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As filed with the Securities and Exchange Commission on November 7, 2000
Registration No.
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_________________
FORM S-3
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
_________________
SONIC FOUNDRY, INC.
(Exact Name of Registrant as specified in its charter)
Maryland 39-1783372
(State of Incorporation) (I.R.S. Employer Identification No.)
1617 Sherman Avenue
Madison, WI 53704
(608) 256-3133
(Address, including zip code, and telephone number, including area code,
of Registrant's principal executive offices)
RIMAS BUINEVICIUS
Chairman and Chief Executive Officer
1617 Sherman Avenue
Madison, WI 53704
(608) 256-3133
(Name, address, including zip code, and
telephone number, including area code,
of agent for service)
Copies to:
Frederick H. Kopko, Jr., 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]
<PAGE>
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>
------------------------------------------------------------------------------------------
Title of Each Proposed Proposed Amount of
Class of Amount Maximum Maximum Registration
Securities to To Be Offering Price Aggregate Fee
be Registered Registered Per Share (1) Offering Price (1)
------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock 114,900 $5.78 $ 664,122 $175.26
$.01 par value
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Common Stock
$.01 par value, 412,335 $5.78 $2,383,296 $628.95
underlying
Non-Voting
Exchangeable
Shares (2)
------------------------------------------------------------------------------------------
Common Stock
$.01 par value, 72,765 $5.78 $ 420,582 $110.99
underlying
Non-Voting
Exchangeable
Share Options (3)
------------------------------------------------------------------------------------------
Common Stock
$.01 par value, 35,994 $5.78 $ 208,045 $ 54.90
underlying
Warrants (4)
------------------------------------------------------------------------------------------
Total 635,994 $3,676,045 $970.10
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</TABLE>
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(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(c), based on the average of the high and low sales
price, as reported on the NASDAQ National Market, on November 6, 2000.
(2) Represents the number of shares of common stock issuable upon exchange of
certain non-voting exchangeable shares. See "Non-Voting Exchangeable
Shares and Options".
(3) Represents the number of shares of common stock issuable upon exercise of
such non-voting exchangeable share options, and subsequent exchange of such
non-voting exchangeable shares. See "Non-Voting Exchangeable Shares and
Options".
(4) Represents the number of shares of common stock issuable upon exercise of
certain warrants.
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.
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there by any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
<PAGE>
PROSPECTUS
SONIC FOUNDRY, INC.
635,994 Shares of Common Stock, Par Value $.01 per Share
This prospectus is part of a registration statement that covers 635,994
shares of our Common Stock (the "Shares"), consisting of (i) 114,900 Shares
currently outstanding, (ii) 412,335 Shares issuable upon exchange of certain
non-voting exchangeable shares, (iii) 72,765 Shares issuable upon exercise of
certain non-voting exchangeable share options for non-voting exchangeable
shares, and subsequent exchange of such non-voting exchangeable shares, and (iv)
35,994 Shares issuable upon exercise of certain warrants. These Shares may be
offered and sold from time to time by certain of our stockholders (the "Selling
Stockholders"). We will not receive any of the proceeds from the sale of the
Shares. (When we use the word "exchange" in reference to the non-voting
exchangeable shares or non-voting exchangeable share options, we refer also to
all other methods of acquisition, including retraction, redemption, and
repurchase set forth in the Share Exchange Agreement we entered into on August
28, 2000 with Sonic Foundry Nova Scotia, Inc., Charles Ferkranus, Michael
Ferkranus, 1096159 Ontario Limited, and 1402083 Ontario Limited. See "Non-Voting
Exchangeable Shares and Options".)
The Selling Stockholders may sell the Shares from time to time on the
Nasdaq National Market in regular brokerage transactions, in transactions
directly with market makers or in certain privately negotiated transactions.
See "Plan of Distribution". Each Selling Stockholder has advised us that no
sale or distribution other than as disclosed herein will be effected until after
this Prospectus shall have been appropriately amended or supplemented, if
required, to set forth the terms thereof. We will not receive any proceeds from
the sale of the Shares by the Selling Stockholders. Selling commissions,
brokerage fees, any applicable stock transfer taxes and any fees and
disbursements of counsel to the Selling Stockholders are payable individually by
the Selling Stockholders.
Each of the Selling Stockholders may be deemed to be an "Underwriter", as
such term is defined in the Securities Act of 1933, as amended (the "Securities
Act").
Our Common Stock is quoted on the Nasdaq National Market under the symbol
"SOFO". On November 6, 2000, the average of the high and low price for the
Common Stock was $5.78 per share.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
--------------------------------------------------------------------------------
The date of this Prospectus is November 7, 2000
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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.
