warrants at a time when it may be disadvantageous for you to
do so.
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We can redeem the Redeemable Warrants or Public Warrants at a price of
$0.10 per warrant upon 30 days' notice, if the average closing sale price of the
common stock as reported on the Amex equals or exceeds $20.00 per share for any
twenty (20) trading days within a period of thirty (30) consecutive trading days
ending on the fifth trading day prior to the date of the notice of redemption.
As a holder of Redeemable Warrants or Public Warrants, you will have exercise
rights until the close of the business day preceding the date fixed for
redemption. However, as a holder of the Redeemable Warrants or Public Warrants,
upon redemption you could be forced:
. to exercise the Redeemable Warrants or Public Warrants and pay the exercise
price at a time when it may be disadvantageous for you to do so;
. to sell the Redeemable Warrants at fair value or Public Warrants at the then
current market price when you might otherwise wish to hold them; or
. to accept the redemption price, which is likely to be substantially less than
the fair value of the Redeemable Warrants or market value of our Public
Warrants at the time of redemption.
Neither our Redeemable Warrants nor our Public Warrants may be redeemed or
exercised unless a registration statement pursuant to the Securities Act
covering the underlying shares of common stock is current and these shares have
been qualified for sale, or there is an exemption from applicable qualification
requirements, under the securities laws of your state of residence as a holder
of the Redeemable Warrants or Public Warrants. For more information, see
"Description of Securities".
DILUTION
At June 30, 1999, we had a net tangible book value of $9,441,093 or
approximately $1.45 per share of common stock outstanding, based upon 6,497,249
shares issued and outstanding. Net tangible book value per share is determined
by dividing the number of outstanding shares of common stock into our net
tangible book value (total assets less total liabilities and intangible assets).
The foregoing calculation does not reflect the possible occurrence of the
following events:
. The possible exercise of the Representatives' Warrant or the possible
exercise of the Redeemable Warrants to be issued upon exercise of the
Representatives' Warrant; or
. The possible exercise of 1,145,312 Public Warrants.
The occurrence of all or any one of the foregoing events, will further
dilute existing stockholders. Specifically, if any outstanding warrants are
exercised, including the Redeemable Warrants issuable upon exercise of the
Representatives' Warrant, or our Public Warrants sold in our initial public
offering, of which there can be no assurance, the number
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of common shares outstanding will increase and our net tangible book value will
increase. The exercise of any of our outstanding warrants at a time when the
exercise price is greater than our net tangible book value per share will result
in an immediate increase in the net tangible book value of our existing
shareholders, and you, as an exercising warrant holder, will experience
immediate dilution in the value of your investment. Dilution is the reduction of
value of your investment measured by the difference between the warrant exercise
price you pay and our net tangible book value per share after giving effect to
the exercise of your warrants, if your warrants are exercised at a time when the
warrant exercise price is greater than the net tangible book value per
outstanding share before the exercise. The dilution per share will decrease with
the exercise of each additional warrant because the proceeds from each such
exercise will increase our net tangible book value. As a result, assuming the
exercise of the Representatives' Warrant and the exercise of the Redeemable
Warrants issued upon exercise of the Representatives' Warrant, and finally,
assuming the exercise of all 1,145,312 Public Warrants currently outstanding,
our net tangible book value would increase to $26,654,853 after subtracting the
expenses of the Offerings covered by this prospectus estimated to be $25,000,
resulting in an adjusted net tangible book value per share of approximately
$3.36 per share based on 7,942,561 shares issued and outstanding.
As a result, as an investor exercising the Representatives' Warrant you
will incur immediate and substantial dilution of your investment of
approximately $9.02 per share, or approximately 73% of the Representatives'
Warrant exercise price, as an investor exercising Redeemable Warrants you will
incur immediate and substantial dilution of your investment of approximately
$15.27 per share, or approximately 82% of the Redeemable Warrant exercise price,
and as an investor exercising Public Warrants you will incur immediate and
substantial dilution of your investment of approximately $7.89 per share, or
approximately 70% of the Public Warrant exercise price, based upon our adjusted
net tangible book value as of June 30, 1999, and after giving effect to the
transactions we have discussed above. Thus, to the extent that currently
outstanding options and warrants to purchase our common stock are exercised, and
depending upon our net tangible book value on the date of exercise, there may be
further, substantial, dilution to you as an investor exercising Redeemable
Warrants.
USE OF PROCEEDS
The 1,445,312 shares of common stock, the 100,000 Redeemable Warrants, and
the Representatives' Warrant covered by this prospectus consist of the
following:
. 200,000 shares of common stock and 100,000 Redeemable Warrants issuable to
the Representatives upon exercise of the Representatives' Warrant at a price
of $12.375 per share and at a price of $0.165 per Redeemable Warrant;
. 100,000 shares of common stock which may be purchased by the Representatives
upon exercise of the Redeemable Warrants at a price of $18.625 per share;
. 1,145,312 shares of common stock issuable upon exercise of Public Warrants
sold in our initial public offering exercisable at a price of $11.25 per
share; and
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. the Representatives' Warrant.
We will not receive any proceeds from the resale of our common stock,
Representatives' Warrant, Redeemable Warrants or Public Warrants. We may,
however, receive proceeds from the following:
. If the Representatives exercise the Representatives' Warrant we will receive
gross proceeds of $2,491,500. Additionally, if all of the shares we are
offering are purchased pursuant to the exercise of the Redeemable Warrants
issued to the Representatives upon exercise of the Representatives' Warrant,
which we cannot guarantee, then we will receive additional gross proceeds of
up to $1,862,500; and
. If all of the shares that we are offering pursuant to this prospectus are
purchased pursuant to the exercise of our Public Warrants sold in the public
offering, which we cannot guarantee, then we will receive additional gross
proceeds of up to $12,884,760.
Pursuant to an agreement with the Representatives and those investors who
purchased our securities in our initial public offering, we have agreed to pay
the cost of registering the securities covered by this prospectus which we
estimate will cost $25,000. Those investors who purchased our securities in our
initial public offering will, however, pay the other costs related to the resale
of their securities, including discounts, commissions and transfer fees.
We anticipate that the proceeds, if any, which we receive from the exercise
of the Redeemable Warrants, the Representatives' Warrant or our Public Warrants
will be applied to provide additional working capital. Pending their use,
proceeds will be placed in short-term interest-bearing investment grade
securities, certificates of deposit or direct or guaranteed obligations of the
United States of America.
We regularly evaluate possibilities for the acquisition of other
businesses, technologies or products, but at present there are no negotiations,
arrangements, agreements or understanding with respect to any potential material
acquisition other than as noted in this prospectus.
Due to our inability to precisely forecast the number of shares of common
stock or Redeemable Warrants which may be sold pursuant to the exercise of the
Representatives' Warrant, or the number, if any, of Redeemable Warrants or
Public Warrants which will thereafter be exercised by the Representatives and
those investors that acquired our securities in our initial public offering, we
are unable to predict the precise period for which the various offerings covered
by this prospectus will provide financing. We may need to seek funds through
loans or other financing arrangements in the future, and there can be no
assurance that we will be able to make these arrangements in the future should
the need arise. For more information, see "Risk Factors".
SHARES ELIGIBLE FOR FUTURE SALE
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As of October 15, 1999, 6,497,249 shares of our common stock were issued
and outstanding, of which 2,466,010 were unrestricted and freely tradable at the
discretion of their owners and 4,031,239 were "restricted securities" and under
certain circumstances may, in the future, be sold in compliance with Rule 144
adopted under the Securities Act. In general under Rule 144, subject to the
satisfaction of certain other conditions, a person, including our affiliates,
who beneficially owned restricted shares of common stock for at least one year
is entitled to sell, within any three month period, a number of shares that does
not exceed the greater of:
. one percent of the total number of outstanding shares of the same class; or
. if the common stock is quoted on a stock exchange or Nasdaq, the average
weekly trading volume during the four calendar weeks immediately preceding
the sale. A person who presently is not, and who has not been an affiliate of
ours for at least three months immediately preceding the sale, and who has
beneficially owned the shares of common stock for at least two years is
entitled to sell his or her shares under Rule 144 without regard to the
volume limitations described above.
All of the 4,031,239 outstanding shares of our common stock that are
restricted are eligible for sale in the public market without restriction in
reliance upon Rule 144(k). Our officers, directors and affiliates beneficially
own 3,831,239 of the 4,031,239 restricted shares outstanding, all of which are
immediately eligible for resale subject to the volume limitations of Rule 144.
In addition to the 4,031,239 restricted shares outstanding, we currently have
various outstanding warrants exercisable to purchase an additional 1,782,588
shares of common stock, of which 1,445,312 underlying shares of common stock may
be freely tradable upon exercise pursuant to this registration statement. In
addition, we currently have issued outstanding options to purchase an aggregate
of 768,225 shares of common stock, all of which may be freely tradable upon
exercise due to a registration statement covering our 1995 Stock Option Plan and
Non-Employee Directors Stock Option Plan.
No prediction can be made as to the effect, if any, that sales of shares of
common stock or the availability of these shares for sale will have on the
market prices prevailing from time-to-time. Nevertheless, the possibility that
substantial amounts of common stock may be sold in the public market may
adversely affect prevailing market prices for the common stock and Public
Warrants and could impair our ability to raise capital in the future through the
sale of equity securities. Actual sales or the prospect of future sales of
shares of common stock under Rule 144 may have a depressive effect upon the
prices of, and markets for, our common stock and Public Warrants.