INFORMATION INCORPORATED BY REFERENCE
The SEC allows us to "incorporate by reference" into this prospectus
information that we file with the SEC in other documents. This means that we
can disclose important information to you by referring to other 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 in the future and incorporate by reference will automatically update and may
supersede the information contained in this prospectus. We incorporate by
reference the documents listed below and any future filings we make with the SEC
under Sections 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934,
as amended, prior to the sale of all the shares covered by this prospectus.
- Our Annual Report on Form 10-K for the fiscal year ended September 30,
1999;
- Our Quarterly Reports on Form 10-Q for the fiscal quarters ended December
31, 1999, March 31, 2000 and June 30, 2000;
- Our Current Reports on Form 8-K filed on February 15, 2000, April 18, 2000,
April 20, 2000 and September 12, 2000, and our current Report on Form 8-K/A
dated June 19, 2000;
- All of our filings pursuant to the Exchange Act after the date of the
filing of the initial registration statement and prior to effectiveness of
the registration statement; and
- The description of our common stock contained in our Exchange Act
Registration Statement on Form 8-A, filed on April 20, 2000.
You may request free copies of these filings by writing or telephoning us
at the following address: Investor Relations, 1617 Sherman Avenue, Madison,
Wisconsin 53704, Telephone (608) 256-3133.
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FORWARD-LOOKING INFORMATION
This prospectus contains or incorporates forward-looking statements within
the meaning of Section 27A of the Securities Act and Section 21E of the Exchange
Act. You can identify these forward-looking statements by our use of the words
"believes", "anticipates", "plans", "expects", "may", "will", "would",
"intends", "estimates" and similar expressions, whether in the negative or
affirmative. We cannot guarantee that we actually will achieve these plans,
intentions or expectations. Actual results or events could differ materially
from the plans, intentions and expectations disclosed in the forward-looking
statements we make. We have included important factors in the cautionary
statements in this prospectus, particularly under the heading "Risk Factors",
that we believe could cause our actual results to differ materially from the
forward-looking statements that we make. The forward-looking statements do not
reflect the potential impact of any future acquisitions, mergers or
dispositions. We do not assume any obligation to update any forward-looking
statement we make.
SUMMARY OF THE BUSINESS
We are a leading provider of software products and services that enable our
customers to create and edit digital audio and video content, and deliver this
content by recording or transferring it to digital storage and playback devices,
or by preparing it for digital transmission, including Internet distribution.
Advances in technology such as compact discs, DVDs, high definition television
and digital networks, all of which store or transmit digital content, are
driving the demand for software tools and services that help create this
content. Media professionals and home users, including audio and video
engineers, musicians, multimedia developers and website developers, use our
products. Our end-user customers include Capitol Records, CBS News, Disney, Fox
News, MSNBC, Sony Pictures Entertainment Inc., BMG Music, Universal Studios and
Warner Bros., a division of Time Warner Entertainment Company, L.P., and our
reseller customers include Guitar Center, Hewlett Packard and Ingram Micro.
Our current products include:
- Creation products - Our ACID product family offers musicians and non-
musicians an easy way to merge short segments of pre-recorded music,
or loops, into a song. We include a basic selection of loops with
ACID and sell additional libraries separately. We sell professional
and consumer versions of ACID with various levels of processing
features and support for different music genres.
- Editing products - Our Sound Forge and Vegas products allow users such
as audio and video engineers, broadcasters, website developers,
musicians and consumers to easily record and modify digital audio and
video files. In June, 2000 we announced the release of Vegas Video, a
product which adds significant video editing capability to our line of
editing products and then broadened our video offering with the
release of Video Factory, a scaled down consumer version of Vegas
Video in September 2000.
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- Delivery products - Our Stream Anywhere product allows users to record
audio or video to a PC hard drive, prepare it for delivery over the
Internet using various streaming media formats such as RealNetworks G2
or Microsoft Windows Media Technologies, or convert it into popular
audio and video compression formats such as MP3 and AVI. Our consumer
jukebox product, Siren, allows users to manage entire music
collections for local playback from a PC or MP3 player, and to record
personal music compilations on a CD using our proprietary CD recording
technology. Since its release in 1999, we have entered into
agreements to include Siren with popular hardware devices such as
Hewlett Packard recordable CD drives, customized a version for a
retail customer and are now developing a suite of publishing tools,
including Siren, for Sony Pictures Digital Entertainment.
To satisfy the dramatic increase in demand for digital multimedia content,
many content creators and owners are using our technology to create new digital
content and digitally encode existing content. Many entertainment companies
have vast libraries of older content, such as films and analog audio and
videotapes, which need to be digitized to realize revenue from digital
distribution and archived to prevent deterioration. Furthermore, continuing
advances in digital storage and compression technologies often require these
companies to devote substantial resources to migrate content in current digital
formats to continually evolving new digital formats.