DETERMINATION OF OFFERING PRICES
The exercise price of the Representatives' Warrant is $12.375 per share and
$0.165 per Redeemable Warrant. The exercise price of the Redeemable Warrants is
$18.625 per share. The offering price of the common stock we are offering
pursuant to the exercise of our Public Warrants is $11.25 per share. The
exercise prices for the Representatives' Warrant, the Redeemable Warrants and
our Public Warrants were determined by negotiation with the
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Representatives in connection with our initial public offering. In determining
the offering prices, together with the Representatives, we considered, among
other things, our financial condition, our net tangible book value, our limited
operating history and the general condition of the securities market.
Accordingly, the exercise prices should not be considered an indication of our
actual value. The exercise prices bear no relation to our assets, book value,
earnings or net worth or any other traditional criteria of value.
PLAN OF DISTRIBUTION
Exercise of Representatives' Warrant: the Representatives' Warrant Offering
This prospectus relates to our offering of 200,000 shares of common stock
and 100,000 Redeemable Warrants issuable upon exercise of the Representatives'
Warrant, along with our offering of the Representatives' Warrant. The
Representatives' Warrant was issued to the Representatives as partial
compensation for their services in connection with our initial public offering.
We do not have the right to compel the exercise of the Representatives'
Warrant and the Representatives have made no commitment or other arrangement
with regard to this exercise. Whether any or all of the Representatives'
Warrant is exercised will depend upon several factors, including the prevailing
market prices of our common stock and the Pubic Warrants, the liquidity of these
markets and the Representatives' investment objectives. For more information,
see "Risk Factors". Accordingly, there can be no assurance of the number, if
any, of shares of common stock or Redeemable Warrants that will be purchased
pursuant to the exercise of this Representatives' Warrant.
We intend to maintain a current prospectus until this Representatives'
Warrant expires, or until it is all exercised, if earlier. We may at any time
and from time to time extend the term of this Representatives' Warrant or reduce
its exercise price, provided written notice of any extension or reduction is
given to the Representatives prior to the expiration date then in effect.
The shares of common stock and Redeemable Warrants to be issued upon
exercise of this Representatives' Warrant are offered on a delayed or continuous
basis pursuant to Rule 415 under the Securities Act.
Exercise of Representatives' Redeemable Warrants: the Representatives'
Redeemable Warrant Offering
We are also offering up to 100,000 shares of common stock issuable at
$18.625 per share upon exercise of the Redeemable Warrants issuable to the
Representatives upon exercise of the Representatives' Warrant. The Redeemable
Warrants issuable to the Representatives are exercisable until April 22, 2003,
unless earlier redeemed. We may redeem these Redeemable Warrants, in whole or
in part, at any time upon at least 30 days' prior written notice to the
registered holder of these Redeemable Warrants, at a price of $.10 per warrant,
provided that the closing sale price of our common stock must have equaled or
22
<PAGE>
exceeded $20.00 per share for any twenty (20) trading days within a period of
thirty consecutive trading days ending on the fifth trading day immediately
preceding the date we give notice of our intention to redeem these Redeemable
Warrants.
We do not have the right to compel the exercise of any of these Redeemable
Warrants and the Representatives have not committed to exercise any of them.
Whether any of these Redeemable Warrants are exercised will depend upon several
factors, including the prevailing market price of our Public Warrants and our
common stock, the liquidity of those markets, if any, and the personal
investment objectives of the holder of these Redeemable Warrants. For more
information, see "Risk Factors". Accordingly, there can be no assurance of the
number, if any, of shares that will be purchased pursuant to the exercise of
these Redeemable Warrants. We intend to maintain a current prospectus until
these Redeemable Warrants expire, or until they are all exercised, if earlier.
We may at any time and from time to time extend the term of these Redeemable
Warrants or reduce their exercise price, provided written notice of any
extension or reduction is given to the registered holders of these Redeemable
Warrants prior to the expiration date then in effect.
The shares of common stock to be issued upon exercise of these Redeemable
Warrants are offered on a delayed or continuous basis pursuant to Rule 415 under
the Securities Act.
We are offering the shares of common stock underlying these Redeemable
Warrants. No underwriter or placement agent has been engaged to assist us in
this regard and no commissions will be paid to any person. Holders of the
shares of common stock issuable upon exercise of these Redeemable Warrants may
resell the shares from time to time in transactions, which may include block
transactions, in the over-the-counter market, in negotiated transactions,
through the writing of options on the common stock or a combination of these
methods of sale, at fixed prices that may be changed, at market prices
prevailing at the time of sale, or at negotiated prices. Holders of the shares
of common stock issuable upon exercise of these Redeemable Warrants may effect
these transactions by selling the common stock directly to purchasers or through
broker-dealers that may act as agents or principals. These broker-dealers may
receive compensation in the form of discounts, concessions or commissions from
the person selling the shares of common stock or the purchasers of the shares of
common stock for whom the broker-dealers may act as agents or to whom they sell
as principals, or both, which compensation as to a particular broker-dealer
might be in excess of customary commissions.
Exercise of Public Warrants: the Public Warrant Offering
We are also offering up to 1,145,312 shares of common stock issuable upon
exercise of 1,145,312 Public Warrants currently owned by certain investors who
acquired these Public Warrants as part of the units sold in our initial public
offering. The holders of these Public Warrants are entitled to acquire up to
1,145,312 shares of common stock at an exercise price of $11.25 per share. These
Public Warrants are exercisable until April 22, 2003, unless earlier redeemed.
We may redeem these Public Warrants, in whole or in part, at any time upon at
least 30 days' prior written notice to the registered holders thereof, at a
price of $.10
23
<PAGE>
per warrant, provided that the closing sale price of our common stock has
equaled or exceeded $20.00 per share for any twenty (20) trading days within a
period of thirty consecutive trading days ending on the fifth trading day
immediately preceding the date we give notice of our intention to redeem these
Public Warrants.
We do not have the right to compel the exercise of any of these Public
Warrants and the holders of our Public Warrants have not committed to exercise
any of our Public Warrants. Whether any Public Warrants are exercised will
depend upon several factors, including the prevailing market price of our Public
Warrants and common stock, the liquidity of those markets, if any, and the
personal investment objectives of the investor. For more information, see "Risk
Factors". Accordingly, there can be no assurance of the number, if any, of
shares that will be purchased pursuant to the exercise of our Public Warrants.
We intend to maintain a current prospectus until our Public Warrants expire, or
until they are all exercised, if earlier. We may at any time and from time to
time extend the term of our Public Warrants or reduce their exercise price,
provided written notice of any extension or reduction is given to the registered
holders of our Public Warrants prior to the expiration date then in effect.
The shares of common stock to be issued upon exercise of our Public
Warrants are offered on a delayed or continuous basis pursuant to Rule 415 under
the Securities Act.
We are offering the shares of common stock underlying our Public Warrants.
No underwriter or placement agent has been engaged to assist us in this regard
and no commissions will be paid to any person. Holders of our Public Warrants
may resell the shares from time to time in transactions, which may include block
transactions, in the over-the-counter market, in negotiated transactions,
through the writing of options on the underlying common stock or a combination
of these methods of sale, at fixed prices that may be charged, at market prices
prevailing at the time of sale, or at negotiated prices. Holders of our Public
Warrants may effect these transactions by selling the underlying common stock
directly to purchasers or through broker-dealers that may act as agents or
principals. These broker-dealers may receive compensation in the form of
discounts, concessions or commissions from the person selling the shares of
common stock or the purchasers of the shares of common stock for whom the
broker-dealers may act as agents or to whom they sell as principals, or both
(which compensation as to a particular broker-dealer might be in excess of
customary commissions).
Limitation On Directors' And Officers' Liability; Indemnification
Our Articles of Incorporation limit the liability of our directors to our
Company or our stockholders, in their capacity as directors but not in their
capacity as officers, to the fullest extent permitted by the Maryland General
Corporation Law, or MGCL. Accordingly, pursuant to the terms of the MGCL as
presently in effect, we may indemnify any director made a party to any
proceeding by reason of his service in that capacity unless it is established
that:
24
<PAGE>
. the act or omission of the director was material to the matter giving rise
to the proceeding and was committed in bad faith or was the result of active
and deliberate dishonesty;
. the director actually received an improper personal benefit in money,
property or services; or
. in the case of any criminal proceeding, the director had reasonable cause to
believe that the act or omission was unlawful.
In addition, our Bylaws require us to indemnify each person who is or was,
a director, officer, employee or agent of our Company to the fullest extent
permitted by the laws of the State of Maryland in the event he is involved in
legal proceedings by reason of the fact that he is or was a director, officer,
employee or agent of our Company, or is or was serving at our request as a
director, officer, employee or agent of another corporation, partnership or
other enterprise. We may also advance to such persons expenses incurred in
defending a proceeding to which indemnification might apply, upon terms and
conditions, if any, deemed appropriate by the Board of Directors upon receipt of
an undertaking by or on behalf of such director or officer to repay all such
advanced amounts if it is ultimately determined that he is not entitled to be
indemnified as authorized by the laws of the State of Maryland.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the 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.
DESCRIPTION OF SECURITIES
The following description of our securities and certain provisions of our
Articles of Incorporation and Bylaws is a summary and is qualified in its
entirety by the provisions of our Articles of Incorporation and Bylaws.
Our authorized capital stock consists of 20,000,000 shares of common stock,
$.01 par value and 15,000,000 shares of preferred stock, $.01 par value (the
"preferred stock"), of which 10,000,000 shares are designated as Series B
preferred stock. There are currently 6,497,249 shares of common stock issued and
outstanding. No shares of Series B preferred stock are outstanding.