Our services division uses our existing technology, including unreleased
proprietary automation tools and a wide array of audio and video signal
processing algorithms, to provide format conversion and digital encoding
solutions to content owners. These new services include translating analog or
digital tapes, CDs, films and other audio and video media into various
compression and Internet streaming file formats and cleaning or filtering
recordings for improved quality. To satisfy the needs of customers that wish to
develop their own in-house media management and encoding facility we began
offering consulting services in order to develop custom solutions including the
design and, ultimately installation of on-site media systems with related
support, and training of customer employees. Such systems will include site
licenses of both released and unreleased technology.
In February 2000, we announced plans to expand our services offering by
acquiring Santa Monica based STV Communications. In addition to providing
encoding, STV offers a full suite of on-line media related services such as
delivering media files over the web or "streaming" and broadcasting of live
events over the web or "webcasting".
In August 2000, we announced the completion of the acquisition of Toronto-
based International Image Services Inc. expanding our capacity to manage and
digitalize media for the entertainment industry.
Sonic Foundry was incorporated in Wisconsin in March 1994 and merged into a
Maryland corporation of the same name in October 1996. Our executive offices
are located at 1617 Sherman Avenue, Madison, Wisconsin, 53704 and our telephone
number is (608) 256-
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3133. Our corporate website is www.sonicfoundry.com. The information in our
website is not a part of this prospectus.
RISK FACTORS
Our business, financial condition and results of operations have been, and
in the future may be, affected by a variety of factors, including those set
forth below and elsewhere in this prospectus.
Operating History Risks
We have a limited operating history on which you can evaluate our business and
our future prospects and our operating results will likely fluctuate
significantly.
We were incorporated in March 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 on 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 years ended September 30, 1999 and 1998 and the
twelve months ended September 30, 1997, we incurred net losses of $5,997,000,
$632,000, and $881,000, and as of September 30, 1999, we had an accumulated
deficit of $7,466,000. We cannot assure you that we will achieve or maintain
profitability in the future.
Industry Risks
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 are partially based on predictions regarding certain developments
for software products and media services. If 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. We compete with several companies engaged in the software
and digital media businesses and 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 harm 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 digital media software products and services.
The success of some of our digital media software products and planned
digital media services depends, in part, on 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.
The success of our business depends, in part, upon strategic relationships that
we have with other companies.
Our business depends, in part, on relationships that we have with strategic
partners such as Microsoft, RealNetworks, Fraunhofer Institut, Warner Bros., a
division of Time Warner Entertainment Company, L.P. and Sony Pictures Digital
Entertainment. 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
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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.
We rely upon a number of distributors to increase our market penetration
domestically and internationally.
We rely upon approximately 30 distributors in approximately 30 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 would 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 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;
- 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, and cost and ease of
use, are not fully resolved and may affect the amount of business that is
conducted over the Internet.
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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.
Technology Risks
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
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or profitability. Any of these developments would have an adverse effect on our
operating results.
Demand for our digital media software products might decrease or fail to grow if
commercial acceptance of the Microsoft windows computer operating system
declines.
Our digital media software 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 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. In this regard, 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.
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. The majority of 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.
Our electronic commerce and digital distribution activities are managed by
sophisticated software and computer systems. We adopted a new enterprise
information system, which handles all of our accounting, operations, sales and
information systems in January 2000 and plan to implement further enhancements
in the future. We may encounter undetected errors in these systems or delays in
implementing future enhancements. Such errors or delays may
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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.
Intellectual Property Risks
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 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,
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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.
Management Risks
We may not successfully manage our growth.
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 160 on September 30, 1999 to 450 on September 30, 2000.
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 have made acquisitions of businesses and may make additional
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. We may not be able to successfully integrate recently acquired
businesses into our existing business and products. Likewise, if we identify a
future acquisition candidate, we may not be able to negotiate or finance the
acquisition or integrate these acquired businesses, products or technologies
into our existing business and products. Future acquisitions could result in
potentially dilutive issuances of equity securities, the
11
<PAGE>
incurrence of debt and contingent liabilities, amortization expenses, or write-
downs of acquired assets.
Our international operations involve risks.
We have offices in Canada and the Netherlands, and we use over 60
distributors to market and ship our products to approximately 52 countries.We
also sell electronic versions of our products off our website allowing us to
cover over 80 countries. For the year ended September 30, 1999, approximately
17% of our revenues were from outside North America. 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.
Any of these factors could harm our business. We do not currently hedge
our foreign currency exposure.
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.