Common Stock
25
<PAGE>
Holders of common stock are entitled to one vote per share on all matters
to be voted upon by our stockholders. Subject to the preferences that may be
applicable to any future shares of preferred stock outstanding, the holders of
common stock are entitled to receive ratably such dividends, if any, as may be
declared by our Board of Directors out of legally available funds. In the event
of liquidation, dissolution or winding up of our company, the holders of common
stock are entitled to share ratably in all assets remaining after payment of
liabilities, subject to the prior liquidation rights of any future shares of
preferred stock outstanding. The holders of common stock have no preemptive,
redemption, conversion, sinking fund or other subscription rights. The
outstanding shares of common stock are, and the underlying shares offered by us
in the offerings covered by this prospectus will be, when issued and paid for,
fully paid and nonassessable. The rights, preferences and privileges of holders
of common stock are subject to, and may be adversely affected by, the rights of
the holders of shares of any series of preferred stock which we may designate
and issue in the future.
Preferred Stock
In September 1999, all previously outstanding preferred stock was converted
into common stock. Our Board of Directors has the authority, without further
action by the stockholders, to issue up to 5,000,000 shares of preferred stock
in one or more series and to fix the right, preferences, privileges and
restrictions thereof, including dividend rights, dividend rates, conversion
rights, voting rights, (which may be greater or lessor than the voting rights of
the common stock), rights and terms of redemption, liquidation preferences,
sinking fund terms and the number of shares constituting any series or the
designation of such series without any further vote or action by the
stockholders. The issuance of such shares of preferred stock could adversely
affect the voting power of holders of common stock and the likelihood that such
holders will receive dividend payments and payments upon liquidation and could
have the effect of delaying, deferring or preventing a change in control of the
Company. We have no present plans to issue any additional shares of preferred
stock however, if issued it could discourage a third party from attempting to
acquire a majority of our outstanding common stock.
Outstanding Warrants and Convertible Debentures
During 1996, we issued a warrant to a consultant retained by us to purchase
common stock in connection with the consultant's stockholder relations contract
with us. The contract gives the consultant the right, through August 1, 2001, to
purchase 60,000 shares of common stock at an exercise price of $5.00 per share.
In July 1998, we extended the contract with the consultant for an additional two
years and awarded additional warrants to purchase 70,000 shares of common stock
at an exercise price of $5.00 per share. Such warrants vested immediately and
expire in July 2003. As required by SFAS No. 123, "Accounting for Stock-Based
Compensation," we calculated the fair value of the warrants using the Black-
Scholes option pricing model. We recorded consulting expense of $78,000 and
$16,500 relating to the warrants during the nine month-period ended September
30, 1997 and the year ended September 30, 1998, respectively.
26
<PAGE>
In connection with the issuance in February 1998 of unsecured notes in the
aggregate principal amount of $1,000,000, (see Note 2) we issued stock warrants
which give the holders the right from February 1999 to February 2003 to purchase
50,000 shares of common stock at an exercise price of $5.00 per share. Such
warrants were valued at $65,000. Effective February 1999, the holders will have
piggyback registration rights with respect to the common stock issuable upon
exercise of the warrants for the term of the warrants.
Concurrent with the issuance of common stock during our initial public
offering initiated in April 1998, we sold 1,145,387 common stock purchase
warrants at a price of $0.10 each. Each warrant entitles the holder to purchase,
at any time commencing October 22, 1998 until April 22, 2003 one share of common
stock at a price of $11.25 per share, subject to adjustment in accordance with
anti-dilution and other provisions. Commencing October 22, 1999, the warrants
will be subject to redemption by us at $0.10 per warrant, on thirty (30) days'
prior written notice to the warrant holders, if the average closing sale price
of the common stock as reported on the Amex equals or exceeds $20.00 per share
for any twenty (20) trading days within a period of thirty consecutive trading
days ending on the fifth trading day prior to the date of the notice of
redemption.
In connection with our initial public offering, we sold to the
representatives for nominal consideration, warrants to purchase from us up to
200,000 shares of common stock and 100,000 warrants. The warrants are initially
exercisable at any time during a four year period commencing April 22, 1998 at a
price of $12.375 per share of common stock and $0.165 per warrant. The warrants
issuable upon exercise of the warrants are initially exercisable at a price of
$18.625 per share. The warrants grant to the holders thereof certain rights of
registration for the securities issuable upon exercise thereof.
In September 1999 we issued $5,000,000 of 7.5% Convertible Subordinated
Redeemable Debentures due September 2002. The debentures are convertible into
common stock at a rate of $10.28 per share, subject to certain adjustments.
Concurrent with the issuance of the debentures, we issued the investors 97,276
warrants expiring September 2004. The warrants are initially exercisable at any
time at a price of $10.28 per share of common stock. In addition, we issued
30,000 warrants to a consultant that expire in September 2004 and are
exercisable at a price of $11.68 per common share. We also issued an aggregate
of 30,000 warrants to Frederick H. Kopko, Jr., one of our directors, and to
another individual in connection with a stand-by financing commitment in the
amount of $2,000,000. These warrants expire in August 2004 and are exercisable
at a price of $8.00 per common share.
Representatives' Warrant
In connection with our initial public offering, we sold to the
representatives for nominal consideration, a Representatives' Warrant to
purchase from us up to 200,000 shares of common stock and 100,000 warrants. The
Representatives' Warrant is initially exercisable at any time during a four year
period commencing April 22, 1998 at a price of $12.375 per share of common stock
and $0.165 per Representatives' Warrant. The Representatives'
27
<PAGE>
Warrant grants certain registration rights to the holders of the
Representatives' Warrant for the securities that underlie the Representatives'
Warrant.
Redeemable Warrants
The Redeemable Warrants issuable upon exercise of the Representatives'
Warrant are initially exercisable at a price of $18.625 per share. The
Redeemable Warrants grant certain registration rights to the holders of the
Redeemable Warrants for the securities that underlie the Redeemable Warrants.
Public Warrants
Each Public Warrant entitles the registered holder thereof to purchase, at
any time commencing October 22, 1998 until April 22, 2003 one share of common
stock at a price of $11.25 per share, subject to adjustment in accordance with
anti-dilution and other provisions referred to below. The holder of any Public
Warrant may exercise the Public Warrant by surrendering the certificate
representing the Public Warrant to the Warrant Agent, with the subscription form
thereon properly completed and executed, together with payment of the exercise
price. No fractional shares will be issued upon the exercise of our Public
Warrants. The exercise price of our Public Warrant bears no relationship to any
objective criteria of value and should in no event be regarded as an indication
of any future market price of the Securities offered thereby.
The exercise price and the number of shares of common stock purchasable
upon the exercise of our Public Warrants are subject to adjustment upon the
occurrence of certain events, including stock dividends, stock splits,
combinations or reclassifications of the common stock or the sale by us of our
common stock or other securities convertible into common stock at price below
the exercise price of our Public Warrants. Additionally, an adjustment would be
made in the case of a reclassification or exchange of common stock,
consolidation or merger of the Company with or into another corporation (other
than a consolidation or merger in which we are the surviving corporation) or
sale of all or substantially all of our assets, in order to enable warrant
holders to acquire the kind and number of shares of stock or other securities or
property receivable in such event by a holder of the number of shares of common
stock that might otherwise have been purchased upon the exercise of the Public
Warrant.
Commencing October 22, 1999, our Public Warrants will be subject to
redemption by us, in whole but not in part, at $.10 per Public Warrant on thirty
(30) days' prior written notice to the warrant holders, if the average closing
sale price of the common stock as reported on the Amex equals or exceeds $20.00
per share for any twenty (20) trading days within a period of thirty (30)
consecutive trading days ending on the fifth trading day prior to the date of
the notice of redemption. In the event we exercise the right to redeem our
Public Warrants, such Public Warrants will be exercisable until the close of
business on the business day immediately preceding the date for redemption fixed
in such notice. If any Public Warrant called for redemption is not exercised by
such time, it will cease to be exercisable and the holder will be entitled only
to the redemption price.
28
<PAGE>
Our Public Warrants are in registered form and may be presented to the
Warrant Agent for transfer, exchange or exercise at any time on or prior to
their expiration date, at which time our Public Warrants will become wholly void
and of no value. If a market for our Public Warrants continues to exist, the
holder may sell our Public Warrants instead of exercising them. There can be no
assurance, however, that a market for our Public Warrants will continue.
Our Public Warrants do not confer upon holders thereof any voting, dividend
or other rights as stockholders of our Company.
We and the warrant agent for our Public Warrants may make such
modifications to our Public Warrants as we deem necessary and desirable that do
not adversely affect the interest of the holders of our Public Warrants. We
may, in our sole discretion, lower the exercise price of our Public Warrants for
a period of not less than thirty (30) days on not less than thirty (30) days'
prior written notice to the holders of our Public Warrants and the
Representatives. Modification of the number of securities purchasable upon the
exercise of any Public Warrant, the exercise price (other than as provided in
the preceding sentence) and the expiration date with respect to any Public
Warrant requires the consent of two-thirds of the holders of our Public
Warrants.
Our Public Warrants are not exercisable unless, at the time of the
exercise, we have a current prospectus covering the shares of common stock
issuable upon exercise of our Public Warrants, and such shares have been
registered, qualified or deemed to be exempt under the securities or "blue sky"
laws of the state of residence of the exercising holder of our Public Warrants.