12
<PAGE>
Corporate Governance Risks
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 38% of our common stock and exercise significant influence over
stockholder voting matters. 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. Furthermore,
our articles of incorporation provide for classified voting, which means that
our stockholders may vote on the retention of only one of our five directors
each year. Moreover, Maryland corporate law restricts certain business
combination transactions with "interested stockholders".
Market Risks
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 September 30,
2000, the price of our common stock ranged from $64.97 to $4.25 per share. (All
share and price per share data in this prospectus reflects a two-for-one stock
split of our shares distributed to stockholders of record on April 7, 2000). 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.
Exercise of outstanding options and warrants will 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 reduce the trading
price and market for our common stock.
As of September 30, 2000 we had outstanding options and warrants
exercisable to acquire 2,725,164 shares of common stock, 1,079,718 of which are
subject to future vesting. Included in the foregoing are 1,699,938 options
which have been granted under our 1995
13
<PAGE>
Employee Stock Option Plan, the 1999 Non-Qualified Stock Option Plan and our
Non-Employee Director Stock Option Plan, 620,220 of which are immediately
exercisable.
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.
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.
USE OF PROCEEDS
We will not receive any proceeds from the sale of the Shares by the
Selling Stockholders; all proceeds will go to the Selling Stockholders.
MARKET FOR COMMON EQUITY, DIVIDEND POLICY, AND RELATED
STOCKHOLDER MATTERS
Our common stock was traded on the American Stock Exchange under the
symbol "SFO" since our initial public offering in April of 1998 until April 21,
2000. On April 24, 2000, our common stock began trading on the Nasdaq National
Market under the symbol "SOFO".
The following table sets forth, for the periods indicated, the high and
low sale prices per share of our common stock as reported on the American Stock
Exchange or the NASDAQ National Market. Price per share data and share data set
forth below and otherwise in this prospectus reflect a two-for-one stock split
distributed to stockholders of record on April 7, 2000.
<TABLE>
<CAPTION>
High Low
------------ ------------
<S> <C> <C>
Year Ended September 30, 1998
Third Quarter (commencing April 22, 1998) ............ $ 5.07 $ 3.07
Fourth Quarter ....................................... 4.47 2.88
</TABLE>
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<PAGE>
<TABLE>
<S> <C> <C>
Year Ended September 30, 1999
First Quarter ........................................ 7.44 2.69
Second Quarter ....................................... 5.44 3.35
Third Quarter ........................................ 10.38 5.07
Fourth Quarter ....................................... 6.13 3.94
Year Ended September 30, 2000
First Quarter ........................................ 12.75 4.25
Second Quarter ....................................... 64.97 11.34
Third Quarter ........................................ 49.63 9.38
Fourth Quarter ....................................... 20.81 5.75
Year Ended September 30, 2001 (through November 6, 2000) 8.94 4.75
</TABLE>
The last traded price on November 6, 2000 for our common stock was
$5.625. The quotations reflect inter-dealer prices, without retail mark-up,
markdown or commission and may not necessarily represent actual transactions.
The Company has not paid any cash dividends and does not intend to pay
any cash dividends in the foreseeable future.
At October 25, 2000 there were 311 common stockholders of record. Many
shares are held by brokers and other institutions on behalf of stockholders and
are therefore not included in these numbers.
SELLING STOCKHOLDERS
On August 28, 2000, we completed the purchase of the stock of
International Image Services Inc. and certain affiliated entities. In connection
with the acquisition, we issued the following: (i) 114,900 Shares; (ii) 412,335
shares of non-voting exchangeable stock, which are exchangeable into 412,335
Shares; and (iii) options to purchase 72,765 shares of non-voting exchangeable
stock, which are exercisable to purchase 72,765 shares of non-voting
exchangeable stock. As part of the transaction with International Image Services
Inc., we agreed to file a registration statement covering these shares.
On April 3, 2000 we merged STV Communications, Inc. into one of our
subsidiaries (the "STV Merger"). As part of the STV Merger, we agreed to
exchange certain warrants to purchase STV common stock for warrants to purchase
a total of 35,994 shares of our common stock, and agreed to file a registration
statement covering these shares.
This Prospectus covers the 635,994 Shares presently issued or to become
issuable upon exchange of the above-described non-voting exchangeable shares,
exercise of the above-described non-voting exchangeable share options for
non-voting exchangeable shares and subsequent exchange of such shares, and
exercise of the above-described warrants.
15
<PAGE>
The following table sets forth certain information as of November 6,
2000 with respect to the Selling Stockholders.
Share data and price per share data set forth below and otherwise in
this prospectus reflect a two-for-one stock split distributed to stockholders of
record on April 7, 2000.
<TABLE>
<CAPTION>
NUMBER OF PERCENT OF CLASS
COMMON SHARES NUMBER OF SHARES OWNED AFTER
BENEFICIALLY OF COMMON STOCK OFFERING (IF OVER
OWNED PRIOR TO INCLUDED IN 1% OF TOTAL
BENEFICIAL OWNERS OFFERING OFFERING COMMON STOCK
OUTSTANDING
------------------------------------- ------------------- ------------------- -------------------
<S> <C> <C> <C>
COMMON STOCKHOLDERS
Bank of Montreal Capital Corp. 41,160 41,160 ---
RoyNat, Inc. 41,160 41,160 ---
DGC Entertainment Ventures Group 20,580 20,580 ---
B. Andrus Wilson 12,000 12,000 ---
HOLDERS OF NON-VOTING EXCHANGEABLE SHARES
1096159 Ontario Limited (1) 206,168 206,168 ---
1402083 Ontario Limited (2) 206,168 206,168 ---
HOLDERS OF OPTIONS TO PURCHASE NON-VOTING
EXCHANGEABLE SHARES
Dan McLellan (3) 48,510 48,510 ---
Curtis Staples (4) 24,255 24,255 ---
WARRANT HOLDERS
---
Peter Fahey (5) 4,426 4,426
Fife Waterfield & Company (5) 22,668 22,668 ---
Boston Financial & Equity Corporation (5) 8,900 8,900 ---
</TABLE>
(1) 1096159 Ontario Limited is a company wholly-owned by Charles Ferkranus.
Charles Ferkranus was previously Chairman, Chief Executive Officer, and a
director of International Image Services Inc. ("IISI") and of International
Image Services Corp. ("IISC").
(2) 1402083 Ontario Limited is a company wholly-owned by Michael Ferkranus.
Michael Ferkranus was previously Secretary and a Director of IISI, and
Secretary, Vice President, and a Director of IISC.
16
<PAGE>
(3) Dan McLellan is the former President and a former director of IISI, and a
former Director of IISC. Currently, Mr. McLellan is Senior Vice President
and General Manager, Media Services Division, of the Company.
(4) Curtis Staples is the former Senior Vice President of Business Development
of IISI and IISC.
(5) Warrants issued to former warrantholders of STV Communications, Inc.
NON-VOTING EXCHANGEABLE SHARES AND OPTIONS
------------------------------------------
Pursuant to the terms of the Share Purchase Agreement effective June 1,
2000 among Us, the Buyer, Charles Ferkranus, Michael Ferkranus, 1096159
Ontario Limited, 1402083 Ontario Limited, Dan McLellan, Curtis Staples, Bank of
Montreal Capital Corp., RoyNat, Inc. and DGC Entertainment Ventures Group, and
ancillary agreements entered into in connection therewith, the Common
Stockholders, Holders of Non-Voting Exchangeable Shares, and Holders of options
to purchase Non-Voting Exchangeable Shares (collectively, for purposes of this
section, the "Selling Stockholders") agreed to sell their direct and indirect
interests in IISI in return for, among other things, cash and non-voting
exchangeable shares (the "Non-Voting Exchangeable Shares") of Sonic Foundry
(Nova Scotia), Inc. (the "Buyer") or options to acquire Non-Voting Exchangeable
Shares ("Non-Voting Exchangeable Share Options"). The Non-Voting Exchangeable
Shares are intended to provide the Selling Stockholders who receive them with
securities of a Canadian company (i.e., the Buyer) having economic attributes
that are, as nearly as practicable, equivalent to those of the Shares, including
the right to receive dividends equivalent to any dividends declared on the
Shares.
Subject to the exercise of an overriding call right (the
"Retraction/Redemption Call Right") by us or an affiliate, a holder of Non-
Voting Exchangeable Shares will be entitled to retract (i.e., require the Buyer
to redeem) any or all of the Non-Voting Exchangeable Shares held by such holder
for an amount per share equal to one Share for each Non-Voting Exchangeable
Share, plus any declared but unpaid dividends (the "Retraction Price"). Upon
being notified by the Buyer of a proposed retraction, we or an affiliate will
have the right to exercise the Retraction/Redemption Call Right to purchase from
the holder each retracted Non-Voting Exchangeable Share for the Retraction
Price. Subject to the exercise of the Retraction/Redemption Call Right by us or
an affiliate, the Buyer will redeem the outstanding Non-Voting Exchangeable
Shares five years after Closing (the "Redemption Date"). Upon a redemption by
the Buyer, the holders of Non-Voting Exchangeable Shares will be entitled to
receive for each Non-Voting Exchangeable Share redeemed one Share together with
any declared but unpaid dividends (the "Redemption Price"). Upon being notified
of the proposed redemption, we or an affiliate will be entitled to exercise the
Retraction/Redemption Call Right to purchase the Non-Voting Exchangeable Shares
on the Redemption Date for the Redemption Price.