Although we have undertaken to use our best efforts to have all of the shares of
common stock issuable upon exercise of our Public Warrants registered or
qualified on or before the exercise date and to maintain a current prospectus
relating thereto until the expiration of our Public Warrants, there can be no
assurance that we will be able to do so.
Warrant Solicitation Fees
We have no agreement nor any arrangement whereby any fees or other
compensation will be paid to any person or entity upon exercise of the
Redeemable Representatives' Warrant, or upon exercise of any of all of the
Redeemable Warrants or Public Warrants.
Transfer Agent, Warrant Agent And Registrar
The transfer agent, registrar and Warrant Agent for our common stock and
Public Warrants is Continental Stock Transfer & Trust Company, New York, New
York.
LEGAL MATTERS
The validity of the Securities being offered by this Prospectus will be
passed upon for us by McBreen & Kopko, Chicago, Illinois. Frederick H. Kopko,
Jr., a member of that firm and a director of the Company, beneficially owns
91,596 shares of the Company's common
29
<PAGE>
stock and has options and warrants to purchase 35,000 shares of the Company's
common stock.
EXPERTS
The financial statements of Sonic Foundry, Inc. at September 30, 1998 and
1997 and for the years then ended, incorporated by reference in this Prospectus
and Registration Statement have been audited by Ernst & Young LLP, independent
auditors, as set forth in their report incorporated by reference herein, and are
included in reliance upon such report given upon the authority of such firm as
experts in accounting and auditing.
30
<PAGE>
- --------------------------------------------------------------------------------
No person is authorized to give any information or to make any representation
other than those contained in this prospectus, and if made such information or
representation must not be relied upon as having been given or authorized. This
prospectus does not constitute an offer to sell or a solicitation of an offer to
buy any securities other than the securities offered by this prospectus or an
offer to buy the Securities in any jurisdiction to any person to whom it is
unlawful to make such offer or solicitation in such jurisdiction.
The delivery of this prospectus shall not, under any circumstances, create any
implication that there has been no changes in the affairs of the Company since
the date of this prospectus. However, in the event of a material change, this
prospectus will be amended or supplemented accordingly.
<TABLE>
<CAPTION>
TABLE OF CONTENTS
Page
----
<S> <C>
Prospectus Summary 1
Special Note Regarding Forward- 4
Looking Statements
Where you Can Find More 5
Information
Risk Factors 6
Dilution 18
Use of Proceeds 19
Determination of Offering Price 21
Plan of Distribution 22
Description of Securities 25
Legal Matters 29
Experts 30
</TABLE>
- --------------------------------------------------------------------------------
SONIC FOUNDRY, INC.
1,445,312 Shares
$.01 par value Common Stock
100,000 Redeemable
Common Stock Purchase Warrants
One Representatives' Warrant
Exercisable To Purchase
200,000 Shares of Common
Stock and 100,000
Redeemable Common Stock
Purchase Warrants
PROSPECTUS
----------
, 1999
<PAGE>
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution.
The following table sets forth the various expenses payable by the
Registrant in connection with the sale and distribution of the securities being
registered hereby. All amounts are estimated except the Securities and Exchange
Commission registration fee.
<TABLE>
<S> <C>
Legal fees and expenses........................................$15,000
Accounting fees and expenses................................... 10,000
-------
Total..........................................................$25,000
=======
</TABLE>
Item 15. Indemnification of Directors and Officers.
Our Articles of Incorporation limit the liability of our directors to the
Company or its stockholders, in their capacity as directors but not in their
capacity as officers, to the fullest extent permitted by the Maryland General
Corporation Law, or MGCL. Accordingly, pursuant to the terms of the MGCL as
presently in effect, we may indemnify any director made a party to any
proceeding by reason of his service in that capacity unless it is established
that:
. the act or omission of the director was material to the matter giving rise
to the proceeding and was committed in bad faith or was the result of active
and deliberate dishonesty;
. the director actually received an improper personal benefit in money,
property or services; or
. in the case of any criminal proceeding, the director had reasonable cause to
believe that the act or omission was unlawful.
In addition, our Bylaws require us to indemnify each person who is or was,
a director, officer, employee or agent of the Company to the fullest extent
permitted by the laws of the State of Maryland in the event he is involved in
legal proceedings by reason of the fact that he is or was a director, officer,
employee or agent of the Company, or is or was serving at the Company's request
as a director, officer, employee or agent of another corporation, partnership or
other enterprise. The Company may also advance to such persons expenses incurred
in defending a proceeding to which indemnification might apply, upon terms and
conditions, if any, deemed appropriate by the Board of Directors upon receipt of
an undertaking by or on behalf of such director or officer to repay all such
advanced amounts if it is ultimately determined that he is not entitled to be
indemnified as authorized by the laws of the State of Maryland. In addition,
the Registrant carries director and officer liability
II-1
<PAGE>
insurance.