Upon the liquidation or winding-up of the Buyer, the holders of Non-Voting
Exchangeable Shares will be entitled to receive, for each Non-Voting
Exchangeable Share held, one Share plus any declared and unpaid dividends (the
"Liquidation Amount"). However, upon any such proposed liquidation or winding-
up, we or an affiliate shall have the overriding right (the "Liquidation Call
Right") to purchase the Non-Voting Exchangeable Shares from the holders for the
Liquidation Amount.
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<PAGE>
Pursuant to the terms of the Share Exchange Agreement, among us, the Buyer,
Charles Ferkranus, Michael Ferkranus, 1096159 Ontario Limited, and 1402083
Ontario Limited, in the event that the Buyer becomes insolvent (including where
the solvency requirements of applicable corporate law do not permit the Buyer
to redeem any of the Non-Voting Exchangeable Shares which a holder has included
in a retraction request), each holder will have the right to require us to
purchase all of the Non-Voting Exchangeable Shares owned by such holder for the
Liquidation Amount. Also pursuant to the Share Exchange Agreement, the Non-
Voting Exchangeable Shares will automatically be exchanged for Shares by us in
the event of our liquidation or winding-up for the Liquidation Amount.
The Non-Voting Exchangeable Shares shall be non-voting except in specified
circumstances (e.g., to authorize the liquidation or winding-up of the Buyer,
the sale, lease or exchange of all the property of the Buyer and such other
circumstances as are specified in the applicable agreements).
Pursuant to the terms of a support agreement (the "Support Agreement")
entered into between us and the Buyer we agreed not to declare or pay dividends,
including dividends in kind, on the Shares unless the Buyer declares and pays
equivalent dividends on the Non-Voting Exchangeable Shares. We agreed, among
other things, to ensure that the Buyer will be in a financial position to honor
the redemption and retraction rights and dissolution entitlements attaching to
the Non-Voting Exchangeable Shares.
In the event of a subdivision, consolidation, amalgamation, reorganization
or other change in our capitalization, or a distribution of Shares, rights,
options or any other securities, assets or indebtedness to holders of our Shares
generally, or in the event of an issuer bid or similar transaction, the economic
equivalent change must be made to, or benefit conferred upon, holders of the
Non-Voting Exchangeable Shares. In the event of a tender offer, share exchange
offer, take-over bid, or similar transaction ("Offer") with respect to the
Shares which is to be effected with the consent or approval of our Board of
Directors, we are obligated to take such actions as are necessary to enable
holders of the Non-Voting Exchangeable Shares to participate in the Offer on an
economically equivalent basis with our shareholders. We have also agreed that
we will not voluntarily enter into any transaction (including by way of
reorganization, consolidation or merger) whereby all or substantially all of our
property and assets would become the property of any other person or a
continuing corporation unless the other person or continuing corporation becomes
bound by the Share Exchange Agreement or otherwise assumes our liabilities and
obligations to the holders of the Non-Voting Exchangeable Shares.
The Buyer also has entered into an option agreement (a "Non-Voting
Exchangeable Share Option Agreement") with each of McLellan and Staples (the
"Optionholders"). In addition to certain other circumstances set out in the
Non-Voting Exchangeable Share Option Agreement, the Optionholders are required
to exercise their options ("Options") to acquire Non-Voting Exchangeable Shares
before July 1, 2005 or the 90th day following their termination of employment
with us. The Non-Voting Exchangeable Share Option Agreement generally requires
the Buyer to confer an economically equivalent benefit on the Option holders
when they exercise their Options after the occurrence of a subdivision,
consolidation, amalgamation, reorganization or other change in the
capitalization of the Buyer or in our capitalization or in the
18
<PAGE>
event of a distribution of shares, rights, options or any other securities,
assets or indebtedness to holders of our Shares that occurs prior to an Option
exercise. The Optionholders are further entitled to receive, when such
Optionholders exercise their Options, the value of any dividends declared by the
Buyer prior to the time of an Option exercise.
We have reserved for issuance and will keep available such number of Shares
as will be necessary to fulfill our obligations to the holders of the Non-Voting
Exchangeable Shares.
PLAN OF DISTRIBUTION
Resales of the Shares by the Selling Stockholders may be made on the Nasdaq
National Market, or in private transactions. The Shares will be offered for
sale on terms to be determined when the agreement to sell is made or at the time
of sale, as the case may be. The Selling Stockholders may sell some or all of
the Shares in transactions involving broker-dealers who may act solely as agent
and or may acquire Shares as principal. Broker-dealers participating in such
transactions as agent may receive commissions from the Selling Stockholders
(and, if they act as agent for the purchaser of such Shares, from such
purchaser), such commissions computed in appropriate cases in accordance with
the applicable rules of NASDAQ, which commissions may be at negotiated rates
where permissible under such rules. Participating broker-dealers may agree with
the Selling Stockholders to sell a specific number of Shares at a stipulated
price per share and, to the extent such broker-dealer is unable to do so acting
as agent, for the Selling Stockholders to purchase as principal any unsold
shares at the price required to fulfill the broker-dealer's commitment to the
Selling Stockholders. Any such sales may be by block trade.
The Selling Stockholders may also engage in short sales, including short
sales against the box, puts and calls and other transactions in securities of
the Company or derivatives of Company securities and may sell or deliver Shares
in connection with these trades. The Selling Stockholders may pledge their
Shares to their brokers under the margin provisions of customer agreements. If
a Selling Stockholder defaults on a margin loan, the broker may, from time to
time, offer and sell the pledged Shares.
In addition, pursuant to the Share Purchase Agreement, each of RoyNat,
Inc., Bank of Montreal Capital Corp., DGC Entertainment Ventures, Charles
Ferkranus, Michael Ferkranus, 1096159 Ontario Limited, 1402083 Ontario Limited,
Dan McLellan and Curtis Staples (the "Restricted Holders") agreed that the
Shares acquired by them at the closing of the transaction or pursuant to the
exercise of the Retraction Right or the Retraction/Redemption Call Right (as
such terms are defined in the Share Exchange Agreement) under the Share Exchange
Agreement (the "Acquired Shares") shall not be transferred or disposed of by the
Restricted Holders until 12 months following the Closing. Thereafter in each
succeeding 3 month period, each Restricted Holder may transfer or dispose of up
to 20% of the Acquired Shares so that the restriction on the transfer or
disposal of the Acquired Shares shall apply only to 80% of the Acquired Shares
after 12 months from Closing, only to 60% of the Acquired Shares after 15 months
from the Closing, only to 40% of the Acquired Shares after 18 months from
Closing, only to 20% of the Acquired Shares after 21 months from Closing and to
none of the Acquired Shares after 24 months from Closing.
19
<PAGE>
LEGAL MATTERS
The legality of the issuance of the Shares offered in this prospectus will
be passed upon for the Company by McBreen & Kopko, Chicago, Illinois. Frederick
H. Kopko, Jr., a member of that firm and a director of the Company, beneficially
owns 183,192 shares of our Common Stock and has options and warrants to purchase
140,000 shares of our Common Stock.
EXPERTS
The financial statements of Sonic Foundry, Inc. at September 30, 1999 and
for the fiscal year then ended, incorporated by reference in this Prospectus
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 on the authority of such firm as experts in accounting and
auditing.
INFORMATION CONTAINED ONLY IN PROSPECTUS
We have not authorized anyone to give information beyond what is set forth
in this prospectus. Sales of the Shares described in this prospectus are not
directed at anyone in any jurisdiction in which an offer or solicitation of such
securities is not authorized, or in which the person making the offer or
solicitation is not qualified to do so, or to any person to whom it is unlawful
to make such offer or solicitation. The information contained in this
prospectus is correct as of the date of this prospectus. Neither delivery of
this prospectus nor any sale made pursuant to this prospectus shall imply that
the information contained in this prospectus is correct as of any time after the
date of this prospectus.
Table of Contents
<TABLE>
<S> <C>
Where You Can Find More Information...................................... 2
Information Incorporated by Reference.................................... 2
Forward Looking Information.............................................. 3
Summary of the Business.................................................. 3
Risk Factors............................................................. 5
Use of Proceeds.......................................................... 14
Market for Common Equity, Dividend Policy, and Related
Stockholder Matters...................................................... 14
Selling Stockholders..................................................... 15
Non-Voting Exchangeable Shares and Options............................... 17
Plan of Distribution..................................................... 19
Legal Matters............................................................ 20
Experts.................................................................. 20
Information Contained Only in Prospectus................................. 20
</TABLE>
20
<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. Normal commission expenses and brokerage fees are payable
individually by the Selling Stockholders. All amounts are estimated except the
Securities and Exchange Commission registration fee.
<TABLE>
<S> <C>
SEC registration fee............................................. $ 970.10
Legal fees and expenses ......................................... 15,000.00
Accounting fees and expenses .................................... 10,000.00
---------
Total............................................................ $ 25,970.10
=========
</TABLE>
Item 15. Indemnification of Directors and Officers.