Item 16. Exhibits.
<TABLE>
<CAPTION>
Exhibit Number Description of Document
- -------------- -----------------------
<C> <S>
4.1(2) Specimen Common Stock Certificate.
4.2(1) Form of Warrant Agreements, including Warrant Certificate.
4.3(1) Form of Representatives' Warrant Agreement, including
Representatives' Warrant Certificate.
5.1(2) Opinion of McBreen & Kopko, regarding the legality of the
securities.
23.1 Consent of McBreen & Kopko (see Exhibit 5.1).
23.2 Consent of Ernst & Young LLP.
24.1 Power of Attorney (see page II-4).
</TABLE>
- -------------------
(1) Incorporated by reference from Registration Statement No. 333-46005 on Form
SB-2 filed February 10, 1998.
(2) Incorporated by reference from Amendment No. 2 to Registration Statement
No. 333-46005 on Form SB-2 filed on April 3, 1998.
- -----------------
II-2
<PAGE>
Item 17. Undertakings.
1. The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement;
(i) To include any prospectus required by Section 10 (a) (3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most
recent post-effective amendment thereof) which, individually or
in the aggregate, represent a fundamental change in the
information set forth in the registration statement.
Notwithstanding the foregoing, any increase or decrease in volume
of securities offered (if the total dollar value of securities
offered would not exceed that which was registered) and any
deviation from the low or high end of the estimated maximum
offering range may be reflected in the form of prospectus filed
with the Commission pursuant to Rule 424(b) if, in the aggregate,
the changes in volume and price represent no more than a 20
percent change in the maximum aggregate offering price set forth
in the "Calculation of Registration Fee" table in the effective
registration statement;
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration
statement or any material change to such information in the
registration statement.
provided, however, that the undertakings set forth in paragraphs
(1)(i) and (1)(ii) above shall not apply if the information
required to be included in a post-effective amendment by those
paragraphs is contained in periodic reports is incorporated by
reference from periodic reports filed by the registrant pursuant
to the Securities Exchange Act of 1934 that are incorporated by
reference in the registration statement;
(2) That, for the purpose of determining any liability under the Securities
Act of 1933, each such post-effective amendment shall be deemed to be a
new registration statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the
termination of the offering.
2. Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the
II-3
<PAGE>
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.
3. 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.
II-4
<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 registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Madison, State of Wisconsin, on October 22, 1999.
SONIC FOUNDRY, INC.
By: /s/ Rimas P. Buinevicius
--------------------------------------------------
Rimas P. Buinevicius, Chairman, Chief Executive
Officer and Director
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below hereby constitutes and appoints Rimas P. Buinevicius and Kenneth
A. Minor, jointly and severally, his or her true and lawful attorneys-in-fact,
each with full power of substitution, for him or her in any and all capacities,
to sign any and all amendments (including post-effective amendments) to this
Registration Statement, and to file the same, with all exhibits thereto and all
documents in connection therewith, with the Securities and Exchange Commission,
hereby ratifying and confirming all that each of said attorneys-in-fact or any
of them, or his or their substitute or substitutes, may lawfully do or cause to
be done or by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------
Signature Title Date
- -----------------------------------------------------------------------------------------------
<S> <C> <C>
/s/Rimas P. Buinevicius Chief Executive Officer and Chairman October 22, 1999
Rimas P. Buinevicius
- -----------------------------------------------------------------------------------------------
/s/Monty R. Schmidt President and Director October 22, 1999
Monty R. Schmidt
- -----------------------------------------------------------------------------------------------
/s/Curtis J. Palmer Chief Technology Officer and Director October 22, 1999
Curtis J. Palmer
- -----------------------------------------------------------------------------------------------
/s/Kenneth A. Minor Chief Financial Officer and Assistant October 22, 1999
Kenneth A. Minor Secretary
- -----------------------------------------------------------------------------------------------
/s/Frederick H. Kopko, Jr. Secretary and Director October 22, 1999
Frederick H. Kopko, Jr.
- -----------------------------------------------------------------------------------------------
/s/Arnold B. Pollard Director October 22, 1999
Arnold B. Pollard
- -----------------------------------------------------------------------------------------------
/s/David C. Kleinman Director October 22, 1999
David C. Kleinman
- -----------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the reference to our firm under the captions "Experts" and to the
use of our report dated November 6, 1998 in Post-Effective Amendment No. 1 of
the Registration Statement on Form S-3 and related Prospectus of Sonic Foundry,
Inc. for the registration of 200,000 Representatives' Warrants, 100,000
Redeemable Warrants and 1,145,312 Public Warrants.
/s/ Ernst & Young LLP
---------------------
ERNST & YOUNG LLP
Milwaukee, Wisconsin
October 22, 1999