Our Articles of Incorporation limit the liability of our directors, 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 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 directors 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 ours 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 ours, 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
II-1
<PAGE>
authorized by the laws of the State of Maryland. In addition, we carry director
and officer liability insurance
In connection with this offering, certain of the Selling Stockholders have
agreed to indemnify us, our directors and officers and each such person who
controls us, against any and all liability arising from inaccurate information
provided to us by the Selling Stockholders and contained herein.
II-2
<PAGE>
Item 16. Exhibits.
Exhibit Number Description of Document
-------------- -----------------------
2.1(1) Agreement and Plan of Merger, dated as of March 15, 2000, by
and among the Company, New Sonic, Inc., and STV
Communications, Inc.
2.2(2) Share Purchase Agreement, effective as of June 1, 2000, by
and among the Registrant, Sonic Foundry (Nova Scotia), Inc.,
Charles Ferkranus, Michael Ferkranus, 1096159 Ontario
Limited, 1402083 Ontario Limited, Dan McLellan, Curtis
Staples, Bank of Montreal Capital Corp., Roynat, Inc., and
DGC Entertainment Ventures Corp.
4.1(3) Specimen Common Stock Certificate.
4.2 Share Exchange Agreement, dated August 24, 2000, among the
Company, Sonic Foundry (Nova Scotia) Inc., Charles
Ferkranus, Michael Ferkranus, 1096159 Ontario Limited, and
1402083 Ontario Limited.
4.3 Buyer Non-Voting Exchangeable Share Option Agreement, dated
August 24, 2000, among the Company, Dan McLellan, Curtis
Staples, and Sonic Foundry, Inc.
4.4 Support Agreement, dated August 24, 2000, between the
Company and Sonic Foundry (Nova Scotia), Inc.
5.1 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).
_______________
(1) Incorporated by reference from Form 8-K, filed on April 17, 2000.
(2) Incorporated by reference from Form 8-K, filed on September 12, 2000.
(3) Incorporated by reference from Registration Statement No. 333-46005 on Form
SB-2 filed on February 10, 1998.
_______________
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<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 the
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
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-4
<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-5
<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 November 7, 2000.
SONIC FOUNDRY, INC.
By:
/s/ Rimas 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 November 7, 2000
------------------------------------
Rimas P. Buinevicius
/s/ Monty R. Schmidt President and Director November 7, 2000
------------------------------------
Monty R. Schmidt
/s/ Curtis J. Palmer Chief Technology Officer and Director November 7, 2000
------------------------------------
Curtis J. Palmer
/s/ Kenneth A. Minor Chief Financial Officer and Assistant November 7, 2000
------------------------------------
Kenneth A. Minor Secretary
/s/ Frederick H. Kopko, Jr. Secretary and Director November 7, 2000
------------------------------------
Frederick H. Kopko, Jr.
</TABLE>
II-6
<PAGE>
<TABLE>
<S> <C> <C>
/s/ Arnold B. Pollard Director November 7, 2000
------------------------------------
Arnold B. Pollard
/s/ David C. Kleinman Director November 7, 2000
------------------------------------
David C. Kleinman
/s/ Jan Brzeski Vice President, Business Development and November 7, 2000
------------------------------------
Jan Brzeski Director
</TABLE>
II-7
<PAGE>
Exhibit Index
Exhibit Number Description of Document
-------------- -----------------------
2.1(1) Agreement and Plan of Merger, dated as of March 15, 2000, by
and among the Company, New Sonic, Inc., and STV
Communications, Inc.
2.2(2) Share Purchase Agreement, effective as of June 1, 2000, by
and among the Registrant, Sonic Foundry (Nova Scotia), Inc.,
Charles Ferkranus, Michael Ferkranus, 1096159 Ontario
Limited, 1402083 Ontario Limited, Dan McLellan, Curtis
Staples, Bank of Montreal Capital Corp., Roynat, Inc., and
DGC Entertainment Ventures Corp.
4.1(3) Specimen Common Stock Certificate.
4.2 Share Exchange Agreement, dated August 24, 2000, among the
Company, Sonic Foundry (Nova Scotia) Inc., Charles
Ferkranus, Michael Ferkranus, 1096159 Ontario Limited, and
1402083 Ontario Limited.
4.3 Buyer Non-Voting Exchangeable Share Option Agreement, dated
August 24, 2000, among the Company, Dan McLellan, Curtis
Staples, and Sonic Foundry, Inc.
4.4 Support Agreement, dated August 24, 2000, between the
Company and Sonic Foundry (Nova Scotia), Inc.
5.1 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).
_________________
(1) Incorporated by reference from Form 8-K, filed on April 17, 2000.
(2) Incorporated by reference from Form 8-K, filed on September 12, 2000.
(3) Incorporated by reference from Registration Statement No. 333-46005 on Form
SB-2 filed on February 10, 1998.
_________________
